Let’s make a deal

“What a beautiful city!” Governor Arnold Schwarzenegger declared last month, on what appeared to be his first trip to Elk Grove. It was a surprising remark, if only because of its brazen charity. For those who have not had the pleasure of visiting it, Elk Grove is a midsized suburb that straddles Highway 99 a few miles south of downtown Sacramento. Though it may not be beautiful, it does hold the distinction of being one of the state’s fastest-growing cities, topping 109,000 souls this year, according to state population data. To fund services for all those new residents, the city has approved construction of a wide variety of strip malls that cover the landscape, from little street-corner places with a Starbucks or beauty salon to huge seas of asphalt ringed by big-box stores like Home Depot or Old Navy. Retail stores like those funnel a river of cash into the coffers at Elk Grove City Hall, where Schwarzenegger stood that May morning to make a big announcement about local government funding.

After meeting privately with organizations representing California’s 478 cities and 58 counties, administration officials had worked out a huge compromise. If the locals agreed to take a $2.6 billion hit over two years, Schwarzenegger would help them pass a constitutional amendment preventing the state from ever picking their pockets again. It may not sound like such a great deal, but mayors, city-council members and county supervisors have been livid for the better part of two decades, during which they endured repeated financial raids when the state needed to plug its own budget holes. All the locals needed to hear was that they’d get stability for once. And, unlike past governors, Schwarzenegger was ready to go there.

“This is a victory for local government,” Schwarzenegger said at the announcement, where he was joined by giddy local-government types. “This is a victory for everyone in California that wants their leaders to work together.”

Then a reporter asked about sprawl. If the deal locked in the cities’ reliance on sales-tax revenues, wouldn’t it just keep encouraging big-box stores and more sprawl?

“As a matter of fact, we had many discussions here, and this is something that we’re looking at next,” Schwarzenegger said. “Right now, we wanted to solve the problem, but next we’re going to look at how we can make it better, but we don’t have the time right now to do that. This takes a longer discussion.”

He added: “This is something that we will solve down the line.”

That announcement was exactly what some people didn’t want to hear. A group of lawmakers and other officials argue that the plan would only serve to lock in place the state’s current local-government finance system, which they say promotes sprawl. Led by Sacramento Assemblyman Darrell Steinberg, a coalition of lawmakers, local-government leaders, and environmental and housing advocates later announced its opposition to the governor’s deal at a press conference. But the fact that just four state lawmakers showed up would seem to indicate that the rest of the Legislature either doesn’t care about the issue or isn’t willing to make an issue out of it.

It’s different for Steinberg.

For years, the former Sacramento city councilman has been trying—and failing—to get reforms through the Legislature to end what he calls “the fiscalization of land use.”

He and other members of the coalition say the governor’s proposal locks in a dysfunctional system that favors sprawl and encourages retail businesses instead of housing. Steinberg also wasn’t happy about how the deal, like others brokered by the governor’s office, came together without involving the Legislature, where anti-sprawl reforms were already pending this year.

Steinberg is trying to rework the deal to protect the aggregate amount of money that goes to local governments without writing the formula that determines who gets what into the constitution.

The locals don’t buy it.

“The aggregate thing is no protection whatsoever,” said Dwight Stenbakken, deputy executive director of the League of California Cities. “It’s the same old stuff we’ve gone through for 20 years. We’ll oppose it any way we can.” Stenbakken said the cities wouldn’t get much of a guarantee if the formulas weren’t locked in. Lawmakers, he said, “could decide they don’t want to give any money to cities that begin with the letter ‘s,’” which would leave cities “still subject to the whims of the Legislature.”

Schwarzenegger’s protection plan would give the state less control over local finances. Under the current system, the state controls how local governments can use tax revenues. Property taxes are siphoned off for use by the state and schools, leaving cities dependent on sales-tax revenues. Because the state’s messy recipe for funding local governments forces cities and counties to rely on sales-tax revenue, it creates a system in which local governments are all but forced to approve—and subsidize—big-box stores and auto malls to fund services like police, fire departments and libraries. That contributes to clogged roads, smoggy skies, and a lack of housing that drives rents and mortgages beyond affordability.

Steinberg’s biggest beef is that the deal closes the door to future fixes. “Protection must be coupled with reform,” he said at the press conference. “Why in the world would we lock into the constitution a system of finance which discourages regional cooperation, discourages housing and discourages higher-end economic development? It doesn’t make sense.”

Another longtime sprawl-fighter, Senator Tom Torlakson, D-Antioch, blamed the current policies for the state’s housing deficit. “The needs of the economy depend greatly on adequate housing stock. We’re only producing 135,000 units a year when we should be producing 230,000.”

The coalition includes environmental groups like the Sierra Club and a few local government officials, including Sacramento Councilman Dave Jones, who likely will take Steinberg’s seat when Steinberg terms out later this year. Also there was conservative Orange County Supervisor Chris Norby. He complains that, without reform, rich cities get richer while poor and predominantly minority-populated cities get poorer.

