Regional Taxation and Regional Tax Base Sharing in State Tax Reform Kirk J. Stark Barrall Family Professor of Tax Law and Policy UCLA School of Law March 2016
The Future of California Public Finance
Nearly 40 years of experience with Proposition 13
Pending expiration of Prop 30 tax increases
limited property taxes, curtailed local fiscal autonomy centralized fiscal authority in Sacramento increased state reliance on PIT revenues zero‐sum fiscal politics, played out in Sacto (e.g., Prop 98) current debate: extend versus expire more fundamental reconfiguration of fiscal responsibilities and reassignment of taxing powers?
Perrenial interest in “regional” solutions
Is there any there there?
Conceptual Framework
Optimal Jurisdiction Size
Correspondence Principle (Oates 1972): “jurisdiction that determines the level of provision of each public good includes precisely the set of individuals who consume the good.”
Fiscal Equivalence (Olsen 1969): “a separate governmental institution for every collective good with a unique boundary, so that there can be a match between those who receive the benefits of a collective good and those who pay for it.”
“Who Should Tax, Where, and What?”
Tax Assignment—“regionalizing” local taxes to: limit exit options for mobile tax bases reduce interjurisdictional competition Expenditure Assignment—regional government for regional goods
Definitional preliminaries
“Region” = less than state as a whole, but multiple local jurisdictions (e.g., multicounty regions) Regional Taxes
Taxes, fees, assessments, etc… that apply uniformly across multiple local jurisdicitons Typically used to finance some regional public good
Regional Tax Base Sharing
Uniform region‐wide tax, proceeds of which are shared among local jurisdictions within the region Can be conceptualized as a “regional tax” but without a corresponding regional expenditure
Examples of Regional Transit Taxes in Major U.S. Regional/Metropolitan Areas Region
Geographic Scope
Type of Tax
Seattle/Tacoma
3 counties
sales tax, motor vehicle tax, car rental tax
Chicago
6 counties
sales tax
Denver
8 counties
sales tax
Portland
3 counties
payroll tax
San Francisco
3 counties
sales tax
Dallas‐Ft. Worth
2 counties
sales tax
Los Angeles
88 cities (contiguous with LA county)
sales tax
Utah, Wasatch Front
6 counties
sales tax
New Mexico (Mid Region)
3 counties
sales tax
New Mexico (North‐Central)
4 counties, 5 tribes
sales tax
Sound Transit
Central Puget Sound Regional Transit Authority
Established in 1992 to fund transit projects in region
Covers 3 counties (King, Snohomish, Pierce) in the Puget Sound region
Sound Transit: Taxes & Subarea Equity
3 main region‐wide taxes:
Requirement of “Subarea Equity”
0.9 percent sales tax 0.8 percent rental car tax 0.3 percent motor vehicle tax tax revenues must be used “for projects and services which benefit the subareas generally in proportion to the level of revenues each subarea generates.” chief concern: ensuring support of wealthy East King County
Subarea Equity principle suggests continuing influence of local geographic identity/preferences
Examples of Regional Taxes Imposed by Cultural Asset Districts Region/District
Geographic Scope
Type of Tax
Denver/SCFD
8 counties
sales tax
St. Louis/ZMD
City and County
property tax
Salt Lake City/ZAP
15 municipalities (contiguous with Salt Lake County)
sales tax
Cleveland/CAC
58 municipalities (contiguous with Cuyahoga County)
cigarette tax
Pittsburgh/RAD
130 municipalities (contiguous with Allegheny County)
sales tax
Puget Sound (proposed)
4 counties
sales tax (proposed)
Denver Scientific and Cultural Facilities District (SCFD)
established by enabling legislation in 1987 in response to budget cuts jeopardizing 5 city‐funded entities:
Denver Art Museum Denver Zoo Museum of Natural History Center for Performing Arts Denver Botanic Gardens
SCFD spans 7 counties surrounding Denver metro area and is financed by a region‐wide sales tax
Examples of Regional Tax Base Sharing in Major U.S. Metropolitan Areas Region
Geographic Scope
Type of Tax Shared
Twin Cities Region
7 counties
40% of post‐1971 growth in the commercial‐industrial property tax base
Hackensack‐Meadowlands District in New Jersey
14 municipalities
portion of property tax base for property located within the District
