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HomeMy WebLinkAbout2013-07-29 Packet - Tax Sharing CITY OF UKIAH CITY COUNCIL AGENDA Special Meeting Civic Center Council Chambers 300 Seminary Avenue Ukiah, CA 95482 July 29, 2013 5:30 p.m. WORKSHOP – Tax Sharing 1. ROLL CALL 2. PUBLIC COMMENT 3. NEW BUSINESS a. City of Ukiah Tax Sharing Ad/Hoc Committee, City Attorney, and Staff: Present Background Information, Content and Status of Agreement; Present Financial Formula and New Proposal for City Council Discussion and Possible Direction for Future Steps. 4. ADJOURNMENT Please be advised that the City needs to be notified 24 hours in advance of a meeting if any specific accommodations or interpreter services are needed in order for you to attend. The City complies with ADA requirements and will attempt to reasonably accommodate individuals with disabilities upon request. Materials related to an item on this Agenda submitted to the City Council after distribution of the agenda packet are available for public inspection at the front counter at the Ukiah Civic Center, 300 Seminary Avenue, Ukiah, CA 95482, during normal business hours, Monday through Friday, 8:00 am to 5:00 pm I hereby certify under penalty of perjury under the laws of the State of California that the foregoing agenda was posted on the bulletin board at the main entrance of the City of Ukiah City Hall, located at 300 Seminary Avenue, Ukiah, California, not less than 24 hours prior to the meeting set forth on this agenda. Dated this 19th day of July, 2013. Kristine Lawler, City Clerk Recommended Action(s): City of Ukiah Tax Sharing Ad/Hoc Committee, City Attorney, and Staff: Present Background Information, Content and Status of Agreement, Present Financial Formula and New Proposal for City Council Discussion and Possible Direction For Future Steps Alternative Council Option(s): Citizens advised: Requested by: Prepared by: Jane A. Chambers City Manager Coordinated with: Council Members Baldwin and Rodin, City Attorney Attachments: Attachment 1(Summary of Draft Tax Sharing Agreement) Attachment 2 ( Draft Agreement) Attachment 3 ( Formula Spread Sheets) Attachment 4 ( City of Ukiah and County of Mendocino Adopted Principals) Attachment 5 ( Map Graphic Presentation) Approved: ___________________________ Jane Chambers, City Manager ITEM NO.: MEETING DATE: 3a July 29, 2013 AGENDA SUMMARY REPORT SUBJECT: CITY OF UKIAH TAX SHARING AD/HOC COMMITTEE, CITY ATTORNEY, AND STAFF: PRESENT BACKGROUND INFORMATION, CONTENT AND STATUS OF AGREEMENT; PRESENT FINANCIAL FORMULA AND NEW PROPOSAL FOR CITY COUNCIL DISCUSSION AND POSSIBLE DIRECTION FOR FUTURE STEPS Background: The City Council workshop will consist of three parts: Part One will be a presentation from the Tax Sharing Ad/Hoc Committee of Councilmember Baldwin and Rodin regarding the background, discussions, and proposals that were part of the discussions with the County of Mendocino Ad/Hoc. The City Attorney will present a summary of the terms and agreement that was under discussion at the time of the last Ad/Hoc meeting with the County representatives. For background study prior to the meeting, Council members may want to review Attachments 1 and 2 of this report. Attachment 1 is the City Attorney’s summary of the draft tax sharing agreement. This summary helps to lead the r eader through the actual draft agreement, which is Attachment 2. Please note the City Attorney’s comment ( in the second paragraph of the summary) that this draft agreement includes some proposed changes to address issues and additional points of agreement and disagreement that were expressed at the last meeting of the two ad hoc committees on December 6, 2012. Part Two of the workshop will be staff review of the financial formula that was under consideration at the time of the last meeting. The formula in question is Attachment 3, and staff will go through the formula to demonstrate how it was to be applied. This formula is based on both parties sharing from their existing sales tax revenues. At that last meeting, the City of Ukiah Ad/Hoc members told the County representatives that the formula under discussion proved too costly to the city to be practical, and requested that the County continue working with the City to reach a more acceptable formula. Part Three of the workshop meeting will be presentation of an alternative formula, which is explained under the discussion section of this report. Page 2 of 2 Discussion: The City of Ukiah Ad/Hoc members have met several times after the last meeting with the County. These meetings have resulted in a new formula proposal for the City Council’s consideration, and ultimately, for the consideration of Mendocino County, if the City Council agrees. This new formula builds on those previously discussed with the County. The formula is in keeping with the principals that had been adopted for tax sharing, (See Attachment 4) and provides both parties with a financially feasible alternative to previous proposals. The new proposal achieves the following goals: 1) Is based on new development that will take place on vacant and/or underutilized land within the area covered by the agreement. 