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HomeMy WebLinkAbout04/04/2011, B 3 - RESOLUTION TO ESTABLISH A PROPERTY TAX EXCHANGE AGREEMENT WITH THE COUNTY OF SAN LUIS OBISPO TO AD council MK" "yi, j acEnaa REpoRt �mNmix. 8� CITY OF SAN LU I S O B I S P O FROM: Katie Lichtig, City Manager Prepared By: Michael Codron, Assistant City Manager SUBJECT: RESOLUTION TO ESTABLISH A PROPERTY TAX EXCHANGE AGREEMENT WITH THE COUNTY OF SAN LUIS OBISPO TO ADDRESS PROPERTY AND SALES TAX TRANSFERS IN THE ORCUTT AREA. RECOMMENDATION Adopt a resolution establishing a property tax exchange agreement with the County of San Luis Obispo addressing property and sales tax transfers in the Orcutt Area, whereby the County will transfer 34% of the future property tax increment for all property in the Orcutt Area to the City, and the City will keep 100% of the sales tax generated in the Orcutt Area(Attachment 1, Vicinity Map), DISCUSSION Summary When the City annexes (or incorporates) County land, State law requires the City and County to negotiate a transfer of the taxes paid in the annexation area. 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 these tax exchanges (Attachment 2). The joint resolution 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 in mind, City and County staff have negotiated an agreement that is consistent with the countywide policy. Specifically, the resolution recommended for adoption provides for the County to continue to receive all base (existing)property taxes, and two-thirds of all future property tax increment. The City would receive 34% of the future property tax increment, which is the same increment we receive for residential land in other recent annexation areas annexed since the county-wide policy was adopted, including DeVaul Ranch (now known as the Rancho Obispo and De Tolosa Ranch subdivisions) and the Margarita Area. Background 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 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. BM I. Orcutt Area Tax Exchange Agreement Page 2 Given this process, our city (like others) was under great 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 grows the demand for county services (e.g. court and health care costs). As a result, many cities and counties throughout California have become embroiled in very contentious tax negotiations, to the detriment of everyone involved. And many cities, under pressure, have agreed to various onerous requirements. To address this situation in San Luis Obispo County, the Mayors of the cities in the County commissioned 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 standardized tax exchange agreement with the County in 1996. The standard agreement is based on two key 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. This agreement greatly reduces the uncertainty and conflict inherent in the previous annexation process, especially relative to raw land. Unique Features of the Orcutt Area Agreement The standardized tax exchange agreement with the County provides for the County to receive 100% of the base property tax and 66% of the future property tax increment in the case of residential annexations. In the case of annexations of commercial and open space land, the County would normally keep 100% of the base property tax and 100% of the future property tax increment, while the City would keep 100%of the future sales tax generated within the area. In this case, the County has agreed to consider all of the land in the Orcutt Area as residential land. This means that for the 2.75 acres of mixed-use land in the Orcutt Area, the City will be able to keep 100% of the sales tax and will still receive 34% of the property tax increment. The City will also receive 34% of the property tax increment for the open space lands associated with the Righetti Ranch house complex at the corner of Tank Farm Road and Orcutt Road because it is primarily residential in nature, as opposed to agriculture. The City is expected to receive fee title to the Righeni Hill open space area, so no property taxes would be generated by this portion of the open space area. FISCAL IMPACT The standardized tax exchange agreement with the County has been in effect since 1996. The proposed annexation is consistent with the agreement. As a result, the fiscal impact of the current annexation is discussed below in the larger context of the annexations that have occurred since 1996. The standard agreement discusses four principal types of annexations, as identified in the following table. B3-2 Orcutt Area Tax Exchanee Agreement Page 3 Type of Annexation Tax Sharing Agreement Raw Commercial or Industrial . County keeps 100% of base and 100% of future Land property tax increment. • City keeps 100% of future sales tax, business tax and TOT Residential Land • County keeps 100% of base and 66% of future property tax increment_. City gets 34% of future property tax increment. Commercial and industrial areas • To be negotiated on a case by case basis. that are substantially developed. Agricultural land and open space. • County keeps 100% of base and 100% of future property tax increment. Annexations that have occurred since the agreement