Senate passes bill banning subsidies to lure retailers

SACRAMENTO -- California cities would be banned from offering subsidies, tax breaks and other public improvements to lure car dealers and high-volume discount stores from neighboring cities under a bill that passed the state Senate on Thursday.

The bill is one of two in the Legislature to reshape California's growth patterns by reining in the fierce, and what some call destructive, competition among cities for stores and businesses that bring sales taxes.

"Millions and millions of dollars have been spent by local jurisdictions in recent years," said the bill's author, Sen. Tom Torlakson, D-Martinez. "It's time to stop this rip off of funds from one agency to another, especially during these recessionary times."

Opposed by auto dealers and commercial property owners, the bill passed 23-13. It forbids cities from subsidizing moves by large stores within 25 miles and car dealers within 40 miles.

Supporters, including many cities and their agencies that redevelop older neighborhoods, maintain that competition for businesses that bring sales taxes has triggered a destructive bidding war that distorts the state's growth and worsens its housing shortage.

Cities aiming to boost their sales tax collections frequently offer an array of financial incentives to attract lucrative auto dealerships and high-volume "big box" stores, such as Lowe's, Home Depot and Wal-Mart. These incentives, often promised to woo businesses from neighboring cities, include discounted property, free street improvements and tax breaks.

In turn, cities that win new businesses get $300 from the sale of every $30,000 car sold within their boundaries and 20 cents for each $20 store buy. Sales taxes in most cities have become the leading source of money to pave streets and buy police cruisers.

A related bill nearing an Assembly floor vote would give cities more of the property taxes generated inside their borders, making them less dependent on shopping and more friendly to badly needed houses, condominiums and apartments.

But opponents, citing a market trend toward auto malls and freeway locations in growing new cities, say they hope to overturn Torlakson's bill in the Assembly.

"It's unfair. It basically locks in forever the current big-box retailers and auto malls," said Peter Welch, lobbyist for the California Motor Car Dealers Association which represents most of the state's 1,500 new-car dealers. He said many cities favoring the bill already have lucrative auto malls and want to head off raids.

Rex Hime, a lobbyist for commercial property owners across California, said the bill addresses an issue that's "very much blown out of proportion" and that he hopes the Assembly will soften the bill's ban on incentives.

This is Torlakson's second attempt to deal with this issue. In 1999, he proposed a bill that ended in a compromise law that requires cities that lure a business from a neighboring city to share the gain in their sales taxes for the first 10 years. Among cities soon to test the process are the Bay Area's Pittsburg and Antioch. Pittsburg recently lured Antioch's Mazzei Pontiac-Cadillac-Buick to a new 47-acre auto mall, where the city hopes to earn $5 million in sales taxes yearly from 12 dealerships. The city has agreed to share taxes from Mazzei's dealership with Antioch.

--------------------:

On the Net: Read the bill, SB114, at http://www.senate.ca.gov. Read a related bill, AB1221, at http:www.assembly.ca.gov.