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Home My WebLink About12/01/2009, PH 4 - RESOLUTION TO ESTABLISH A PROPERTY TAX EXCHANGE AGREEMENT WITH THE COUNTY OF SAN LUIS OBISPO TO ADD councit M`�"D� 12-1-09 j agenda RepoRt CITY OF SAN LU I S O B I S P O FROM: Shelly Stanwyck, Assistant City Manager SUBJECT: RESOLUTION TO ESTABLISH A PROPERTY TAX EXCHANGE AGREEMENT WITH THE COUNTY OF SAN LUIS OBISPO TO ADDRESS PROPERTY AND SALES TAXES ASSOCIATED WITH THE MADONNA GAP PROPERTY'S ANNEXATION RECOMMENDATION To facilitate the annexation of the "Madonna Gap Property" adopt a resolution accepting the negotiated exchange of property tax revenues and annual tax increment that is required as a prerequisite of any jurisdictional change by California Revenue and Tax Code Section 99. DISCUSSION Background On September 1" 2009, the Council approved a General Plan amendment, use permit, and subdivision map to allow the development of a retail shopping center consisting of 188,658 square feet of retail space within six buildings. (Vicinity Map -Attachment 1). In order to construct this project, the property known as the "Madonna Gap" property must be annexed into the City as it is currently located within the County of San Luis Obispo's jurisdiction. In October of 2009, Irish Hills Plaza East, LLC submitted an application to the Local Agency Formation Commission (LAFCO) to annex the Madonna Gap property into the City. This action marked the start of the area's annexation process with LAFCO. LAFCO has discretion over the annexation boundaries as well as the process of review for this area and is therefore overseeing the annexation of the property. As required by state law, the "affected" jurisdictions, in this case the City of San Luis Obispo and the County of San Luis Obispo, must negotiate an exchange of tax revenues prior to LAFCO's approval of the proposed change in jurisdiction. Existing Resolution Regarding Sales and Property Tax Exchange Prior to 1998, tax exchange negotiations between the County and cities were very contentious, with the County "holding most of the cards." This is because the negotiation process would not commence until the "eve" of annexation, after the annexation applications had already gone through a lengthy and complex City development review process. Yet, if tax exchange negotiations could not be concluded within 30-60 days, the annexation application would terminate. Given this process, the City (like others) was under great pressure to agree to high County expectations for sharing tax revenue. Such expectations were increasing statewide, with counties City County Sales and Property Tax Resolution Page 2 demanding not only existing revenue, but major shares of future revenue, including transient occupancy tax and sales tax. The arguments made by counties at the time included that"as cities grow, so grows the demand for county services" (e.g. court and health care costs). Many cities and counties throughout California became embroiled in very contentious tax negotiations, to the detriment of everyone involved. And many cities, under pressure, agreed to various onerous requirements. In 1996, after commissioning extensive study of the added burdens created for the County by development within the boundaries of cities, several cities in San Luis Obispo County entered into a standardized tax exchange agreement with the County based on two principles: (1) that the County should not "profit"from annexations, nor should annexations result in a net fiscal loss to the County; (2) that tax exchange practices should not undermine good land use planning by discouraging cities from pursuing logical and appropriate annexations. Among other things, the agreement said that negotiations for the annexation of already developed areas would proceed on a "case-by-case" basis. And it also said that the agreement should be reexamined at five year intervals. This agreement greatly reduced the uncertainty and conflict inherent in the previous annexation process, especially relative to raw land. Basic Terms of the 1996 Resolution The 1996 Resolution (Attachment 2) established the key concepts for the tax sharing upon annexation of "raw land." The County keeps the property tax for "raw land" annexations pre- zoned commercial or industrial including any future property tax increment. The City will retain the sales tax from the area. City and County staff have confirmed these terms in a recent negotiation and it is memorialized in the attached Resolution (Attachment 3) which must be adopted by the City Council and the Board of Supervisors respectively to acknowledge the negotiated agreements. Next Steps Upon adoption by the Council and the County Board of Supervisors a copy of 2009 Resolution will be transmitted to the