TL;DR: Moving from a ‘because I said so’ housing model to aligning incentives to encourage local governments to build more housing using the local control income tax.

Housing in California is a problem. Prices are out of the reach of the majority of Californians and the ones that have secured a place feel the squeeze every month. The state government has tried to tackle this problem by simply demanding that more housing gets built, while at the same time adding requirements that make housing harder to build and the units themselves more expensive. We need a shift in mind sent, anyone with children will understand that because I said so only works so long.

Local governments are mostly funded by housing (property) tax and sales tax. This encourages the local governments to build mansions and Targets. Mansions provide a lot of property tax revenue while having very few people live there so they require limited services. Targets provide a lot of sales tax revenue. California has enough mansions and Targets, and needs mid market single family and multifamily housing. In order to shift the focus of local governments we have to shift their funding model.

Local control income tax is a way of paying cites for the number of people in them, and encourage the local government to expand that number. The goal is to take 25% of total state income tax revenue and return it to the lowest level of government, city or county based on the number of tax filers in that area. This would take the place of a local grants, and could be thought of as universal basic income for towns. And since the dollars are related to the population it aligns incentives without the state government having to micromanage zoning. People in Sacramento don’t always know what’s best for Dixon, so it should be up to the people of Dixon.

Cities should not set their own income taxes. San Francisco has seen what happens when you do. By placing the income tax at the state level it prevents cities from competing with each other on tax rates. I would much rather they compete on the quality of their cities and the lifestyles they provide.

Local control income tax is a way to align incentives to increase housing, and the long term goal is to have cities funded by income tax and phase out housing (property) tax.