According to an analysis Norby prepared using state data, cities like Roseville make out like bandits. In terms of sales tax per capita, Roseville takes in $347 per person, which is more than twice the state average of $143 per person. Palo Alto is even higher, at $424. Meanwhile, older urban core cities like Los Angeles, Oakland and Long Beach all take in less than $100, thanks in part to stores like Wal-Mart and Costco, which have opened their doors primarily in the suburbs. Predominantly African-American and Latino cities also get shortchanged, according to Norby’s data.

State and federal lawmakers from Orange County also want reforms because the county gets a lousy deal under the current system. After the governor announced his deal with the locals last month, Orange County’s six-member congressional delegation fired off a letter to Schwarzenegger urging him not to “lock in the current discrimination” against the county, whose residents “rank dead last among California’s 58 counties in terms of percentage of property taxes received.”

This week, at press time, it wasn’t clear what would come next. As chairman of the Assembly Budget Committee, Steinberg has more of a platform than usual to make his case, but leaders in both houses don’t seem to have taken much of an interest in his cause, nor have many other lawmakers. And the locals aren’t willing to reconsider the deal, Steinberg said. “Their opposition has been pretty strident to even sitting down and talking about hese issues,” he said.

To underscore this, hundreds of local-government officials put on a big rally on the Capitol steps last week to put pressure on lawmakers not to tinker with the deal they made with Schwarzenegger.

For the administration, financial issues and the timeline for approving a budget drove the deal with the locals, not land-use and environmental concerns. The governor’s office isn’t interested in reopening the deal, either. Mike Genest, Schwarzenegger’s deputy finance director, said it’s too late to reopen the deal this year and start tinkering with the formulas that determine who gets what funding. “The cities are strongly divided internally,” he said. “Right now, you can’t get consensus.”

Genest, who led the talks with the locals, said the sprawl issues came up during the discussions and that the complex and contentious nature of drawing up formulas for local-government funding made reforms impossible with such a short timeframe. Agreement wasn’t going to happen. “We talked about that quite a bit. Didn’t get to it. It’s a naughty issue. It’s not so clear-cut what’s the right thing to do there. There’s a lot of things involved. A lot of people feel very strongly in both directions,” Genest said. “The whole underlying issue of smart growth or whatever is still a priority. Whether that involves sales tax or not, who knows.”

This week is the deadline for getting a new constitutional amendment on the November ballot, but, like any legislative deadline, it can be waived. Another bill needed to implement the governor’s deal, which doesn’t need to go on the ballot, could be approved any time before the end of August.

There also may be a compromise in the works.

Another agitator for reform, Assemblyman John Campbell, R-Irvine, said he’s not totally happy with the deal, either. He and Steinberg made a bipartisan push for reform last year with a bill to substitute property-tax revenue for the sales tax that gives cities so much of an incentive to approve retail businesses instead of housing. Aggressive lobbying by Roseville and other local governments killed the bill.

Campbell, who landed a coveted Schwarzenegger endorsement in a state Senate primary this year, has been quieter than Steinberg, but he’s still not totally impressed with the governor’s deal. He likes most of it but, like Steinberg, doesn’t want the door closed. “Don’t preclude us from doing some of those things in the future,” he said. “I’m not going to be critical of it because I just don’t think that the whole thing is a bad deal. I just think it could be better.” Campbell said other Assembly Republicans don’t see it the same way.

Campbell said last week that he and others had tried to find a way to rework the deal with the League of California Cities, the California State Association of Counties and other groups. “There is a compromise being floated now, which I’m not at liberty to tell you about, because it might blow it,” he said. “We’re trying to see if there’s someplace short of all or nothing here.”

“I’ve accepted,” Steinberg joked last week, “the fact that I’m not going to get a plaque from the League of Cities.”

He said there are plenty of alternatives to locking in protection with a constitutional amendment, which the locals already have qualified for the statewide ballot this fall. Steinberg already has asked the legislative analyst’s office to write language that would protect the aggregate amount that goes to local governments—a potential solution the legislative analyst’s office already has endorsed as a better answer to the problem.

But in the Capitol, it’s hard to find anyone who gives Steinberg favorable odds of getting what he wants this year. Asked if it looks like Steinberg will get his way, lawmakers and other legislative sources shook their heads.

Steinberg acknowledges that time is running out to handle a complex topic, and though he’d prefer to enact some kind of reform this year, that doesn’t look possible. So, at the very least, he just wants the door left open, though he also worries that the locals won’t have any reason to sit down and talk about reform in the future if they get what they want this year.

“They’ll make the right decision,” Steinberg said. Then he reconsidered, tempering his language. “I’m hopeful they’ll make the right decision.”