2) It shares new development revenues with the County of Mendocino, and allows the County to share new development revenues with the City as well, achieving the goal of equaling out land use demands between incorporated and unincorporated areas. 3) Allows both parties to benefit from tax revenue growth in existing businesses, while sharing new growth based on the formula. 4) The proposal assumes that the provisions already contained in the agreement that had been drafted as of the last meeting with Mendocino County will be largely adopted by both parties ( i.e., there is no need for the parties to start over on the vast majority of the work already completed). Attachment 5 is a graphic presentation of Prime Vacant/Underutilized Land in City of Ukiah. The map and graphic shows that there will be about 335,000 square feet of retail commercial space added if those parcels are developed as commercial, for which they are zoned. City staff estimates, based on current sales tax revenues generated from 335,000 sq. ft. in the city, an additional $1 million of sales tax revenue could be generated over time by the build out of these parcels. The Ad/Hoc proposes a formula that would share sales tax revenue from “New” business, as defined in the proposed agreement, with the County of Mendocino on a 60/40 basis. The City would receive 60% of the new revenue, and the County 40%. For example, if in the next 7 years, the entire 335,000 square feet was built out, the County would receive an additional $400,000 over and above any other sales tax and property tax, it would receive as a result of new development within the city limits. The Ad/Hoc proposes that the County of Mendocino would share “New” business, as defined in the proposed agreement, with the City of Ukiah, on a 60/40 basis. The County would retain 60% of the new business revenue, and the City would receive 40%. The City invites the County to perform an estimate of sales tax that could be generated based on new development on a similar basis to the estimate provided in Attachment #1. This proposed formula has many advantages over the one previously under discussion. It is affordable to both parties, as it is based on new revenues, rather than an attempt to share existing revenues. It is easily administered, in that new revenue is defined by the agreement and can be readily applied as new businesses begin to pay sales taxes. It should be less complex to administer. It is also a feasible formula for continuing into the long-term future as envisioned in the agreement under discussion by the parties. There are additional formula provisions contained in the draft agreement pertaining to annexed areas and costs related to development. The City Ad/Hoc members and staff will address these as part of the proposed formula discussion. Fiscal Impact: Budgeted FY 12/13 New Appropriation x Not Applicable Budget Amendment Required Amount Budgeted Source of Funds (title and #) Account Number Addit. Appropriation Requested $ $ Law Offices Of RAPPORT AND MARSTON An Association of Sole Practitioners 405 W. Perkins Street P.O. Box 488 Ukiah, California 95482 e-mail: drapport@pacbell.net David J. Rapport (707) 462-6846 Lester J. Marston FAX 462-4235 Scott Johnson Darcy Vaughn Mary Jane Sheppard M E M O R A N D U M TO: Honorable Mayor and City Council members FROM: David J. Rapport, City Attorney DATE: July 19, 2013 SUBJECT: Summary of Draft Taxing Sharing Agreement _____________________________________________________________________________ The City and County ad hoc taxing sharing committees met over a considerable period of time and developed a rough draft agreement which was reworked for discussion purposes in anticipation of what became the last meeting of the ad hoc committees on December 6, 2012. Based on the discussion on December 6, I proposed some changes to that draft to address issues and additional points of agreement and disagreement that were expressed at that meeting. The attached draft agreement is the version considered by the ad hoc committees on December 6. The redlined portions of the agreement are suggested additions or changes based on the discussion on December 6. In some cases, there was agreement that an issue should be addressed, such as adding transient occupancy tax, but not on the details of how to address it. The redlined portions of the attachment suggest language which has not been discussed or agreed to by any of the ad hoc committee members, including multiple options for Section 6.1, the Make Whole provision, and for procuring the Cost of Services study under Section 6.2. SUMMARY OF AGREEMENT The draft Master Tax Sharing Agreement that was discussed at the last meeting of the City and County ad hoc committees on December 6, 2012, covered the following major topics: 1. Land use and planning within the sphere of influence proposed in Ukiah’s 1995 General Plan (“City SOI”); Memorandum to Mayor and Councilmembers Subject: Draft Tax Sharing Agreement Date: July 18, 2013 Page 2 2. Sharing sales tax on taxable sales within the County’s Ukiah Valley Area Plan planning area (“UVAP Area”) and the existing City limits. The combined City limits and UVAP Area are called “the Property” in the agreement. 