City Council Agenda Report
TO: Mayor McCord and Members of the City Council
FROM: Ken Irwin, City Manager
BY: Nubia Goldstein, City Attorney
MEETING DATE: July 5, 2022
ITEM NO: 8.3
SUBJECT: Adopt Resolution No. 2022-49 Approving a Master Property Tax Revenue Agreement Between Stanislaus County and the City of Patterson.
RECOMMENDATION
Motion to Adopt Resolution No. 2022-49 Approving a Master Property Tax Revenue Agreement Between Stanislaus County and the City of Patterson.
BACKGROUND
California Revenue and Taxation Code section 99, authorizes counties, cities, and special districts to enter into standing master property tax sharing agreements. The standing master property tax sharing agreements address property tax allocations for annexations of new property to city limits. Property tax sharing agreements intend to ensure the continuation of existing levels of public services. In the absence of a master tax revenue sharing agreement, the sharing of property tax is negotiated on an individual basis for each new annexation application that goes through the local agency formation commission (“LAFCO”). As opposed to doing a tax sharing agreement for each new annexation, master tax sharing agreements are beneficial by providing consistency and efficiency in the annexation process.
In 1996, Stanislaus County (“County”) entered into a Master Property Tax Agreement (the “1996 Agreement”) with each of the nine (9) cities, including the City of Patterson (“City”). In the 1996 Agreement, the County retained all base funding, and the tax increment was split 70% to the County and 30% to the City.
The 70/30 tax increment split included in the 1996 Agreement reflects the distribution of tax revenue prior to reductions for the Educational Revenue Augmentation Fund (“ERAF”). ERAF, as required by the State of California, redirected property tax revenue from cities, counties, and special districts to public education. The redirected revenue is deposited into a countywide account known as ERAF and is allocated to schools and community colleges. The purpose of ERAF was to offset the funding that the State would no longer provide through its General Fund.
The County is required to deposit 55% of property tax into the ERAF, while cities are required to deposit an average of 26% of property tax into the ERAF. Under the 70/30 tax increment split and the ERAF requirements, for every $1 million in assessed value growth under the 1996 Agreement, Stanislaus County cities currently net an average of $946 in revenue while the County nets $891 in revenue.
DISCUSSION
A committee of City Managers, representing all nine (9) cities in the County, worked with the County Chief Executive Officer to evaluate various concepts for an updated master property tax sharing agreement. The discussions focused on concepts to streamline property tax revenue sharing for properties annexed after the 1996 Agreement and to address the ongoing impact of ERAF on local agencies. The City Managers and County Chief Executive Officer’s work resulted in a proposed Master Property Tax Revenue Agreement (“Proposed Agreement”). The essential components of the Proposed Agreement are as follows:
· The Proposed Agreement is effective with the 2022 Assessment Roll reflecting property values as of January 1, 2022, delivered by the County Assessor to the County AuditorController by July 1, 2022. · The Proposed Agreement continues until either City or County elects to terminate it by providing no less than sixty (60) days’ notice. The termination would be effective on the first day of July following service of the notice of termination. · The Proposed Agreement is retroactive in that it generally applies to properties annexed following the effective date of the 1996 Agreement, and then also future annexations. · Consistent with the 1996 Agreement, the County retains all base property tax revenue. · Revenue growth for properties annexed after the 1996 Agreement will be shared evenly between the City and the County: 50% to the City and 50% to the County. · Revenue growth for properties annexed in the future will also be shared evenly between the City and the County: 50% to the City and 50% to the County, unless otherwise negotiated by the parties. Annexations that include a County island would require a separate agreement.
· Consistent with the 1996 Agreement, the County’s Increment Property Tax Revenue sharing is calculated prior to any property tax revenue shift for ERAF. Under the Proposed Agreement, the net impact of ERAF would be approximately 68% City and 32% County on average. The County and the County cities will continue to discuss alternative models of property tax distribution to lessen the impact of ERAF. · Consistent with the 1996 Agreement, exceptions to the Proposed Agreement are included for territories for which the allocation of property tax revenue shall be negotiated independently from the agreement.
The City Council is being asked to consider and approve the Proposed Agreement, making it available for implementation in Fiscal Year 2022-2023. The attached resolution will approve the Proposed Agreement and authorize the City Manager to execute the Proposed Agreement (the “Resolution”). Approval of the Proposed Agreement will terminate the 1996 Agreement. If the City does not approve the Proposed Agreement, the 1996 Agreement will continue to be effective, until terminated by either party. To implement the Proposed Agreement for the 2022- 2023 fiscal year, the Proposed Agreement must be adopted by July 20, 2022. If the City does not approve the Proposed Agreement by the July 20, 2022 deadline, the County will continue conversations with the City for implementation in Fiscal Year 2023-2024.
FISCAL IMPACT
The Proposed Agreement increases the City’s share of property tax revenue for annexations.
The County estimates that under the Proposed Agreement for every $1 million in growth of assessed value, the City will net an average of $1,365 in property tax revenue (compared to $946 previously) while the County will net an average of $637 in revenue (compared to $891 previously).
ATTACHMENTS
1. Resolution No. 2022-49 Approving a Master Property Tax Revenue Agreement between Stanislaus County and the City of Patterson.
2. Master Property Tax Revenue Agreement between the County of Stanislaus and the City of Patterson.