Executive Director of LAFCO. The Director will in turn notify the County Auditor of the exchange and the Auditor shall make necessary adjustments to the designated recipients of these taxes. LAFCO is presently anticipated to act on the annexation application for the area in January 2010. FISCAL IMPACT While there will be added service costs to the City associated with the development of the Madonna Gap property, it is anticipated that there will be significant sales tax revenues arising from the proposed uses. Those revenues will be augmented by revenues from other sources such as business tax, utility users tax and franchise fees. Costs associated with the management of the agricultural open space are not known at this time and will be more fully developed through the City's Master Plan for the Calle Joaquin Open Space as a Community Farm. City County Sales and Property Tax Resolution Page 3 ALTERNATIVES 1. Modify the Resolution. Council may have additional changes to the proposed Resolution. However, because this was a negotiated agreement and County staff is presenting the same agreement to the Board of Supervisors for consideration, substantive changes will adversely affect LAFCO's deadline for agreement on this topic. 2. Do Not Approve a Resolution. The Council could choose not to adopt the proposed resolution and not amend the existing tax sharing arrangement. Staff does not recommend this alternative because it is a requirement of this annexation application by LAFCO (and by state law). Without an agreement as to tax sharing, annexation of the properties cannot occur. ATTACHMENTS 1. Vicinity Map 2. Resolution No. 8864 (1996 Series) 2. Proposed Resolution (2009 Series) T:\Council Agenda Reports\Admin\Tax Exchange with County for Gap 2009 t� q( 3 RIP- ' .ice. *• ,�`` ♦ ♦ ��a �• ♦♦ ♦1 , /� nt" ,.. . - - ft h me WOW ��•��r��i�♦♦moi♦� ��,1• Oro SM, PEI OA ji IN, �� ♦moi ♦� ■► � i 1 x .i: T t 3 4 � � File 1 J(...4T RESOLUTION NO. 01-96 A RESOLUTION OF THE CITIES OF SAN LUIS OBISPO COUNTY ESTABLISHING A COUNTYWIDE POLICY FOR PROPERTY TAX EXCHANGE UPON ANNEXATION WHEREAS, changing governmental fiscal relationships have required a modification to the earlier approach to determining property tax exchange between citiesandthe County upon annexation; and WHEREAS, the extent and nature of this modification has been agreed upon through a process of negotiation between the cities and the County based upon a shared goal of producing a countywide tax exchange agreement that is fair to all parties; and WHEREAS, a fair agreement is one that respects the following two principles: (1) that the County should not "profit" from annexations, nor should annexations result ina net fiscal loss to the County; (2) that tax exchange practices should not undermine good land use planning by discouraging cities from pursuing logical and appropriate annexations; and WHEREAS,. in order to provide objective data upon which to develop an equitable agreement, the cities commissioned an independent fiscal study of the impact of annexation and development of vacant lands around cities on County government; and WHEREAS, the results of this study assisted in the development of a new countywide tax exchange.ag reement; and WHEREAS, upon adoption of the agreement, the County and the cities will continue to collaborate on related matters of shared importance, including: (a) following adoption by the Board of Supervisors, reconsidering a countywide development impact fee program, which may include appropriate city impact fees for county development occurring in the unincorporated fringe of cities for which a clear City impact can be determined; and (b) support existing policies which encourage urban-like development within the boundaries of cities. NOW, THEREFORE, BE IT RESOLVED by the City Councils of the Cities of San Luis Obispo County: 1. For "raw land" annexations prezoned commercial or industrial, the County retains the existing property tax base and all of the future property tax increment. 2. For annexations prezoned residential, the County retains the existing property tax base and two-thirds (66%) of the future property tax increment. 4 -- - Attach*nt 3. For commercial and industrial annexation areas already substantially developed, tax exchange will be negotiated on a case-by-case basis between the annexing city and the County to determine an appropriate property tax-sharing arrangement, based upon the principle of fiscal neutrality for the County. 4. For annexations prezoned agricultural, the County retains the' existing property tax base and all of the future property tax increment. 