UKIAH’S recently proposed annexation of unincorporated areas around the city could negatively impact Mendocino County’s financial stability, according to statements by the county Board of Supervisors at its meeting last week.
At Tuesday’s meeting, Supervisor Madeline Cline led a discussion on how the city’s proposed annexation of the Willow region south of the city and a portion of Millview in the north, if approved, would stress the resources of county departments.
Cline emphasized the urgency of understanding the financial implications of annexation and said a conversation about finances should have taken place last June, when the county first approved a master tax sharing agreement, or MTSA.
The agreement is between the county and the cities of Ukiah, Willits, Fort Bragg and Point Arena to coordinate tax revenues when cities annex unincorporated land and was approved to ensure financial fairness among government entities and to organize services in newly annexed areas.
Cline also said the annexation’s potential to reduce county revenue needs to be analyzed.
“This is something I wish was discussed by the board when they first signed the MTSA,” Cline said during the meeting. “In terms of how much staff time will it take to actually process and implement the agreement? What kind of financial analysis can we do to see the impact?”
When a city annexes unincorporated county land, it takes over utility operations. The tax sharing agreement outlines how that transition will occur in a way that aims to reduce financial disruption.
But other financial factors are still under consideration. Supervisor John Haschak noted that the city of Ukiah should assist the county with the increase in workload since the city proposed the annexation.
“It seems like if the city of Ukiah is pushing this … then they should be compensating the county for whatever work we need to do to figure out what the costs are going to be,” Haschak explained.
According to documents for the tax sharing agreement, after an annexation occurs and land is transferred from county jurisdiction to the city, the city begins receiving a portion of the property tax revenue that previously went only to the county. This is called a tax increment. Over time, the city would receive up to 15% of the total property tax revenue collected in the annexed area.
Under California’s Bradley-Burns Uniform Local Sales and Use Tax law, the city of Ukiah would send 100% of sales tax revenue from the annexed area to the county in the first year. Over the next 15 years, that amount would decrease by one-fifteenth annually until the city retains all of the revenue. This phase-out plan is designed to prevent the county from losing its sales tax revenue in one sweeping motion.
For transient occupancy taxes, 100% of the revenue from the annexed area would be transferred to the county after annexation. Over the next five years, that amount would decrease by one-fifth annually, until the city of Ukiah receives the full amount of the revenue.
Chamise Cubbison, the county’s auditor-controller/treasurer-tax collector, said the proposed annexation would strain the county’s already limited staff. She said there aren’t enough employees to handle both the financial impact analysis and the increased workload from the annexation and the tax sharing agreement.
“This tax sharing agreement will require the auditor’s office to perform complex calculations every year for each tax rate area,” Cubbison said.
Cubbison said that tax rates vary based on water districts, sanitation districts and other factors, so the calculations cannot be simplified.
For example, a residence might be in one water district but a different sanitation district, with different tax rates for each. Each of these rates require separate calculations, and the tax rate areas would need to be manually entered into the computer system.
Cubbison explained that the city of Ukiah’s proposed annexation would require a complicated manual calculation system, which would cause more work than the recent annexation of the Western Hills area approved last November.
“For the proposed Ukiah annexation, that could mean dozens of these calculations — far more than the few done for the smaller Western Hills annexation.”
Haschak suggested the county could hire Aumentum Technologies, a software company it already uses for tax and financial tools, to prepare a financial impact report instead of asking the auditor’s office to handle that report.
“I would recommend authorizing the county to contract with Aumentum to quantify the initial impacts, rather than having auditor’s office staff spend many hours calculating this,” Haschak said.
Among the Board of Supervisors, there was an overall consensus that for such a large annexation, one that would effectively double the city of Ukiah’s geographic size, a thorough financial analysis should be requested from an outside consultant.
Supervisor Ted Williams said that the analysis should be presented to constituents before the annexation proposal is submitted to the Mendocino Local Agency Formation Commission for approval.
“People might base some voting decisions on this type of analysis,” Williams added. “Is it a million-dollar task? It doesn’t sound like it but with government processes, by the time you hire consultants, factor in unexpected costs and computer systems, it could add up to a million.”
Williams also said it’s unlikely the county will receive assistance from the city with resources to carry out a financial impact report.
“We’re broke. I don’t think the city will agree to pay for it,” Williams emphasized. “So, what’s the game plan?”
In an interview, Haschak explained that the key purpose of the agenda item was to understand the actual cost of annexation and who would analyze those costs.
“The question is who is going to do all that research. How much is it going to cost? Shouldn’t the city of Ukiah be the ones who are paying for it?” he said. “If you have a proposal, we need to know all the facts. And the different offices were saying they don’t even have the capacity to do some of the study.”
Ukiah City Councilmember Mari Rodin, who has done extensive research on annexation, believes the city’s annexation proposal will help many residents in unincorporated urban areas gain better access to local government services and more easily resolve issues on their properties.
“It gives them an opportunity to really have a say in their local government,” Rodin said in an interview. “This is going to be a big benefit for them.”
This story originally appeared in The Mendocino Voice.