The Retail Wags the Dog

There is this new city policy in Long Beach. Call it keeping Cal Worthington happy. Or putting the screws to Signal Hill and Lakewood. Or rolling over local residents fighting to preserve their neighborhoods.

You can also call it dialing up dollars.

It’s all about the way many California cities these days are raising money to pay for police, fire and other city services. Long Beach has arrived relatively late for the party, but the city is trying with a vengeance to catch up.

It works like this:

Long Beach, in recently approving a 43-acre shopping center in an area adjacent to a quiet residential neighborhood, had to forgive $6 million in sales tax over 15 years. Worthington Ford and a Chevrolet dealership recruited from neighboring Signal Hill were two of the prizes it won. The deal works to Long Beach’s benefit because there is a 50-50 split of the sales tax, so the city still figures to net $6 million over the same 15 years.

“We had to do it,� said City Manager James C. Hankla, explaining the tax giveaway. “You have to pay the bills.�

As for damage done to Signal Hill or Lakewood, Hankla said he has no pangs of conscience. The reason? Long Beach for decades has lagged behind its neighbors in pursuing retailers, sitting quietly by as auto malls and shopping centers sprang up in Signal Hill, Lakewood and Cerritos, often with tax giveaways of their own.

“We have been notoriously ‘under-retailed’ for years and years,� the city manager said.

As a new convert, Long Beach, like many other cities in California, is pursuing sales tax dollars at a fever pitch.

Cities, to a greater or lesser degree, have been chasing retailers for decades. But with the state taking away more and more of their tax base through property tax shifts, Long Beach and other California cities have been forced to place new emphasis on attracting and keeping auto dealers and warehouse-style retailers such as Worthington Ford and Office Depot.

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The 1% share of the 8.25% sales tax in Los Angeles County has become the lifeblood of cities. And the scramble to sign up large retailers underscores an immense concern. “It is universally acknowledged to be a big problem,� said April Manatt, a consultant to the state Senate Local Government Committee.

Legislation aimed at curbing the practice of cities recruiting auto dealers and retailers with 75,000 square feet or more from neighboring municipalities was approved this year in the state Assembly, but died recently in the state Senate, defeated in part by heavy lobbying by auto dealers. It was also opposed by the League of California Cities, many of whose members see attracting big retailers as crucial to their survival.

Assemblyman Tom Torlakson (D-Antioch) drafted the defeated bill, which he vows to reintroduce, after a Costco wholesale store threatened to move out of Martinez and relocate in Concord.

Costco represented about one-sixth of Martinez’s sales tax income, and the move would have been devastating, Torlakson said. As he explored the issue, Torlakson said he discovered that cities up and down the state were engaging in cutthroat competition with each other for auto dealers and warehouse-type retailers.

“We are seeing tens of millions given away to corporations on these kinds of deals,� said Torlakson, who said the giveaways were one reason some legislators turn a deaf ear to cities who come to Sacramento pleading for money. He believes cities will eventually support the legislation.

In many areas, cities have been at each other’s throats for years.

Among the most notable examples is the fierce rivalry in Ventura County among Oxnard, Ventura and Camarillo, which have converted farmland into retail space so fast that a 10-mile stretch of the Ventura Freeway was dubbed “Sales Tax Canyon� by urban planner William Fulton.

Palmdale and Lancaster have so tired of their bidding wars they are discussing sharing sales tax revenues. Assemblyman George Runner Jr. (R-Lancaster) is carrying legislation to amend the California Constitution to allow them to do it.

The city of Los Angeles is also struggling. Boxed in geographically, and under pressure from such neighbors as Santa Monica, Beverly Hills and Burbank, Los Angeles was mired in a recession through much of the ‘90s, and only now is beginning to show some growth in sales tax revenues.

During the 1996-97 budget year, Los Angeles’ share of the sales tax was $284 million, a 3% decline from $293 million in 1990-91, according to the State Board of Equalization. That compares to increases of 21% in Burbank, 19% in Santa Monica, and 18% in Beverly Hills.