3. Sharing property tax within areas annexed by the City. 4. Transient Occupancy tax sharing. 1. Land use and planning (Section 4). a. The tax sharing provisions of the Agreement become effective when the following have been completed: (i) The City and County file an agreement required by Government Code §56425(b) addressing development standards and other matters within City SOI. (ii) The County adopts policies requiring new development on property in the City SOI that is contiguous to the City to annex before the property can be developed and conditioning approval of development on non-contiguous property on the developer’s agreement to consent to annexation of the property when it becomes contiguous to the City. (iii) The County adopts development standards for the City SOI that are compatible with City standards and future annexation of the property into the City. b. The City’s obligation to share sales tax revenue terminates, if the County changes UVAP land use designations without City Council approval. 2. Sharing Sales Tax (Section 6.1). a. The parties only share the uniform statewide sales tax. They do not share locally adopted sales tax that is collected with the statewide tax, such as the City’s Measure S ½ cent sales tax. b. City and County will share one-half of the increase in sales tax revenue above the revenue in a “base year” that they each receive from taxable sales on the Property. The draft agreement proposed to make the base year the fiscal year in which the tax sharing provisions of the agreement become effective; that is, when the items in 1.a., above, are completed. The ad hoc committee members had not agreed on what year would be used as the “base year.” c. Under a “Make Whole” provision, if either the City or the County received less sales tax revenue in a year than it received in the base year, and the other party received more sales tax revenue than it received in the base year, that party would be required to pay the other party the difference Memorandum to Mayor and Councilmembers Subject: Draft Tax Sharing Agreement Date: July 18, 2013 Page 3 between its actual receipts and its receipts in the base year plus ½ of any remaining sales tax revenue exceeding its revenue in the base year. For example, if the County received $100 less in the current year than it received in the base year and the City received $200 more than it received in the base year, the City would be required to pay the County $100 plus $50 (1/2 of the remaining $100) or $150. 3. Sharing Property tax (Section 6.2). Property tax revenues in an area annexed to the City would be apportioned among taxing entities in the same way property tax is apportioned on other property in the City. Any increase in property tax revenue allocated to the City and County above the revenue allocated to them in the year in which the annexation was completed (“Incremental Property Tax Revenue”) will be shared with 50% to the City and 50% to the County. The percentage of Incremental Property Tax Revenue shared by the City and County is subject to renegotiation based on the results of a Cost of Services Study to be performed by a qualified consultant retained jointly by the City and the County. The agreement specified a time frame and procedure for procuring and paying for the Cost of Services study, the details of which were subject to further discussion. Three possible options are shown in redlined format on pp. 8-9. 4. Sharing Transient Occupancy tax (redlined Section 6.3). Out of the discussion at the December 6 meeting, the City Attorney proposed to County Counsel possible language for sharing transient occupancy tax (“hotel tax”) in annexed areas. The proposed language would require the City to pay the County 50% of hotel tax collected in annexed areas, subject to agreements the City entered prior to the effective date of the Tax Sharing Agreement to use a portion of hotel tax to promote tourism and logging facilities in the City. 5. Miscellaneous. The draft agreement contains the following additional significant provisions: a. The effect on each party’s obligation to continue sharing sales tax revenues, if the agreement is terminated without cause by either party. (Section 5.) For example, if the City terminates the agreement, it would continue to be required to share revenue from existing business, but not from new businesses, defined to mean a business that was not operated on the Property prior to the cancellation of the Agreement and does not include a change in name, ownership, licensure or location of a business that was operated on the Property prior to the cancellation of this Agreement. Memorandum to Mayor and Councilmembers Subject: Draft Tax Sharing Agreement Date: July 18, 2013 Page 4 b. The procedure for allocating shared revenue. (Section 7.) c. A procedure for either party to recover from the shared revenue costs incurred to attract or retain a business. (Section 9.) d. Provisions governing either party’s right to renegotiate terms of the agreement. (Section 10.) e. Remedies, including termination of the agreement, for a breach of the agreement by either party. (Section 11.) f. Provisions for dispute resolution that includes binding arbitration. (Section 12.) g. A “Costco Addendum” that provided special provisions for sharing sales tax attributable to Costco, if it opens a store on the Property. 