July 18, 2001

Researcher Calls Sales Tax Battles a
Big Culprit in Urban Sprawl

Complete Studies
High Resolution Photo of Robert Wassmer

Battles for sales tax revenue are hampering efforts to restrain urban sprawl and weakening downtown regions throughout the West, according to a new report titled "An Economist's Perspective on Urban Sprawl" by Robert Wassmer, a California State University, Sacramento professor of public policy and economics. Wassmer completed the report as a visiting consultant with the California Senate Office of Research.

The results, reported in "Part II: Defining Excessive Urbanization in California and Other Western States," are ever-longer commutes, worsening air pollution, loss of open space and agricultural land, and declining vitality in the traditional central places of urban areas.

"All across California and the West, the central places that give heart, soul and excitement to our metropolitan areas are losing retail business they ought to be capturing," Wassmer says. "This hurts these central places and in the long run it hurts nearby areas."

In "Part I: Influences of the 'Fiscalization of Land Use" and Urban-Growth Boundaries" he identified California metropolitan areas of Fresno, Los Angeles, Riverside, Merced, Sacramento, Oakland, San Francisco, San Luis Obispo and Stockton as having the state's highest increase in sprawl in the 1990s.

Wassmer says the sales tax and sprawl issue is all a matter of the penny that a local jurisdiction in California keeps for every retail dollar spent within its boundary. Other Western states have similar policies. This offers local governments discretionary revenue that in many cases they cannot get anywhere else. Inadvertently, this siphons retail activity from central cities and contributes to what most consider urban sprawl.

Wassmer describes a vicious circle in which suburban officials, seeking to pay for programs and services, allow more retail growth on their relatively cheap land than their residents need. "Big box" retailers, regional shopping malls and auto malls proliferate. Central city residents begin shopping and paying sales tax in the area and may eventually move there. Downtown areas, meanwhile, lose the retail growth they need to prosper.

In California, the report shows, the Oakland metropolitan area would have had 46 percent more retail activity - amounting to $1.7 billion - in 1997 alone if not for the local sales tax system. The Los Angeles-Long Beach downtown areas lost nearly $4.6 billion worth of business to its urban fringes that year, and Sacramento lost $1 billion. Overall, the 25 central city areas in California lost $16 billion in taxable retail business in 1997 due to the sales tax system.

That lost business, Wassmer says, could have meant more vibrant cities with better cultural offerings and busier sidewalks in the evenings.

Wassmer's study offers the first data-driven look at what analysts have called the "fiscalization of land use" - a situation in which maximizing sales tax revenue is a significant reason for local zoning decisions.

Wassmer says fixing the problem means negotiating an end to the local sales tax battles. He suggests distributing a large portion of the growth in sales tax revenue on a regional basis, removing the incentive for suburban areas to chase more retail development. That's the essence, he notes, of AB 680, a proposal in the California State Legislature that would redistribute the growth in local sales tax revenue throughout the Sacramento metropolitan area.

Importantly, Wassmer's study also notes that growth control measures in the West have proven partially effective.

After 20 years in place, areas with highly restrictive growth boundaries - San Diego, Portland and a slew of other cities in Oregon and Washington - see about a 20 percent increase in central place retail sales that would have gone to the suburbs absent the growth boundary. Over time, Wassmer says, this can prove significant in reducing sprawl.

Nevertheless, he says the lure of sales tax dollars present an ongoing threat to anti-sprawl efforts, even where growth controls are in effect.

Wassmer's reports are available on the California Senate Office of Research website at www.sen.ca.gov/sor/reports.htm. Additional media assistance is available by contacting the CSUS public affairs office at (916) 278-6156.

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