Asked about competition from neighboring cities, Rex Olliff, a financial analyst with the Los Angeles administrative office, said, “Some of them are just eating our lunch.� But Olliff said sales tax receipts rose during the budget year that just ended June 30, and the city expects a 4% increase during the current year.

In southern Los Angeles County, the rivalry among Long Beach, Signal Hill, Lakewood and Cerritos reflects experiences elsewhere in the state.

The sales tax agreement approved by the Long Beach City Council on June 30 for the 43-acre shopping center on the site of the old Los Altos Drive-In Theater was just the latest in a series of rapid-fire changes begun in recent years. Two aging malls on the city’s east side have been converted to traffic-clogged shopping centers, and development deals are underway in just about every corner of Long Beach.

The largest of the deals is a 1 million-square-foot retail development now under construction at the old Navy Hospital site at the 605 Freeway and Carson Street. It will include a 27-screen multiplex, an AutoNation USA mega-car dealership and several “big box� retail stores.

The spate of economic development has jarred Long Beach’s neighbors.

“Where are we going?� asks Don Waldie, a spokesman for Lakewood. “Are we going to have a Costco on every street corner paid for by taxpayer subsidies? The problem is, when you build more stores you don’t bring in more shoppers, you just split up the ones already there. The pie keeps getting smaller and smaller.�

Retorts Hankla: “I agree we are dividing the pie to get a piece. But we haven’t had a piece since the early 1960s. We were asleep at the switch during the 1960s.�

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Lakewood, in a sense, may have triggered it all.

Back in 1951, the city began building the Lakewood Mall, then a pioneering bid by a suburban community to lure shoppers from downtowns. As suburban malls began catching on, downtowns in older cities, like Long Beach, began dying.

While Lakewood was relatively quiet during the 1970s and ‘80s, auto malls sprouted up in Signal Hill and Cerritos. And the Los Cerritos Mall in Cerritos, with high-end retailers such as Nordstrom and Macy’s, became a magnet for retailers.

Until 1978, such movement of retail dollars wasn’t as important as it is now. But that was the year Proposition 13 passed, reducing city property tax revenues by 60%. According to research by the League of California Cities, the state Legislature is shifting what amounts to $3.6 billion annually in property taxes away from cities, leaving them more dependent on such revenue sources as the sales tax, user fees, and business license taxes.

These days, in large part because of sales tax revenues, Signal Hill and Cerritos are flourishing, while Long Beach and Lakewood are struggling.

Long Beach has one of the area’s highest utility users taxes, at 10%, and the local business community is pressuring the city to reduce it.

Property tax shifts have been so dramatic that Long Beach and other cities say the tax no longer generates enough revenue to pay for basic police, fire and other services needed by property owners.

That leaves the sales tax, a highly unstable source of revenue because it is prone to dip during recessions and is subject to marketplace vagaries.

Even though Long Beach is aggressively pursuing the sales tax, Hankla is among a growing number of city officials disturbed by its importance.

“The sales tax is important--too important--because it encourages cash-box zoning applications,� said Hankla, who will retire Dec. 30. “I don’t like it. It forces cities to chase sales tax as opposed to other land uses, and that is patently wrong.�

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As for a beneficiary like Cal Worthington, the auto dealer said he likes the attention. He didn’t get a sales tax rebate, which will go to the developer, but the Long Beach City Council made other concessions. It gave Worthington the frontage he wanted and overrode Planning Commission and community opposition to allow his dealership to stay open until midnight. In addition to Worthington, the shopping center will include the Bay City Chevrolet dealership now located in Signal Hill, a Super Kmart, an Eagle Hardware store, and several fast-food franchises.

Local residents fear noise, traffic and other effects of the shopping center on their neighborhoods. Even though they managed to get the developer to back away from a plan to keep the Kmart open 24 hours, many left the City Council hearing feeling they didn’t have a chance.

“We’ve basically had no voice, no one to listen to us,� said Dorothy Von Zumwalt, a homemaker and mother of three who got together with a group of neighbors to fight the project. “We were condescended to, berated and belittled at the City Council meeting.�

Signal Hill and Cerritos are benefiting from their aggressive pursuit of economic development during the 1980s. Both cities have balanced budgets, financial reserves, and relatively low taxes. Long Beach has a structural budget deficit, meaning it is using reserves to finance daily operating expenses. Lakewood, whose sales tax revenues soared during the 1970s and ‘80s, has seen a leveling off. There has been a small drop in Lakewood’s sales taxes during the 1990s, which the city blames in part on competition from neighbors, and the city is dipping into reserves.

