Mulheren Gives Ukiah $3 Mil A Year

For years Ukiah City officials and County officials have been unable to reach a tax sharing agreement which both Ukiah and the County would approve. After all, on one level the outskirts of Ukiah are more or less in “Greater Ukiah” anyway; on the north and south end of Ukiah it’s hard to tell where the city limits end and County jurisdiction begins. But in the pre-covid past the officials from the County were understandably reluctant to hand over some of the most lucrative taxable county properties to the City without some tangible offset of some kind. Those officials, principally Supervisors Pinches and McCowen as well as former CEO Carmel Angelo, are gone now.

Lately it seems that Ukiah officials have realized that Mendo now has the most gullible and naïve board of Supervisors in County history. So Ukiah officials seized on the opportunity to rope Ukiah area Supervisor (and former Ukiah City Councilperson) Maureen Mulheren into their happy talk tax sharing sales pitch, aka an ad hoc committee Mulheren hosted out of public view.

Predictably, Mulheren made coming up with a tax sharing agreement one of her top priorities, no matter how lopsided. And on Tuesday she got her wish: An agreement which would annex large chunks of unincorporated taxable properties on the outskirts of Ukiah into the City of Ukiah, thus transferring all applicable tax revenues — property, sales and bed taxes — from the County to the City of Ukiah, roughly estimated to be around $3 million per year.

What does the County get in return? 1. Nothing tangible. 2. Nobody knows.

Of all the parties directly involved, only Supervisor John Haschak seemed to even care enough to be skeptical.

Theoretically, Mendo would have a slightly smaller area to provide law enforcement and other services to, and Ukiah would have a larger area, but there’s no identifiable financial benefit to the County because the County would not be reducing staff, just making a few minor staff reassignments and adjustments.

The agreement has some ill-defined terms which would give the County a percentage of new development tax revenues in the newly annexed areas of Ukiah, but nobody knows what that development might be, when it might occur, or how much it might be worth tax-wise.

Dispelling any doubt about who benefits from this obviously one-sided deal, a small parade of chirpy Ukiah officials, including Mulheren’s fellow ad hoccers Ukiah City Manager Seldom Seen Sage Sangiacomo and Ukiah City Councilperson Mari Rodin, told the Supervisors that the agreement would have some wonderful but unmeasurable economic benefit to the County and would “raise the boats of all of us!” as Rodin proclaimed.

According to Rodin, developers will magically stream into the welcoming arms of Ukiah’s newly annexed areas and build all kinds of new construction thus increasing tax revenues for everybody! Never mind that nobody knows what or when or if. Rodin giddily told the board, “This agreement creates the conditions for economic flourishing [sic] that we so desperately need. … This is all of us working together for the benefit of our entire county. … It’s amazing there’s no press here. You are on the brink of something really special and forward thinking for the County. … Please don’t conceive of this as a loss to you all.”

Oh no; don’t do that. Who could possibly think that losing $3 mil a year is a loss?

Acting County Auditor-Controller-Treasurer-Tax Collector Sara Pierce told the Board that she had made a preliminary hypothetical and limited attempt to guess at the tax calculations that would be required under the terms of the agreement, but she didn’t get very far because the County’s property tax system would have to be “overridden” to even begin to estimate the actual tax implications of the agreement and nobody knows exactly which parcels the agreement would include. Pierce said she’d have to work up a very complicated spreadsheet off-line and that she has very little staff to do it and it would be error-prone.

Supervisor Ted Williams at first expressed some reluctance about the one-sided deal, but soon reversed himself as he jumped on the Mulheren/Rodin/Sangiacomo “everybody benefits” bandwagon of cheerleaders. Oddly, Williams justified his reversal by claiming that the County will be in bad financial shape whether they give $3 million a year to Ukiah or not. What’s a few million here or there when the ship is sinking anyway?, Williams seemed to be saying.

No one from the general public commented on the proposed agreement crafted in the private meetings of Mulheren’s ad hoc committee. The only County staffer to comment was Probation Chief Izen Locatelli who, after pointing out that he and his fellow senior staffers had not been consulted on the idea, added that there was no plan and no financial analysis to accompany the proposal. Locatelli suggested the board at least give the idea more thought before voting on it.

In the end the Supes voted 4-1 to approve the agreement with two of the votes in favor by lame duck supervisors who won’t be around when the $3 million a year is gone. Supervisor Haschak was the lone holdout saying he didn’t think the agreement had been thought through or planned well.

In case there was any doubt about how speculative the potential benefits to the County might be, after the vote Supervisor Mulheren thanked her three colleagues who voted with her concluding, “Thanks for the optimism.”

