Sharing the Wealth--Fairly

Despite the recent collapse of talks between Palmdale and Lancaster over an innovative proposal to share sales-tax revenues, the two cities should not abandon the plan. Current disagreements over how to divide future revenues are not so insurmountable that they should ruin an agreement that could serve as a statewide model for ending brutally counterproductive fights between cities.

The two Antelope Valley cities began talking in earnest last summer about a plan that would end their longstanding competition for businesses. Sales tax is one of the largest sources of municipal revenue for many cities in California, but it accrues only to the city where a given sale takes place. So if a Lancaster resident buys a washing machine in Palmdale, Palmdale gets a cut of the sales tax and Lancaster gets nothing. So desperate are cities for new revenue streams that they frequently undercut one another in offering tax and infrastructure terms to attract big retailers such as Wal-Mart or auto dealers.

Recognizing the futility of the game, Palmdale and Lancaster proposed splitting future sales tax revenues and ending their rivalry. A simple idea, but one that quickly got snagged on the details. Lancaster wanted an even 50-50 split, but Palmdale favored a per-capita division. A per-capita approach would have required Lancaster to give Palmdale nearly $1 million a year--a prospect that was understandably unpopular with Lancaster officials.

Yet some sort of per-capita split makes more sense than simply splitting the money down the middle. Lancaster took in about $10 million in sales taxes last year. Palmdale took in $7 million. The gap roughly reflects the population difference. With 97,000 residents, Lancaster is about 25% bigger than Palmdale. But that is expected to change because Palmdale is forecast to grow faster than Lancaster in the next century. So in a decade, the subsidy relationship may well be reversed.

That’s the sort of long-term view necessary for a deal like this to work. Palmdale and Lancaster recognize the problem and have agreed on a framework for solving it. It would be a shame to let details derail a visionary plan.