Key Budget Provision Attacked

June 11, 2004

Los Angeles Times

Some legislators say Schwarzenegger's vow to protect future local revenue doesn't mitigate cities' and counties' reliance on retail stores.

By Evan Halper
Times Staff Writer

June 11, 2004

SACRAMENTO — A group of lawmakers is seeking to block a linchpin of Gov. Arnold Schwarzenegger's budget plan: the deal he brokered with cities and counties to protect their revenue through a constitutional amendment.

The lawmakers warn that the agreement would feed local governments' addiction to "big box" stores, such as Wal-Mart and Costco, that generate heavy sales taxes.

"Why in the world would we lock into our Constitution a system of finance which discourages regional cooperation, discourages housing and discourages higher-end economic development?" Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento) asked Thursday. "It just doesn't make any sense."

Under the agreement, local governments would sacrifice $1.3 billion during the next two years to help close the state's projected $14-billion deficit. In return, the governor would support a constitutional amendment to protect their share of state money — including a large chunk of sales taxes — from getting reduced in the future.

But with the deadline for enacting a spending plan only three weeks away, some lawmakers say they are unwilling to support a proposal that doesn't wean local governments off their dependence on retail stores. In many cases, cities compete with one another to attract the mega-stores, offering multimillion-dollar incentives to corporations and the waiving of environmental rules.

The group argues that the best way for the state to slow down the building of big-box businesses and to encourage the construction of badly needed housing is to swap those sales taxes with a larger share of property taxes. They want such a swap included in the constitutional amendment.

The latest bipartisan push follows years of efforts by groups across the political spectrum to reform state tax formulas to promote "smart growth" policies.

"Because of cities' over-reliance on sales tax, they welcome and often overly subsidize big boxes," said Orange County Supervisor Chris Norby, a Republican and one of several local officials calling for changes in the tax formula. "This is our opportunity to fix a broken system."

Sen. Tom Torlakson (D-Antioch), Sen. Denise Ducheny (D-San Diego) and Assemblyman Todd Spitzer (R-Orange) also warned against locking the sales tax allocation into the Constitution.

But local government representatives say now is not the time to rush through complicated reforms. They have resisted past efforts because the proposals threatened to shortchange communities that had historically depended on big-box stores for revenue.

The officials also reminded critics that if the agreement fell apart, local governments would push hard to persuade voters to pass a measure that has already qualified for the November ballot. That measure would force the state to give back any money taken from cities and counties this year to help balance the budget.

Mike Madrid, a spokesman for the League of California Cities, said the Legislature's most important task right now related to local government was guaranteeing cities and counties some revenue stability. He said that the state had consistently used local governments as a piggy bank in tough times and that lawmakers needed to focus on preventing such a scenario if they hoped to avoid a showdown in November.

"You can't go to a dying patient on the table bleeding to death and ask them to change their will," he said. "You first must stop the bleeding."

Madrid said "the door is always open" to reform the tax structure later and warned of past well-intentioned reforms sped through the Legislature that had unintended results.

"This is the same Legislature that brought us the electricity crisis," he said. "It is ludicrous. It is shameful. It is not the way government should be done."

Administration officials also warned against pulling apart the complicated deal. "There are going to be opportunities for any number of further reforms for local government in the future," said Department of Finance spokesman H.D. Palmer. "Our focus right now should be on getting a responsible budget that doesn't increase taxes done in a timely manner."

Although most Republicans stand behind the governor, there has been only lukewarm support among Democrats for his deal with local governments. But it is unclear whether Steinberg — the lead budget negotiator in the Assembly — has enough influence to keep colleagues from voting for the measure. After years of blowing their constitutional deadline, legislators are under intense political pressure this year to get a budget passed and signed by the governor before the fiscal year ends June 30.

"The timing of this is just horrendous," said Assembly Budget Committee Vice Chairman Rick Keene (R-Chico). "These [tax-revision] proposals didn't get traction in the past for a reason. There were concerns that they were not going to make people any better off."

But Steinberg said cities and counties had to get serious now about reforming a "system of local government finance that is skewing land-use decisions."

If lawmakers wait until after that system is locked into the Constitution, he said, they may never get local officials back to the negotiating table: "Our view is, protection must be coupled with reform."