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California cities are lowering standards to raise revenue

Financially struggling municipalities that once shunned such businesses as casinos, tattoo parlors and certain big-box retailers are considering easing rules to plug budget gaps.

October 18, 2010|By Alana Semuels, Los Angeles Times

Like many municipalities across the state and nation, Turlock, Calif., is struggling to plug a sizable budget hole. So city officials are looking to court big-box retailers.

It's not exactly a novel plan for ginning up jobs and sales tax revenue in a slow economy. But it's remarkable for Turlock considering that six years ago this city of 70,000 waged a successful campaign to block Wal-Mart Stores Inc. from building a proposed supercenter. Local residents were concerned about traffic, visual blight and harm to mom-and-pop businesses. But City Councilman Ted Howze said the biggest worry now was how to stave off deep cuts to city services.

"Like every municipality, we're looking at ways of increasing revenues," said Howze, who wants to change zoning laws to allow the big guys in. "Every dollar is stretched thin."

So much for big development plans. Across the country, cash-strapped communities are welcoming slot machines, tattoo parlors, landfills and other businesses they shunned in the heady days of the real estate boom.

Nationwide, nearly 90% of city officials polled said their communities this year are in worse financial shape than in 2009, according to a survey from the National League of Cities. About 79% of cities are cutting personnel.

California municipalities are particularly hard-pressed. Proposition 13, passed in 1978, capped annual real estate tax increases, forcing cities to increase their reliance on sales taxes to fund public services. In addition, state legislators in recent years have taken to balancing California's books by delaying the distribution of tax revenue owed to local governments. (Proposition 22 on this year's ballot seeks to end this practice.)

"Cities are desperate for new businesses that create jobs and pay taxes, especially in this economic environment," said Larry Kosmont, whose real estate advisory firm, Kosmont Cos., helps businesses take advantage of development incentives. "They're trying to be creative."

In Central California's San Benito County, whose 14.8% unemployment rate is one of the highest in the state, officials recently opted to allow more garbage from outside the county to enter a public landfill. Importing trash isn't the sexiest of economic development strategies, but the projected half-million dollars a year of extra revenue will help keep libraries open, Benito County Supervisor Anthony Botelho said.

"It's not a cure-all for our budget woes, but it does help," he said.

Closer to Los Angeles, officials in Whittier are considering allowing oil companies to drill on land set aside for a park. Some residents are apoplectic. But Whittier's sales tax revenue has tumbled 25% since its peak in 2007-08, City Controller Rod Hill said. Much of that decline can be attributed to the closure of seven car dealerships, which won't be easy to replace.

"We … need to find other ways short of taxing our residents to provide levels of service," City Manager Steven Helvey said.

The closure of car dealerships and other retailers has put a dent in San Bernardino's coffers. In addition, the state has withheld millions in redevelopment funds. To generate more sales tax revenue, City Councilman Tobin Brinker supports reversing a 2006 ban on dozens of businesses, including smoke shops, tattoo parlors and 99-cent stores.

"We have a massive budget hole. We've lost about $26 million," he said.

In a bid to become more business friendly, San Bernardino has also cut development fees, which helped it attract a large call center. Cities across the state, including Modesto, Stockton and Visalia, are doing the same. But some analysts doubt this strategy will pay off at a time when shoppers are still reluctant to spend.

"It ends up being a race to the bottom — someone cuts a tax, someone else cuts taxes," said Stephen Levy, director of the Center for Continuing Study of the California Economy. "None of this changes the amount of consumer demand."

Officials are also increasingly willing to bend the rules when issuing commercial real estate permits, said Alex Rivera, a licensed agent with Century 21 commercial real estate in Alta Loma. His firm just persuaded Ontario to approve a conditional-use permit that will allow a Buddhist temple to operate in a commercial building.

"Cities are being a little more lenient," Rivera said.

So are landlords. Desperate to lease space in a dismal commercial real estate market, some property owners are settling for tenants that residents dislike. Cities often can't do much about it.

Bill Thomas moved his patio furniture store, Desert Patio, to Rancho Mirage last year because he said he no longer liked the mix of tenants at his previous location in Palm Desert. He said his former shopping complex, once filled with home-related retailers, had become a jumble of lower-tier businesses, including a consignment shop and a discount store.

"I was almost waiting to see a fly-by-night 'we buy your gold' store go up," Thomas said.

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