The following is the entire Executive Summary from the recently delivered Public Review Draft Annexation Fiscal Analysis: West Ranch, Castaic & Tesoro. This is the second report which was created by Burr Consulting under a contract with the City of Santa Clarita. This report was originally due earlier this year and had experienced a series of setbacks and delays.

An explanation of the Draft Annexation Fiscal Analysis will be given at the two community meetings scheduled for this coming week in West Ranch and Castaic. The meeting dates, times and locations are as follows:

• Monday September 21, 2009; 6:30 – 8:00 PM; Rancho Pico Junior High School, 26250 Valencia Blvd, Westridge, CA 91381
• Thursday September 24, 2009; 6:30 – 8:00 PM; Castaic Middle School, 28900 Hillcrest Parkway, Castaic, CA 91384

EXECUTIVE SUMMARY

This report is an annexation fiscal analysis (AFA) report on the potential annexation of the unincorporated communities of West Ranch, Castaic and Tesoro to the City of Santa Clarita. This study is not mandated by law, and has been prepared at the request of the West Ranch and Castaic Town Councils and the City of Santa Clarita for purposes of evaluating policy options under consideration by the community.

ASSUMPTIONS

Annexation is the transfer of governance and municipal service responsibilities from a county to a city. In this report, annexation is assumed to include detachment from the Lighting Maintenance District No. 1687 and Road District No. 5, and transfer of associated revenues and responsibilities from Los Angeles County to the City of Santa Clarita. Dissolution of County Waterworks District #36 and transfer of its responsibilities to another water retailer appears logical; however, it has not been proposed to date and was not modeled in this study. Also, the report assumes that annexation is to become effective July 1, 2010. It is also assumed that taxes and fees levied in the City would be imposed in the annexation study areas and that those levied by the County but not the City, such as the 4.5 percent utility users tax, would be discontinued. Although the report focuses on three geographic study areas, the boundaries of those areas are for analysis purposes and would likely evolve during the course of the annexation process. Finally, this report presents both static and dynamic fiscal estimates. Static estimates do not account for growth and inflation since Fiscal Year 2006-07, whereas dynamic estimates account for projected growth and inflation.

SERVICE PROVIDERS

Annexation would involve a change in the existing service providers for local governance, street maintenance, landscape maintenance, stormwater and drainage, land use planning, code enforcement, building regulation, parks, and recreation. The solid waste hauler would change.

SERVICE LEVELS

There is mixed evidence on the impact of annexation on service levels. Although police response times in the annexation study areas are faster in the existing city limits than those projected following annexation, density and road networks also adversely affect travel time. The pavement condition is very good in study area 1 (Tesoro), and good in study areas 2 (Castaic/Val Verde) and 3 (West/Stevenson Ranch). The County and the City spend at comparable levels on road maintenance. Certain roads in the Castaic/Val Verde study area that are in poor condition are private roads and not part of the public road system. Also, the City’s ability to finance major improvements on such roads would be limited by the marginal fiscal impact of annexing the study area to the City.

The City provides a higher service level for park maintenance and recreation, as measured by expenditures. This study assumed the City would extend its enhanced recreation programming to the annexed areas.

The County processes building permits more quickly than does the City; however, the City permit office is more convenient as it is open twice as often as the County’s permit office. The City appears to provide a higher service level than the County in terms of code enforcement, as measured by expenditures and the percent of properties for which a complaint was filed and investigated.

Service levels for animal control would not likely be affected.

Businesses in the study areas would receive higher economic development service levels upon annexation, as measured by economic development staff per job and reflected by the extent of services and accomplishments reported.

FISCAL IMPACTS

Residents

Annexation would reduce the average household’s annual taxes and fees by approximately $93. Residents of the study areas pay approximately $151 per home per year under the County’s utility user tax; the City does not impose such a tax. If residents wish to annex in spite of a negative fiscal impact on the City, they could propose to the City that some or all of the utility tax be retained upon annexation to offset negative fiscal impacts on the City. Solid waste charges would decline by about $43 per home per year if the study areas annexed to the City.

