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HomeMy WebLinkAboutB- 5 AB 1221- California Balanced Communities Act• f ) • CONSENT ITEM TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: ROBERT K. PERSON, ASSISTANT CITY MANAGER aqb VIA: RICK COLE, CITY MANAGER DATE: MAY 19, 2003 SUBJECT: AB 1221 - THE CALIFORNIA BALANCED COMMUNITIES ACT RECOMMENDATION It is recommended that the City Council approve a letter of support for Assembly 1221 - The California Balanced Communities Act of 2003. BACKGROUND Under the current law, Bradley -Burns Uniform Local Sales and Use Tax Law, cities and counties are allocated 1 % of every retail purchase that takes place within their jurisdictional boundary. At the same time, they receive very little property tax revenue. Given the fractured history of the state/local fiscal relationship, local jurisdictions have grown increasingly reliant upon their ability to maximize their sales tax revenue. Consequently, land use decisions are often "fiscalized." New growth is encouraged based on the necessity of each city and county to qualify for more and more sales tax revenues. As a result, cities and counties within a given region are constantly looking for ways to bring more retail sales tax generators into their jurisdictional boundary. This can have the impact of skewing land use decisions toward retail use and away from housing, manufacturing and other uses that do not generate a significant amount of sales taxes or revenue. It also leads to endless competition among cities and counties for a finite amount of retail sales tax dollars. The result of this broken system of local government finance is the development of local governments with imbalances in community land uses, housing shortages in certain areas, long commutes for workers living in housing richfJob poor fringe -area suburbs, and fractured families in which working parents lose quality time with their children because of long commutes. „The Problem ti The current fiscal incentives in local land use decisions often prevent local governments from making their preferable land use planning decisions. All too often the allure of generating sales tax puts local officials in a situation of needing to saturate their cities with retail while housing and other forms of development fall behind. Absent fiscal pressure, most communities would gladly choose a mixture of land uses including housing, retail and commercial, unfortunately this is not their reality. The reality is, California is a state full of unbalanced communities. The Solution: AB 1211 (Steinberg B Campbell) The State of California has a golden opportunity to fix a broken system before our quality of life further deteriorates. AB 1221 would create a more balanced system of local government financing that would enable cities and counties to grow the way they want to. AB 1221 does not take away the incentive of local governments to serve their citizens by fostering retail services, but rather it allows for a more balanced approach by taking away the disincentives currently associated with the building of homes. Specifically, AB 1221 would: ➢ Swap a portion of the locally levied sales tax for an equivalent amount of property tax from the State. ➢ Reduce the locally levied I% sales tax rate to .5% and raise the State sales tax by .5%. ➢ Increase the amount of property tax (ERAF) equal to .5% of the locally levied sales tax from the State to each respective city or county in the base year. ➢ Each year after the base year, the city and the county will receive the same amount of property tax they received in the prior year, plus a share of the property tax that is attributable to the growth in assessed value within their jurisdiction. The pro rata shares of the property tax of each jurisdiction would determine the share of the growth. This is consistent with existing law. ➢ Provide a reversal mechanism so that if a future legislature reduces the property tax allocated to local governments in this bill, then the sales tax rate would also be reinstated. FISCAL IMPACT There is no fiscal impact as a result of this specific item. AB 1221 (Steinberg & Campbell) California Balanced Communities Act of 2003 How will AB 1221 benefit local governments? AB 1221 diversifies and stabilizes local government revenue. As should any responsible portfolio, AB 1221 would provide local government with a balanced revenue stream. By receiving less of the highly volatile sales tax revenue and more property tax, a stable revenue source, local governments would be cushioned against the ups and downs of the economy. Property tax is a much more stable and robust revenue source. Going back eight years, property tax is a much more stable and consistent source of revenue than sales tax. Presently, in fact, sales tax is stagnant. Property tax, on the other hand, continues to grow at a steady rate of 8 to 9%. AB 1221 does not create winners and losers. The base year, under AB 1221 would be 2004. Since in the base year sales tax is simply swapped for property tax, it is entirely revenue neutral and will not impact any current revenue generated by past development decisions. Future years revenue would be based upon development decisions made by local governments. If a community builds a balance of retail, jobs, & housing within their community plan, they will obtain the maximum revenue under AB 1221. AB 1221 provides protection against future legislatures taking more property tax. Understanding that the state-localrelationship is rocky at best, AB 1221 provides a reversal mechanism so that if a future legislature reduces the property tax allocated to local governments in this bill, then the sales tax