was adopted include the Froom Ranch, DeVaul Ranch, and Madonna Gap annexation along Los Osos Valley Road, the Airport Area and Margarita Area annexations, and other minor annexations in different parts of the City. The agreement provides certainty with respect to the fiscal impact associated with the City's planning efforts, and allows the City to plan land uses in the annexation areas with an understanding of the fiscal impact associated with development and annexation. For instance, the fiscal analysis associated with the Airport Area Specific Plan showed that annexation of the area would result in an annual "net" (operating revenues less operating costs) of $450,000 upon annexation of the area building to $750,000 upon build-out. Although there was no fiscal impact analysis of the Froom Ranch or Madonna Gap annexations, these annexations support major retail development and a substantial percentage of the City's total sales tax revenue that is used to support public safety, street paving, parks and recreation and other benefits enjoyed by residents. There was no fiscal impact analysis of the Orcutt Area Specific Plan annexation, however, residential development is normally considered to have a negative fiscal impact. These impacts vary from place to place based on the types of services provided by a city, household size, the valuation of the construction and other factors. To a certain degree, the losses associated with residential development are mitigated by the fact that San Luis Obispo is a full service City and residents have opportunities to shop locally and contribute to our sales tax base. When the joint City/County resolution was proposed in 1996, it was accompanied by a fiscal analysis that made two conclusions (Attachment 3). First, that the loss of property tax to the County through the agreement is recompensed many times over by sales tax. Second, for residential properties the shift of some property tax to the County from the City is relatively small and that other variables would be much more important to the community's decision to move forward with a particular annexation (such as the creation of housing stock to help the City achieve its Housing Element goals). The other relevant analysis was prepared along with the City's General Plan. When the General Plan was adopted, it was determined to have a neutral fiscal impact. In other words, future expenditures associated with development of the land use plan are supported by future revenues. Because development of the Orcutt Area with residential uses is consistent with the General Plan, annexation of the Orcutt Area is expected to have a neutral fiscal impact. B3-3 I ' Orcutt Area Tax Exchange Agreement Page 4 ALTERNATIVE 1. If the City Council has specific concerns with the rationale for the 1996 Agreement, direct staff to re-open negotiations with the County with specific negotiating parameters. This alternative is not recommended because the negotiating period for this annexation will expire on April 16, 2011. In addition, County staff is not receptive to negotiating an individual agreement with the City that is substantially different than the countywide agreement. 2. Direct staff to work with the County, and other cities in the county, to update the countywide annexation tax exchange policy before approving an exchange agreement for the Orcutt Area. This alternative is not recommended because such an effort would involve a substantial amount of time to accomplish and should be initiated outside of the negotiations of any particular annexation. In addition, each annexation provides an opportunity for City staff to discuss the fundamental principles of the 1996 Agreement and policy with County staff. The underlying assumptions behind the tax exchange agreement are still valid and staff does not believe changes to the policy are warranted at this time. ATTACHMENTS 1. Vicinity Map 2. Joint Resolution No. 01-96 3. Analysis of 1996 Tax Sharing Agreement 4. Resolution Approving a Tax Sharing Agreement for the Orcutt Area G:\Staff\Codron\CAR\OrcuttExchange.DOC B3-4 EACHMENTI ORCUTI AREA SPECIFIC PLAN I Introduction 1 i.. Z J i If00T ILL � I s✓, .1 KS 4 y 1O POLICE ATIO p / SAN LOIS OBISPO NI GH SCHOOL o� r � O FRENCH HOSPITAL I ; SIERRA CEN REGIONAL MEDICAL EDT MEDICALL CENTER .0 I O FIRE STATION 01 SINSHEIMER ELEMENTARY SCHOOL FIRE STATION 93 CRY LIMIT LINE URBAN RESERBVE LINE 7 UTT SCALE: i' = 5000' v' 4 o' MAR ORCUTT PECIFrc -- J PLAN AREA 0 K FARM i 1 r - - - - - - - - - �j ---j 13UCKLEY ROAD I FIGURE 1.1 SITE LOCATION MAP March 2010 1-3 City of San Luis Obispo B3-5 z'o J(..,J 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, 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 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 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: - B3-6 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 ' 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 ATTACHMENT_ 3 Crawford Multari & Starr planning • economics • public policy _ r June 10, 1996 Mayors of the Cities of San Luis Obispo County c/o Allen Settle, Mayor City of San Luis Obispo P.O.Box 8100 San Luis Obispo, CA 93403-8100 