Must cities compete?

Darrell Steinberg has a deal for you.

The Assembly Democrat from Sacramento is promoting a new law intended to: curb suburban sprawl, ease your commute, improve the air you breathe and the water you drink, house the poor, protect union jobs, enhance civil rights, protect threatened wildlife, wash your car and brighten your teeth.

Well, maybe not the last two. But according to proponents of the Sacramento Regional Smart Growth Act of 2002, our overall quality of life can be vastly improved by reforming, of all things, sales taxes.

That’s right, sales taxes.

Few of us ever consider it, but the taxes we pay on everything from cars to candy bars profoundly affects how our communities work—or fail to work. Specifically, it is the way our sales taxes are collected and distributed, says Steinberg, that pits local governments against each other, discourages intelligent land use planning and promotes social inequity throughout the region.

“We have a system now that promotes every jurisdiction for itself,” says Steinberg. “That is why we have some of the worst air quality and traffic congestion in the state. But the truth is that we’re all in this together. We ought to have a system that reflects that.”

That’s why, for the second time in two years, Steinberg is trying to push through Assembly Bill 680, which would reorganize the way local governments collect sales taxes in the Sacramento region, a concept that could expand to other areas if it works here.

This year, Steinberg has the active backing of a broad coalition of environmentalists, community organizers, labor leaders and business groups who are promoting “regionalism” as the cure to a host of social and economic ills.

To Steinberg, who has built his reputation as a progressive reformer, AB 680 represents one of the most significant pieces of legislation he has ever championed. Accordingly, Steinberg has thrown himself into the campaign for regionalism with unusual fervor.

“I have never seen Darrell so passionate, so committed and so energetic about a piece of legislation, ever. He’s going to fight for this one body and soul,” said Bob Waste, a public policy professor at California State University in Sacramento, who has enlisted in the campaign as Steinberg’s consultant.

Yet Steinberg will need all his commitment and energy if he hopes to get the bill signed into law in 2002. While many supporters of the bill see it as the holy grail of smart growth and sustainable development, others say Steinberg is about to kill the sacred cow.

The current sales tax system has for years been in the crosshairs of environmentalists, and others who have decried the “fiscalization of land use.” Ever since 1978, when Proposition 13 essentially froze property taxes, local governments have increasingly relied on sales taxes to fund essential city and county services.

Local governments are under enormous pressure to chase after more and more sales tax generators, especially shopping malls, auto malls and big-box retail centers. Such desperation distorts local land use decision making, contributing mightily to suburban sprawl, and engendering fierce competition among governments to attract the new retail development, often at the expense of older, established neighborhoods.

It also creates economic inequity within the region. As burgeoning suburban communities like Roseville and Folsom build more malls, investment is drawn away from older suburbs, particularly in the city and county of Sacramento.

It’s not hard to find stark examples of winners and losers under the current system. Take, for example, the Galleria at Roseville.

Right now, Roseville is on top in the sales tax game. Only a year old, the Galleria is a million-plus square feet of retail bliss. All the major names are leasing space—the Gap, Nordstrom and Borders, to name a few—and business is moving at a pretty good clip. Because of the Galleria, the Roseville Automall and a host of other revenue generators, Roseville has one of the region’s highest sales tax levels per capita.

Compare the Galleria to Florin Mall in Sacramento County. The area surrounding the mall was once considered the outer suburbs, and the mall was the most thriving shopping destination in the region. Now that suburban development has leapfrogged out to Roseville, Folsom and Elk Grove, the Florin Mall has been left behind, and so has the surrounding neighborhood, as economic investment leaves the urban core for the surrounding edge communities.

Dawna Mitchell, an Oak Park resident and activist with the Association of Community Organizations for Reform Now (ACORN), recently visited Florin on the day after Thanksgiving, the busiest shopping day of the year.

“It was utterly dead,” she recalled. In fact, she said, the whole Florin Road area has all but dried up for lack of investment. Mitchell said it’s difficult to find a decent place to get a cup of coffee in her neighborhood.

“It’s not fair. We’ve got to stop the bleeding of our older neighborhoods,” she added.

Consequently, Sacramento County, like any older urban jurisdiction, finds that its budget for essential government services is also bleeding as it is left with these aging, decaying neighborhoods. The Steinberg bill would overhaul the current system by implementing a sales tax sharing arrangement among the six counties of the Sacramento region.