Residents would be responsible for paying a stormwater utility fee to the City of $24 per home per year. Residents would pay $26 per home per year to the City for acquisition of open space, which is a fee they do not presently pay to the County. Similarly, City street light assessments are $51 per home per year higher than County assessments.

Annexation of the study areas to the City could have positive or negative impacts on residents who use public recreation programs. Those who currently participate in City recreation programs would enjoy fee reductions, as they would no longer pay the non-resident fee premium. Those who currently participate in County recreation programs would likely pay higher fees to the City, although impacts vary depending on the recreation program choices of a particular household.

Businesses

Businesses in the study areas presently pay a 4.5 percent utility tax to the County; the City does not levy a utility tax. The hotel tax rate would decline from 12 percent to 10 percent. Businesses would pay a stormwater utility fee to the City.

Solid waste would be provided by a private hauler, Burrtec, with an exclusive franchise in the City; this could have positive or negative fiscal impacts depending on a particular business’s existing arrangement. New development pays higher park inlieu fees to the City than to the County. The local business license tax would be unaffected in the study areas.

Annexation of the study areas to the City would offer eligible businesses in the study areas with opportunities for State income tax savings because the City would annex the Valencia Commerce Center and other commercial areas to a State enterprise zone and there is no enterprise zone in the study areas.

County Government

Annexation of all three study areas combined would have a negative fiscal impact of approximately $5.8 million on the County general fund, and a positive fiscal impact of approximately $2.5 million on the County road fund.

Annexation of the study areas separately would be different from the combined impact.

Annexing area 3 (West Ranch) would have a negative impact of $6.5 million on the County general fund, area 2 (Castaic/Val Verde) a negative $1.0 million impact, and area 1 (Tesoro) a positive $1.7 million impact. Annexation would generally have positive fiscal effects on County road funds.

In order to effectuate annexation, the City and County must agree on a property tax transfer, or a complex fiscal mitigation arrangement. The City and the County have not begun negotiations on either arrangement. How such an agreement would be structured is unknown at this time.

The County’s share of competitive grants for road improvements (Proposition C discretionary grants) in the study areas was relatively low in the base year. The County could choose to enhance revenues in these areas prior to annexation, in which case the fiscal impact on the County could be greater than discussed in this report.

Fiscal impacts on the County would likely be less than those discussed in this report if the analysis was based on a fiscal year other than the FY 2006-07 base year used in this study due to anticipated revenue declines associated with the current economic recession.

City Government

Before factoring in the fiscal mitigation payment, annexation of study area 3 (West Ranch) would generate the greatest positive fiscal impact on the City general fund ($5.1 million in FY 10-11) primarily due to relatively high sales tax generated in this area.

Annexation of study area 2 (Castaic) would yield a marginally positive fiscal impact ($0.2 million in FY 10-11), meaning that revenues are expected to barely pay for service needs.

Annexation of study area 3 (Tesoro) would have a modestly negative fiscal impact throughout the 10-year forecast period primarily due to relatively high law enforcement costs in this study area. It is important to note that the modeled revenue in this study did not include interest earnings, transfers from capital funds, or transfers from reserves.

Similarly, this report it did not factor in expenditures for capital replacement or financial reserves. Accordingly, the impacts identified above do not factor in reserves and capital savings.

The fiscal impact of annexing all three study areas would be positive, primarily because the fiscal mitigation payments associated with the Castaic and West Ranch areas would be partly offset by the Tesoro study area. However, annexation of the study areas separately would have negative fiscal impacts on the City initially. Nonetheless, if the public prefers the annexation alternative, there are various strategies that could be pursued to ensure fiscal feasibility, such as negotiations, boundary changes, and enhanced economic development. It is important to note that this study modeled operational impacts. Infrastructure needs include road improvements, possibly drainage improvements, and possibly a lack of adequate space at the parks for the City to provide recreation programming that matches existing City service levels. If public interest in annexation is significant, the City is encouraged to conduct an engineering evaluation to ensure that there would be adequate funds to provide for both operational and capital needs in the study areas prior to initiating annexation.

The full 89 page report will be posted on The Beacon this week.