5. The County and the cities agree to re-examine the above policies at five- year intervals to assure that they remain appropriate and current for all parties. PASSED AND ADOPTED by the City Councils of the Cities of San Luis Obispo County at a special joint meeting thereof held on the 25th day of April, 1996. A4YF OF ARROYO G ND ATTEST: CIV CLE K MAYOR OF ATASCADERO ATTEST: (Not adopted) CITY CLERK. MAYOR OF GR VER BEACH ATTEST: CITY CLERK fta hmPage n 2. Resolution No. J01-96 k, 3 e MAYOR OF MORRO BA ATTEST: CITY CLER MAYOR OF PASO ROBLES ATTEST:. (Not participating) CITY CLERK MAYOR OF PISMO BEACH ATTEST: (Not participating) CITY CLERK MAYO OF SAN LUIS OBISPO ATTEST: I CLERC RESOLUTION NO. Series 2009( ) Affachment� A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO ACCEPTING A NEGOTIATED EXCHANGE OF PROPERTY TAX REVENUE AND ANNUAL TAX INCREMENT BETWEEN THE COUNTY OF SAN LUIS OBISPO AND THE CITY OF SAN LUIS OBISPO FOR THE MADONNA GAP PROPERTY ANNEXATION AT 11980 LOS OSOS VALLEY ROAD; SLO COUNTY ANNEXATION #74 WHEREAS, in the case of a jurisdictional change which will alter the service area or responsibility of a local agency, Revenue and Taxation Code Section 99(b) requires that the amount of property tax revenue to be exchanged, if any, and the amount of annual tax increment to be exchanged among the affected local agencies shall be determined by negotiation; and WHEREAS, when a city is involved, the negotiations are conducted between the City Council and the Board of Supervisors of the County; and WHEREAS, Revenue and Taxation Code Section 99(b) requires the each local agency, upon completion of negotiations, adopt resolutions whereby said local agencies agree to accept the negotiated exchange of property tax revenues, if any, and annual tax increment and requires that each local agency transmit a copy of each such resolution to the Executive Officer of the Local Agency Formation Commission; and WHEREAS, no later that the date on which the certificate of completion of the jurisdictional change is recorded with the County Recorder, the Executive Officer shall notify the County Auditor of the exchange of property tax revenues by transmitting a copy of said resolution to him and the County Auditor shall therefore make the appropriate adjustments as required by law; and WHEREAS, the City of San Luis Obispo (City) and the County of San Luis Obispo (County) have previously agreed to a property tax exchange methodology pursuant to Joint Resolution No. 01-96 which provides that in the case of undeveloped property, all of the "base" property tax revenues will be retained by the County, with incremental property tax revenues to be apportioned between the County and City as follows: in the case of land per-zoned for non- incremental property tax revenues; and in the case of land pre-zoned for residential uses, the County will receive 66% of the incremental property tax revenues it would otherwise have received from the Tax Rate Area, and the City will receive the remaining 34%; and WHEREAS, the negotiations have taken place concerning the transfer of property tax revenues and annual tax increment between the County and the City pursuant to Section 99(b) for the jurisdictional change designated as Annexation No. 74 to the City (The Madonna Gap Annexation); and WHEREAS, the representatives of the negotiating parties have negotiated the exchange of property tax revenue and annual tax increment between such entities as hereinafter set forth; and R Aaachment Resolution No. 2009 Series 3 Page 2 WHEREAS, it is in the public interest that such negotiated exchange of property tax revenues and annual tax increment be consummated. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis " Obispo as follows: 1. The recitals set forth above are true, correct, and valid. 2. The City agrees to accept the following negotiated exchange of base property tax revenues and annual tax increment: a. No base property tax revenue shall be transferred from the County to the City and the County shall receive any future property tax increment. b. That all the sales tax revenues arising from the development of the property shall go to the City. 3. Upon receipt of a certified copy of this resolution and a copy of the recorded certificate of completion, the County Auditor shall make the appropriate adjustments to property tax revenues and annual tax increments as set forth above. 4. The City Clerk is authorized and directed to transmit a certified copy of the resolution to the Executive Officer of the San Luis Obispo Local Agency Formation Commission, who shall then distribute copies in the manner prescribed by law. Upon motion of , seconded by and on the following vote: AYES: NOES: ABSENT: Resolution No. (2009 Series) achment 3 Page 3 The foregoing resolution was adopted this day of 2009. Mayor David F. Romero ATTEST: Elaina Cano Interim City Clerk APPROVED AS TO FORM: Jonathan P. Lowell City Attorney