HomeMy WebLinkAboutItem 14 - Tax Exchange Agreement with the County of SLO for the Fiero Land & East Airport Area Annexations Department Name: Community Development
Cost Center: 4001
For Agenda of: October 6, 2020
Placement: Consent
Estimated Time: N/A
FROM: Shelly Stanwyck, Assistant City Manager, Community Services
Prepared By: Michael Codron, Community Development Director
SUBJECT: TAX EXCHANGE AGREEMENT WITH COUNTY OF SAN LUIS OBISPO
FOR THE FIERO LAND AND EAST AIRPORT AREA ANNEXATIONS
RECOMMENDATION
Adopt a Resolution accepting a tax exchange agreement with the County of San Luis Obispo
addressing tax transfers from the Fiero Lane and East Airport area annexations (Attachment A).
DISCUSSION
Background
Annexation No. 81 consists of two areas previously approved for annexation by the City
Council. On November 19, 2019, the City Council adopted Resolution No. 11062 appr oving the
Fiero Lane Annexation (Attachment B). On March 17, 2020, the Council adopted Resolution No.
11103 approving the East Airport Annexation (Attachment C). The City Council’s approval of
these annexations authorized staff to submit formal applications to the Local Agency Formation
Commission (LAFCO) to complete the annexation process. In this case, both annexations have
been consolidated under a single LAFCO application, and action on the City’s request is
currently scheduled for action by LAFCO in November. The consolidation of these two
annexations is appropriate due to the physical proximity of the two areas, and the significant
amount of shared utilities infrastructure that will be installed as part of the annexation process.
State law requires that jurisdictions affected by an annexation (in this case, the County and the
City of San Luis Obispo) negotiate an exchange of the taxes paid in the annexation area prior to
LAFCO approval of the jurisdictional change. On July 7, 2020, the County Board of Supervisors
(“the Board”) approved the commencement of tax exchange negotiations with the City. The
Revenue and Taxation Code requires that negotiations be concluded within 60 days, unless
extended by mutual agreement between the involved agencies for an additional 30 days. On
September 4, 2020, LAFCO authorized a 30-day extension of the negotiation period to allow
time for the City and County to conclude the discussions. On Friday, September 11, 2020, the
City and County came to agreement on the recommended tax exchange agreement.
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Summary of Tax Exchange Agreement
In 1996, the City and County adopted a joint resolution, along with several other cities in the
County, to establish a county-wide policy regarding tax exchanges (Attachment D). The
“master” tax exchange agreement is 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, and
(2), that tax exchange practices should not undermine good land use planning by discouraging
cities from pursuing logical and appropriate annexations.
With these principles as the base for discussions, City and County staff have negotiated an
agreement specific to the Fiero Lane and East Airport area annexations. The resolution
recommended for adoption provides for the City to receive all of the sales tax from the
annexation area, and 14% of the property tax increment. The County would retain the existing
property tax base for the area, plus 86% of the property tax increment.
When the City prepared the Airport Area Specific Plan, a fiscal analysis was prepared showing a
net positive benefit associated with annexation and development in the area. This analysis
assumed that the City would not gain any property increment from development of commercial
or industrial land in the specific plan area. In this case, the City is able to retain 14% of the
property tax increment, and pre-annexation agreements were negotiated that include two
important financial benefits in favor of the City – 1) direct payment of $1 million by the East
Airport portion of the annexation to the City’s Transportation Impact Fee program, and 2) major
infrastructure upgrades including curb, gutter and sidewalk repairs, new paving of area streets,
water, recycled water, and wastewater backbone and service lines.
Pre-Annexation Agreements and Infrastructure Financing
Pre-annexation agreements approved for the annexation areas help to ensure that there are no
negative fiscal impacts associated with the annexation. In this case, the City was able to
negotiate with the land owners substantial improvements to existing public facilities within the
annexation area, including sidewalk upgrades, new paving, installation of utilities infrastructure,
and in the case of the East Airport Area, a $1 million dollar contribution to the City’s
Transportation Impact Fee program.