1 [11-30 [12-12 version prepared for meetingemailed to Parker on 12-6 REDLINED]12] MASTER TAX SHARING AGREEMENT BETWEEN THE COUNTY OF MENDOCINO AND THE CITY OF UKIAH This Agreement is made and entered into in the City of Ukiah, County of Mendocino this ____ day of _________, 2012 (“Effective Date”), by and between the City of Ukiah, a general law municipal corporation (hereinafter “CITY”) and the County of Mendocino, a political subdivision of the State of California, (hereinafter “COUNTY”). References herein to “Party” include the CITY or the COUNTY and to “Parties” include both the CITY and the COUNTY. RECITALS WHEREAS: 1. COUNTY and CITY desire to foster a relationship that will reduce or eliminate competition for tax revenue so that land use and development decisions can be based on planning principles including: development of appropriate infrastructure and mitigation of impacts; the efficient and rational delivery of services and the protection of a rural quality of life; and 2. COUNTY and CITY are committed to preserving open space and prime agricultural lands while seeking to encourage the development of land, in an orderly fashion, that facilitates employment and housing for persons and families of all income levels; and 3. COUNTY and CITY agree that urban development should occur, whenever and wherever practical, within the incorporated CITY, which exists to provide a full-range of urban services, including urban land use planning and that prior to unincorporated land being developed for urban uses, annexation to the CITY is preferable to the formation of unincorporated urban areas and resulting sprawl. Any unincorporated area already utilized for urban use and adjacent to, or any area that is primarily surrounded by the CITY is a priority for annexation; and 4. The COUNTY and CITY acknowledge that there may be unincorporated urban areas that are deficient in urban infrastructure and each will have on-going expenses within annexed areas. This shall be considered when assessing the costs of annexation; and 55. The Parties expect the CITY to develop a plan for annexing territory within the Sphere of Influence Area that includes all land use designations and which does not exclude areas already developed for urban uses or concentrate annexations on undeveloped areas that are zoned for commercial or industrial uses. The Parties also recognize that the CITY will assume an obligation to provide services within the Annexing Territories and the COUNTY will be relieved Formatted: Font: Not Bold Formatted: Font color: Red 2 of some, but certainly not all, obligation to provide services in those areas. Consequently, the Parties recognize that the CITY’s decision to annex areas already fully developed, including residential areas, will depend on balancing the additional tax revenues that become available to the CITY with the added cost of providing those services. The Cost of Services study required by this Agreement is intended to assist the CITY and the COUNTY in evaluating whether the allocation of Property Tax Revenue set forth in this Agreement is adequate to fund the services to be provided by the CITY and the COUNTY in the Annexing Territories. If the Cost of Services Study concludes that the allocation of Property Tax Revenue provided in this Agreement is inadequate to fund those services and the Parties fail to reach agreement on revisions to that allocation of Property Tax Revenue, the CITY can take that into account in deciding whether and when to annex those areas where the revenues may be inadequate to cover the added cost to the CITY of providing services to those areas. 6. COUNTY and CITY agree that to address all costs of annexation efficiently, a master tax sharing agreement that provides for an equitable sharing of revenue is preferable to individual agreements for each annexation; and 67. Article XIII, Section 29 of the California Constitution allows cities and counties to enter into contracts to apportion sales and use tax revenue, by ordinance or resolution, and upon approval by a two -thirds vote of the legislative bodies of the Parties to the contract; and 78. Government Code sections 55700 et seq. provides cities and counties with the option to approve contracts apportioning sales and use tax revenue consistent with the provisions of Article XIII, Section 29 of the California Constitution; and 89. The Parties desire to enter into the following Master Tax Sharing Agreement (hereinafter “this Agreement”) to provide, pursuant to Revenue and Taxation Code §99, for the exchange of property tax revenues between COUNTY and CITY, for the exchange of transient occupancy tax on properties annexed pursuant to this Agreement, and for the apportionment of sales tax revenue between COUNTY and CITY. In addition paragraph 4 of this Agreement contains certain provisions regarding the land-use planning of properties within the City of Ukiah’s Sphere of Influence. Finally, the Parties intend to provide for the adoption of this Agreement by joint or concurrent resolutions of COUNTY and CITY that may be presented to LAFCo and/or the LAFCo Executive Officer as evidence of their agreement so long as this Agreement has not been canceled or terminated. NOW, THEREFORE, COUNTY and CITY hereby agree as follows: 1. Recitals The facts set forth in the foregoing recitals are true and are hereby incorporated into this Agreement. 