Dear Mayors, Earlier this year I prepared an analysis of the fiscal effects on the county related to annexations. This analysis was eventually used in the negotiation of a tax:sharing agreement between at least some of the cities and the county. It seems that there is some confusion.about the purpose of my analysis and about the results. Perhaps this letter will help clarify the situation. Our role in the tax sharing discussions. When representatives of the cities first engaged the county's representatives regarding a standar ax sharing agreement for annexations, thF county's initial suggestion was that they should retain adl property tax and should also receive a portion of the saes tax, and perhaps even some of the TOT, as well. They argued that with the reductions in property tax revenues going to counties anincreases in obligations, the county would probably need that additional revenue just to "break even." I was contacted by Ken Hampian, Bob Hunt and Rich Ramirez to analyze the actual effects of annexation on the county,to test whether or not this assertion was valid. The county representatives agreed that some kind of analysis of probable fiscal impacts would be valuable. Our firm had recently developed a fiscal impact model for the county so that they could evaluate different development proposals. We modified that model so that we could look at the fiscal effects on the county if the development occurred in an annexation area(rather than in the unincorporated territory). The advantage of basing the analysis on the county's model was that we could use many of the assumptions the county had already found reasonable. In this kind of analysis,consensus on assumptions is an important starting point. Please keep in mind that I was not part of the negotiation team,but I did have the interesting experience of sitting in on several of the discussions that took place among representatives of the cities and the county. Our assignment was to determine how much property tax the county would need in order to "break even", that is, so that the revenues coming to the county equaled the costs of providing. county services. We refered to that as"fiscal neutrality", that service costs would be just offset . by revenues. We were asked to determine fiscal neutrality for the county,not for the cities. 641 Higuera St., Suite 202 San Luis Obispo. CA 93401 (805) 541.3848 Fax ,(805)_541 -7" ATTACHMENT? Mayors Annexation and tax sharing .r page 2 Statewide perspective. The League of California Cities retained our firm earlier this year to survey cities throughout the state regarding issues related to annexations. We received responses from 154 cities; 78 (51%)reported that they had encountered problems with tax sharing agreements. In many cases, the county position is situp y that 100%of all property tax must go to a counries after annexation. Examples where this is the case include San Joaquin, Sacramento and Shasta counties. Forty-four(29%) of our respondents stated that their county's position was not only that 100% of the property tax should be passe .to the county but that a share of sales tax, as well. We interviewed representatives of many of these cities to learn more about what kinds of tax sharing agreements had been worked out. An example of how extreme these negotiations can go is the City of Sonora. In a recent annexation there, the tax s wring agreement called for 10 percent of the property tax increment, 8 percent of the sales tax; 72 percent o_the TOT, and development impact fees averaging about S 1,000 per unit to go to the County of Tuolumne! The results of our analysis of San Luis Obispo County. We found that in order for the county to"break even,"they would need to continue to get all the property tax for non-residential annexations (commercial and industrial) and about 2/3 of the tax for residential annexations. Here's another way of looking at this. On average, in the unincorporated area, the county receives only about 22%of the property tax. Our analysis found that for the county to break even, they would need to get 22% after-annexation for commercial and industrial annexations and about 14%for residential annexations.. (More precisely, the actual percentage was 13.5% -- a bit less than 2/3 of 22%.) This also means that after annexation, the city would receive no property tax for commercial and industrial annexations and about 7.4%of the property tax for residential annexations. The commercial situation. At first blush, it may seem imbalanced that the county receives all the property tax in the case of commercial annexations. However,the city has kept all the sales tax. The sales tax income simply overwhelms the property tax. Consider a hypothetical case of a 100,000 square foot shopping center.. In the analysis we assumed an assessed value of$80 per . square foot. This is probably high for most modern tilt-up construction,but let's use it for our example. If the county received its fu1122% of the property tax,that equals about$17,600 in property tax.The projected sales tax from a retail center of that size is about$175,000 per year, almost exactly 10 times as much. Let's consider how much property