Bill Targets Cities’ Need for Sales Tax

A proposal in the Assembly seeks to stop California’s 477 cities from competing against one another to lure big-box stores -- often at the expense of good planning -- and entice them instead to build urgently needed housing.

It is pitched by supporters as a cure for the dependence cities have on sales taxes, which began when their property tax revenue was limited two decades ago by Proposition 13.

The result has been a glut of revenue-producing strip malls and “big-box” stores and a massive housing shortage.

The plan would restructure the fiscal relationship between cities and the state so local governments would keep less of the sales tax generated inside their borders, but more of the property taxes they send to the state.

Now, each new house forces cities to provide additional police, fire and other services that property taxes alone can’t fund.

“There are disincentives right now for local governments to build housing,” said Assemblyman John Campbell (R-Irvine), who co-authored a bill to swap the taxes, AB 1221, with Darrell Steinberg (D-Sacramento). “We want to see those disincentives removed.”

Yet city leaders so far don’t want any part of it.

The concept may be sound, said officials from the League of California Cities, but they don’t trust the Legislature to tinker with municipal funding.

“It is an idea that has merit,” said Chris McKenzie, executive director of the league. “But the state of California has a rotten track record in terms of local finance. It doesn’t keep commitments.”

The league’s resistance is rooted in a shift of property-tax revenues the state made away from local governments during a cash shortage a decade ago. The move cost cities about $800 million a year, McKenzie said.

“These folks no longer trust the state to stick to a promise about how taxes are distributed to local government,” said William Fulton, a land-use planner and author of books about growth in California. “And there is a basis for them to think that.”

Fulton said the tax-swap proposal in the latest bill has been advocated by land-use experts for years as a way to stop the clamor for Wal-Marts and Home Depots and instead encourage cities to get more housing.

Some land-use experts said parts of California have as much as 20% more retail development than local shoppers can support. But that hasn’t slowed the approval of retail projects that can boost a city budget by hundreds of thousands of dollars a year.

Cypress was so eager for tax money from a proposed Costco discount store that it tried to make room for it by taking land from a church by eminent domain. In Lancaster, Costco’s plan to leave and build a bigger store in neighboring Palmdale prompted the city to hand the retailer 4.5 acres inside a city park to build a 148,000-square-foot store.

The Assembly proposal follows a string of ambitious so-called smart-growth bills brought before the Legislature over the last couple of years that were defeated by home builders and local government leaders.

They included a proposal to withhold funding from cities that don’t meet state-mandated affordable housing quotas and another to create an updated set of planning goals that all cities would need to meet.

Steinberg did get a bill off the ground last year that would have weaned a group of local governments around Sacramento off their dependence on retail development. It called for shifting sales taxes away from each city and into a regional pool for communities to share. The idea, which died in the Senate, was to promote joint planning by taking away the incentive for cities to compete against one another for mega-stores.

McKenzie said the league is all for addressing the problem, but only if it is done in the form of a constitutional amendment that guarantees that the state won’t raid tax money that goes to local governments.

Steinberg said the Legislature’s rejection of Davis’ proposal to take $4 billion from local governments this year shows a firm commitment not to raid city and county funds.

Backers of the latest bill noted that the coalition supporting it is far broader than it has been for other major smart-growth bills.

County leaders, who are far less reliant on sales taxes, are endorsing AB 1221.

The California Building Industry Assn. also has signed on in support, as has the California Chamber of Commerce and the California Retailers Assn.

Bill Dombrowski of the retailers association said that although it may seem counterintuitive for his organization to support an effort that may make companies less attractive to cities, “it doesn’t do us any good for communities to have a poor housing situation and poor infrastructure.”