2. Definitions 3 For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: “Annexing Territories” or “Annexing Territory” means all properties or property for which an application or resolution pursuant to the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 (Division 3 of Title 5 of the Government Code, commencing with §56000) has been filed with LAFCo, proposing to annex the same to CITY, where the annexation is completed on or after Effective Date of this agreement. “Base Property Tax Revenues” means the amount of revenue attributable to the Annexing Territories for the Property Tax Base Year calculated by multiplying the total tax rate in effect in the tax rate area(s) of the Annexing Territories for the Property Tax Base Year (exclusive of voter approved tax rates for the redemption of bonds) times the taxable assessed valuation of all property, both real and personal, of the Annexing Territories as shown on all assessment rolls of the County of Mendocino and the State of California for the Property Tax Base Year. The Base Property Tax Revenues for any specified agency are calculated by multiplying Base Property Tax Revenues attributable to the Annexing Territories times the percentage of total estimated property taxes without delinquencies shown to be distributable to that agency for the Tax Rate Area Code in which the Annexing Territories are located as shown on the distribution spreadsheet prepared by the County Auditor-Controller for the Property Tax Base Year prior to adjustment to reflect the Completed Annexation.Property Tax Revenue for the Property Tax Base Year. “Base Year Sales Tax Revenue” means the amount of Sales Tax Revenue collected within the COUNTY and the CITY from taxable sales occurring on the Property in the Sales Tax Base Year. “Business Development Costs” means costs incurred by a Party to attract, accommodate or retain a business that produces Sales Tax Revenue, including, but not limited to, construction costs, infrastructure costs, and tax or fee rebates or other incentives. “Cost of Services Study” means a study of the actual cost to each Party of providing adequate services within Annexing Territories in the Sphere of Influence Area, the detailed specifications of the study to be determined in accordance with Section 6.2, below. “Completion of Annexation” means the recordation with the county recorder of the certificate of completion prepared by the LAFCo Executive Director pursuant to Government Code Section 56020.5 for the Annexing Territory. “Incremental Property Tax Revenues” means those property taxesProperty Tax Revenues in excess of the amount of Base Property Tax Revenues assessed in the Annexing Territories for the fiscal year(s) following the Property Tax Base Year computed in any year by multiplying the assessed valuation growth over the base year times one percent (1%). “Incremental Sales Tax Revenues” means those sales and use tax receipts received from the Property in excess of the Base Year Sales Tax Revenues; provided, however, that Incremental 4 Sales Tax Revenue shall not include any increase in Sales Tax Revenues above the Sales Tax Base Year resulting from the repeal or other termination of the sales and property tax transfers required by Revenue and Taxation Code Section 97.68. “Property” means the incorporated limits of the CITY, as delineated on the map attached hereto as Ex. A and the portion of the unincorporated area of Mendocino County located within the boundaries of the Ukiah Valley Area Plan planning area as delineated on the map attached hereto as Ex. B. “Property Tax Base Year” means that fiscal year during which the Completion of Annexation is Completedoccurs, unless otherwise specified herein. “Property Tax Revenue” means the amount of revenue attributable to the Annexing Territories calculated by multiplying the total tax rate in effect in the tax rate area(s) of the Annexing Territories (exclusive of voter approved tax rates for the redemption of bonds) times the taxable assessed valuation of all property, both real and personal, of the Annexing Territories as shown on all assessment rolls of the County of Mendocino and the State of California, but excluding the funds transferred from the Education Revenue Augmentation Fund to the CITY or the COUNTY to compensate them for the transfer of .25% of Sales Tax Revenue shifted to the State of California pursuant to Revenue and Taxation Code Section 97.68 .. The Property Tax Revenues for any specified agency are calculated