Goleta is paying its fair share and then some for services rendered by Santa Barbara County, city staff told the Goleta City Council last week as it discussed for the first time in public the city’s revenue neutrality agreement with the county.
Under the current agreement, Goleta must give the county half of its sales taxes, half of its property taxes and 40 percent of its bed taxes for the first 10 years of its cityhood. Goleta has been a city for just over six years.
After the 10 years, all bed taxes and 20 percent of sales taxes revert to the city. But the agreement obligates Goleta to give the 50 percent of property taxes and the remaining 30 percent of its sales taxes to the county in perpetuity.
The idea should come as no surprise to the majority of voters who approved Goleta’s incorporation in 2001; the agreement was a condition for incorporation, a measure taken by the county to ensure that it wouldn’t suffer any loss of revenue from cityhood.
What might induce some sticker shock, however, is that since Goleta is set to far exceed its projected revenue over the 10 years of the first phase of the revenue neutrality agreement, the county is likely to receive about $87 million by 2012, as opposed to the initial projection of $55 million.
In addition, City Manager Dan Singer said, Goleta’s agreement is by far the most onerous, compared to other recently incorporated California cities. According to the staff report, other new cities, from Orange County to Sacramento County, have agreements that expire after a certain period of time, while Goleta stands to share its funds with the county forever. Goleta also shares more — 33 percent — while other cities share less, or see their obligations decrease over time.
“It’s true that the City Council has done a stand-up job guaranteeing the health and welfare of its community by having a balanced budget,” Singer said.
But that’s just half the story. Because of the revenue neutrality agreement, certain programs and facilities, like recreation centers, are constantly just out of the city’s reach. The agreement also could put strains on law enforcement funding and the city’s capital improvement projects. While the city is in a position to cope with the upcoming financially stagnant period, said Singer, it is possible that Goleta could go into the red for the first time.
It’s important to remember the context under which the agreement was made, noted Councilwoman Jonny Wallis, one of the main players in Goleta’s incorporation. At the time, she said, counties across California were watching their funds dwindle because the state continued to dip into their coffers in the name of education improvement. To prevent a further drain on their resources by city incorporations, counties enacted revenue neutrality agreements with incorporating cities.
“I agree that it’s very unfair to impose a share of payment for these type of services on new cities such as Goleta, but that unfairness comes from law, and law is not always a fair thing," Wallis said. "Had prior incorporations been successful, things would be different.”
Goleta’s revenue neutrality agreement, however, provides for amendment, and in 2003 the state issued guidelines for tax-sharing agreements. According to city attorney Julie Biggs, there are several ways Goleta can go about changing its agreement with the county: legal means such as suing the county, and legislative means like introducing a ballot measure or an ordinance, two options that pose risks of extensive litigation in a largely untested field. A third option is to negotiate in good faith with the Board of Supervisors for terms more agreeable to the city. Additionally, the city could introduce a sales tax measure to compensate for its losses, Biggs said.
The City Council unanimously decided to start with negotiations with the county. Among the factors in play will be the county’s own finances, which are not in good shape, and whether the state-issued 2003 guidelines could be applied retroactively.
Relative to the negotiations, the council voted to conduct a public opinion poll in the near future, and, although Council members Roger Aceves and Jonny Wallis balked at the idea, the council voted 3-2 to initiate a more aggressive ballot measure.
The City Council will meet with Madrid & Associates polling consultants March 18, and will meet with county officials March 31.
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