Controller Proposes Allocating Sales Tax Revenue by Population

State Controller Kathleen Connell on Thursday proposed a new formula for distributing local sales tax revenue among cities and counties on the basis of population rather than the jurisdiction where sales take place.

Her plan is designed to eliminate financial incentives that now encourage local governments to compete for retail centers like strip malls and auto dealerships instead of housing and manufacturing facilities that are better for economic health.

“This will incentivize cash-starved municipalities to invest in community, housing and quality-of-life programs, instead of erecting huge car malls on cheap land to attract tax revenue,” Connell said.

The troublesome tax incentives are a key issue for California lawmakers. They are already under review by Gov. Gray Davis and at least two groups in the Legislature.

Most officials agree on the problems identified by Connell. The chief controversy is over how much tax revenue the state should redirect from its own coffers to those of cash-strapped local governments.

Connell’s proposal would increase local government funding by $450 million per year as well as reformulate sales tax distribution.

Lawmakers and local government officials promised that Connell’s plan will get a serious review. But even the lone legislator who served on the panel--Sen. Richard Alarcon (D-Sylmar)--stopped short of an endorsement.