rate would also be reinstated. AB 1221 would remove disincentives to approve housing and corporate job centers. Under current law, there is very little fiscal incentive to approve housing and other non -sales tax generating developments. Housing is often referred to as a "black hole' in community development. By increasing the percentage of property tax retained by property tax generating land uses, housing developments will begin to pencil out. The idea of swapping a portion of the locally levied sales tax for a larger share of the property tax is not new. It is a proposal that was strongly recommended by the Speakers Commission on State and Local Government Finance in 2000. The commission was politically diverse, including the leadership of the League of California Cities and the California State Association of Counties. League of California Cities consultant, Michael Coleman, completed a fiscal analysis of the Speakers' Commission proposal to swap a portion of the Bradley Burns sales tax for property tax. AB 1221 is identical to the proposal. Following, are his policy considerations made to the League Fiscal Reform Task Force in December 1999. The proposal (like AB 1221) continues to provide sales tax revenue to cities on a situs basis. The Bradley Bums Uniform Sales and Use Tax was established in 1955 in order to provide additional revenues to communities that permit retail development. Retail development results in substantial additional municipal service costs including transportation, law enforcement, fire and emergency medical services. The Bradley Burns works as intended: it compensates cities (counties in unincorporated areas) for these costs and provides an incentive for this type of development. The problem maybe that 1) it over -compensates cities for these additional costs, and 2) other discretionary forms of municipal revenue (especially the property tax) have been so substantially reduced and restricted over the last twenty years, that local government is left with few revenue raising options other than pursuing sales tax generators. By keeping 0.5 cents of the Bradley Bums, the proposal (like AB 1221) acknowledges that the additional costs burdens of retail development should be compensated. The proposal (like AB 1221) helps to remove barriers to residential and non -retail development. By providing additional property tax share in lieu of sales tax revenue, the proposal will improve the ability of new residential and non -retail development to generate adequate revenues to cover its municipal service costs. The proposal (like AB 1221) provides cities and counties with a more stable and dependable revenue future. As a revenue source, sales tax is more vulnerable to economic volatility. Moreover, it is currently threatened by dramatic social and technological changes that the state and federal governments must respond to. Historically, statewide, property tax has a more stable and more robust growth pattern. The proposal (like AB 1221) prevents financial harm to individual cities. Many cities are highly sales tax dependent. The shift of half of the Bradley Bums rate to the state is most significant in these cities. The proposal would provide a dollar for dollar replacement of these sales tax revenues with property tax revenue base. Revenue growth in the future would differ, depending on growth in property values, rather than growth in taxable sales. I RESOLUTION NO. 2003- i A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ENDORSING THE CALIFORNIA BALANCED COMMUNITIES ACT OF 2003 (AB 1221) WHEREAS, the City of Azusa supports AB 1221's goals of diversifying and stabilizing local government revenue; and WHEREAS, the City has undertaken a comprehensive rewriting of its General Plan and Development Code to ensure that its land use plans and development patterns are consistent with balanced growth, promoting a strong livable community, sustainable over the long term; and WHEREAS, the City recognizes that with upwards of one half million new residents projected for the State of California annually, during the next twenty years, AB 1221 will be essential in curbing urban sprawl, traffic congestion and poor air quality; and WHEREAS, housing and jobs for all income levels are urgently needed in our region, yet under the current law there is very little fiscal incentive to approve new homes and other non -sales tax generating developments; and WHEREAS, by increasing the percentage of property tax retained by property tax generating land uses, as provided by AB 1221, new homes and workplaces will support the services they require; and WHEREAS, AB 1221 would not create financial inners and losers among cities and counties, as the proposal is entirely revenue neutral during the base year and would not impact any current revenue generated by past development decisions; and WHEREAS, the City would be rewarded for meeting its already stated goals of building a community with a balance of housing, jobs, and retail services; WHEREAS, the City supports the position of the League of California Cities that fiscal reform should be coupled with State Constitutional protection for local revenue sources, to preclude future raids on property or other local tax revenue; NOW THEREFORE BE IT RESOLVED AND ORDERED that the City of Azusa City Council declares as follows: The City of Azusa supports the California Balanced Communities Act of 2003 (AB 1221) as long as the Legislature provides this and other forms of local revenue with State Constitutional protection. The City of Azusa shall draft a letter to the State Legislature affirming its support for AB 1221 and State Constitutional protection for local revenue sources.