By Fred Silva, senior advisor, Public Policy
Institute of California
This opinion article appeared in the San Jose
Mercury News on August 17, 1997
The solution to the problem of sales tax distribution can be found right here
in Santa Clara County. All it takes is collaboration among the county and 15
That conclusion is consistent with the recommendations of the California
Constitution Revision Commission. The commission was formed in 1994 to examine
state and local government structures and propose ways to increase
accountability, efficiency, and effectiveness. Among other things, it concluded
that constitutional barriers to local and area-wide solutions should be removed
to allow greater local collaboration to solve common problems.
The problem of sales tax distribution is one of those issues that can be
solved locally - and without having to change the state Constitution. Article
XIII, Section 29 of the Constitution allows - with voter approval - cities and
the county to establish a new system for allocating the sales tax. Santa Clara
County voters could be presented with a distribution plan that actually reflects
county-wide patterns of economic activity, paying no attention to political
Under the first proposal, the 1 percent sales tax that goes to county and
city general funds would be collected county-wide. Then it would be returned to
the county and cities based on population. Cities with small populations but
large retail establishments would lose money, but cities with large populations
would gain. Although this is the simplest approach, it would pit communities
against each other, and it also fails to take into account the other pieces of
the revenue pie - for example, some cities get much more money from property
taxes and local fees than others.
The second proposal calls for redistributing sales taxes generated from new
growth, but leaving the existing amount of the sales tax with each city or
county. Each local agency would maintain its current share of the sales tax. But
the amount attributed to new activity, such as new retail commercial outlets,
would be redistributed. How?
One way would be to put the new money into a county-wide fund to be
distributed to offset costs to cities due to land-use decisions of neighboring
cities. Another possibility is to spend some of the money on county-wide
Distribution could also take into account the amount of "tax effort' the
local community is putting forth to pay for local services. Thus, communities
where taxes are relatively high might receive a larger share than where taxes
are relatively low.
Clearly, Santa Clara County communities can figure out an allocation of the
sales tax that meets their needs. All it takes is the will to do so.