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ADOPT A RESOLUTION APPROVING A MASTER PROPERTY TAX ALLOCATION AGREEMENT BETWEEN THE CITY OF STOCKTON AND THE COUNTY OF SAN JOAQUIN
recommended action
RECOMMENDATION
It is recommended that the City Council:
1. Adopt a resolution approving a Master Property Tax Allocation Agreement between the City of Stockton (City), the County of San Joaquin (County), and each detached special district that chooses to execute the Agreement, establishing a framework for the exchange and allocation of property tax revenues associated with annexations.
2. Authorize the City Manager, or designee, to take whatever actions are necessary and appropriate to carry out the purpose and intent of this resolution.
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Summary
The proposed Master Property Tax Allocation Agreement establishes a comprehensive framework governing the allocation of property tax revenues between the City and the County for annexation areas. The prior agreement, executed in 2015, expired in July 2025 and was not renewed. As a result, the City must currently negotiate property tax allocations on a project-by-project basis to comply with State law, which requires a tax-sharing agreement prior to annexation approval by the Local Agency Formation Commission (LAFCo).
The Agreement is supported by a fiscal analysis evaluating the long-term impacts of annexation and development on both jurisdictions. The analysis indicates that under traditional tax-sharing structures, annexation areas may produce a net negative fiscal impact to the City while generating positive fiscal returns for the County.
Approval of this Agreement provides a predictable, equitable, and strategic framework to support future annexations, economic development, and sustainable service delivery.
DISCUSSION
Background
On July 21, 2015, the City and County entered into a Master Property Tax Allocation Agreement with a term ending July 31, 2025. Upon expiration, the agreement was neither extended nor replaced, necessitating individual negotiations for property tax sharing on future annexations.
On November 3, 2025, the City executed a Single Available Source Contract with NBS Government Finance Group (NBS) to assist in developing a Fiscal Impact Analysis (FIA). NBS was selected based on its prior experience with jurisdictions within San Joaquin County and its familiarity with regional tax-sharing structures. A draft FIA was completed and presented to the County on February 24, 2026. This report evaluates planned development areas and compares the revenues they would generate to the cost of providing City and County services. It finds that, under a typical tax-sharing split (about 80% County / 20% City), the development would cost the City more than it brings in, while the County would receive a financial benefit, highlighting the need for a more favorable agreement for the City.
Key Points:
• The planned developments will bring in new tax revenue from property, sales, and other sources.
• The City will also take on significant new costs to provide services like police, fire, and infrastructure.
• Under the current tax split, the City loses money overall, while the County gains revenue.
• The financial gap is driven by the City receiving a smaller share of property tax despite higher service responsibilities.
• To make development financially sustainable, the City should negotiate a larger share of future tax growth.
Several development projects are currently awaiting completion of a master agreement to proceed through the LAFCo annexation process. In December 2025, the Murray Ranch project team raised concerns regarding potential delays. To avoid project impacts, the City pursued a parallel approach: continuing negotiations on the master agreement while advancing a project-specific tax-sharing agreement for Murray Ranch.
In the absence of an updated master agreement, the City Council approved a project-specific tax allocation agreement for the Murray Ranch annexation on March 3, 2025, establishing:
• A base property tax split of 90% County / 10% City
• An incremental growth split of 60% County / 40% City
The San Joaquin County Board of Supervisors approved the agreement on March 17, 2025.
Present Situation
California Revenue and Taxation Code (RTC) Section 99 (Attachment A) sets the rules for how property taxes are divided when there is a change in jurisdiction, such as when land is annexed into a city. This applies to special districts (including fire districts), especially if services are shifting.
According to RTC Section 99 (b)(5), when a change like an annexation affects a special district, the County shall negotiate with the City on behalf of the district regarding how property tax money will be shared. Before doing that, the County must talk with the district’s leadership and give the district a chance to provide input on the negotiations.
In the past, the City faced challenges with annexations due to negotiations with fire districts over territory detachment.
The City’s policy requires that areas detach from existing fire district service areas upon annexation so that Stockton Fire can provide service within City limits. Stockton Fire is able to provide high-level fire protection services and advanced life support services with paramedics on all fire apparatus.