by multiplying Property Tax Revenues attributable to the Annexing Territories times the percentage of total estimated property taxes without delinquencies shown to be distributable to that agency for the Tax Rate Area Code in which the Annexing Territories are located as shown on the distribution spreadsheet prepared by the County Auditor-Controller. “Sales Tax Revenue” means the revenue from the sales and use tax levied and received by the CITY and COUNTY pursuant to the “Bradley-Burns Uniform Local Sales and Use Tax Law” or any successor statutory provision that is collected from taxable sales occurring on the Property but excluding any sales tax above the uniform statewide rate which additional tax is imposed by a Party within its jurisdiction as authorized by state law, including funds shifted from the Education Revenue Augmentation Fund (“ERAF”) to compensation for the transfer of .25% of Sales Tax Revenue from the CITY and the COUNTY to the State of California pursuant to Revenue and Taxation Code Section 97.68. . “Sales Tax Base Year” means the fiscal year during which the provisions of Section 6 of this Agreement become effective as provided in Section 4 of this Agreement. “Shared Revenue” means Sales Tax Revenues in any fiscal year in excess of the Sales Tax Revenue in the Sales Tax Base Year, excluding Sales Tax Revenue attributable to a Costco store located in the City of Ukiah. “Sphere of Influence Area” means the area proposed for submission to LAFCo as the City’s Sphere of Influence as delineated in Figure II.1-D in Section II.1, p.6 of the City of Ukiah General Plan, adopted December 5, 1995, a true and correct copy of which is attached hereto as Ex. C. 5 “Transient Occupancy Tax” means the Hotel-Motel Room Occupancy Tax imposed in the CITY by Chapter 8A of Division 1 of the Ukiah City Code, commencing with Section 1750, or any successor provisions of the Ukiah City Code. 3. General Purpose of Agreement The general purpose of this Agreement is to devise a fair and equitable sharing of the Sales Tax Revenue generated from businesses operating now or in the future within the unincorporated territory of COUNTY and within the territorial limits of CITY and of Property and transient occupancy taxTransient Occupancy Tax revenue as property is annexed to the CITY, as well as to set forth the general intention and specific obligations of the CITY and COUNTY to cooperate regarding the process of land use development on the Property. 4. Land-Use Planning 4.1 Land-use planning for properties within the Sphere of Influence area will be a joint effort by the COUNTY and the CITY. The provisions of Section 6 of this Agreement shall become effective when: A. the COUNTY and CITY jointly file with LAFCo an agreement complying with Government Code Section 56425(b); B. the COUNTY adopts legally enforceable policies only allowing new development in the Sphere of Influence Area on property contiguous to the City, if that property has been annexed to the City of Ukiah or on property that is not contiguous to the City, if the property owner or owners sign an enforceable agreement consenting to the annexation of the property to the City when the property becomes contiguous to the City; and C. the COUNTY adopts development standards for the Sphere of Influence Area acceptable to the CITY that are compatible with CITY standards and with future annexation of the property into the CITY. 4.2 Notwithstanding any other provision of this Agreement to the contrary, if the COUNTY changes any land use designation within the UVAP planning area, as designated on Ex. B, without the City Council’s approval, the CityCITY shall have the right, in its sole discretion, to terminate Section 6 of this Agreement on ninety (90) days prior written notice to the COUNTY. If the CITY terminates Section 6 pursuant to this Section 4, the CITY and the COUNTY shall have no obligation to continue to pay anybe excused from paying Shared Revenue to the COUNTY, but the COUNTY shall continue to be obligated to pay Shared Revenue to the CITY. In all other party on and after the termination date.respects this Agreement shall remain in full force and effect. Property and Transient Occupancy taxes shall continue to be shared within Annexing Territories. 5. Cancellation of the Agreement Without Cause. 6 Either COUNTY or CITY may cancel this Agreement without cause on 180 days prior written notice to the other Party sent by registered mail to the address provided herein. Not less than 90 days prior to the effective date of the termination, the Parties must meet and confer in a good faith effort to negotiate terms that would not require termination of the agreement. This Agreement shall not apply to any annexations initiated after notice of cancellation is given. This Agreement shall apply to any annexations in progress when notice of cancellation is given only if COUNTY and CITY both agree that it applies. 