COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Department of Public Works

DATE:

January 9, 2003

BOARD MEETING DATE:

January 28, 2003

TO:

Honorable Board of Supervisors

FROM:

Neil R. Cullen, Director of Public Works

SUBJECT:

Public Hearing -Transfer of Property Tax Apportionment - Ravenswood Highway Lighting District to the East Palo Alto Drainage Maintenance District

Recommendation

1)

Acting as the Governing Boards of the Ravenswood Highway Lighting District and the East Palo Alto Drainage Maintenance District:

a)

hold concurrent public hearings to consider the transfer of 0.0212823700 of the property tax apportionment in Tax Code Area 21-014 from the Ravenswood Highway Lighting District (RHLD) to the East Palo Alto Drainage Maintenance District (EPADMD) in order to provide additional financing for the EPADMD (approximately $30,000 net increase);

b)

close the hearings; and

c)

adopt resolutions approving the transfer of the property tax apportionment as described above and notifying the Board of Supervisors of the County of San Mateo of said exchange.

2)

Acting as the Board of Supervisors of the County of San Mateo, adopt a resolution concurring in the proposed exchange of property tax revenues and notifying the Controller of the approved exchange.

Previous Board Action

Acting as the Governing Boards of the RHLD and the EPADMD, adopted resolutions setting the time and date for public hearings to consider the transfer of the property tax apportionment as described above.

Key Facts

Property tax apportionments were set as a ratio of the property tax rates that were in place when Article XIII of the State Constitution was approved.

Both the EPADMD and the RHLD provide services to areas within the corporate limits of the City of East Palo Alto (City).

The RHLD receives a relatively high tax apportionment and the EPADMD receives a relatively low tax apportionment.

The EPADMD is in need of additional revenues in order to maintain the pump station that provides flood protection for a portion of the City.

The RHLD has more than sufficient revenues to maintain its existing facilities.

There is no long term impact to the City or the property tax payers as a result of the transfer of the tax apportionment.

A public hearing by each agency affected by a proposed property tax apportionment transfer is required by Section 99.02 et. sec. of the State of California Revenue and Taxation Code.

A resolution by your Board, as the Board of Supervisors of the County of San Mateo, indicating your concurrence with the property tax apportionment transfer is also required by Section 99.02 et. sec. of the State of California Revenue and Taxation Code.

Discussion

The EPADMD and RHLD are special districts governed by your Board that were formed to provide specific city type services when the area was unincorporated. The dissolution of the two districts was not a part of the 1983 City of East Palo Alto incorporation election. The two districts are financed with property taxes which are used to finance EPADMD's operation of the O'Connor Street Pump Station and RHLD's maintenance of some of the street lights within the City.

The EPADMD has and is currently operating at a deficit as the tax apportionment does not cover the costs of operation and maintenance of the pump station. The EPADMD's revenue has been further impacted due to the Education Relief Act Funds (ERAF) that are taken from the District as well as by the loss of funds due to the formation of a redevelopment area over a portion of the District. The redevelopment agency receives the taxes from any increase in the assessed value of the property in this area.

The RHLD is also financed with property taxes and has also been impacted by ERAF and the loss of tax increment revenue, but to a lesser degree than the EPADMD, as RHLD's yearly tax revenue is greater than its yearly expenses.

We have had conversations with City staff and they have stated that the City is not prepared to take over the maintenance function of these two districts at this time. This would be advantageous as the tax apportionment from both districts could go to the City as general revenue and the City could then use these revenues to finance district services or other services as determined by the City. Your Board does not have the ability to do this as the separate governing body of the two special districts, as each district is governed by different regulations and the districts' funds cannot be intermingled.

We have looked at other revenue sources to finance the EPADMD such as a drainage fee or assessment. However, your Board's ability to levy a fee would require an election as provided by changes in the State Constitution as approved by the voters in 1996 (Proposition 218). The district would have to incur the costs of an election and we do not believe that an election which asks property owners to approve a drainage charge would be successful.

Proposed Transfer of a Portion of the Tax Apportionment

We are recommending the transfer of a portion of the tax increment from the above described tax code area as an interim solution until the City determines that it can provide these city type services. We believe that this is an appropriate option as:

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The property tax payer will not see an increase in their property taxes. The overall property tax rate will remain the same.

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The City will not lose future possible revenue. The total tax apportionment of both districts will be transferred to the City once the City assumes responsibility for these district functions and the City's redevelopment agency will continue to receive the tax increment.

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The essential services provided by the two districts will be maintained. The proposal is a realignment of the tax apportionment which takes into consideration the funding needs of both districts. Funding needs were not a parameter in initially establishing tax apportionments.

Necessary Findings by the RHLD

Section 99.02 et. sec. of the Revenue and Taxation Code requires the governing board of the transferring agency (RHLD) to determine that the transfer will not:

a)

result in any increase in the ratio of other fees or charges levied by the RLHD;

b)

impair the ability of the RHLD to provide existing services; and

c)

result in a reduction of property tax revenues to school entities.

We believe your Board as the Governing Board of the RHLD can make these findings and have incorporated them into a form of resolution as:

a)

there will not be an increase in other fees since ad valorem taxes are the only fees levied by the RHLD;

b)

the RHLD has sufficient fund balance and revenue to maintain the facilities that it is responsible for at the current level of service; and

c)

property tax revenues to school entities will not be reduced as the apportionment to the schools in terms of ERAF are essentially shifted with the tax apportionment.

Vision Alignment

We believe our recommendation is consistent with the Shared Commitment to "ensure basic health and safety for all" and Goal Number 7 "maintain and enhance the public safety of all residents and visitors," as the proposed transfer of the property tax apportionment increment will insure that essential public services will continue for the benefit of residents of the City of East Palo Alto.

Fiscal Impact

The following are revenue/expense summaries of both districts which takes into consideration the proposed tax apportionment transfer.

Description

EPADMD

RHLD

Gross Estimated Taxes 02/03

$19,552

$ 286,291

Redevelopment Agency Increment 02/03

($ 2,800)

($ 74,724)

ERAF Increment 02/03

($ 1,882)

($101,431)

Controller Costs 02/03

($ 170)

($ 1,269)

Net Tax Revenue 02/03

$ 4,700

$ 108,867

Estimated Annual Expense 02/03

$39,180

$ 76,500

Revenue less Expenses

($24,480)

$ 32,367

Proposed Tax Apportionment Transfer

$30,000*

($30,000)*

Adjusted Revenue less Expenses

$ 5,520

$ 2,367

*The tax apportionment transfer will generate approximately $33,000. However, approximately $3,000 will be an ERAF shift and will not be realized by EPADMD nor deducted from the net revenue of the RHLD.

The EPADMD currently has a fund balance of approximately $36,000 and an outstanding loan of $50,000 from the RHLD. The loan was used to upgrade the diesel motors and pumps at the O'Connor Street Pump Station. This loan will be paid off in subsequent years from fund balance and excess revenues over expenses.

The RHLD has a fund balance of $759,000 and accounts receivables of $50,000 from the EPADMD. The fund balance will be increased in subsequent years with excess revenues over expenses and from the payback of the loan to the EPADMD.

There is no impact to the General Fund. Forms of resolutions have been approved by County Counsel.