Peter Schrag: AB 680: Can we drain California's tax swamp?

By Peter Schrag

Sacramento Bee

January 23, 2001

Assemblyman Darrell Steinberg calls his bill the Sacramento Regional Smart Growth Act. But AB 680, which faces crucial legislative votes this week and next, has implications for a great deal more, and not just in Sacramento.

While it may never become the statewide model for more rational planning and cooperation that its backers hope for, it's the best indicator we have on whether California has any chance in the foreseeable future to untangle the inefficient fiscal and governmental mess that we've created. It's hardly a sure thing.

Measured against the elephantine proportions of the larger problem, AB 680 is no more than a mouse. Under the state's screwball tax structure, cities and counties are in intense competition to land new shopping and auto malls. Those retail developments generate more in sales taxes than real economic development -- industry with good jobs and housing affordable to the middle class -- yields in increased property taxes. And stores require fewer public services.

The resulting "fiscalization of land use" distorts all planning decisions. Most local officials will work harder -- and give away more in inducements -- to get a mall than to get balanced development that reduces long commutes and strengthens communities.

Because retail developers prefer easy freeway access and lots of open space on which to build, the result tends to be more sprawl, longer commutes and more strain on highways and other regional resources. A study conducted last year for the Senate Office of Research also concluded that fiscalization costs central cities in the Sacramento area more than $1 billion in retail business per year. In Los Angeles-Long Beach, comparable costs were estimated at $4.6 billion.

Steinberg's bill seeks to modify those incentives with a provision that would require cities and counties in the six-county Sacramento region to share a fraction of any additional sales tax revenues they receive beyond those they collect now. One-third of any future growth would be retained by the jurisdiction where the sales tax is collected; one-third would be shared among jurisdictions in the region on a per capita basis. The jurisdiction where the tax is collected would retain the last third as well if it protected open space, encouraged infill development -- projects filling the gaps in the sprawl -- and did its share in meeting regional housing and social service needs.

AB 680 is no panacea. It doesn't address the imbalance between property taxes and sales taxes, which badly distorts planning. It doesn't address the chronic underassessment of commercial property, which dampens the incentive to use it efficiently and discourages infill. It would reward affluent cities such as Davis, which spurned large retail development, at the expense of poorer cities such as Woodland, which have welcomed it (January 23, 5:55 a.m. PST).

Finally, it wouldn't protect cities and counties against further legislative diversions of property tax revenues from local government to the state. It thus opens itself to the charge, by Chris McKenzie, executive director of the League of California Cities, among others, that "the state is again trying move our resources around." Assemblywoman Helen Thomson of Davis calls it a "top-down, heavy-handed state mandate."

But it's hardly the Sacramento tax-grab that some opponents accuse it of. If anything, the city of Sacramento, which supports the measure, now collects slightly more in sales taxes than the regional average.

Nor is it entirely true, as some critics charge, that "the state created the problem by starving the cities of their property taxes." Some of the cities that most vehemently oppose Steinberg's bill were not even incorporated until long after the "starvation" -- originally caused by voter initiative, not by the state -- was first imposed. Some incorporations were triggered by what their sponsors saw as a great opportunity to grab some lucrative shopping mall and thus turn their backs on their counties and on regional problems. Those were intended to be real tax-grabs.

Steinberg himself wonders whether "the region is ready yet" for the collaboration that he hopes his bill would foster. Nor is there any certainty that the state as a whole is ready even for the marginal fix that AB 680 represents. Californians are willing to suffer long commutes if they can live in the detached homes most prefer. As the cliché goes, the only thing Californians like less than sprawl is density.

But even most of Steinberg's opponents acknowledge that AB 680 addresses an increasingly urgent set of problems resulting from the state's irrational tax and planning structure. In some places, moreover, local jurisdictions have taken the first steps toward regional cooperation to preserve open space.

But for the most part, the regionalism and smart growth that a lot of planners talk about are still more dreams than reality. Every year, there are 500,000 more of us in California. The longer we wait, the smaller the chances that we can do much about it. Every planning mistake we make is set in concrete.