Cities Should Cooperate, Not Compete, to Attract Business
Any smart city administrator knows that the easiest way to establish a quick, reliable flow of cash into municipal coffers is to lure a big retailer to town and watch the sales tax revenue pour in to pay for things like extra cops, safer sidewalks and better street lights. Particularly in the two decades since Proposition 13 slashed property taxes, municipal governments up and down the state have turned into revenue predators hungry to do whatever it takes to land malls, car dealerships and discount stores. Often, that means offering huge incentives to wealthy corporations as cities compete with their neighbors to cut the best deal. The result: Private companies get costly infrastructure and land at public expense as cities are left with bad blood and sometimes even with negative cash flows.
Recognizing the futility of these fights, the Antelope Valley cities of Lancaster and Palmdale appear to be leading a potential revolution in how municipal governments pay for themselves and the services they provide. Rather than compete for business, officials from Palmdale and Lancaster suggest that, as neighbors, they ought to cooperate to bring jobs and tax revenue to the Antelope Valley--and then split the benefits. As logical as that approach sounds, making it work requires leaping several formidable hurdles. Among them: provisions in the state Constitution, the risk of alienating business and the tendency of local politicians and administrators to think too locally. Even so, ending local governments’ current zero-sum fight for money is worth the effort, and not just in the Antelope Valley.
A drive up the Antelope Valley Freeway through Lancaster and Palmdale provides as clear an example as any of what has been called “cash-box zoning” or “green-eyeshade planning.” Giant stores such as Wal-Mart, Toys R Us and Home Depot face the freeway, their concrete and steel boxes surrounded by acres of paved parking. From the retailers’ perspective, the location has the obvious benefit of greater exposure. From the perspective of a city planner, though, the location allows customers quick access to the shops so they can spend their money and then get right back on the freeway. That way, shoppers are less likely to consume city services by clogging local intersections. But a bit of the shoppers’ money stays behind.
A percentage of the state sales tax is earmarked for the city in which the sale takes place. So if a shopper from Palmdale buys a $50 Lego set from the Lancaster Toys R Us, 50 cents goes back to Lancaster. That may not sound like much, but consider the tax revenue from big-ticket items such as a $20,000 car or from high-volume retailers who sell thousands of dollars worth of merchandise a day. In 1996, Lancaster took in nearly $10 million in sales tax revenue; Palmdale more than $7 million. So precious are these revenues that Lancaster and Palmdale not only compete for new businesses, but they try to lure existing businesses across city lines with lucrative incentives. Similar snitching has taken place in Ventura County, where Ventura lured two big retail stores out of Oxnard’s shopping mall and into its own.
Fed up with that kind of competition, officials from both Lancaster and Palmdale have begun discussing ways to cooperate and share the benefits. This week, the representatives from the two cities will meet to search out common ground. Both cities agree on the desirability of a regional strategy but still differ on how best to achieve it. The California Constitution allows cities to enter revenue-sharing agreements after a majority public vote in each jurisdiction. A proposed amendment by Republican Assemblyman George Runner Jr., the former mayor of Lancaster, would allow similar agreements with a two-thirds vote of each jurisdiction’s City Council. Runner’s proposal has been sidelined in committee but will resurface in January.
Runner’s bill has obvious appeal. It allows local governments to react quickly when confronted with enticing offers. For instance, if a big retailer tried to pit two cities against each other to see which would offer the most concessions, the cities could agree not to play the game and split the revenue regardless of which city was chosen. Yes, there is a risk that the retailer might move on, but it’s a small risk. Retail stores open in places like the Antelope Valley or Ventura County because that’s where the market is. It’s hard to imagine a home-improvement warehouse not wanting to locate in a community full of new homeowners. Playing cities off each other to demand concessions only widens a margin that has already been penciled out back at headquarters. Plain and simple, it’s a transfer of public money into private hands and it gives big national chains even more leverage to undercut small local merchants.
In recent years, economists and local officials have questioned the financial wisdom of making too many accommodations to retailers. While sales tax revenues are attractive, most retail outlets don’t provide the kind of well-paying jobs critical to a city’s long-term economic health. Last year, Burbank officials turned away a developer proposing to build a retail center on land left vacant by the departure of Lockheed-Martin. Although the deal offered a steady cash flow to Burbank, city officials decided they wanted a business that generated less sales tax revenue and more high-paying jobs. That kind of long-term thinking is rare simply because most cash-strapped cities don’t have the luxury to think much beyond the next fiscal year.
Ultimately residents ought to vote on whether they want to continue subsidizing the stores they frequent and whether it makes long-term sense. Giving city councils flexibility to deal with individual cases makes sense and Runner’s bill deserves careful scrutiny. But the wills and desires of elected bodies change with each election. And getting a constitutional amendment passed is difficult at best. Rather than wait for Runner’s bill, Lancaster and Palmdale ought to agree on a cooperative strategy that preserves existing tax bases and splits future revenues. Then, schedule an election and aggressively sell the partnership to the voters and taxpayers who are the real losers in the current game of municipal back stabbing. If it works in the Antelope Valley, the partnership could serve as a model for other cities across California.