However, detachment can negatively impact fire districts by reducing their revenue. The City recognizes this impact and has been willing to provide temporary financial assistance to ease the transition. In some cases, LAFCo has required the City and developers to negotiate compensation for this revenue loss. These negotiations have often been inconsistent, creating uncertainty in the development process.
As a result, projects have experienced increased costs and delays. To address this, the proposed Master Tax Allocation Agreement establishes a standardized approach by providing affected fire districts (i.e. those losing territory) with:
• 2.5% of the property tax increment (growth)
Or
• Property taxes at the proportional formulas in effect at the time of agreement execution
Whichever is higher, for up to five years (Exhibit 1 of the Proposed Resolution).
Property taxes will be automatically calculated and allocated to the district by the County Auditor Controller. This approach offers greater consistency and is more generous than prior agreements.
On April 9, 2026, the City and County agreed upon a Master Tax Allocation Structure. The County began reaching out to the respective fire districts to gain their input. Consistent with RTC Section 99 (d), the County desired that all of the fire districts affected be signatories in the agreement. The City and County agreed that if a fire district decided not to sign the agreement, then both jurisdictions would move forward with the Master Tax Allocation Agreement without that particular fire district. Districts that do not agree and sign the Master Tax Allocation Agreement may not be eligible for the 2.5 percent incremental tax sharing.
The following districts will be given the opportunity to execute and become a party to the Master Tax Agreement:
• Eastside Rural County Fire Protection District
• Lincoln Rural County Fire Protection District
• Tuxedo-Country Club Rural Fire District
• Boggs Tract Rural Fire Protection District
• Montezuma Fire Protection District
• French Camp-McKinley Fire Protection District
• Waterloo-Morada Rural County Fire Protection District
The following are the details of the Master Sharing Allocation Agreement:
Base Property Tax
Base property tax represents the existing revenue generated from the assessed value of land at the time of annexation, prior to any new development.
• Typically allocated using a fixed percentage between jurisdictions
• Represents the baseline revenue that transfers with the property upon annexation
Incremental Growth Property Tax
Incremental growth property tax represents additional revenue generated after annexation due to development, investment, and increases in assessed value.
• Negotiated separately from base tax
• Reflects the fiscal benefits associated with the City’s land use authority, infrastructure investment, and service provision
The Agreement establishes the following revenue-sharing framework:
Base Property Tax Allocation:
• 90% County / 10% City
Incremental Growth Allocation:
• 60% County / 40% City
Special Provisions (Fire District Transition):
For properties exiting a fire district service area (detachment) upon annexation:
• The fire district receives 2.5% of incremental (growth) property tax revenue
• This allocation applies for five (5) years following annexation approval
• The 2.5% share is sourced as follows:
o 1.5% of the County’s share
o 1.0% of the City’s share
OR
• The fire district receives property taxes at proportional formulas at the time of agreement execution.
The higher of the two will be automatically calculated and allocated to the district by the County Auditor Controller.
Annexation Terms
Applies to annexations through July 31, 2036, unless terminated earlier.
Exclusions Requiring Separate Negotiation
The Agreement does not apply to:
• Areas generating significant sales tax revenue (greater than $1.7 million annually)
• Areas generating Transient Occupancy Tax (TOT)
• Large County-owned properties exceeding 50 acres
Regional Cooperation
The City and County commit to:
• Coordinated land use planning
• Infrastructure planning within the Sphere of Influence
• Shared service efficiencies
County Capital Facilities Funding
The City agrees to continue support of County regional services through ongoing collection and pass through of County Capital Facilities Fees.
FINANCIAL SUMMARY
Short-Term:
• No immediate General Fund impact resulting from approval of the Agreement
Long-Term:
• Improves revenue capture from future annexations
• Supports fiscally sustainable growth
• Helps address structural imbalances where service costs exceed revenues
Without an updated agreement, future annexations may:
• Increase service demands without proportional revenue growth
• Generate insufficient City revenues
• Exacerbate existing fiscal imbalances
• Require individual tax sharing agreements, delaying economic development for the City
Approval of the Agreement is not a project under the California Environmental Quality Act (CEQA) and does not commit the City to any specific development. Future annexations will undergo project-specific environmental review as required.
Attachment A - California Revenue and Taxation Code Section 99