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HomeMy WebLinkAbout2007-02-13 - AGENDA REPORTS - WEST SIDE ANNEX STUDY (2)Agenda Item: CITY OF SANTA CLARITA AGENDA REPORT UNFINISHED BUSINESS City Manager Approval: w Item to be presented by: Kai Luoma DATE: February 13, 2007 SUBJECT: AUTHORIZATION OF UP TO $25,000 FOR ANNEXATION STUDY OF WEST SIDE DEPARTMENT: Community Development RECOMMENDED ACTION 1) City Council authorize expenditure of up to $25,000 toward an annexation study of the westside communities; and 2) Transfer $25,000 from the Council Contingency Account # 2250-7401 to the Annexation Account # 3110-8003. BACKGROUND The Westside communities of Sunset Pointe, Stevenson Ranch, Westridge, and Castaic have for years discussed the possibility of annexing to the City of Santa Clarita. More recently, the idea of incorporation of these westside communities has been discussed as another possible option. However, no hard data has been provided as to the feasibility of incorporation. In January, Supervisor Antonovich committed up to $25,000 to pay for an initial feasibility review (IFR) to determine if incorporation of the westside would be feasible. The IFR would be a general overview, not the detailed and more expensive analysis (up to $150,000) that would be required later in the incorporation process. It is stairs understanding that the Westranch Town Council will be the primary lead in having the IFR prepared and that Supervisor Antonovich's office will keep control of the funds but pay the bills for the preparation of the analysis. At the January 23, 2006 Council meeting, Councilmember Kellar requested that an item be placed on a future agenda. Supervisor Antonovich's office and the Westranch and Castaic Town Councils have been informed of this item. ANALYSIS At this time, the IFR being prepared by the Westranch Town Council will only study the feasibility of incorporation. However, according to Supervisor Antonovich's office and the Westranch Town Council, the westside communities have three options to consider: no change, annexation, and incorporation. The IFR being funded by the Supervisor's office is intended to provide an independent, unbiased analysis of the feasibility of incorporation. To date, there has been no attempt to provide an unbiased, independent analysis of annexation. An additional $25,000 would provide the funds to conduct such a study. Incorporation oche Westside Communities The IFR will only provide a general overview of the tax revenue being generated from the unincorporated communities on the westside. It should also identify the general costs of providing municipal services to a newly incorporated city. It will identify whether the tax currently being generated is sufficient to pay for the cost of these services. The study will not identify any of the several pros and cons of incorporation or annexation. Certainly, the analysis is unlikely to discuss or evaluate one of the most significant impediments to incorporation and pros for annexation: "revenue neutrality". "Revenue neutrality" is a provision that was added to the State Gbvemment Code in 1992 that essentially states that a new incorporation cannot adversely impact the finances of the County in which the incorporation occurs. Simply put, a County is required to give to the newly incorporated city only the amount of revenue that it is currently paying to provide services to that area. If a County is collecting more tax revenue from the area than it spends to provide services to that area, the County is allowed to keep the additional surplus funds. There is no requirement that it ever give up these funds. The County also has the option to negotiate a revenue sharing agreement with the new city, if it so choses. In a recent study conducted by Applied Economics (in reading file), it was found that, each year, the County collects over $42 million from the unincorporated areas of the Santa Clarita Valley in the form of property tax, sales tax, the utility users tax that all unincorporated County residents and businesses pay, and other taxes and fees. The overwhelming majority of these taxes come from the westside where residents and businesses are concentrated. The study also found that the costs of providing municipal services to the same unincorporated County areas were just under $21 million. The study concludes that the residents of the unincorporated areas are paying over $20 million more than they are getting back in the form of municipal services. Over $20 million being generated in the unincorporated Santa Clarita Valley is being used to fund County programs and pay County bills outside the Santa Clarita Valley. Under the revenue neutrality provision, the County is not required, nor is it obligated to give the surplus tax revenue it collects from the westside communities back to the westside communities should these communities incorporate into a new city. The County is allowed by State law to keep this surplus forever. The provisions of "revenue neutrality' are so onerous that in the 15 years since its inclusion in state law in 1992 not a single incorporation has occurred in Los Angeles County. In the 15 years prior to its inclusion in state law, 10 cities incorporated in LA County. Annexation of the Westside Communities There is no "revenue neutrality" requirement when it comes to annexations. If an area annexes to a city, that city retains all of the sales tax revenue generated in the annexed area. The city would also keep a percentage of the property tax revenue. If the westside communities were to annex to Santa Clarita, a significant portion of the $20 million dollars in tax revenue currently leaving the community would be retained by the City and spent locally. It should be noted that 100% of the tax revenue collected by the City is spent locally, directly benefiting residents of the City and Santa Clarita Valley. From a County fiscal standpoint, incorporation of the westside communities would be preferable to the annexation of these communities, because incorporation allows the County to continue to keep the surplus tax revenue that is being generated by these communities and spent elsewhere in Los Angeles County. For these reasons, any IFR that is truly intended to fully inform residents about incorporation should include discussion of `revenue neutrality". This second study that this $25,000 would allow for will evaluate annexation and address issues such as the additional amount of the tax surplus that would be retained in the Santa Clarita Valley and the reduced cost of overhead to provide municipal services to a newly annexed area when compared to a new city. ALTERNATIVE ACTIONS Council may choose not to appropriate $25,000 for an annexation study of the westside communities. Other direction as determined by the City Council. FISCAL IMPACT The fiscal impact would be $25,000 from the Council Contingency Account (#2250-7401) leaving that fund with a remaining balance of $972,000. The funds would be controlled by the City with the City paying any invoices for the preparation of the annexation study. ATTACHMENTS Applied Economics study available in the City Clerk's Reading File