tax the city actually"gives away"in this hypothetical case. First of all, it is important to keep in mm at since ERAF and other property tax"grabs"by the _ Crawford Multari&Starr planning economics._ public policy_ B3-10 Mayors Annexation and tax sharing - .r page 3 - state, the county's position in terms of property tax has significantly eroded. Within the cities, the county receives on average about 18%of the property tax and cities, on average,receive about 16%. Thus, a city and the county share about 34% of the property tax. In unincorporated areas, as noted above, the county gets only about 22%of the property tax. Thus, the amount that the city and county can share after annexation, the amount they can actually negotiate over, is only 22%. Thus, it is entirely unrealistic for cities to expect to continue to receive as much as 16% of the property tax after annexation. But let's assume that the current ratio of county to city shares is maintained in splitting up that 22%. That would work out to about 10.3% for the city and about 11.7% for the county(16:18 10.3:11.7, approximately). If we assumed this was the baseline,how much did.the city lose by giving the county all the property tax? It works out to about$8,000. Again,the sales tax.is estimated at $175,000-- almost 22 times as much. Thus, from the perspective of an overall fiscal strategy, the trade-off of a small amount of property tax for much greater sales tax not to mention business license taxes and other revenues like TOT) seems reasonable. Another interesting point about property tax is that Proposition 13 limits re-assessments to only 2%per year. If inflation is above 2%, then the property tax income, in constant dollars, actually declines each year. Sales tax,however, generally keeps pace with inflation as prices for goods rise. For example, if inflation runs at 4%,that$8,000 that the city gave up will be worth less than$6;500 ten years later even with.the annual maximum increases allowed by Proposition 13. Thus, given the two income sources,the sales tax is by far the larger and more likely to keep up with inflation. The industrial picture. Here again, the city position was to give up the entire property tax to the county. While the sales tax benefit from the commercial case was easy to illustrate,what income accrues to the city in the case of industrial? While not as generous as in the case of a retail center, industrial areas still produce significant sales tax. The examination of virtually any industrial area reveals that there is considerable retailing going on. For example,we were recently retained to assist with the annexation of an already developed area in the city of Patterson. The subject properties were considered to be"industrial." The total property tax that the city and county could negotiate over amounted to about$2,400. However, e sales tax generated among the various uses was over$30,000. Clearly,the city was not so concerned with property tax as with getting the sales tax. Other examples may help illustrate the point that"industrial" areas actually contain activities that generate substantial sales tax-- not nearly so significant as a retail center,but generally much more than property tax. Crawford Multari&Starr _ planning__economics public.,policy B3-11-° . AT IACHMENT 3 Mayors Annexation and tax sharing _ .r page 4 Consider the"Airport Area"south of San Luis Obispo. This has been zoned"industrial"for decades. A study performed by Angus McDonald found that the area generated approximately $370,000 per year in sales tax. Keep in mind that this is an"industrial"district. Furthermore, McDonald's report estimated that this area would generate a net revenue to the city(today, without further development) of$570,000 per year without any property tax going to the city. Another area presently in the City of San Luis Obispo is probably representative of the mix of uses one might find in"industrial"districts. The area east of lower Higuera Street between Tank Farm and Prado Roads includes Hind Performance, San Luis Sourdough,The Spice Hunter,JBL Scientific and several other light industrial and"heavy"commercial land uses. In 1994-95 this area generated over$160,000 in sales tax to San Luis Obispo. Interestingly,the amount of sales tax produced by this area has been climbing throughout this decade, averaging an increase of almost 15%per year, despite the recession. The case of residential annexations. While one can easily demonstrate that commercial annexations will be net revenue generators.for cities, and that this is also likely true for industrial annexations --at least the way industrial areas actually are built out--one can not be so sanguine about residential projects. The fiscal impacts of new residential growth is quite idiosyncratic from place to place,varying with the amount and type of services provided by the city, household size, the valuation of the units, local sales tax capture and other factors. . However,with regard to the property tax, it should be kept in mind that the amount of money in absolute dollars is quite small. Consider a hypothetical case of a single family house. Fust of all, there is the question