BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Tom Torlakson, Chair
REVISED ANALYSIS
BILL NO: AB 680 HEARING: 6/19/02
AUTHOR: Steinberg FISCAL: Yes
VERSION: 6/17/02 CONSULTANT: Detwiler
SALES TAX SHARING
Background and Existing Law
While situs based local sales taxes are about one-tenth of
total city revenues, they are a major source of cities'
discretionary revenues. With other revenue streams
earmarked or restricted, sales tax revenues are highly
prized by cities. The state statutes that govern local
revenue and taxation decisions result in the fiscalization
of land use. Local officials --- in both counties and
cities --- are tempted by state laws to pursue projects
that generate revenues and shun land uses that need costly
services. An independent survey in 1998 found "strong
evidence that city governments do systematically favor
retail development over other land uses when it comes to
new development on vacant land." In short, retail
development is a winner while housing, especially
affordable housing, is a fiscal loser.
Communities in the Sacramento Valley mirror the economic
and demographic pressures that face much of California.
Some communities bloom with rapid development while other
places must endure chronic poverty, aging public works, and
social pathology. How to linking land use decisions and
their fiscal consequences with governance is a tough
challenge in a 21st Century political environment that
relies on 20th Century laws, customs, and practices.
Some observers say that one way to balance the benefits and
costs that come with development is to restructure the
state's revenue and taxation laws.
Proposed Law
Assembly Bill 680 enacts the Sacramento Regional Smart
Growth Act of 2002, and reallocates local sales and use tax
revenues within the greater Sacramento region.
AB 680 -- 6/17/02 -- Page 2
AB 680 requires the State Board of Equalization to
segregate the net revenue from the 1% local sales tax rate
imposed by qualified counties and qualified cities within
the greater Sacramento region. Starting in the first
quarter of 2004, the Board must apportion the base quarter
revenue amount to the region's qualified counties and
qualified cities. The bill requires the Board to allocate
the growth in local sales tax revenues to the qualified
counties and qualified cities as follows:
One-third based on the standard situs method.
One-third based on the counties and cities'
relative populations.
One-third based on the standard situs method,
except for counties and cities that are "not housing
eligible."
In that third case, revenues that would have gone to those
counties and cities go instead to the Sacramento Area
Council of Governments (SACOG). AB 680 requires SACOG to
allocate these revenues to qualified cities and counties to
fund regional projects that include:
Regional transportation projects.Quality of life
projects.
Transit oriented development.Open space acquisition.
Infill development. Housing development.
Jobs-housing balance development.Redevelopment
projects.
Mixed use development. Other land use projects.
AB 680 defines the greater Sacramento region to include the
combined areas of the counties of El Dorado (except for the
Tahoe Basin), Placer (except for the Tahoe Basin),
Sacramento, Sutter, Yolo, and Yuba. The bill prohibits the
Legislature from creating a statewide program that
allocates local sales taxes on a regional per capita basis.
AB 680 also declares that its provision cannot be used to
promote the sharing of local sales taxes outside the
greater Sacramento region.
A qualified city is a city with an annual population growth
rate over 0.5%. A city that is not a "qualified city" does
not participate in the bill's regional allocation of local
sales tax revenues. Its sales tax revenues are not
affected. However, the city may chose to participate.
AB 680 -- 6/17/02 -- Page 3
A qualified county is county with an annual population
growth over 0.5%. A county is not a qualified county if
it:
Adopts and complies with an ordinance
requiring:
The location in the county of a fair
share of the region's housing needs for low- and
moderate-income people.
New residential and commercial
development occur within cities.
A 1:1 set-aside of open space land for
new residential and commercial development.
Has a sales tax revenue sharing agreement with
two or more cities.
A county that is not a "qualified county" does not
participate in the bill's regional allocation of local
sales tax revenues. Its sales tax revenues are not
affected. However, the county may chose to participate.
A qualified county or qualified city is housing eligible
for a calendar year if it is in compliance with the housing
element in its general plan.
The bill requires the Legislative Analyst's Office to
report to the Legislature by January 1, 2010 regarding the
reallocation of local sales taxes. The Legislative Analyst
must work in conjunction with the State Board of
Equalization and SACOG. The report must review fiscal
impacts, land use changes, and residential building
permits.
By its own terms, AB 680 ceases to be operative between the
2001-02 and 2009-10 legislative sessions if the Legislature
either (1) shifts more property tax revenue from cities and
counties in the greater Sacramento region to the
Educational Revenue Augmentation Fund (ERAF), or (2)
decreases the amount of Vehicle License Fee (VLF) revenue
or decreases the General Fund backfill for VLF revenue to
cities and counties in the greater Sacramento region. The
bill's provisions become operative again when those
conditions end. Further, AB 680 becomes inoperative if all
of the cities and counties in the greater Sacramento region
enter a tax revenue sharing agreement.
