Call for a Regional Tax Pool Criticized

Drive by the Galleria at Roseville, a glittering new shoppers’ mecca in that affluent suburb of the state capital, and you can practically hear the cash registers clanging from beyond the parking lots full of sport utility vehicles and luxury sedans.

Drive along Florin Road, just minutes away in Sacramento County, and see how the other half lives, as aging car dealerships and new immigrant-owned businesses battle long odds to enliven a fading commercial corridor.

It is a scene repeated throughout California--a handful of new suburbs become beacons of commerce, luring big-box retailers and auto malls that shower the city coffers with millions in sales taxes, while graying urban communities and less fortunate suburbs housing most of the population fight a losing battle to protect their tax base.

But here, for the 1.8 million people living in the six-county Sacramento metropolitan region, the lopsided, often cutthroat competition between municipal haves and have-nots could soon give way to a grand social experiment.

Assemblyman Darrell Steinberg (D-Sacramento) is pushing legislation that would force the entire region to share future increases in sales tax receipts. One-third of future sales tax gains would be divided strictly on a per-capita basis, another third would stay as is, and cities that build housing for the poor or protect pristine land from development would receive a bigger share of the remaining funds.

The aggressive campaign has angered half the cities in California and is being closely monitored by urban planning experts throughout the nation, who believe the approach could spread to other parts of the state and the country. It has also raised tensions in the Sacramento area, with some accusing Steinberg, a former Sacramento city councilman, of using his clout to benefit his hometown.

“We spend so much time and energy trying to one-up each other for the new retail development,” Steinberg said. “The challenges in this region are so great--we have the fifth-worst air pollution in the country, some of the worst traffic congestion--we need to work together.”

Supporters say the sharing plan would foster regional cooperation and put a stop to competition among neighbors for the tax dollars that come from new Wal-Marts and outlet malls. The struggles can contribute to sprawl as money-starved cities expand their borders to make room for yet more mini-malls. And they sometimes even cost taxpayers, as government officials give retailers generous subsidies to lure them away from neighboring towns.

The Rich Get Richer

For example, more than $30 million in sales taxes generated by the Galleria at Roseville over the next two decades will go to the developers of the mall instead of the city under an agreement reached by the city’s leaders. Also, Wal-Mart is relocating one of its stores to Roseville from Rocklin, the city next door.

“Everybody competes for these taxes, but only a few people win. That creates a growing disparity,” said Myron Orfield, a Minnesota state senator and regional planning advocate who believes the California battle has national implications. “Places like Roseville keep winning bigger and bigger every year. And the losers have a harder and harder time providing government services.”

Opponents call the legislation pure socialism, a power play by the city of Sacramento to bend the rules of the sales tax game in its favor. What is being billed as a feel-good solution for warring municipalities has instead turned deeply contentious, they note, with cities up and down the state hiring high-priced lobbyists and lining up on opposing sides of the legislative debate.

“This bill benefits no one but Sacramento. That’s not regional planning, if you ask me,” said Martie Dote, a city councilwoman in Woodland, one of the suburban communities that would lose money under Steinberg’s bill. “This is very divisive.”

The political debate over the measure, AB 680, has split sharply along party lines, with GOP legislators calling it an attack on the suburbs. Assembly Republican Leader Dave Cox (R-Fair Oaks), who represents some of the suburbs affected by the sharing plan, has slammed it as a “redistribution of wealth,” and made killing the bill a party priority. Nonetheless, Steinberg believes he has enough Democratic votes to get his bill through the Assembly this week, which he must do to keep it from dying. Democrats hold 50 of the Assembly’s 80 seats, so no GOP support is necessary.

Steinberg’s chances improved last week when Assemblywoman Helen Thomson (D-Davis), who represents some of the region, indicated she would support an amended version of the bill. A vote could come as soon as today.

Many of the city officials opposing the sharing plan concede that there is a problem with the way cities’ thirst for sales taxes has distorted their decisions on developments--a phenomenon known as the “fiscalization of land use.” But they say Steinberg’s bill does nothing to address the root of the problem: Cities do not receive enough money from the state to finance basic services, and have turned to sales taxes as a desperate last resort.

“The state caused this problem, if there is a problem at all,” said Assemblyman Tim Leslie (R-Tahoe City). “So for the Legislature to come in and reorder the financial underpinning of communities that have relied on the only thing available to them is an outrageous situation.”

Proposition 13, the revolutionary 1978 ballot measure that capped property taxes in the state, sharply diminished the money sources that cities had to provide services. Then during the deep recession of the early 1990s, state legislators and Gov. Pete Wilson raided local funds to help pay for education. The shift was intended to be temporary but it has never been undone.

As a result, California cities have come to rely on sales taxes as one of the few sources of money they can control and spend as they see fit. Most state-controlled revenue comes with strings attached.

In Roseville, a city of 88,000, sales taxes make up 45% of the general fund--$30 million a year--and help pay for libraries and parks, among other popular programs.

Though the city rakes in sales taxes, planners note that only 11% of its land available for development is zoned retail, compared with about 50% for residential uses, a model mix.

“We rely on that [sales tax]. If you start messing with our single largest source of discretionary income, there are very few things we can do,” said Craig Robinson, Roseville’s assistant city manager. “We would not have the library system we have, we would not operate an Olympic-size aquatic complex.”

Along Florin Road, Larry Carr heads the Florin Road Partnership, a coalition of businesses working to restore the area’s former status as a major shopping destination. The efforts of business leaders and state and local government officials has begun to turn the area around--a vacancy rate that peaked at 26% four years ago is down to 10%.

But at the same time, Florin Road has lost car dealerships to a new auto mall in nearby Elk Grove, and more may still leave. Carr believes some regional remedy for the sales tax wars is essential if older areas are to have a chance of survival.

“It helps us wage the battle we have been waging here on Florin Road, and that people have been waging all over the country, about the deterioration of commercial areas and how that leads to a deterioration of the quality of life for a whole lot of people,” he said of Steinberg’s bill.

Steinberg and others concede that forcing a dialogue among warring cities is what his measure is ultimately about--the bill states that if the region comes up with a better solution, that should take precedence--but critics say it has actually led to a deterioration of goodwill.

Tilting the Playing Field

When the area’s regional government body recently weighed whether to support the bill, and appeared to be leaning toward opposition, Sacramento invoked a seldom-used rule that gave its votes greater weight based on the city’s population. Some of the region’s smaller cities and counties were floored.

Despite the divisiveness that the proposal has spurred, Orfield, the Minnesota legislator, said Steinberg should stay the course. When Minnesota legislators passed a then-revolutionary plan to share property taxes in the Twin Cities area more than two decades ago, Charles Weaver Sr., the Republican legislator carrying the measure, was called a communist and was all but tarred and feathered, Orfield said.

“Now they have named parks after him. He is a huge figure,” Orfield said. “It’s probably the best thing we’ve ever done.”