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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. Item 14 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. Item 14 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 Item 14 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 Item 14 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