Behind all the controversy surrounding Governor Gray Davis’ veto of the big box grocery limit bill (see newsflash below), another piece of important legislation has gone largely unnoticed. On September 22nd. the Governor signed Chapter 462 into law. This bill, written by Assemblyman Tom Torlakson, requiries cities, counties and redevelopment agencies that offer ‘development incentives’ to big box retailers to relocate from one city or county to another, within a defined trade area, to share the sales tax revenue with the other city at a rate of 50%, if the relocation would result in a loss to the city where the business is currently located. According to Torlakson, he wrote the bill to prevent the “bidding wars” between local governments that was taking place to see which could provide the greatest subsidy to stimulate a business to move into their jurisdiction. “These bidding wars have become particularly damaging,” Torlakson says, “when a business threatens to relocate to a nearby city if the current municipality fails to come up with an incentive package for it to stay.” This divisive competition has pitted “cash-strapped local governments against each other to attract, at the public’s expense, ‘big box’retailers.” Torlakson points out that frequently no new jobs or businesses are created when a store moves two or three miles away. Chapter 462 applies to retail stores in excess of 75,000 s.f. and to auto dealerships. Incentives are defined as not just tax exemptions, but loans, grants, parking lot subsidies, sale or lease of property at less than fair market value, etc. If the relocation is in the same trade area, the city receiving the store must offer a contract to the community that is losing a store which apportions the sales tax between the two cities. The annual sales tax from the new project, minus the amount of assistance provided by the new city, is divided 50/50 between the 2 communities for the first 10 years following the move. After 10 years, the contract terminates. The new law is in effect in California until January 1, 2005.
The public purpose section of the Torlakson law says that when cities provide financial incentives to big boxes to relocate within a trade area, that it “results in the loss of public funds available for public purposes, impedes the implentation of good planning, encourages unfair competition between cities, and does not result in public benefit to the taxpayers of the state. The law was passed to help limit the severe competition for sales tax revenue that Torlakson says began in California in the early 1990s when the state began shifting local property tax dollars to meet state obligations in the face of a severe budget crisis. The Torlakson law could be used as a model in other states, and used for property tax revenue sharing as well as sales tax. A similar provision is found in the Fiscal Disparities Act in Minnesota, which covers dozens of communities in the Twin Cities area. Developers will frequently tell local towns that if you don’t take us, we’ll go over the border. The Torlakson law prevents such bidding by requiring a regional approach to development. For more details, contact [email protected]