Pittsburgh Region
130 municipalities (contiguous with Allegheny County)
sales tax
Louisville/Jennferson Couty (prior to merger)
City and County
occupational license fees on wages and net profits
Regional Tax Base Sharing: Twin Cities
Minnesota Fiscal Disparities Law—enacted in 1971 and took effect in 1975 stated purposes included
(1) reducing impact of fiscal considerations on location of business, (2) reducing interjurisdictional competition (3) directing resources to communities facing greatest financial pressures
Governs the 7 county region surrounding the Minneapolis‐St. Paul metropolitan region
Fiscal Disparities Law Mechanics
Each community “contributes” 40% of post‐1971 growth in commercial‐industrial property tax base to areawide pool Tax base is allocated among local governments in the 7‐county region in inverse relation to their per capita fiscal capacity. The percentage of the total C/I tax base in areawide pool has increased from 6.7% in 1975 to 37.6% in 2012 The percentage of the total tax base in areawide pool has increased from 2.1% in 1975 to 12.0% in 2012 For 2014, $588 million of taxes were shared among localities
St. Paul received equivalent of $220 per household Bloomington paid equivalent of $414 per household
Some Pending Options California Tax Policy
Pending Prop 30 expiration (2016‐2018)
Split Roll Property Tax
“Make it Fair” campaign would repeal Prop 13’s acquisition value rule as applied to commercial‐industrial property and tax instead on the basis of annual changes in FMV Some revenue estimates suggest between $8‐10 billion.
“Upward Mobility Act” (SB 8, Hertzberg)
sales tax increase expires after 2016‐17 income tax increase expires after 2018‐19 extension would raise $8 billion in annual revenue
Bill sponsors expect a minimum increase of $10 billion in revenue
“Carbon Tax”
In addition to (or in lieu of) AB 32’s existing cap‐and‐trade system.
A Role for Regional Taxing Arrangements?
Why would you do this?
There may be “regional public goods” worth funding
Region‐wide metropolitan transportation projects Region‐wide water projects—e.g., stormwater capture infrastructure Region‐wide affordable housing programs
Value in “regionalizing” certain tax instruments (e.g., sales tax) Regional variation in political appetite for new taxes/spending
How would you do this?
Constitutional amendment (anything involving property taxes) Statutory changes (authorizing creation of new districts) Existing law (new EIFD statute)
A Role for Regional Taxing Arrangements?
Regional Approaches to Reforming Proposition 13
Optional Regional Sales or Income Tax
e.g., local option split roll by multi‐county region SCAG, 6‐county district covering Southern California, serves as the Metropolitan Planning Organization under the federal law SCAG sales tax base (2013) of $275.4 billion Half‐cent to 1.0% sales tax would generate $1.377‐$2.75 billion
Regional Sales Tax‐Base Sharing
Minimize tax competition among municipalities Pool/share some % of growth in sales tax base AB 680 for Sacramento Region (Steinberg 2002)
Southern California Association of Governments (SCAG)
Enhanced Infrastructure Financing Districts
Brand new (SB 628, signed September 2014 and took effect January 2015)– replaces redevelopment agencies. Current law: new district established by act of a single city or county or multiple cities/counties; issue bonds subject to voter approval, repayment via tax increment financing (TIF) Sample projects:
transit, affordable housing, environmental mediation, projects association with Sustainable Communities (SB 375) planning, etc…
Local Example: Los Angeles River Revitalization Regional Example: Integrated Regional Water Management (IRWM)‐ water resources infrastructure financing, funding new stormwater capture infrastructure
California’s 10 Hydrologic Regions
South Coast Hydrologic Region: Ventura, Los Angeles, San Bernardino, Orange, Riverside, San Diego
The Future of California Public Finance
Proposition 30 Revenue Estimates LAO Fiscal Outlook, November 2015 (amounts in millions $) 2014‐15
2015‐16
2016‐17
2017‐18
2018‐19
2019‐20
Prop 30 Sales Tax
1,448
1,513
793
0
0
0
Prop 30 Income Tax
6,774
6,784
6,836
7,040
2,849
0
Total
8,222
8,297
7,629
7,040
2,849
0