Tax Fight Expected to Keep Plaguing Municipalities

Ventura’s tax battle with the county is “a preview of business as usual for years to come,” according to a new analysis of tax trends in Ventura County released Friday.

The city’s recent attempt to keep $572,000 in sales taxes from the county shows the growing feeling among local governments that the state has given them no choice but to skirmish over limited and undependable pots of money.

“What’s happened is that the state has constrained the tax base and pitted cities against each other and their counties,” said William Fulton, the urban planner who wrote the report. “It’s a winner-takes-all system.”

The report analyzes both property and sales tax revenue trends from 1987-98 for Ventura County and its 10 municipalities.

Fulton attributes the fights between governments--including the recent struggle between Ventura and the county, and the “mall wars” between Oxnard and Ventura--to a loss of property tax revenue diverted to state programs and a dramatic shift in retail spending that has put Ventura on the defensive.

“We have a responsibility to residents to go after that sales tax,” said Steve Kinney, president of the Oxnard Economic Development Corp. “At the same time, everybody realizes there’s something wrong with a system that forces cities to go at each other.”

Squeezed by Proposition 13, the 1978 law that restricts increases in property taxes, and by state action in the early 1990s that diverted a further 25%, cities have become dependent on sales tax to cover as much as half of their budgets.

A decade ago, no city garnered close to the amount of sales tax Ventura did. But as retail trends have evolved-- evidenced most recently by the big-box stores lining the Ventura Freeway along the Oxnard Plain--Camarillo, Oxnard, Simi Valley and Thousand Oaks have dramatically increased their sales tax revenue on a per-capita basis. Sales tax revenue in Ventura stagnated, meanwhile, as the city fought to expand its aging mall and renovate its downtown.

“When you’ve been the richest kid on the block for as long as you can remember, it’s easy to feel poor,” Fulton’s report says. “That’s how Ventura feels these days, even though it is still one of the two most tax-rich cities in the county.”

The trend has resulted in troubling consequences for Ventura, city officials there say. The city of 102,000 simply can’t keep up with the needs of its citizens.

“I can put it real simply: We used to be able to pay for our police services with our sales tax,” Ventura Mayor Sandy Smith said. “Our growth in sales tax dollars can’t keep up with the cost of living increases” paid to police officers.

The solution, says Smith, is for the state to return some of the property tax it diverts from cities, especially now that it’s sitting on a surplus of billions of dollars. And since cities are independent entities, while the county is an offshoot of the state, the state should return the cities’ share of the money first and find other ways to help counties meet their obligations to serve as a safety net for the poor.

But Fulton’s report shows that county government took a much bigger hit than cities when the state shifted millions of property tax dollars out of local government’s treasuries beginning in 1993 to cope with a ballooning budget deficit.

County government has suffered more because it is dependent on property taxes to run its public hospital, pave roads, administer welfare and run dozens of other programs. That is because virtually all urban development, which includes retail outlets, is channeled to the cities--one of the reasons that the cities long ago agreed to cut the county in on a sales tax sharing plan.

As such, Ventura, despite its argument that it suffered from property tax diversions to the state, was much less hard hit by the shift, Fulton says.

In 1992, the county had property tax revenues of approximately $112 million. By the time the property tax shift was completed two years later, the revenues had dropped 30% to $74 million. As a whole, the cities suffered a cut of about 10%, and were able to recover their lost property tax revenue by 1996. The county has still not reached its 1992 earnings, and was at about $80 million in 1997-1998.

County Chief Administrative Officer Harry Hufford said that counties haven’t been able to deal with the problem legislatively, despite the fact that they are clearly in need.

“We’ve been unable to deliver a message with any political support,” he said.

Despite the flare-ups between cities and the county, city officials say they have a common enemy: the state.

“The Legislature needs to help solve the current situation,” Moorpark Deputy City Manager Hugh Riley said. “There should be a revenue base that the county can rely on. There shouldn’t be this uncertainty.”

Thousand Oaks, with its affluent residents and strong sales tax base, has fared well under the current system, but the city chafes that it must share sales tax with the county.

“Thousand Oaks [does] well from a revenue perspective, because over the decades we have learned to effectively play by the rules of the game,” said Scott Mitnick, deputy city manager. “Whether we like those rules--that’s another issue.”