As part of the annexation process, the City will be working with the property owners, the
County, and the Statewide Community Infrastructure Program (SCIP) to allow for the necessary
improvements to be funded through SCIP. Both the City and County are members of SCIP and
this project is expected to be the first that the City will support through the program. Normally,
bond financing of public improvement projects is limited to projects that are large enough to
make all of the financing costs reasonable in light of total project costs. The SCIP program is
beneficial because it makes low cost financing for public improvements available to
communities by pooling together a number of smaller projects under a single bond issuance.
Item 14
Tax Exchange History
Prior to 1996, tax exchange negotiations between the County and cities were more contentious,
with the County “holding most of the cards.” This is because the negotiati on process would not
commence until after the annexation applications had gone through a lengthy and complex city
development review process. According to the State Revenue and Taxation Code (Section 99),
exchange negotiations must be concluded within 60 days or the annexation application would
terminate.
Given this process, our City (like others) was under pressure to agree to high County
expectations for sharing tax revenue. Such expectations were increasing across the state, with
counties demanding not only existing revenue, but major shares of future revenue, including
transient occupancy tax and sales tax.
Counties have a need for revenue to support services to residents - even city residents - because
as cities grow, so does the demand for county services (e.g. court, health care, social services,
etc.). As a result, many cities and counties throughout California have become engaged in very
contentious tax negotiations, to the detriment of all involved.
To address this situation in San Luis Obispo County, the Mayors of the cities in the County
commissioned an extensive study of the added burdens created for our County by development
within the boundaries of cities. As a result, several cities in San Luis Obispo County entered into
a “master” tax exchange agreement with the County in 1996. This agreement greatly reduces the
uncertainty and conflict inherent in the previous annexation process.
Policy Context
The annexations were previously approved by the City Council, consistent with City policy.
Annexation is an implementation of the Airport Area Specific Plan. City land use control of the
area helps to ensure that the objectives of the specific plan are accomplished.
Public Engagement
A “Notify” level of public engagement has been used for this item, consistent with the City’s
Public Engagement and Notification Manual.
CONCURRENCE
After annexation, the City will be responsible for providing services to the newly incorporated
area. As a result, all City departments that provide services to this ar ea have been involved in the
development of plans for the area and concur with the annexation and current recommendation.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended action in this
report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378.
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FISCAL IMPACT
Budgeted: No Budget Year: 2020-2021
Funding Identified: No
Fiscal Analysis:
Funding Sources
Total Budget
Available
Current Funding
Request
Remaining
Balance
Annual
Ongoing Cost
General Fund N/A
State
Federal
Fees
Other:
Total
The “master” tax exchange agreement with the County has been in effect since 1996. The
negotiated agreement for Annexation No. 81 is consistent with the “master” tax exchange
agreement, which requires a case by case negotiation for annexation of developed land.
When the City’s General Plan Land Use Element (LUE) was adopted in 2015, it was determined
to have a neutral fiscal impact. In other words, future expenditures associated with build-out of
the land use plan are supported by future revenues. Because development and annexation within
the Fiero Lane and East Airport areas were considered in the fiscal analysis and are consistent
with the General Plan, Annexation No. 81 is expected to have a neutral fiscal impact on the City.
Incremental costs associated with the annexation associated with ongoing costs for maintenance
of public facilities will be incorporated into future City operational program expenditure budgets.
Normal maintenance costs will not be realized for some time due to the improvements (curb,
gutter, sidewalk repair, street paving, and water/sewer infrastructure) being installed by the
property owners within the annexation area.
ALTERNATIVES
1. If the City Council has specific concerns with the proposed Agreement, direct staff to re -
open negotiations with the County with specific negotiating parameters. This alternative is
not recommended because the negotiated agreement is consistent with the Master Tax
Exchange agreement with the County and provides the City with an appropriate share of the
property tax increment.
2. The City Council may continue consideration of this item if additional information is needed
to for decision making. Direction should be provided to staff on the additional information
necessary to move forward with an agreement. This alternative is not recommended because
the current negotiation period is set to expire and if this alternative is chosen then the Board of
Supervisors will need to act to establish a new 60-day negotiating period.