5.1. Cancellation by the CITY. If the agreement is cancelled by the CITY, the apportionment of Property and Transient Occupancy taxTax revenue within the territories annexed while this Agreement was in effect shall remain the same as required by this Agreement. In addition, the Parties shall continue to pay Shared Revenue pursuant to Section 6 of this Agreement [OPTIONS]: [1] on the amount Incremental Sales Tax Revenue existing as of the effective date of the termination. Neither party shall have an obligation to share any increase in Sales Tax Revenue above the amount existing on the effective date of the termination. [2] for a period of __ fiscal years beyond the fiscal year in which the cancellation of this Agreement became effective. During this __ year period, Shared Revenue shall exclude sales tax revenue attributable to any new business that locates on the Property. A “new business” means a business that was not operated on the Property prior to the cancellation of this Agreement and does not include a change in name, ownership, licensure or location of a business that was operated on the Property prior to the cancellation of this Agreement. [3] [.] Shared Revenue shall exclude sales tax revenue attributable to any new business that locates on the Property. A “new business” means a business that was not operated on the Property prior to the cancellation of this Agreement and does not include a change in name, ownership, licensure or location of a business that was operated on the Property prior to the cancellation of this Agreement. 5.2. Cancellation by the COUNTY. If the Agreement is cancelled by the COUNTY, the apportionment of Property and Transient Occupancy tax revenue within the territories annexed while this Agreement was in effect shall remain the same as required by this Agreement. However, the sales tax sharing provisions in Section 6 of this Agreement shall terminate and neither party shall have an obligation to pay Shared Revenue to the other party.However, [OPTIONS]: [1] the sales tax sharing provisions in Section 6 of this Agreement shall terminate and neither Party shall have an obligation to pay Shared Revenue to the other Party. [2] the CITY shall be excused from paying Shared Revenue to the COUNTY, but the COUNTY shall continue to be obligated to pay Shared Revenue to the CITY. Formatted: Font: Bold 7 [3] the CITY shall be excused from paying Shared Revenue to the COUNTY for a period of __ fiscal years beyond the fiscal year in which the cancellation of this Agreement became effective, and thereafter, neither Party shall be obligated to pay Shared Revenue to the other Party. 5.3. Alternate division of taxes upon cancellation. The governing bodies of the CITY and the COUNTY may agree to a different division of taxes than is provided in this Section 5. 5.4. This Section shall survive cancellation of this Agreement. 6. Share of Revenues 6.1. SALES TAX In the first fiscal year following compliance with Section 4, Sales Tax Revenue shall be shared as provided in this Section 6. A. Payment of Shared Revenue. Except as provided in section 6.1.B, below, Section 9, below, and in the Costco Addendum,, attached hereto, during each fiscal year, Shared Revenue collected by either Party will be shared, with 50% of such revenues paid to the COUNTY and 50% of such revenues paid to the CITY, all in accordance with Section 7, below. B. Make Whole Payment. If one party’s payment of Shared Revenue in any fiscal to the other party does not result in that party[OPTIONS]: [1] In any fiscal year, when a Party receives Sales Tax Revenue which is less than the Base Year Sales Tax Revenue, and the other Party receives Shared Revenue, the Party with Shared Revenue shall make a payment to the other Party that causes that Party’s Sales Tax Revenue to equal its Base Year Sales Tax Revenue and shall pay 50% of the Party’s remaining Shared Revenue to the other Party. [2] [VARIATION ON [1]: . . . ; provided, however, that the total Shared Revenue paid in any fiscal year shall not exceed __% of the Party’s Shared Revenue. [3] [ALTERNATIVE TO [1]: If one Party’s payment of Shared Revenue in any fiscal year to the other Party does not result in that Party receiving total Sales Tax Revenue that equals or exceeds its Sales Tax Revenue in the Sales Tax Base Year, the partyParty with Shared Revenue shall pay an additional amount of Shared Revenue to the other partyParty to cause its total Sales Tax Revenue in that year (Sales Tax Revenue plus the payment of Shared Revenue) to equal its Sales Tax Revenue in the Sales Tax Base Year; provided, however, that total payments of Shared Revenue in any fiscal year from one party to the other does not exceed __per cent (__%) of the party’s Shared Revenue. . [4] [VARIATION ON [3]: . . . ; provided, however, that the total Shared Revenue paid in any fiscal year shall not exceed __% of the Party’s Shared Revenue. 