Radical tax plan to combat sprawl

By Lynda Gledhill, Chronicle Sacramento Bureau

San Francisco Chronicle

March 24, 2002

Sacramento -- An anti-sprawl proposal that would radically change the way cities and counties compete for sales tax money is shaping up as the biggest public finance battle in California since Proposition 13.

The tax-sharing measure, which passed the Assembly by a single vote and now awaits Senate action, proposes an experiment that would spread future sales tax gains more equally among cities and counties.

Supporters say this would stop local governments from viewing every piece of vacant land as a potential source of sales tax and would provide new incentives to plan for open space and low-cost housing.

"Everyone loves to extol the virtue of regional cooperation, and yet we have a system that promotes the idea of every jurisdiction for itself," said Assemblyman Darrell Steinberg, a Sacramento Democrat who authored the measure.

But many critics, including representatives of many cities and counties, say the plan would jeopardize public safety, paralyze local government and hurt the state's job creation efforts.

"The premise is wrong," said Don Blubaugh, city manager of Walnut Creek. "I think it is one of these isolated efforts to fix something without looking comprehensively at how local government works."

Even though it is merely a pilot plan for a six-county region around Sacramento, the bill vote is shaping up to be the most hotly debated public financing proposal in nearly 25 years with enormous implications for every region in the state.

Take Contra Costa County.

In downtown Walnut Creek, tony retail chain stores sell leather sofas and $300 shoes. Thanks to hefty sales tax revenues, the city has been able to build an arts center and expand City Hall.

Up the freeway in Martinez, it's a different story. Downtown is a jumble of antique shops, empty storefronts and restaurants that cater to county government workers looking for a quick bite at lunch.

Steinberg believes his tax plan to change the tax formula would help balance things out by giving some of Walnut Creek's sales tax bonanza to Martinez. Statewide, that could create better regional growth while improving traffic patterns, air quality and a host of other growth-related problems, supporters contend.

HUNGER FOR TAX REVENUE

Local governments' hunger for sales tax revenue has grown since the passage of Proposition 13, the 1978 ballot measure that capped property tax increases.

Since then, cities and counties have competed to expand their sales tax bases, wooing retail outlets, big-box stores and auto plazas. A city with an auto mall, for example, gets $250 on the sale of every $25,000 minivan sold.

Under the current structure, the entire portion of the local sales tax -- about 1 percent of the total sales tax paid on any given item -- stays in the county or city where it was collected.

Under Steinberg's proposal in AB680, future sales tax gains would be divided three ways -- one part to the region on a per-capita basis, one part to areas that protect open space and build affordable housing and one part would be divided as it is now.

But Allen Zaremberg, president of the California Chamber of Commerce, believes the bill has a fundamental flaw.

"We're talking about the legitimacy of democracy," he said. "Your tax dollars should be spent by somebody you have the opportunity to elect. To some extent, it is taxation without representation."

The Bay Area Council has offered its qualified support for the bill, believing it is a good idea that still misses a key issue.

"The real heart of dumb planning is that housing is not closer to businesses," said Sunne McPeak, head of the group.

Local government officials believe they have reason to be alarmed. In 1992, the state was facing a huge budget deficit. To finance public education, the state took a large portion of local property tax.

SOMETHING DRAMATIC

Steinberg said he is trying to do something dramatic without being too unrealistic. He denounces the "hysteria and hyperbole" that has developed around the bill.

But when a group of firefighters shows up at a press conference to denounce a bill, it can spell trouble. The California Fire Chiefs Association and law enforcement officials have come out in opposition to the bill.

"Less revenue means potential cuts in such vital staffing and services as law enforcement," said Los Angeles County Sheriff Lee Baca.

Zaremberg said the plan is contrary to what California needs.

"Every year the state is going to grow by 500,000 people," he said. "They are going to need houses, jobs and education. Unfortunately, AB680 rewards counties that have an agenda that forces the population growth and jobs out of their jurisdiction. It rewards maintaining open spaces rather than creating jobs."

There is another hurdle for the proposal. A legislative council opinion said the bill is unconstitutional because it shifts tax from one locality to another without direct benefit for both.

Steinberg disputes the opinion, but said in the end if he has to take the measure to the ballot, he will.

McPeak said she is worried that unless this bill is made better -- and solves more problems -- it will be an opportunity lost.

"We'll have a huge battle for a flawed bill and then no one will have the energy to go back and do the right thing," she said.

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Dividing the sales tax

A proposal for a pilot plan in the Sacramento region would divide future increases in this slice of the tax pie differently: Where sales tax goes For every taxable dollar spent, how much goes toward:

City: 1 cent

One part would go the region on a per capita basis.

One part would be directed at cities that created open spaces and affordable housing. The third part would stay in the city or county where the tax was collected.

State General Fund: 5 cents

County/Health and welfare: 1/2 cent

Countywide transportion: 1/4 cent

Prop. 172: 1/2 cent

Transit/special: Amount varies

Source: California State Board of Equalization

Chronicle Graphic

E-mail Lynda Gledhill at lgledhill@sfchronicle.com.