July 18, 2001
Researcher Calls Sales Tax Battles a
Big Culprit in Urban Sprawl
Resolution Photo of Robert Wassmer
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
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
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.
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