Waldie described the mood in his city as “fairly gloomy.� “A completely dysfunctional local government financing system is to blame,� Waldie said. “Everybody is realizing that something has to be done.�

Well, maybe not everyone.

Neighboring Cerritos has a $140-million budget reserve, a glittering performing arts center, a state-of-the-art library, 24 parks and enough money to trim the 35,000 trees that line city streets. Most of the money comes from the sales tax, fed in part by what the city boasts is the nation’s biggest auto mall in terms of annual sales.

“We have no property tax, we have no lighting tax, we have no library tax, we have no utility users tax . . . all because of the sales tax and the economic base we have developed,� said Cerritos City Manager Art Galluci.

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Sales Tax Revenue Battlegrounds

Intense rivalries have sprung up throughout Los Angeles County among neighboring cities that compete to attract giant retailers and the sales tax dollars that they bring. A look at five of the skirmishes, with dollar amounts that the cities have received as their share of sales taxes:

Dueling Neighbors

Burbank and Glendale have much in common and share resources such as fire equipment. But city leaders draw the line at retail businesses, where they have competing malls.

Sales tax amount for ‘96-97

Burbank: $17 million

Pop.: 104,000

1990-91: $14 million

Increase: 21%

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Glendale $20.4 million

Pop.: 197,600

1990-91: $19 million

Increase: 7%

Tale of Two Cities

Even in the tough new era of sales tax-driven city budgets, some cities are not chasing warehouse-type retailers. One of the most notable is South Pasadena, which has turned down large-scale re-tailers, sometimes to the benefit of neighboring Alhambra, known for aggressively recruiting retailers.

Sales tax amount for ‘96-97

South Pasadena: $1.3 million

Pop.: 25,400

1990-91: $1.3 million

No change

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Alhambra: $9.3 million

Pop.: 90,400

1990-91: $8.4 million

Increase: 10.7%

Shootout in the Desert

Palmdale and Lancaster grew so weary of competing with each other for retail businesses that they discussed joining forces to share their sales tax income. They discovered, however, that they would need voter approval for such an accord. A local assemblyman is proposing a constitutional amendment to allow cities to share sales tax without voter approval.

Sales tax amount for ‘96-97

Palmdale: $7.4 million

Pop.: 117,300

1990-91: $4.5 million

Increase: 64%

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Lancaster: $9.8 million

Pop.: 127,100

1990-91: $10.6 million

Decrease: 8%

Dollars by the Bay

Del Amo Fashion Center has helped Torrance generate more sales tax revenue than Long Beach, even though it has only one-third the population. Sales tax revenues in neighboring Redondo Beach lag far behind.

Sales tax amount for ‘96-97

Torrance: $30 million

Pop.: 143,600

1990-91: $27 million

Increase: 11%

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Redondo Beach: $6.9 million

Pop.: 65,800

1990-91: $7.5 million

Decrease: 8%

Pocketbook Issue

While Long Beach, Signal Hill, Cerritos and Lakewood battle for retail sales tax dollars, it is often local taxpayers who benefit--or pay. With lagging sales tax revenues, Long Beach taxpayers are assessed a 10% utility users tax while Lakewood residents pay 3%. Signal Hill and Cerritos have no utility users taxes.

Sales tax amount for96-97

Lakewood: $6.7 million

Pop.: 79,000

1990-91: $7 million

Decrease: 4.2%

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Long Beach: $25 million

Pop.: 446,200

1990-91: $30 million

Decrease: 16.6%

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Cerritos: $19.5 million

Pop.: 56,700

1990-91: $16.3 million

Increase: 20%

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Signal Hill: $7.4 million

Pop.: 9,000

1990-91: $5.4 million

Increase: 37%

* Sources: Population figures from State Department of Finance. Cities’ share of sales taxes from annual report of sales tax distribution made by California State Board of Equalization.