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LOCAL SALES AND USE TAXES—REVENUE SHARING.
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| Legislative Constitutional Amendment |
THE QUESTION
Should local governments be authorized to contract to share sales tax or use tax revenues without a vote of the people?
PROVISIONS
Authorizes local governments to enter into contracts to apportion between themselves revenues derived from any sales or use tax imposed by them. The contracts must be approved by a 2/3 vote of each city council and county board of supervisors that is party to the contract.
BACKGROUND
In 1997-98 Californians paid $29 billion in sales taxes. The sales tax has three components:
- a state tax rate of 6 percent
- a uniform local rate of 1.25 percent
- optional local "add-on" rates.
The minimum sales tax is thus 7.25 percent. Many cities and counties have "add-on" rates and therefore have a higher sales tax.
The 1.25 percent uniform local sales tax revenues are allocated according to where the sale takes place, not where the consumer lives. There is thus often an imbalance between communities which collect and keep the sales tax and other communities which provide infrastructure, traffic, and public services.
Neighboring cities and counties compete to attract retailers and they offer incentives such as sales tax refunds to attract them to their communities. Some communities bid against each other until the department store, auto mall, or "big box" discount store accepts the sweetest deal.
The Constitution already allows cities and counties to cooperate and share sales tax revenue. However, the law requires that tax revenue-sharing agreements be endorsed by a majority of voters. No California community has ever put a proposal for sharing revenue to a vote.
Proposition 11 does not change this option for sharing revenue. It offers an alternate process that avoids elections in favor of contracts approved by local elected officials. A revenue-sharing agreement can take effect if it is endorsed by a 2/3 vote of each city council and county board of supervisors which is a party to it. In effect, it shifts the power to share tax revenues from the voters to their elected representatives.
If Proposition 11, a Constitutional amendment, passes, the Legislature must still pass a subsequent bill to amend the tax code provisions which require a majority vote approval for sales tax revenue sharing.
FISCAL EFFECT
The State Board of Equalization may incur additional costs to administer an increased number of jurisdictions that have elected to enter into the contracts authorized by this bill.
A YES vote means cities and counties could enter into sales tax revenue-sharing agreements with the approval of 2/3 of the members of the city council and county board of supervisors.
A NO vote means a majority vote of the people would be required for any revenue-sharing agreement between cities and counties.
SUPPORTERS SAY
- Sharing sales tax revenues reduces pressure to give away public funds in the competition to attract retailers.
- Prop 11 makes it easier for local officials to divide scarce revenues and stop the all-or-nothing duels between cities and counties.
OPPONENTS SAY
- Decisions on tax revenues, such as revenue-sharing agreements, should not be made without approval of a majority of the voters.
- This measure could result in agreements to share tax revenues being linked to other obligations, such as annexation.
SUPPORTERS AND OPPONENTS
The official ballot arguments in support are signed by George C. Runner, Jr., Assemblymember, 36th District; Tom Torlakson, Assemblymember, 11th District; and Rex S. Hime, President, California Business Properties Association.
No arguments were submitted in opposition to Proposition 11.
For more information:
Supporters: 916-441-3888
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Last updated: September 13, 1998
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