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APPROVE AGREEMENT BETWEEN CITY OF STOCKTON AND COUNTY OF SAN JOAQUIN FOR PROPERTY TAX ALLOCATION UPON ANNEXATION AND DEFERRED ANNEXATION AGREEMENT FOR THE AIRPARK 599 PROJECT
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution authorizing:
1. the City Manager to execute an Agreement with the County of San Joaquin for Property Tax Allocation Upon Annexation (Exhibit 1); and
2. the City Manager to execute a Deferred Annexation Agreement with the County of San Joaquin for the Airpark 599 Project (Exhibit 2).
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Summary
This action authorizes the City Manager to enter into an Agreement with the County of San Joaquin (County) for Property Tax Allocation Upon Annexation (Annexation Agreement). This agreement would delineate the allocation of property tax revenues between the City and County when a property is annexed into the City limits until July 31, 2025. Additionally, this action authorizes the City Manager to enter into a Deferred Annexation Agreement with the County for the Airpark 599 Project. The Deferred Annexation Agreement outlines the conditions upon which the Airpark 599 Project can be annexed into the City limits, as well as the allocation of tax revenues that will be received by each jurisdiction.
DISCUSSION
Background
When development is proposed in unincorporated areas adjacent to the City, and City utility services are being provided, California State Law encourages annexation of the property into the City. All annexations must be reviewed and approved by the Local Agency Formation Commission (LAFCo). Local Agency Formation Commissions were established by the State Legislature to encourage orderly growth and logical boundaries. LAFCo has full authority to approve, disapprove or amend annexation proposals. State annexation procedures require that property tax agreements be in place before LAFCo can process an annexation. There are no requirements regarding the format or contents of an agreement, however an annexation cannot be considered without an agreement in place.
In 2005, an Annexation Agreement was approved and adopted by the City Council and the San Joaquin Board of Supervisors. However, that agreement expired in 2012, and since that time there have been no annexations of property into the City.
Present Situation
Recently, there has been a noticeable increase in development activity and several requests for utility services for projects outside of the City limits. With renewed activity from private development, it is in the best interest of the City to have an Annexation Agreement with the County to enable future annexations to occur. Council Policy 900-1 requires that developments outside the City limits requesting a City water or wastewater connection agree to be annexed. Without an executed Annexation Agreement, the City would provide utility services, but would be prevented from annexing the property and thus would not benefit from any of the associated property or sales tax revenue generated by the projects.
Staff met with County administrators on several occasions over the past few months to discuss the parameters of a possible Annexation Agreement which would allow the City, if desired, to annex property through LAFCo and subsequently collect the sales and property tax revenue generated by the development of the property. During these discussions, County representatives communicated the desire to revive the development of the Airpark 599 Project. The Airpark 599 Project had originally been planned in late 2000, but the downturn in the economy delayed the project. With the economy now in recovery, the County and the developer are interested in resurrecting the project.
The Airpark 599 Project (Project) is located in an unincorporated area of the County, adjacent to the south-eastern edge of Stockton’s city limits. The property is owned by the County. The Project is comprised of a mix of non-residential uses on nearly 430 developable acres. With approximately 5.3 million square feet of planned industrial, office, retail, restaurant, and hotel land uses, the Project has the potential to produce approximately 10,000 new jobs. The project requires utility services from the City for water and sewer facilities to move forward.
With both the County and the City having an interest at stake, it was necessary to negotiate two separate agreements: one agreement detailing the terms of the property tax allocation between the City and the County when properties are to be annexed into the City; and a second agreement detailing the terms under which the City would provide water and sewer services to the County for the Airpark 599 Project. The proposed Agreement for Property Tax Allocation upon Annexation and Deferred Annexation Agreement for the Airpark 599 Project reflect the negotiated and agreed upon terms.
The major provisions of the proposed Annexation Agreement are:
• Property Tax Allocation
Upon each annexation, property tax allocation shall be determined by whether there is a detachment from an existing fire district with the percentage determined by the date the district was established. Depending on the established date, the City will receive anywhere from 10% to 20% of property tax revenues.
Note: This is standard language in County annexation agreements and represents no change from the prior annexation agreement. These terms are the same with all cities in the County. The County has indicated that most annexations that require a detachment will be at the 20% level.
With regard to the Airpark 599 Project, once annexed pursuant to the terms of the Deferred Annexation Agreement, the City and County shall share property tax revenue pursuant to the ratio of 40% City and 60% County.
• Terms of Agreement
The provisions of the Annexation Agreement will apply to all pending and future annexations from the effective date of the Annexation Agreement through July 31, 2025, unless otherwise terminated.
Additionally, should the County execute an agreement with another city in the County, with terms more favorable than those contained in the City’s Annexation Agreement, then the County must negotiate comparable terms with the City and execute an amendment to the existing Annexation Agreement.
• Exclusions
The Annexation Agreement identifies situations where the proposed tax sharing ratio would not apply. These exclusions are as follows:
Areas where the County is currently receiving transient occupancy tax (TOT). Agreements for proposed annexations of these areas will be individually negotiated in an effort to address the potential TOT loss to the County.
Areas where gross taxable sales, subject to sales and use taxes, exceed $1 million annually. Agreements for these areas will be individually negotiated in an effort to address the potential loss of sales and use tax revenue to the County.
With the exception of the Airpark 599 Project, no annexation may occur of County-owned property more than 50 acres. Agreements for these properties will be individually negotiated for mutual benefit.
• Regional Cooperation
As part of the Annexation Agreement, the City and County agree to jointly develop and seek to implement changes to improve the cost effectiveness of service delivery by both City and County, including the consolidation of services between governmental agencies and inter-agency contracting for services.
• Termination
The County or City may terminate the Annexation Agreement upon six months written notice.
The following are major provisions of the proposed Deferred Annexation Agreement for the Airpark 599 Project:
• Time of Annexation
The annexation of the Airpark 599 Project will occur no sooner than the earlier of the following:
1. Building permits have been issued for 50% of the planned building square footage of the project; or
2. Ten years has passed from the date of the Deferred Annexation Agreement.
• Tax Revenue Split
Following annexation of the Airpark 599 Project:
1. Property tax revenue will be split using the ratio of 40% to City and 60% to County; and
2. Sales and use tax revenue will be split using the ratio of 50% to County and 50% to City.
• Utility Services
Upon execution of the Deferred Annexation Agreement for the Airpark 599 Project, the City agrees to issue a “Will-Serve” letter for sewer and water services for the project.
The Agreement for Property Tax Allocation Upon Annexation and the Deferred Annexation Agreement for the Airpark 599 Project are being considered by your Council and by the San Joaquin Board of Supervisors concurrently.
FINANCIAL SUMMARY
There is no negative impact to the General Fund by approving both the Agreement for Property Tax Allocation Upon Annexation and the Deferred Annexation Agreement.