Measure Highlights Cities’ Hunger for Sales Tax Dollars

The March ballot measure to block expansion of the Buenaventura Mall spotlights the dilemma of cities statewide that see no choice but to compete ruthlessly for precious sales tax dollars.

“In many respects, these sales tax wars look like a repeat of the arms race in the Cold War,” said analyst Peter Detwiler, one of the Legislature’s principal experts on local government. “Every city feels the pressure to deploy its tax breaks to developers as weapons in the economic wars.”

Portrayed by opponents as an “unprecedented kickback” of sales taxes to a wealthy developer, the Ventura city subsidy to owners of the Buenaventura Mall, in fact, is unusual only in the amount of sales tax funneled to developers over the next 20 years--a maximum of $32.3 million.

Cities throughout the county, region and state subsidize private projects with public money through sales tax rebates, waived fees, low-cost loans or public improvements.

For example, Oxnard stocked its new auto mall with dealers by offering up to $13 million in reimbursements over 30 years. It also will eventually pay $17 million on bonds that helped build the Radisson Suite Hotel in 1986 and committed $1 million in cash to bring Wal-Mart to town.

Camarillo waived $1.5 million in traffic fees to spur development in 1994-95, Fillmore agreed to pay more than $2 million over 25 years to help build a new shopping center, and Simi Valley underwrote $567,000 in fees and assessments to lure a Price-Costco store.

Moorpark is helping to build a shopping center by fronting for five years the $4-million price of a 15-acre parcel and guaranteeing lease payments on a new movie theater. Likewise, Santa Paula guaranteed $200,000 in rent if its new motion picture house goes out of business.

Of the 10 local cities, only affluent Thousand Oaks, slow-growth Ojai and land-locked Port Hueneme have offered no inducements to big, new stores or movie theaters. And Port Hueneme has spent $500,000 to help fix up old stores over the last decade.

“We’ve been fortunate that we have a community that is a desirable place to do business,” said Bob Biery, finance director in Thousand Oaks, which has the county’s highest per capita income.

Even in Thousand Oaks, the city last year lent its name to $29 million in bonds that will pay for a parking garage and street improvements at the refurbished Janss Marketplace.

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Though not a monetary commitment, sponsoring such tax-free bonds could affect the city’s reputation in the bond market should those bonds fail, Biery said.

Officials in most other cities say they employ tax giveaways only because they have no choice.

Competition is fierce because virtually the only way a city or county can substantially pad its coffers is by recruiting auto dealers, shopping malls and big outlet stores.

For every dollar of sales, the city gets a penny in tax. So cities pirate stores from other cities, offering deals so sweet that they sometimes give back to incoming businesses a healthy chunk of the new taxes they will produce.

That doesn’t mean that local officials like the system.

State lawmakers were so concerned about city raids of auto malls and so-called “big box” outlet stores from their neighbors that they banned sales tax kickbacks from redevelopment agencies in 1993. But such rebates still proliferate outside city revitalization zones.

“It’s the hyenas going after the kill,” Oxnard City Atty. Gary Gillig said. “And it’s the developers who are the winners, not the cities. . . . The problem is that state law encourages cutting out the other guy’s liver.”

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Even some supporters of the Buenaventura Mall expansion say they don’t much care for this type of deal.

“The problem is cities are stuck with a nutty way of financing themselves,” Ventura Councilman Steve Bennett said. “Cities and counties have lost the ability to raise revenue except with sales tax. We are all stuck playing the same game. Is it unhealthy? Yes. Is it the only game in town? Yes.”

Well, maybe not.

For even as Ventura and Oxnard, and The Esplanade and Buenaventura malls, have exposed their historic rivalries in the Measure S ballot fight, some cities in Alameda and Riverside counties agreed last year to stop competing and to share the sales taxes produced by big new stores.

Small-scale cooperative agreements have also popped up between several Los Angeles County communities, where malls are in one city but the roads leading to them are in another.

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Indeed, state Sen. Jack O’Connell (D-San Luis Obispo), who represents Ventura, last week endorsed the concept of sales tax sharing as a way to end the wars that have flared in western Ventura County.

“My hope is that local communities will work together to end this fiscalization of land use, these bidding wars to attract businesses, which have stretched cities’ abilities to provide basic services,” the lawmaker said.

With the future of their Esplanade mall apparently at stake, Oxnard officials have championed the tax-sharing idea. They have offered to build a long-planned Town Center regional mall in Oxnard across the river from Ventura and to share the sales tax.

“As the world turns today, Ventura and Oxnard are forced to compete. And both communities lose,” said Steve Kinney, director of Oxnard’s Economic Development Commission. “But if the two cities work together they can build a new mall that really is a star for the future, and both cities come out ahead.”

Skeptics point out, however, that Oxnard was much less eager to cooperate when it was building a flurry of new retail projects along the Ventura Freeway over the last decade, or before the Town Center regional mall fell flat with a sagging economy and Ventura’s legal challenge a few years ago.

It is only now that Ventura has a $50-million expansion in hand, and a competitive advantage, that Oxnard is aggressively pushing tax sharing, they said.

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“If they wanted a compromise, it should have been a long time ago,” Ventura Mayor Jack Tingstrom said in December when Oxnard raised the tax-sharing idea again.