Item 14
Attachments:
a - Draft Resolution
b - COUNCIL READING FILE - Resolution No. 11062 (2019 Series) - Fiero Lane
Annexation
c - COUNCIL READING FILE - Council Resolution No. 11103 (2020 Series) - East Airport
Annexation
d - Master Tax Exchange Agreement with County
Item 14
R ______
RESOLUTION NO. _____ (2020 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, ACCEPTING A NEGOTIATED EXCHANGE OF
TAX REVENUE AND ANNUAL TAX INCREMENT BETWEEN THE
COUNTY OF SAN LUIS OBISPO AND THE CITY OF SAN LUIS OBISPO
FOR ANNEXATION NO. 81 (FIERO LANE AND EAST AIRPORT
AREAS), AS REPRESENTED IN THE STAFF REPORT AND
ATTACHMENTS DATED OCTOBER 6, 2020
WHEREAS, the City of San Luis Obispo, a charter city and municipal corporation, wishes
to move forward with Annexation No. 81 (Fiero Lane and East Airport areas); and
WHEREAS, the Revenue and Taxation Code Section 99(a)(1) requires that the amount of
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, the Revenue and Taxation Code Section 99(b)(6) requires that 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 than 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 tax revenues by transmitting a copy of said resolutions to him
and the County Auditor shall thereafter make the appropriate adjustments as required by law; and
WHEREAS, the negotiations have taken place concerning the transfer of tax revenues and
annual tax increments between the County of San Luis Obispo and the City of San Luis Obispo
pursuant to Section 99(a)(1) for the jurisdictional change designated as Annexation No. 81 to the
City of San Luis Obispo; and
WHEREAS, the negotiating party, to wit: Guy Savage, Assistant County Administrative
Officer and Emily Jackson, Budget Director, County of San Luis Obispo, on behalf of the County
and Shelly Stanwyck, Assistant City Manager for Community Services and Michael Codron,
Community Development Director, City of San Luis Obispo, on behalf of the City have negotiated
the exchange of tax revenue and annual tax increments between such entities as hereinafter set
forth; and
WHEREAS, it is in the public interest that such negotiated exchange of tax revenues and
annual tax increments be consummated.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo
as follows:
Item 14
Resolution No. _____ (2020 Series) Page 2
R ______
SECTION 1. Agreement. The City Council agrees to accept the following negotiated
exchange of base tax revenues and annual tax increment:
1. No base property tax revenue shall be transferred from the County of San Luis Obispo to
the City of San Luis Obispo.
2. County will retain 86% of the future property tax increment, after transfers to the
Educational Revenue Augmentation Fund (ERAF), in the Fiscal Year 2021-22 and each
fiscal year thereafter.
SECTION 2. Transmittal. 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 Council Member _______________, seconded by Council Member
______________, and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _____________________ 2020.
____________________________________
Mayor Heidi Harmon
ATTEST:
____________________________________
Teresa Purrington, City Clerk
APPROVED AS TO FORM:
_____________________________________
J. Christine Dietrick, City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City
of San Luis Obispo, California, on ______________________.
____________________________________
Teresa Purrington, City Clerk
Item 14
...
J<., ... T 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 cities and the County
upon annexation; and ·
WHEREAS, ttie 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 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; 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. agreement; 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 boundariesof cities. · · ··
NOW, THEREFORE, BE IT RESOLVED by the City Councils ofthe Cities of San Luis Obispo County:
1.For "raw land" annexations prezoned commercial or industrial, the County. retains the existing proper ty tax base and all of the future property taxincrement. .
2.For annexations prezoned residential, the County retains theexisting property tax base and two-thirds (66%) of the future property taxincrement. ·
B3-6
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Aftachffentl
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.
MAYOR OF ARROYO G ND
ATTEST:
a
CI CLEAK
MAYOR OF ATASCADERO
ATTEST: Not adopted)
CITY CLERK
MAYOR OF GR VER BEACH
ATTEST:
r ,
CITY CLERK
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i
nt Z.
Resolution No. J01-96 Macage 3
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:
CLE
B2 8
Item 14