AB 680 -- 6/17/02 -- Page 4
Comments
1. Share and share alike . Economies are regional but
political boundaries are still local. Most local taxes
still rely on the situs principle which keeps the revenue
in the city or county where the taxable event occurred. As
communities' economic fortunes ebb and flow, so do their
revenues. Fast growing cities with newer public works and
residents with few needs for public services pile up budget
reserves. Older suburbs and cities with aging
infrastructure and more dependent populations struggle to
pay their bills. By sharing sales tax revenues at a
regional scale, AB 680 balances these competing forces. By
dampening the temptation posed by sales taxes, the bill
influences local officials' land use decisions.
2. Local decisions, local revenues . AB 680 changes the
state's basic revenue rules for cities and counties in the
Sacramento region. The bill erodes the link between local
choices about land use development and the consequences of
those decisions. Communities with unfriendly business
climates may end up sharing in the revenues generated by
other communities' hard work to attract and retain private
investment. The artificial allocation of local sales tax
revenue reverses the long tradition of home rule control
over locally generated revenues. If legislators really
want to reduce the fiscalization of land use, they should
increase local officials' shares of property tax revenues.
Making affordable housing fiscally desirable may do more to
promote better land use choices than taking away local
sales tax revenues.
3. Can they do that ? Can the Legislature reallocate the
revenues from a locally imposed tax? Legislators have
received conflicting legal opinions regarding the
constitutionality of AB 680. In February, the Legislative
Counsel concluded that the Legislature may, by statute, and
in the absence of an authorizing amendment to the
California Constitution, enact a valid statute that
requires that local sales and use tax revenues be allocated
on a nonsitus basis, outside the city or county within
which the taxable sale or use occurred, only if that
statute requires that the revenue so allocated be sued to
serve a specific public purpose of the city or county
within which the revenue was collected, and the continued
imposition of that tax, from which those allocated revenues
AB 680 -- 6/17/02 -- Page 5
are derived, is approved by the voters of the imposing
county or city as required by Section 2 of Article XIII C
of the California Constitution. In March, McGeorge School
of Law Professor J. Clark Kelso concluded that AB 680 would
be found by a court to pass constitutional muster. It does
not authorize a gift in violation of Section 6 of Article
XVI, and it does not impose a new tax requiring new voter
approval pursuant to Section 2 of Article XIII C.
4. The road less taken . The Committee may wish to
consider whether the Legislature should approach regional
solutions to the fiscalization of land use by a different
path than the sales tax revenue sharing arrangement in AB
680. While the bill reallocates some revenues to SACOG to
fund regional projects, there's no strong connection to
specific outcomes. The Sacramento region needs more
affordable housing, better transportation mobility,
additional protected open space, and cleaner air. What if
legislators insisted that local officials implement
programs that lead to measurable results in housing,
transportation, open space, and air quality? Would sales
tax sharing be necessary if local officials made progress
towards regionally-desirable goals?
5. Double-referred . The Senate Rules Committee ordered a
double-referral of AB 680. After the bill leaves the
Senate Local Government Committee, it must be heard in the
Senate Revenue and Taxation Committee.
Assembly Actions
Assembly Local Government Committee: 6-3
Assembly Revenue & Taxation Committee: 6-2
Assembly Appropriations Committee:12-6
Assembly Floor: 41-29
Support and Opposition (6/18/)
Support : Cities of Citrus Heights, Davis, Galt, Loomis,
Port Hueneme, Sacramento; County of Sacramento, ACORN,
Alliance for Better Business, American Planning
Association-California Chapter, Association of California
Cities Allied with Prisons, California Association for
Coordinated Transportation, California Bicycle Coalition,
AB 680 -- 6/17/02 -- Page 6
California Black Chamber of Commerce, California Coalition
of Welfare Rights Organizations, California Coalition for
Rural Housing, Californians for Disability Rights,
California Federation of Teachers, California Foundation of
Independent Living Centers, California Labor Federation
AFL-CIO, California Nurses Association, California
Reinvestment Committee, California Rural Legal Assistance
Foundation, California State Association of Letter
Carriers, California State Building Trades Council,
California State Council of Service Employees, California
Teamsters Public Affairs Council, Californians for Justice,
Center for Third World Organizing, Center for Voting and
Democracy, Congress of California Seniors, Environmental
Defense, Gray Panthers of California, Greenlining
Institute, International Longshore & Warehouse Union,