Planner Bill Fulton, who is writing a book on the sales tax wars among Ventura, Oxnard and Camarillo, favors sales tax sharing to end cut-throat competition that causes poor community planning. But he noted the historic give-and-take between Oxnard and Ventura as a roadblock to any such agreement.

“A decade ago [Ventura Mayor] Dennis Orrock kept going to Oxnard and complaining about the Town Center project, saying ‘Slow it down,’ ” Fulton said. “Now [Oxnard Councilman] Andres Herrera is standing glumly at the back of the room saying the same thing.

“There is also the issue of civic ego,” Fulton said. “The Oxnard-Ventura rivalry is an old one. If Oxnard came to Ventura and said, ‘Build at the Town Center and we’ll give you all the revenue,’ Ventura still wouldn’t do it.”

Nor is sales-tax sharing always the panacea it might seem.

Camarillo City Manager Bill Little said that when he ran a small Wisconsin city in the 1970s, sales tax revenues were pooled statewide and distributed based on population, property tax and a long list of other criteria.

“Every year there would be this big political battle over the formula,” he said, “because if you tweak the formula one way some cities would gain more money, and if you tweak it another, other cities would. The tax-sharing solved one problem but created others.

“I don’t think our system [in California] is great,” Little said, “but it’s better than having 150 state legislators deciding what money goes where.”

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Opponents of a publicly financed Buenaventura Mall expansion attack it as an unnecessary mixing of government with private enterprise.

“We support the expansion through private investment, not our tax dollars,” says a ballot argument against the project.

But Detwiler, the state Senate consultant, noted that the use of public investment to prompt spending by private companies is older than the nation itself.

“The colonies invested heavily to build wharves and turnpikes and canals to lure investment,” he said. “And in our own state, the state government invested in the California Water Project to open up the Central Valley to intensive agriculture and provide the water that people drink in Southern California.”

There’s nothing inherently wrong with such partnerships, Detwiler said. But the level of city-against-city competition for sales tax since 1980 has led to a situation that destabilizes municipal budgets and does nothing to help county or state economies, he said.

“A deal may be good for Ventura or Oxnard, but the broader question is, ‘Is it good for California?’ ” he said. “And frankly, no new sales will be generated by this competition. People aren’t coming from Arizona to buy in Ventura. The market is already there, the sales are already there. It’s just a question of where the sale occurs. That’s churning the economy, not expanding it.”

Good city planning has also been a casualty in the sales tax wars, said Judy Corbett, executive director of the nonprofit Local Government Commission in Sacramento, which advises counties and cities on planning issues.

“This whole thing is destroying the hearts of communities and their downtowns, as sales taxes are drawn from there into these big box retail developments like Wal-Mart,” Corbett said.

Both sides in the Buenaventura Mall debate have spun a version of Corbett’s argument.

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Mall supporters say they are trying to bring new life to an aging center near the city’s core instead of leaving it to die slowly and jumping to a new mall at the edge of the city.

“Not doing it was a very grim picture for ownership and a very grim picture for the city,” said David Jones, vice president of mall owner MCA Buenaventura Assn. of Los Angeles, a subsidiary of a giant Chicago-based real estate investment firm.

“We are trying to prevent a hole in the middle of our city,” said Assistant City Manager Steve Chase, who is overseeing the mall project.

But opponents of city-financed expansion say elected officials are helping mall owners thrive to the detriment of competing shop owners nearby.

“Tax dollars sucked from Ventura’s small businesses should not be kickbacked to out of town mega-mall developers,” says the opponents’ ballot argument.

USC professor John Kirlin, author of 13 books on California policy and finance, said that nationwide and in California the verdict is still out on whether public givebacks to developers are good for the economy. “It’s not wholly clear,” he said.

A comprehensive national study found government competition for businesses was probably not harmful, allowing impoverished jurisdictions to gain tax revenue and jobs they would not have gotten otherwise, he said.

As for Ventura’s sponsorship of the mall expansion, he said: “Who can blame them? They do it on behalf of their citizens. And in 10 years Oxnard may be doing something that’s going to harm Ventura.

“The real risk here is that you give away too much,” Kirlin said. “Jurisdictions can be awfully foolish.”

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So how good is the Buenaventura Mall deal?

Ventura city officials say it is very sweet because the $50-million expansion will double sales at a fading mall, add 1,100 jobs and bring $17 million in public improvements. And all of that comes without the city spending a dime up front and with no risk to the city treasury. All the city money would come from new sales tax revenue created by the expansion.

But opponents, principally Oxnard and its Esplanade mall, argue that the city’s $12.6 million commitment to the project--or $32.3 million with interest over 20 years--is essentially welfare for developers.

That $32 million is 80% of the city’s share of the new sales tax expected from the mall expansion. And the so-called public improvements include an $8.2-million parking garage not needed without a mall expansion, they argue.

Those not involved in the project, including city officials and planning experts, say the Buenaventura deal does not appear to be exceptionally good or bad.

Camarillo’s Little said the keys to such deals are whether a city will get some of the sales tax from the project and whether it would have to pay money if the project fails. The Buenaventura expansion passes both tests, he said.

“It looks to me like it’s a fairly standard deal,” he said. “I would need to know the interest rate they’re paying the developer. And you can argue that the parking garage is not a public benefit. But, yeah, if I was in the same situation, I would buy this.”