The Metropolitan Forum Project Reviving Citizen Civic Engagement

Bill would let cities swap tax revenues

Bipartisan measure would lower dependence on sales tax in favor of property tax.

By John Howard

The Orange County Register

February 27, 2003

SACRAMENTO ­ An Orange County Republican and a Sacramento Democrat jointly authored a major tax-swap bill that gives local governments a greater share of property taxes and cuts their dependence on shopping malls and other producers of sales-tax revenue.

Assemblymen John Campbell, R-Irvine, and Darrell Steinberg, D-Sacramento, said the new legislation would not raise or lower taxes, or change the amount of money flowing to local governments.

But it would alter the locals' money mix by allowing them to exchange some of their sales-tax revenue for property-tax money.

"It's a dollar-for-dollar swap," Campbell said.

The trade would stabilize local funding, boost housing and curb the cities' appetite for sales-tax-producing businesses at the expense of parks and greenbelt developments that might contribute little to local revenues, proponents said.

"It will help eradicate the argument that there isn't enough revenue (for cities) to approve housing," said Rex Hime, president and CEO of the Commercial Business Properties Association, a trade-lobbying group whose 7,000 members include the South Coast Plaza in Costa Mesa.

But Brea Mayor Bev Perry was dubious.

"Come to find out, sales tax, even with the recession and everything else, has been the most stable source of income for our city, not property tax," Perry said. "So the question is, 'Why would we want to swap out half of our sales tax?' It doesn't make any sense for us."

Laguna Woods Mayor Bert Hack agreed.

"It would be a loss to us to give up sales tax. The sales tax is the only thing that's been given to us for survival," Hack said.

Currently, cities and counties can keep one penny on the dollar of the sales-tax revenue collected on goods purchased in their areas. Perhaps 90 percent or more of their property-tax dollars, however, flow to the state.

The Steinberg-Campbell bill, AB1221, would require local governments to give up a half-cent of their share, but they could make it up by getting an equal amount of property-tax revenue.

The shift would result in about $2.3 billion in property-tax revenues for local governments, or an average of 16 percent of local tax funds, by one estimate.

In other action on the state budget crisis Wednesday:

Senate Republicans proposed an immediate 7 percent spending cut, or about $5 billion, and a three-year budget-spending freeze through June 2006. The proposal, which requires Democrats' support to pass, does not require a doubling of community college fees or new tax hikes, as do others' plans. Democratic Gov. Gray Davis said he wanted to study the plan.

The Legislature's lawyer said a key piece of Davis' 2003-04 budget plan might conflict with school funding guarantees. The advisory opinion suggested that up to half of the $8.3 billion in new taxes proposed by Davis would have to go to schools, not to city and county governments as Davis wants. The governor wants to raise income, sales and tobacco taxes, then shift the money to local governments to cover their costs of handling some state health and social services.

A new bill, SB17 by state Sen. Martha Escutia, D-Montebello, would require corporate property to be reassessed upon a change of ownership. The reassessments could generate $3.3 billion annually, Escutia said.

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