Quick fix for housing? Let California cities collect income taxes

If California is serious about fixing its housing challenges, it should wean its cities off the sales tax gravy train.

Until local municipalities are properly motivated to build, not much will change. And the only persuasion that makes cities jump is cash.

Currently, cities are addicted to boosting sales tax collection because it’s about the only cash flow that can be enhanced with development powers. So, your city council often acts more like a mall developer than a civic group building a healthy community.

Debating how much more housing California needs won’t cure a thing. Suing growth-resistant cities only makes lawyers happy. Pontificating about “free market” solutions is for academia. And tweaking environmental rules to promote housing construction is a wasted effort when local planning agencies are essentially paid to build more retail space.

Cures to the housing shortage demand bold thinking. And getting cities from wasting time — and real estate — on retailing is a grand first step.

Yes, shopping is part of a town’s fabric of life. And yes, it should be nurtured. Still, a city’s ability to reap sales taxes from what’s sold within city limits distorts local planning efforts.

If cities were paid via a significant slice of state income tax collected on their residents — not local spending — housing would surely regain planning prominence. We are talking serious money to spread around: California collects roughly $100 billion in income taxes annually, double what comes in from various sales taxes.

Overnight, city leaders won’t worry where its citizens shop and dine. Rather, they’ll focus on growing populations.

You see, in today’s crazy California budgeting world, the local merchant is king. Sales tax revenues fund roughly one-third of the typical city’s budget. And note, the state’s general fund keeps roughly half of all sales tax collected.

This unusual game can be blamed on Prop. 13 and its dramatic limits on property taxes. To be fair, the sales-tax focus may have worked, historically speaking. But into today’s age of booming online shopping, making money off local retail is a badly challenged concept.

Sadly, cities continue to double down on their sales-tax bet. Why? It’s the largest cash-generating lever they have! Worse, retail battles among California cities produce little collective good — unless you’re a merchant or store owner. This charade of urban planning only moves the spending from one city to another.

This municipal thirst for sales tax revenue drives the odd city passions for auto malls. That same addiction means cities must choose to constantly approve the refurbishing of aging local shopping centers. Instead, landowners should be lobbied to turn stores into housing.

These same monetary urges also create less-than-subtle city nudges to homebuilders — if not stiff zoning rules — to incorporate new retail options into their construction plans. You know, those “mixed-use” centers blending homes with stores, hotels and/or office space. That makes the limited housing built even more expensive!

Forget the legalese and legislative hoops that would be required by my idea to detox cities off sales tax. Don’t hyperventilate over what formula could make such a transition palatable.

Let’s assume my plan would be done in such a way that the total tax bill for most Californians would not change. And let’s not bother analyzing what cities would win — and which ones would lose — if such a dramatic switch occurred.

Just simply focus on a day when cities are truly financially motivated to attract workers to live in their cities.

Today, common municipal thinking is that extra residents in new housing are largely a financial cost to the city. You know, absorbing the expense of protecting and serving these new citizens. It’s another reason home construction projects are often derided in government chambers.

Ponder the opportunity for a massive municipal rethinking that would take place if cities got much more of their funding based on what their residents earned vs. what they spent locally.

In my brave new world, mayors and councilmen would no longer be luring mall developers, car dealers, and big-box retailers. Rather, citizens would become the prime catch.

I’ll bet city leaders will then worry if their town had solid job opportunities and offered an ample supply of housing. Making a city budget balance might require more housing — not a higher sales tax take.

Perhaps it’s totally utopian, but I’ll dream of an era where a town’s sensible, attainable residences would be the noteworthy bait. Perhaps housing projects would no longer be “controversial,” rather they’d become “compulsory.”

All because money talks.