SLO County Grand Jury details outdated tax exchange system has impacted area housing

SAN LUIS OBISPO COUNTY, Calif. – On Tuesday, the 2023-2024 San Luis Obispo County Grand Jury released a report after investigating the Master Tax Exchange Agreement (MTEA) which the county has operated under since its adoption in April of 1996.

The report found that the County of San Luis Obispo did not meet a requirement to review the tax agreement every five years, something that multiple cities have mentioned as a reason why there have not been more annexation agreements.

Additionally, the report detailed that the County of San Luis Obispo entered into a contract with an outside consultant group to update the agreement for a total potential cost of $187,400 but failed to provide the necessary modeling information to complete the assessment.

The Grand Jury found that the County of San Luis Obispo and some cities have already paid approximately $93,000 towards completing the contracted study.

Annexation agreements play a notable role in improving housing options in cities across the county that are now required by state law to expand affordable housing options.

The Grand Jury began its investigation of the MTEA, also known as Resolution 96-158, because the tax agreement was cited as a reason why some cities were unwilling to work on annexation agreements with the county detailed the Grand Jury report.

In fact, several cities told the Grand Jury that they would consider annexation in their growth plans, but the current MTEA would lead to a financial deficit shared the report.

When a county annexes land to a city, the city assumes the legal responsibility of providing a range of services to the newly acquired territory, from policing and fire services to sewage and road repairs explained the report.

Even after agreeing to annex land to a city, counties are still required to provide county-wide services to the area, services such as sheriff's office support or public health and social services the report highlighted.

That sharing of services in annexed areas between cities and counties leads to the necessity for property tax agreements that split revenues.

Multiple city officials informed the Grand Jury that the existing MTEA in San Luis Obispo County unfairly splits property tax revenue between the county and cities stated the report.

The California Revenue and Taxation Code requires that property tax agreements between a county and a city be determined by a negotiation process involving the county auditor, LAFCO (Local Agency Formation Commission), and impacted local agencies.

Those negotiations are intended to verify the cost of services that each involved agency will incur because of an annexation agreement as well as ensure that the state requirement that counties remain at least revenue neutral.

Without a county-wide MTEA, each annexation agreement must have a separate tax-sharing agreement explained the report.

Tax-sharing agreements unique to each annexation exponentially increase the complexity of property development across the county, but there is no requirement to have a county-wide tax-sharing agreement when it comes to annexations detailed the report.

On Apr. 24, 1996, The San Luis Obispo County Board of Supervisors adopted Resolution 96-158 creating the MTEA, but the cities of Paso Robles, Atascadero, and Pismo Beach did not agree to the 1996 tax-splitting agreement stated the report.

According to the Grand Jury report, that 1996 resolution requires the County and Cities to re-examine "policies at five-year intervals to ensure they remain appropriate and current for all parties", but the grand jury found no evidence of a completed renegotiation for any of the five-year intervals since adoption.

Additionally, documents dating back to 2014 indicate that Cities have requested the County to review the agreement stated the report.

On Nov. 21, 2021, the San Luis Obispo County Board of Supervisors approved a $187,400 contract with a consultant, The Natelson Dale Group , to provide analysis and modeling for a revised tax-sharing agreement detailed the Grand Jury report.

That contract also included an option for each city to contract a unique city-based evaluation, but each city would be responsible for the cost of the city-specific study shared the report.

The Grand Jury found no evidence that the study was completed despite the extension of the contract's expiration to November of 2023.

The County advised the Grand Jury that the consultation had not been completed due to the County not providing the necessary data stated the report.

According to the report, the County Administrator's Office explained they intend to seek an extension of the contract through the Board of Supervisors for report completion in 2024.

The Grand Jury recommended that the San Luis Obispo County Board of Supervisors complete an updated Master Tax Exchange Agreement with cities in the county by Dec. 1, 2024.

All responses to the Grand Jury recommendation are required to be submitted to the Presiding Judge Rita Federman of the San Luis Obispo County Superior Court within 90 days of submission.

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