Stop the Warfare and Share the Wealth

Palmdale and Lancaster are considering sharing future sales tax revenues, an unprecedented partnership that would effectively remove the two municipalities from the expensive bidding wars that pit California cities against each other in competition for new businesses.

The exact terms of such an agreement are yet to be worked out, but officials on both sides agree that past battles over an auto mall, shopping center and other retail establishments have cost both cities millions of dollars in perks and in spending on the infrastructure needs of the new businesses, such as roads, street lights and police.

Over the years, other municipalities have agreed to share revenues from particular developments--Rancho Palos Verdes and Rolling Hills Estates, for example, divide tax revenue from a shopping mall in Rolling Hills Estates.

But the Palmdale/Lancaster agreement, if approved by voters, would be the first in California in which two cities would put down their economic swords and pool their future sales-tax income.

“We could be using the money we offer to retailers [for] parks, libraries, hiking trails, public safety,” said Palmdale City Manager Bob Toone. “We can start operating like cities instead of real estate dealers.”

The deal probably faces a tough fight to win voter approval. But if it is approved, the two cities would become leaders in the movement to extricate municipalities from a cannibalistic form of competition known as poaching, in which one community offers tax breaks, loans and other incentives to lure big retailers away from neighboring towns.

Poaching is particularly troublesome in California, where Proposition 13 and other tax-limiting measures have left cities with few ways to raise revenues other than by increasing the take from their 1% share of the state sales tax generated within their borders--8.75% in Los Angeles County and 7.25% in many others.

“Right now, we have a huge problem,” said Ron Bates, president of the League of California Cities. Because money is so tight, Bates said, cities make land-use decisions based on whether a development will bring in sales tax revenue, instead of whether it will be good for the community.

“The cities compete very heavily for retailers, and they get high sales-tax revenues, but not high-paying jobs,” Bates said. And that leaves the cities with more trouble down the road, as they try to accommodate low-paid residents along with providing basic services to the retailers.

The incentives paid to the businesses can run into the millions of dollars.

Just Thursday, for example, Lancaster forked over $1.6 million in incentives to Michaels Stores Inc. to build a regional distribution center. Two years ago, Palmdale agreed to refund half of the sales taxes generated by its Dillards department store--up to $2 million a year--to the company in exchange for locating in that city.

In the high desert, this kind of rivalry has characterized the dealings between the neighboring cities for years.

Lancaster officials say they lost $500,000 a year in sales tax income when Palmdale lured four car dealerships in the late 1980s. That blow followed the loss of Sears and J.C. Penney, whose move to Palmdale “crippled our downtown,” said Lancaster City Manager Jim Gilley.

But Palmdale, which won the shopping and auto mall wars, has recently lost two car dealerships to its neighbor.

It was a perfect example, said economic planning expert Trish Kelly, of harm done to the regional economy through competition among individual cities.

“Economic vitality is really based on regional vitality,” said Kelly, a Sacramento-based consultant. “So if communities are competing with their neighbors, it’s going to put them in a precarious position down the line.”

So with hard times bearing down throughout the Antelope Valley, Palmdale Mayor Jim Ledford proposed the truce.

Ledford’s plan, which he wants submitted to the voters of both cities, would require the two cities to split all revenues evenly, based on population. Palmdale now has 48% of the joint population with 114,800 residents and Lancaster has 52% with 123,000.

Each city would bind itself not to offer incentives to businesses to locate within their borders, nor to lure existing businesses away from the other city.

Lancaster Mayor Frank Roberts says that is too extreme, and proposes instead that the cities pick a date in the future, probably in three years, and divide tax revenues that come in after that time.

That way, said Gilley of Lancaster, past battles would remain won, and developments now underway would not be affected. New business, however, would be shared.

“It’s exciting,” said April Manatt, staff consultant to the state Senate’s Local Government Committee. “What a pleasantly surprising example of local cooperation.”

But not everyone favors removing local governments’ incentive to offer breaks to new businesses. “It keeps them working hard,” said Roger Hemme , president of the Lancaster Chamber of Commerce.

Hemme and Howard Brooks, executive director of the Antelope Valley Board of Trade, said competition among city governments is good for their communities and it is unwise to replace a free market with a monopoly.

Although the Board of Trade, which attempts to attract industry to both the Lancaster and Palmdale areas, has not taken a stance on the tax proposal, Brooks said most members oppose it.

“It’s productive for cities to compete for business,” he said. “Let the market decide where the sales tax goes. If Lancaster gets one store, Palmdale will get another.”

But Brooks also sees a need for cities to quit dangling public money as incentives to retailers.

“They say that the money spent to get retail businesses will be made up through the sales tax they generate, but I don’t think that’s necessarily the case. Who knows how much sales any one business is going to do?”

If there is substantial opposition to the proposal, opponents could block it at the polls.

Under the California Constitution, local governments must obtain voter approval if they are to share revenue--which none have ever succeeded in getting.

Such approval is viewed as extremely difficult to win, said Peter Detwiler, staff consultant to the state Senate’s Housing and Land Use Committee, because opponents need only claim that such sharing would take money away from prized local projects.

“All you would have to do to defeat it is to say, ‘Save the libraries, save the police,’ ” Detwiler said. “That’s why nobody has done it before. . . . No one’s ever tried it.”

A bill that would eliminate the voter approval requirement has been introduced by Assemblyman George Runner (R-Lancaster) on behalf of the two cities. The bill, which would amend the state Constitution to allow the change, stalled in the Assembly’s Local Government Committee but is expected to be revived next year.

If the two cities decide to move forward, there is also a strategy that they could employ to share revenue without going to the voters.

Rancho Palos Verdes and Rolling Hills Estates share an amount from their general funds equal to 8.2% of the sales tax generated in the city of Rolling Hills Estates. That amount, said Rolling Hills Estates Finance Director Brett Plumlee, is about equivalent to the money that Rancho Palos Verdes spends to maintain streets near the Peninsula Center mall in Rolling Hills Estates.

The deal, signed in 1980, did not need voter approval because the funds, although equivalent to a portion of the sales tax revenue from the mall, came from the city’s general fund instead of directly from the pool of tax money.

The Lancaster/Palmdale tax-sharing proposals will be discussed at an Aug. 18 meeting of the Antelope Valley Regional Partnership, which is chaired by both cities’ mayors.

If a deal is struck, it will go a long way toward mitigating the cities’ retail wars, said former Lancaster City Manager Vern Lawson.

But, said Lawson, who now chairs the Antelope Valley Local Development Corp., it’s not going to solve the region’s economic problems.

“I’ve always found it curious that there’s such a focus on the sales tax as opposed to the industrial base,” Lawson said. If the region really wants to succeed, he said, the cities need to work together to attract industry. Otherwise, they’re just recirculating the same money--a better tactic than spending it all on perks for businesses but not as important as generating new wealth for the region, he said.

“There’s a cliche in economic development,” Lawson said. “We can’t all cut each other’s hair.”