Currently, sales tax is collected by the local jurisdiction. So, if someone from Sacramento goes to a big-box store in Elk Grove, that revenue goes to Elk Grove. None of it goes to Sacramento. In this case, Elk Grove has effectively poached sales tax from another jurisdiction.

The new law would only affect the growth in sales tax revenue. Whatever a city brings in now wouldn’t be touched. Every dollar of new sales taxes that is collected within the borders of a local jurisdiction would be redistributed three ways.

One third will go back to the local jurisdiction, as it does now. Another third will be distributed on a per capita basis throughout the region. In other words, the amount that the local government gets back will be based on how many people live there.

Finally, another third will go back to the local government, but only if the city or county has complied with existing state laws that require them to meet their fair share of affordable housing and social services. Each local government would also have to have in place a plan for more compact “infill” development and the acquisition and protection of open space.

If a local government fails the last test, that third will go into a “regional needs” pot to pay for any number of regional projects, including transportation, housing or jobs programs. As an added incentive, the bill allows for jurisdictions that play by the rules to have more control over state transportation and infrastructure funds than they currently have.

The bill is fairly elaborate compared to the version Steinberg introduced last year. The old version would have simply split up all sales tax revenue on a per capita basis. The purists liked it, but it was unpopular with many local government officials.

While the new bill lacks the elegance of simplicity, proponents are hoping it will be more politically palatable than the earlier version. Yet those jurisdictions that are winning the sales tax game today are still fiercely opposed to abandoning the current rules. And many have criticized Steinberg for looking after the interests of downtown at the expense of the smaller cities.

Roy Herburger, publisher of the Elk Grove Citizen, told Steinberg at a recent press conference that AB 680 was “socialist,” and said the bill basically amounted to a money grab by poorer communities.

“Mr. Steinberg is doing a good job of looking after his constituents,” said Herburger, noting that Steinberg is a former Sacramento City Councilmember who now represents the city in the Assembly.

Assembly minority leader, Dave Cox, who represents Folsom and other affluent suburban communities, has painted the bill in terms of a class war and made the bold prediction that AB 680 will never make it out of committee.

“The have-nots are always going to be willing to share in the revenue,” said Cox. Steinberg’s bill, Cox added, would punish more “entrepreneurial” local governments for their success.

Ironically, the rules of the current system virtually guarantee that the Galleria, in time, will also be a loser and begin to slouch toward the status of Florin. One day, perhaps soon, a new shopping mall constructed in Folsom, or Elk Grove, will draw shoppers away from Roseville, and drain money from its city coffers.

“The winners of today will be the losers of tomorrow, because it never ends. And if you allow one part of the region to decay it affects everybody,” says Steinberg.

It’s not just the rich cities that don’t like Steinberg’s bill. Christopher Cabaldon, who is a councilmember in the less affluent and largely industrial city of West Sacramento, worries about possible unintended consequences of AB 680.

He says the bill does little to differentiate between sales tax generated by big-box retail and high-end shopping malls, and sales tax generated among business buying and selling to each other, which represents a large chunk of West Sacramento’s revenue stream.

Some people may oppose a mall in their neighborhood, but nobody wants a factory. Taking away the sales tax incentive for approving such projects “will have a chilling effect on jobs-producing industrial development,” said Cabaldon.

Another possible consequence, he said, will be that the new law could actually exacerbate sprawl.

The loss of some sales tax revenue could encourage local governments to approve more residential building. That would somewhat increase property tax revenue. Also, when sales taxes begin to be distributed based on where people live, the more rooftops inside your borders, the better.

“The new fiscal game will become, ‘How can we add more people?’ ” said Cabaldon.

Steinberg disagrees. He notes that AB 680 provides money for transportation and infrastructure projects that wouldn’t otherwise be there—money that could make up for any loss in sales tax revenue.

Unlike some of the bill’s opponents, Cabaldon appreciates what Steinberg is trying to do. There’s no question, he says, that the current system of chasing after sales taxes distorts the land use planning process.

“The last thing we should do is declare that there isn’t a problem,” said Cabaldon. “We need to deal with social equity and economic diversification. This bill it trying to deal with both of those things.”

Steinberg says he is open to further changes to the bill. But he’s anxious to get a bill passed that he believes could be a model for regions around the state.

“Everybody likes to talk about regionalism,” said Steinberg. “The question is now, are we willing to walk the walk?”