of the"base"before annexation. Tax sharing agreements generally require that the existing base,that is, the amount the county presently receives in property tax,continues to go to the county. It is just the increase, or increment,that is shared after annexation. We assumed that to be true in our analysis. However, we also assumed that for raw land, outside the city limits,with neither annexation nor entitlements,the value for property tax purposes is generally quite low. Discussions with some local developers suggested that the assessed value of this land for tax purposes (again,prior to annexation or any entitlement)would probably by less than$20,000 per acre. Let's double that for argument's sake to $40,000 per acre. Thus, at a post-annexation density of four units per acre,the"base" for property tax purposes for each unit would be$10,000. The county receives about$22 in property tax on that. Now,after annexation the land is subdivided and approved. A house is built and sold for $150,000. The increment is$140,000. The total property tax from the increment is I%of that or $1400. The city and county get to split 22% of that, or about$308. If we assume the current average ratio of county-city shares (see above),the city would get$144 and the county$164. Crawford Multari&Starr planning economics public policy B3-12- ATTACHMENT 3- - Mayors Annexation and tax sharing page 5 The newly proposed tax sharing agreement would change these amounts to$103 for the city and $205 for the county. Thus,the city has given up $41 per house to the county. In these difficult fiscal times, giving up any revenue is a problem. But one should keep in mind e magnitu e of the issue at hand. Conclusion. It is not my role to say whether the proposed agreement meets the needs of individual cities. However, it appears to me that for any commercial annexation, and for most industrial annexations that can be imagined,the loss of property tax is recompensed many times over by sales tax(and perhaps other revenues as well). In the case of residential,there is a shift of some property tax to the county from, at least, a theoretical baseline. However,the amount of money involved is quite small; it seems other variables besides these small sums would be much more important in a community's decision as to whether or not a particular annexation makes sense. I hope this is helpful. I would be pleased to attend one of your"Mayors' Group"meetings to help answer questions and to discuss this interesting and difficult topic -- one that I can assure you is being debated in many cities and counties throughout the state. Thank you. Sincerely, 6uz�CCG�7 Michael Multari cc: Councilmembers and City Managers Crawford Multari&Starr planning economics public policy B3-13 P AITACHME9 4 RESOLUTION NO. XXXX (2011 Series) 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 WHEREAS, the City of San Luis Obispo, a charter city and political subdivision of the State of California, wishes to move forward with the annexation of the Orcutt Area; and WHEREAS, the Revenue and Taxation Code Section 99(a)(1) 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, 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 property 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 property 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. 79 to the City of San Luis Obispo (Orcutt); and WHEREAS, the negotiating party, to wit: Dan Buckshi, Assistant County Administrative Officer and .Emily Jackson, Administrative Analyst, on behalf of the County and Michael Codron, Assistant City Manager and Mary Bradley, Interim Finance Director/City Treasurer, on behalf of the City of San Luis Obispo have negotiated the exchange of property 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 property 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: SECTION 1. Agreement: The City Council agrees to accept the following negotiated exchange of base property tax revenues and annual tax increment. R B3-14 ATTACHMENT 4 Resolution No. (2011 Series) Page 2 1. No base property tax revenue shall be transferred from the County of San Luis Obispo to . the City of San Luis Obispo. 2. For the purposes of this exchange, all land within the annexation area will be considered to be pre-zoned residential. 3. Annual tax increments shall be transferred from the County of San Luis Obispo to the City of San Luis Obispo in fiscal year 2011-2012 and each fiscal year thereafter in the amount of 34 percent of the increment remaining after transfers to the Educational Revenue Augmentation Fund (ERAF). 4. If development of the open space area (44 percent or 100 acres) of the site is ever pursued, it will be incumbent upon the City to notify the County of such development and the County will reserve the right to renegotiate with the City regarding a revised formula for the exchange of property tax increment in that area. 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 , seconded by and on the following vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this 5th day of April, 2011. Mayor David F. Romero ATTEST: Elaina Cano, City Clerk APPROVED AS TO FORM: (_'., "stine Dietrick, City Attorney B3-15