Next stop: the hyper-bureaucratic Local Area Formation Commission (LAFCO) for processing the annexation aspects of the deal. Nobody knows how long that will take. After that, a list of properties/parcels will be handed over to the Assessor and Auditor/Tax Collector to figure out how to implement the deal and make all its formulae fit within the County’s unworkable tax collection software system.

We’re not sure, but we think we saw Sage Sangiacomo and Mari Rodin smiling at each other as they left the Board chambers.

---

Tax Sharing In The Blind

Recently, regular website commenter Sarah Kennedy Owen requested that “somebody” write more about the seemingly lopsided “tax sharing” agreement that the Supervisors approved in the blind on Tuesday. Some have estimated that the deal may involve up to $3 million in lost taxes to the County (property, sales and bed taxes) from the transfer of parcels on the outskirts of Mendo’s incorporated cities over some unknown period of time once after the Local Area Formation Commission figures out which parcels will be “annexed.” But nobody really knows which parcels or how much County money will be lost.

As Acting Auditor-Controller-Treasurer Tax Collector Sara Pierce told the board, figuring out the actual financial impact of the arrangement is too complicated to even take a stab at because 1. Nobody knows which parcels might be affected (conceivably parcels surrounding not only Ukiah, but Willits, Fort Bragg and Point Arena as well). And 2. The particulars of the tax sharing proposal are too convoluted and error prone to even understand, much less calculate and implement.

Remember, this arrangement was cooked up in private “ad hoc” meetings with Supervisors Maureen Mulheren and Dan Gjerde and was never circulated for staff or public comment. Supervisor Hashack was the only supervisor to suggest that the arrangement be further evaluated before anyone voted on it.

But, since Ms. Owen asked (and we suspect by now she may already be sorry she asked), we hereby present the substance of the tax sharing arrangement which Ms. Pierce and her team will be expected to decipher and implement.

Property tax:

“Property Tax Revenue Collection and Distribution.

As of the relevant Annexation Effective Date, the County shall distribute to the Annexor City the County's general fund property tax revenue (County Auditor's Fund Code A0001) generated in the annexation area as follows:

i. Half of the County's portion of the "annual tax increment" (as defined in Revenue and Taxation Code section 96.5 as of the Effective Date) that does not exceed 2% of the property tax revenue in the prior year from the annexation area.

ii. All of the County's portion of the "annual tax increment" that exceeds 2% of the property tax revenue in the prior year from the annexation area, until the total property tax revenue received by the Annexor City equals 15% of the total property tax revenue generated in the annexation area.

iii. Once the total property tax revenue received by the Annexor City equals 15% of the total property tax generated in the annexation area, no additional portion of the County's "annual tax increment" shall be distributed to the Annexor City. In other words, the City's "property tax apportionment factor" (as calculated pursuant to Revenue and Taxation Code section 96.2 as of the Effective Date) in the annexation area shall not exceed 15%.”

Sales Tax:

“Bradley-Burns Sales Tax Revenue Collection and Distribution.

As of the relevant Annexation Effective Date, the Annexor City shall collect all Bradley-Burns Sales Tax in the ATRA (the "ATRA Bradley-Burns Revenue") and shall distribute to the County a share of the ATRA Bradley-Burns Revenue in accordance with this subparagraph (b).

i. From the Annexation Effective Date until the start of the first full Fiscal Year immediately following the Annexation Effective Date, the Annexor City shall distribute to the County 100% of the ATRA Bradley-Burns Revenue.

ii. Thereafter, for each subsequent full Fiscal Year, the amount of ATRA Bradley- Burns Revenue the Annexor City distributes to the County in accordance with this Agreement shall be reduced by 1/15 (one-fifteenth) which the Parties agree shall be rounded to 6.667%. Therefore, for the first full Fiscal Year, the Annexor City shall distribute 93.333% of the ATRA Bradley-Burns Revenue to the County; for the second full year, the Annexor City shall distribute 86.666% of the ATRA Bradley- Burns Revenue to the County; for the third full year, the Annexor City shall distribute 79.999% of the ATRA Bradley-Burns Revenue to the County; and so forth, reducing each subsequent year by 6.667%, until, as of the start of the fifteenth (15th) full Fiscal Year following the Annexation Effective Date, the Annexor City shall no longer distribute ATRA Bradley-Burns Revenue to the County.

iii. For any Distribution under this subparagraph (b), the Annexor City shall distribute the ATRA Bradley-Burns Revenue to the County within thirty (30) days of the Annexor City receiving the ATRA Bradley-Burns Revenue from the California Department of Tax and Fee Administration.”

