Article written by: Wayne Fortin

Fiscalization of Land use

Proposition 13 otherwise known as the ‘peoples initiative to limit their property

taxes,’ effectively shifted the control of property tax revenues from the local governments

to the state. Proposition 13 limits that the parcel tax cannot exceed 1% of the total

assessed value of the property. This cap came from the premise that residents did not

want to be priced out of their homes through high property taxes, currently only 33% of

voters disapprove of proposition 13 thus being a clear indication that Californians

disapproved of increased taxes in general and originally reduced property taxes by

about 57% making property taxes a smaller share of local treasuries. Now if we look at

the Situs rule tax allocation system, essentially we see that 1% of local levied sales tax

is collected by the state and then returned to the city or jurisdiction of where the sale

occurred, thereby giving local governments incentive to compete and recruit retailers in

their district to thereby increase the monetary gains on a local governments behalf. Such

practice of essentially chasing retail is known as ‘Cash box zoning.’ These types of

benefits are non-existent to industrial and residential settings and therefore may hurt the

overall vitality of the city in the long run. Such examples may include the city of Indio

practicing their eminent domain laws to allow retailers expand to simply accrue more

sales tax for the city but at the expense of one of their historic preservation sites within

the proximity of this expansion. We can see that land use decisions are widely effected

when the limitation of revenues is present; In essence due to proposition 13, local

governments seek alternative ways other than parcel tax to gain revenue such as to

utilize the Situs Rule tax distribution system which gives municipalities incentives to

recruit retail.
 The effects of such a shift in tax generation are argued to create significant

imbalances in land use within metropolitan regions, with certain parts of a region

specializing in particular land uses such as retail zoning aka “cash box zoning,” The local

governments that do well in the collection of sales tax have little incentive to disarm the

sales tax race, let alone zone areas for industrial and residential uses as opposed to

retail uses. Mainly because retail especially big box retail have make major monetary

gains for the city. Since sales tax is favorable we see that housing and industrial

development has become more expensive to develop. Another reason that sales tax is

more favorable is due to its discretionary earnings, when it comes to other types of

revenues for example property tax, we see that a lot of the earned revenues are already

earmarked for certain uses while sales tax gives the city a little more ease in allocating

these funds to what ever uses need funding. We also see that retail harnesses potential

growth in terms of sales tax especially in good economic times, which makes this form of

revenue even more desirable. We see that communities that fall in the low income

bracket are laggers when it comes to generating revenue for its main reasons and we

also see that wealthy communities are also laggers when it comes to revenue

generation do to the fact that they are advocates of the “NIMBY” not in my back yard

mindset when it comes to commercial and retail development in their communities. We

can see the imbalances of land use favoring retail than any other type of zoning, there is

strong evidence showing that city governments do in fact favor retail development than

any other types of land uses when it comes to developing on vacant land. Its known that

the fierce competition between retail has remained stable, even through this high

demand there is only a certain amount of retail that can thrive in any given population

and these local governments cannot hope to make extra income through excess. Overall

we can see how short sighted planning may be when cities chase after “cash box” retail.
 We can see the dangers in such short sighted planning especially in our

city of Indio example when they demolished a historic preservation due to an expansion

to retail in which eminent domain was practiced.

When we look into alternatives to the retail-chasing scheme, we must look away

from the Situs rule. Such alternatives as the population based system for distributing

sales tax revenues. City population within cities and unincorporated area population and

the case of counties. First we assume that cities and counties receive a share of the

statewide Bradley Burns funds based on their populations. We see that that it has

several advantages but we also see that this system has flaws as well. On the

advantageous side of the population based system we see that this system would cure

some of the disparities in revenues which we see in the Situs rule, secondly we see that

this gives local governments less incentives to chase after sales tax distribution due to

the fact that the sales taxes are not based off of retail, and thirdly we see this proposal

would give incentive to increase residential population due to the fact that population

would drive the tax allocation. Now if we examine the disadvantages of the population

based approach we see that those local governments that have succeeded in becoming

entrepreneurial by successfully recruiting retail would feel robbed due to the fact that

these funds would get taken away from then, second tax revenues in wealthy areas that

do not welcome commercial development will unfairly benefit from the excess revenues,

thirdly this would give the opposite effect when it comes to retail development as does

the Situs rule, thereby removing the major incentive that cities have to pursue growth

and development. As I researched information I found that the Erie county is having a

hard time with their tax revenue distribution formula, essentially saying that it is no longer

valid due to the major sifts in population, ultimately they state that they cannot afford to

continue this unequal formula in distributing sales tax revenue.

 Another such reform package would be the statewide distribution system. The

California State Controllers data points out that 55.5% of the 470 cities in existence in

1994 would have received more gains than under the Situs rule. When it comes to the

‘cons’ socioeconomic characteristics show the gainer cities are slightly poorer, have

higher household sizes and higher populations of Hispanics in their population. We

would see that the LA area would disproportionately gain while the bay area and rest of

the state would be labeled losers in this revenue distribution system. In the statewide

distribution plan we would see that the overall population of cities that stood to gain were

less than those that stood to lose. These scenarios reflect the broad distributive nature

of the statewide proposal.

Other reform packages are being brought up by the San Diego Association of

governments which proposes ways to seeks a constitution amendment that “establishes

a new system based on protecting local revenues, adding flexibility for local

governments, and strengthening growth management incentives.” Some of these

benefits include no additional taxes, constitutional protection of cities and county

governments, even revenue exchange and creation of new countywide tax base, and a

financial relief through ERAF.