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Open Access Publications from the University of California

Integrating California's Climate Change and Fiscal Goals: The known, the Unknown, and the Possible


California is a global leader in climate policy and sustainability planning, yet its tax system may not support its climate goals. The state’s reliance on a mix of income, property, sales, and other taxes may contribute to sprawling land use patterns that increase vehicle miles traveled. This could make it challenging for the state to meet its greenhouse gas reduction goals for passenger vehicles. This article uses a combination of literature review and original data analysis to examine the relationship between fiscal structure and land development patterns. Previous studies have established how tax systems affect state growth, fiscal stability, and social equity, as well as how property and sales tax shapes development patterns (and thus vehicle miles traveled). Since the literature specific to California is somewhat out of date, this research adds a new analysis of city tax revenue data linked to parcel- and neighborhood-level data on development and travel characteristics.

California’s biggest impact on global greenhouse gas (GHG) emissions comes not through its ability to reduce its emissions in absolute terms, but its innovation of climate change policies that make a difference. Reforming the tax code, even if it will not have a large impact, sends a signal that states and countries can change course and also address climate change goals through their regulatory structure. Theory and evidence suggest policy principles that would help incentivize new compact development where most needed: 1) return more property tax to municipalities based on their willingness to build more compact, high-density development; 2) share property and/or sales tax regionally, rewarding jurisdictions that meet their regional housing obligations; 3) avoid penalizing new development; and 4) connect future taxes directly to environmental goals.

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