Inter-Tribal Council of California, Latino Issues Forum,
Lutheran Office of Public Policy-California, Natural
Resources Defense Council, Non Profit Housing Association
of Northern California, Older Women's League of California,
Planning and Conservation League, PolicyLink, Rails to
Trails Conservancy, Sierra Club, Surface Transportation
Policy Project, United Food & Commercial Workers, Urban
Ecology, Western Center on Law & Poverty, Alliance for
Democracy, American Lung Association of Sacramento-Emigrant
Trails, Avondale Action Committee, Bakers Union Local 85,
Chicano Consortium, Clover Valley Foundation of Loomis,
Coalition of Labor Union Women, Community Housing
Opportunities Corporation of Davis, East Del Paso Target
Area Committee, Environmental Council of Sacramento, Florin
Road Partnership, Franklin Boulevard Business Association,
HERE Local 49, Land Park Community Association, Livable
Places, Loaves and Fishes, Lorenzo Patino School of Law,
Mercy Housing California, Neighbors Aware, North Laguna
Creek Neighborhood Association, Oak Ridge Christian
Community Association, Ridership for the Masses, Roosevelt
Property Owners Association, Sacramento ACORN, Sacramento
Central Labor Council, Sacramento County Green Party,
Sacramento Homeless Organizing Committee, Sacramento
Transportation Equity Network, Sacramento Housing Alliance,
Sacramento Mutual Housing Association, Sacramento Old City
Association, Sacramento Urban Indian Health Project,
Service Employees International Union Local 250, Sierra
Club-Mother Lode Chapter, Sierra Club/Sierra Nevada
Chapter, Sierra Foothills Audubon Society, Southside Park
Neighborhood Association, St. Rose Church-Roseville,
Tahoe/Colonial Collaborative for Healthy Children, UFCW
AB 680 -- 6/17/02 -- Page 7
Local 588, UPTE Local 6, Walk Sacramento, Women Democrats
of Sacramento County, Art Directors Guild, ATU 1555,
Acterra-South Bay, Azusa Chamber of Commerce, Bay Area
Transportation and Land Use Coalition, Communication
Workers of America Local 9423, CWA Local 9505, Endangered
Habitats League, Fair Housing Council of the San Gabriel
Valley, Fair Housing Council of Riverside County, Fair
Housing Foundation, Inland Fair Housing of Ontario, Inland
Fair Housing of San Bernardino, Kennedy Club of the San
Joaquin Valley, Labor/Community Alliance of Fresno, Los
Angeles Housing Law Project, Machinists Local 1584, Marine
Firemen's Union, Monterey Bay Central Labor Council,
Musicians Union Local 6, Napa Valley Community Housing,
Orange County Central Labor Council, People United for a
Better Oakland (PUEBLO), Redefining Progress, Regional
Alliance for Transit (RAFT), San Mateo County Central Labor
Council, San Francisco Bicycle Coalition, SEIU Local 535,
Southern California Association of Non Profit Housing,
State Council of H.E.R.E. Local 49, The Tara Fund,
Teamsters Local 856, Tenderloin Housing Clinic, IBEW Local
11, IBT Local 150, UFCW Local 870, UFCW Local 1179, UFCW
Local 135, United Steel Workers of America, Valley West
Community Church, Watts/Century Latino Organization, Bates
Botting Consulting, Donna's Aroma Therapy, E & M Electric,
Irene's Day Care, Kathy's Hair Salon, Merritt Respite
Services, Meta Vista Consulting Group, Precision
Installation, and 10 individual local officials.
Opposition : Cities of Alameda, Aliso Viejo, Antioch,
Arcadia, Barstow, Beaumont, Bellflower, Belmont, Brea,
Brisbane, Burbank, Burlingame, Camarillo, Carlsbad, Carson,
Cerritos, Chula Vista, Commerce, Concord, Corona, Costa
Mesa, Cupertino, Daly City, Danville, Diamond Bar, Dublin,
Elk Grove, Fairfield, Folsom, Fontana, Fremont, Hawaiian
Gardens, Hawthorne, Hayward, Hermosa Beach, Huntington
Park, Industry, Irwindale, Lake Forest, Laguna Hills,
Laguna Niguel, Lakewood, La Morada, Lawndale, Livermore,
Menlo Park, Mission Viejo, Monterey, Monterey Park, Moreno
Valley, Newark, Norwalk, Oceanside, Palo Alto, Palmdale,
Palm Desert, Paramount, Pinole, Pittsburg, Pleasant Hill,
Pleasanton, Rancho Cucamonga, Rancho Santa Margarita,
Redding, Redondo Beach, Rosemead, Roseville, San
Buenaventura, San Bruno, San Carlos, San Leandro, San Luis
Obispo, San Mateo, San Pablo, Santa Barbara, Santa Clara,
Santa Fe Springs, Santa Monica, Saratoga, Simi Valley,
South Gate, Sunnyvale, Taft, Thousand Oaks, Ventura,
AB 680 -- 6/17/02 -- Page 8
Vernon, Victorville, Walnut Creek, West Sacramento, Yorba
Linda, Yuba City; Bay Area Council, California Chamber of
Commerce, California Coalition for Local Control,
California Retailers Association, California Taxpayers'
Association, Californians for Balanced Communities, League
of California Cities, San Mateo County Council of Cities,
South Bay Cities Council of Governments, Greater Concord
Chamber of Commerce, Elk Grove Chamber of Commerce, Irvine
Chamber of Commerce, Pittsburg Chamber of Commerce, San
Carlos Chamber of Commerce Government Affairs Council,
Tustin Chamber of Commerce, Victorville Chamber of
Commerce, Acacia Mechanical Electrical Inc., California
Custom Sound & Video, Crisara Creative Therapy, Dust-Tex
Service Inc., Elk Grove Spring Homes Inc., Elk Grove Water
Services, Sacramento Land & Farming Inc., The Business
Group, Western Municipal Water District, and 6 individuals.