HomeMy WebLinkAboutB-5 AB 1221 Exhibit 1
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-local relationship 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.
Property Tax Vs. Sales Tax Growth
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03
Est.
Property Tax Sales Tax
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 Burns 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 may be 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 Burns, 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 Burns 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.