Retailers Top List of Favorite City Developments; Study Finds Far Less Interest in Affordable Housing, Industry
A new survey has documented what many planning and public policy experts have long suspected: California city managers prefer retail projects in their community over any other type of land use, and they least favor multi-family housing and heavy industrial projects.
The survey — part of a study of land use and sales tax issues by the Public Policy Institute of California — was released just as the California Legislature considers a bill that would require cities that lure large retailers across jurisdictional lines to share tax revenue with the "losing" jurisdiction. The bill, AB 178, carried by Assemblyman Tom Torlakson, D-Contra Costa County, was approved by the Senate Local Government Committee on July 14. A similar Torlakson bill failed to pass the same committee last year. The PPIC study also emerged at the same time that a committee appointed by the Board of Supervisors in Humboldt County concluded that big-box retailers will bring few new jobs and little new tax revenue to the county.
The city manager survey found that retail ranked significantly higher than office, mixed-use, and light industrial land uses, which also rated as city manager favorites. Surprisingly, the survey found little difference in city manager preferences for land uses inside and outside redevelopment project areas.
"To be fair, cities are not one-dimensional in their policy orientation, and they're still pretty interested in other types of development," said Paul Lewis, a PPIC researcher and co-author of the study, California Cities and the Local Sales Tax.
The PPIC study also found that even though cities are heavily focused on sales tax, the hierarchy of sales-tax "winners" and "losers" in the state has not changed significantly in the last 25 years. Furthermore, the study concluded, distributing sales tax on a population basis — either statewide or on a county-by-county basis — would not create significant change, as least on a macro scale. Approximately half the cities would be winners and half would be losers. Though individual cities would be heavily affected, there would be little difference, in the aggregate, between cities that win and cities that lose. Cities with a high Latino population would be winners — but so would extremely affluent cities, because they often have little retail base.
Sales-tax revenue has been considered especially important to cities ever since the passage of Proposition 13 in 1978. According to the report, cities received about 20% of their revenue from property tax and only 10% from sales tax prior to Proposition 13. Today, the two revenue sources are approximately equal at about 10% apiece. Cities receive most of their revenue from public service enterprises (approximately a third) and licenses, fees, and assessments (including development fees), which have grown from about 20% of revenue in the pre-Proposition 13 era to about 30% to 35% today.
Sales taxes are especially important, however, because there are no legal constraints to growth in revenue and because the funds may be used for any purpose.
In tracking city sales-tax revenue, Lewis and his co-researcher, Elisa Barbour, examined statistics in the 1991-93 period (a recession, especially for retailing) as well as historical trends from the early 1970s to the early 1990s. Among other things, they found that per-capita sales-tax revenue is generally higher in cities with declining household sizes, cities that have not had rapid population growth, and — significantly — cities located outside the Central Valley. These cities were more successful not only during the 1991-93 period, but also over the entire 20-year period.
In addition, PPIC found, cities active in redevelopment, those located near freeways, and those with a small African American population were also successful in the sales-tax game — but these differences only showed up during the 1991-93 period, not over the 20-year period.
Significantly, however, researchers did find that central cities — defined as 36 older cities with established downtown areas — have lost considerable ground compared with suburbs. In 1971, central cities actually had greater sales-tax revenue per capita than suburbs did. Suburbs overtook central cities in the mid-'70s, and the gap has accelerated during the boom years of both the 1980s and the 1990s. Today, sales tax revenues in the central cities is about $90 per capital compared with about $110 in other cities.
The study also found an increasing gap in per-capita sales-tax revenues between the Bay Area and the Los Angeles region. Los Angeles had higher per-capita sales-tax revenue until the early 1980s but has been losing ground ever since. Today, the figures are approximately $125 per capita in the Bay Area and $95 per capita in Los Angeles.
The survey of city managers — to which about three-quarters of city managers in the state responded — measured not only land-use preferences but also factors reported by city managers that influence land use decisions. New sales-tax revenues came out as the most important factor, followed closely by city council support, eradication of blight (in redevelopment areas), infrastructure adequacy, and likelihood of job creation. With the exception of blight, these factors were not very different inside and outside redevelopment project areas. Meeting affordable housing needs, although higher in redevelopment areas, was among the least of city managers' concerns.
However, city managers in different regions of the state had different attitudes. City managers in all parts of the state listed sales-tax revenue as an important motivation. But Bay Area city managers, unlike their counterparts elsewhere, listed city council support, traffic problems, and neighborhood concerns as top factors. By contrast, Central Valley city managers were far more likely to list job creation as a factor influencing their land use decisions.
"If you're an isolated Central Valley city, you have to be concerned about jobs," Lewis said.
Though PPIC released the study at the same time the Senate Local Government Committee considered the Torlakson bill, it is hard to say whether the study affected the bill's success. AB 178, which was opposed by the California Motor Car Dealers Association among others, requires that if a city offers a subsidy to a big-box retailer or auto dealer to relocate within the same market area, the city must offer a sales-tax sharing contract to the city from which the retailer is relocating. The contract must be approved by a two-thirds vote of the city council or county board of supervisors in each jurisdiction. The legislation defines a big-box retailer as a store of at least 75,000 square feet.
Rex Hime, lobbyist for the California Business Properties Association, said opposition was muted by a number of changes from Torlakson's 1998 bill. Among other things, AB 178 limits the definition of a financial incentive so that some mitigation measures such as traffic improvements are not included and provides a specific definition of a "market area". As originally written, the bill defined "market area" as a 40-mile radius. At the July 14 hearing, the committee amended the bill to define the market area for big-box retailers as 25 miles, while retaining the market area for autos as 40 miles.
"It's a much different bill than it was before," Hime said.
The Humboldt County report was issued by a 10-member committee, including city managers and other prominent county citizens, appointed by the Board of Supervisors. The Ad Hoc Committee on Big Box Development concluded that because the county is isolated and its retail market is not growing very rapidly, any new big-box development would simply siphon jobs and sales from existing retailers. Supervisors created the committee in response to the pending question of whether to approve a Wal-Mart in Eureka. That question will be on the Eureka ballot August 24. The committee encouraged the county's cities to take advantage of the sales-tax sharing provisions in Proposition 11, passed by state voters last year.
Paul Lewis, Public Policy Institute of California, (415) 291-4400.
Peter Detwiler, Senate Local Government Committee, (916) 445-9748
Rex Hime, California Business Properties Association, (916) 443-4676.
California Cities and the Local Sales Tax is available on the PPIC web site, www.ppic.org.