Transient Occupancy Tax

“Transient Occupancy Tax (TOT) Revenue Collection and Distribution.

As of the relevant Annexation Effective Date, the Transient Occupancy Tax in the ATRA shall be the rate of the Annexor City. The Annexor City shall collect the Transient Occupancy Tax in the ATRA (the “ATRA TOT Revenue”) and shall distribute to the County a share of the ATRA TOT Revenue in accordance with this subparagraph (c).

i. From the Annexation Effective Date until the start of the first full Fiscal Year immediately following the Annexation Effective Date, the Annexor City shall distribute to the County 100% of the ATRA TOT Revenue.

ii. Thereafter, for each subsequent full Fiscal Year, the amount of ATRA TOT Revenue the Annexor City distributes to the County in accordance with this Agreement shall be reduced by 1/5 (one-fifth) or 20%. Therefore, for the first full Fiscal Year, the Annexor City shall distribute 80% of the ATRA TOT Revenue to the County; for the second full Fiscal Year, the Annexor City shall distribute 60% of the ATRA TOT Revenue to the County; for the third full Fiscal Year, the Annexor City shall distribute 40% of the ATRA TOT Revenue to the County; and for the fourth full Fiscal Year, the Annexor City shall distribute 20% of the ATRA TOT Revenue to the County. As of the start of the fifth full Fiscal Year following the Annexation

Effective Date, the Annexor City shall no longer distribute ATRA TOT Revenue to the County.

iii. For any Distribution under this subparagraph (c), the Annexor City shall distribute ATRA TOT Revenue to the County within thirty (30) days of the Annexor City collecting the ATRA TOT Revenue.”

Clear?

Our interpretation of this impenetrable bureaucratese, as best we can translate from the pseudo-Slovenian, is that the County gives up property tax revenue associated with annexed parcels to the city on day one, gives up sales tax over 15-years, and gives up TOT taxes over a 5-year period. In theory, the County no longer has responsibility for law enforcement or roads in those parcels, but that reduction has no compensating dollar value associated with it.

We have read through the agenda materials attached to the tax sharing proposal including the resolution the Board approved. Nowhere in the proposed arrangement is the alleged rationale for these crazy particulars provided, nor is there any description of benefits to the County other than a theoretical reduction in service area.

The only people who appeared at the Tuesday Board meeting in support of the arrangement were Ukiah officials. Nobody from Willits, Fort Bragg or Point Arena. Of particular potential interest is the wharf area of greater Fort Bragg which is currently under county jurisdiction. This area produces a relatively significant amount of income to the County and seems like one of the first potential annexation areas outside of Ukiah. Curiously, nobody from Fort Bragg showed up to comment on the deal. Technically, the cities can still decline to participate. But since Ukiah is already on board (why wouldn’t they be?), it seems more likely than not that the other cities will sign on — if they can figure out what it may mean to their finances.

This large tax giveaway to the cities is obviously a bad idea on its face. We doubt it would have passed any prior Board as not in the best interests of the County. But, at the very least, given the many obvious complications and potential misinterpretations involved, the Board should have formally circulated the proposed agreement among staff and the cities and the public before voting on it. And to the Local Area Formation Commission for analysis and comment. But no. Except for Haschak, the other four Supervisors voted for it basically sight unseen, even after Ms. Pierce told them she was unable to figure out what it might mean to County finances.

---

NORM THURSTON: “I have looked at the County’s property tax sharing agreement, and it looks to me like the cities will only receive a portion of the annual growth for the annexed properties. The annual amount will be one-half of the annual 2% growth, plus all of the annual growth in excess of 2%. Once the cities are receiving 15% of the total property tax for those properties, the allocation will be fixed at that rate. The County will retain its portion of the property tax in effect prior to the annexation (except for a portion of the prior year’s growth increment), and will receive one-half of the annual 2% growth. If I am understanding the agreement correctly, the County should not be hit with an immediate large reduction to property tax revenues, but rather will forfeit a portion in the annual growth of the annexed properties in the current and future years, with a cap of 15%. If I am wrong in my understanding, I would be grateful to hear from anyone who can offer more information.”

---

That’s a clearer explanation of the property tax loss than anything the supporters have issued and it makes a little more sense. But it doesn’t address the loss of sales tax (phased out over 15 years) or bed tax (also phased out, over five years). Nor does it explain the benefit to the County. We still think the idea should have been properly analyzed and reviewed by the public, LAFCO and staff before the Board voted on it.