Cities Deserve a Better Deal

California cities and counties need protection against the state raiding their treasuries whenever it gets itself into a fiscal mess. At the same time, Gov. Arnold Schwarzenegger and the Legislature should not perpetuate the worst feature of the way localities are currently funded, with retail sales taxes that distort urban planning and cause sprawl.

In the quest for sales tax money, cities and counties are constantly on the prowl for more Costcos and Wal-Marts, more auto dealerships and mega-malls. They can’t afford to promote residential and industrial development because these projects cost more in police and fire protection and other services than they generate in property taxes, a situation that results from Proposition 13. A different formula or an alternative tax source is needed.

Schwarzenegger has already agreed to support a proposed constitutional amendment, Proposition 65 on the November ballot, that would protect cities and counties in the future if they would yield $2.6 billion in the next two years to help get the state over its deficit hump. The drawback of the hastily drawn deal is that it would codify in the state’s Constitution that one penny of the sales tax on every retail dollar would continue to go to local governments. The deal looked settled for a while, but now intense negotiations have resumed among Schwarzenegger, legislators and municipal leaders.

Cities regard the sales tax, even their small portion of it, as their only major revenue not dependent on the whim of state government. They won’t give it up on just the promise that the state will stop raiding their coffers. They’ve been stung too many times. Legislators need to give them something more concrete -- possibly rules that would strictly limit the circumstances under which the state could seize municipal funds. One might be that painful cuts in education or other programs would have to be made first.

Perhaps all the details of such a swap can’t be worked out before the budget is settled, but the commitment should be made, and kept. The governor, as always, is the key. Though Proposition 65 will remain on the ballot regardless of what happens this week, it is likely to pass only if he campaigns for it. A deal that results in a quiet death for Proposition 65 would be a good thing, especially if it relieves cities of the need to compete like cutthroats for the businesses that are most damaging to communities themselves.