What’s in store?

Andrew Glazer

COSTA MESA -- When state legislators chatter about taking sales tax

revenues away from local governments each year, Costa Mesa city officials

feel slightly uneasy.

It’s hard to shrug off threats to sales tax revenue, which represented

nearly half of the $79 million the city brought in last year, City

Manager Allan Roeder said.

Less revenue could require the city to cut spending on public safety and

road maintenance, not to mention freezing the new transportation-related

projects and parks construction. That is, of course, if city voters did

not approve raising city taxes -- something they are rarely eager to do.

In past years, the discussions never seemed to be more than that. This

year, however, Roeder said the annual musings and mumblings in Sacramento

pose a more serious threat.

State legislators are bouncing five bills -- which propose taking various

degrees of sales tax revenues from cities’ hands -- around various

committees. This is more than ever before.

Each looks slightly different. Some propose replacing city sales taxes

with property taxes, others recommend the state redistribute sales tax

revenues to cities based on their population.

Yet they share the same idea: The fiscal system encourages cities to

forgo good municipal planning in their quest to lure sales tax

generators, such as shopping malls, auto dealers and strip shopping.

“These talks are almost as consistent as the swallows coming back to

Capistrano,” Roeder said. “But never to the degree they’re happening this

year.”

SHARE THE WEALTH

A plan drafted by State Controller Kathleen Connell is perhaps the most

conspicuous because it was one of the first and is the most heavily

promoted.

Connell wrote the report in February 1999. It was based on input she

gathered from six meetings with representatives from state and local

government, business and labor, environmentalists, real estate developers

and economists to devise a new fiscal formula.

“They found that sales tax revenue is the Holy Grail of government

finance,” said Mike Foulkes, Connell’s deputy controller for legislation,

“and discussed the importance of weaning local governments off of retail,

auto malls and strip malls.”

This could be done by essentially swapping local sales tax revenues with

state-collected property taxes, according to a report Connell prepared.

Doing so would encourage cities to build more homes instead of malls,

Foulkes said.

The state also would redistribute a small portion of the sales tax

revenues to cities based on population.

Most cities would get more money under Connell’s plan, according to her

report. But Costa Mesa would be one of the cities hurting the most. It

would lose more money than 416 of 422 cities -- approximately $1.5

million in revenue each year, the report said.

The reason: The city’s sales tax revenues are growing much faster than

property taxes due to a 1978 proposition that significantly restricted

how much the state can collect.

“Once again the state is talking about changing the rules midstream,”

Mayor Gary Monahan said. “It doesn’t seem fair since we have been very

successful, with good planning, to attract retail businesses here.”

BY THE NUMBERS

“I don’t see the city’s ability to squeeze out $1.5 million a year,”

Roeder said, pointing out that the city became as lean as a choice filet

in the 1990s. “We’re really boiled down to the basics.”

The only areas where the city has increased spending since then are

public safety and road maintenance, neither of which should be tampered

with, Roeder said.

Michael Coleman, a consultant for the California League of Cities, which

is lobbying against Connell’s plan, said it is oversimplified. He said

the plan neglects several important factors that draw retailers to

cities.

Coleman said that no matter how much land and tax rebates they receive,

developers would not build a mall in the middle of nowhere.

For instance, Roeder said, it’s the easy freeway access and proximity to

John Wayne Airport that brought South Coast Plaza to Costa Mesa.

“Some cities do come pretty close to selling their souls to attract

business, but we don’t do that,” Roeder said. “We’re known for not

cutting deals.”

However, Foulkes argued that the per-capita sales tax distribution would

truly allow the market -- not unruly intercity competition -- to

determine what goes where.

“Our belief is that if a whole lot of consumers want to buy items in a

certain neighborhood, you’re going to have retail there,” he said.

He said the per-capita sales tax revenues would cover the traffic, police

and fire services that each development would require.

And, Foulkes said, “the city would will fill the local need, and their

consumers won’t need to drive 40 miles to an out-of-town auto mall.”

Roeder said, however, that he would try to encourage states to pass laws

prohibiting cities from giving land and cash incentives to developers

rather than adjust taxes.

“It makes much more sense for them to look at it as a land-use and not

fiscal issue,” he said. “There’s no reason cities like ours should be

penalized for having retail.”