Cities and County Work Together To Share Tax Base
by Curt Hagman
Students who participated in the 2008-09 Youth In Government program celebrate their achievements.
Curt Hagman is mayor pro tem of Chino Hills and can be reached at email@example.com.
Communities that sought to incorporate after California voters passed Proposition 13 in 1978 faced an uphill battle when negotiating their original tax split with their counties. As the desire for local control led communities to form new cities, counties did not want to lose the property taxes they were collecting in unincorporated areas.
These fledgling cities also faced new rules that made it all but impossible to form redevelopment agencies, yet they had to compete with neighboring cities that did have redevelopment agencies. This was on top of the need to build and maintain community amenities and deliver quality municipal services to residents who had high expectations for their master-planned “new” cities. The City of Chino Hills faced all of these challenges.
Located at the southwestern edge of San Bernardino County, Chino Hills was incorporated in 1991 with a population of 42,000. Since then, the city’s population has nearly doubled to approximately 80,000. The city has developed a reputation for being a desirable place to live, with high rankings on national “best of” lists. Most recently, Chino Hills was 21st on the Top 25 Safest Cities in the United States (Morgan Quitno Press, 2006) and 68th on the Top 100 Best Places to Live in the West (Money magazine, 2005). Its residents have an average income that is higher than the Beverly Hills average, and the average new home price in Chino Hills is $750,000.
The residential growth has resulted in more commercial development and sales tax revenue, but only about 2 percent of the city is zoned for retail or commercial development. Very few commercial properties remain undeveloped, which does not help the city’s general fund but is welcomed by its residents who love the open space and rural atmosphere that has been protected. Chino Hills works to educate residents to “Shop Chino Hills First” to keep their sales tax dollars supporting their own city.
Dealing With Inequitable Tax Returns
Residents in Chino Hills pay the same percentage property tax as residents in other cities. However, communities throughout the state face huge inequities in the amount of property tax returned to them. When Chino Hills incorporated, its share of the property tax was 3.96 percent of the 1 percent general tax levy. In data reviewed in 1998, Chino Hills quantified the inequity: The city received about $23.17 in property tax per capita compared to a statewide average of $72.13.
In 1996, the Chino Hills City Council began the process to secure an additional share of the property tax. After successful negotiations between the city andthe County of San Bernardino, the state Legislature approved SB 166 (1999), authored by Sen. Joe Baca. This action enabled the city and county to enter into a property tax allocation agreement in 2000, allowing them to equally split property tax shares on assessed value increases for specific commercial and industrial property. This increased the city’s property tax share from 3.9 percent to 9.33 percent. In 2004, under the leadership of County Supervisor Fred Aguiar, an amended agreement increased the city’s share to 14.51 percent.
In 2006, efforts continued as the city council and Supervisor Gary Ovitt agreed that in order to maintain the quality of life that residents of Chino Hills expected, which in turn led to high real estate values in the community, a solution to the property tax inequity for newer cities was needed. They sought a solution that could help low-property-tax cities gain new revenue without depleting the County of San Bernardino’s existing revenue. They envisioned a solution that would provide cities an additional share of the property tax that could be used for public safety, public-private partnerships, maintenance or enhancement of city services, and spur residential and commercial development.
Getting in the Zone
Over a period of time, the county would be able to recapture the short-term revenue loss with a larger payoff in the long term due to increasing property values. On Feb. 28, 2006, the San Bernardino County Board of Supervisors approved a policy, sponsored by Supervisor Ovitt and Board Chair Bill Postmus, that realigns the ad valorem property tax split between the county and low-property-tax cities through the implementation of a Revenue Enhancement Zone program.
The zone program is an outgrowth of the need to share property tax more equitably between the county and low-property-tax cities. Many cities formed in the 1980s and ’90s were at a distinct disadvantage when negotiating their original tax split with counties. This created a disincentive to promote residential development and certain types of commercial development without an ongoing revenue stream to fund basic municipal services, such as police and fire protection, infrastructure expansion, parks and libraries.
The Revenue Enhancement Zone program has six key criteria:
1. Land must have been annexed by a qualifying city prior to Dec. 1, 1996;
2. The minimum zone size is 20 contiguous acres with no substantive prior development;
3. Land within a zone cannot be part of a redevelopment agency project area now or in the future;
4. Eminent domain cannot be used to create a zone;
5. The ad valorem property tax split between the county and the host city would be 50-50 on all new taxes generated from development, up to a maximum of 10 percent to the host city with no redevelopment areas or
7 percent to a host city that has redevelopment areas; and
6. The Revenue Enhancement Zones would have a 25 year sunset from the date an agreement is signed with the county to create the zone.
By focusing on undeveloped land that is a nonperforming asset for the county and the host city, the zones provide a mechanism to increase available revenue for critical services as property tax revenue increases. Because the program targets areas producing minimal property tax due to lack of development, and in many cases includes properties that might not be developed for many years, the tax split resulting from ensuing development turns marginal property into a “performing asset” for the community, creating a win-win situation for the county and the host city. The increased ability of the host city to provide improved levels of municipal services provides a strong incentive for developers and host cities. The Revenue Enhancement Zone program includes, for the first time, residential property in addition to commercial and industrial property.
The city is moving forward with a major public-private partnership on the “Shoppes at Chino Hills” — a lifestyle retail center that will benefit from the agreement with the County of San Bernardino. The property was city owned and produced no property tax for the county. Opus West, the developer and new owner of the land, is making a $125 million investment in Chino Hills, which translates into an increase in property value. The result will be higher net property tax revenue for the county and city over the next 25 years, a shopping center that introduces merchants not previously located in the area, and a new sales tax base for the city. Chino Hills and the County of San Bernardino will reap the benefits of thiswin-win solution to the apportionment
of property taxes.