6.2. PROPERTY TAX 8 It is agreed that 50% of the Base Property Tax Revenues of COUNTY from the Annexed Territories shall be transferred fromapportioned between the CITY and the COUNTY in the same way Property Tax Revenue of the COUNTY general fund to the is apportioned on other real property tax revenue of the CITY general fund in each full fiscal year followinglocated in the CITY; such apportionment to begin upon Completion of Annexation to CITY. of the Annexed Territory. It is agreed that Incremental Property Tax Revenues of COUNTY from the Annexed Territories shall be distributed 50 % to CITY and 50 % to COUNTY in the first full fiscal year after Completion of Annexation to CITY. The percentage of Incremental Property Tax Revenues to be distributed to each Party may be adjusted based on the results of a Cost of Services Study to be performed by a qualified consultant retained by both Parties. [OPTIONS] [1] Within ___ [120, 180, 240, 360] days of the Effective Date, the Parties shall develop and agree upon a request for proposal (“RFP”) that includes the scope and specifications for the study. Within 90 days of their agreement on content of the RFP the Parties shall develop a list of qualified consultants and distribute the RFP with a thirty day response time. The Parties shall agree on the method of reviewing proposals, interviewing proposers and selecting a consultant to perform the study. The cost of the study shall not exceed $________ without the prior approval of both Parties. The Parties shall adjust the specifications of the study through negotiation with the consultant submitting the most qualified proposal to reduce the cost, if the proposal exceeds $_____. The Parties agree to review the results of the study and negotiate in good faith adjustments to the Property T ax Revenue allocation that may be appropriate within the annexed areasAnnexing Territories within the Sphere of Influence Area. The Parties may solicit and commission updates to the Cost of Services study, if substantial time has elapsed between the completion of the study and the proposede filing of a future annexation application with LAFCo. [2] The CITY shall propose and provide to COUNTY a request for proposal (“RFP”) that includes the scope and specifications for the study. Within 60 days of the date CITY submits the proposed RFP to COUNTY it shall serve CITY with any proposed revisions to the draft RFP from the CITY. If the revised RFP is not acceptable to the CITY, the Parties shall meet and confer until they agree on content of the RFP, such agreement not to be unreasonably withheld. Once the RFP is approved by the CITY and the COUNTY, the Parties shall develop a list of qualified consultants and distribute the RFP with a thirty day response time. The Parties shall agree on the method of reviewing proposals, interviewing proposers and selecting a consultant to perform the study. The cost of the study shall not exceed $________ without the prior approval of both Parties. The Parties shall adjust the specifications of the study through negotiation with the consultant submitting the most qualified proposal to reduce the cost, if the proposal exceeds $_____. The Parties agree to review the results of the study and negotiate in good faith 9 adjustments to the Property Tax Revenue allocation that may be appropriate within Annexing Territories within the Sphere of Influence Area. The Parties may solicit and commission updates to the Cost of Services study, if substantial time has elapsed between the completion of the study and the proposed filing of a future annexation application with LAFCo. [3] Upon __ days [60, 90, 120, 180] days of written notice from the CITY to the COUNTY that the CITY intends to file an application to annex a specified territory within the Sphere of Influence Area, the Parties shall develop and agree upon a request for proposal (“RFP”) that includes the scope and specifications for a Cost of Services study for the area proposed for annexation. Within 60 days of their agreement on content of the RFP the Parties shall develop a list of qualified consultants and distribute the RFP with a thirty day response time. The Parties shall agree on the method of reviewing proposals, interviewing proposers and selecting a consultant to perform the study. The cost of the study shall not exceed $________ without the prior approval of both Parties. The Parties shall adjust the specifications of the study through negotiation with the consultant submitting the most qualified proposal to reduce the cost, if the proposal exceeds $_____. The Parties agree to review the results of the study and negotiate in good faith adjustments to the Property Tax Revenue allocation that may be appropriate within Annexing Territories within the Sphere of Influence Area. The percentage of Incremental Property Tax Revenues and Shared Revenues to be distributed to each Party may also be revised as provided in paragraph 10 6.3 TRANSIENT OCCUPANCY TAX Upon Completion of Annexation in an Annexing Territory, Transient Occupancy Tax shall be charged in accordance with applicable Ukiah City Code provisions and collected by the CITY. Not less often than __ [quarterly, semi-annually, annually], the CITY shall pay COUNTY 50% of the portion of Transient Occupancy Tax received by the CITY from the annexed territory that is not committed by any agreement of the CITY in effect prior to the Effective Date of this Agreement committing the CITY to use such tax for specified purposes, such as promoting tourism or lodging facilities in the CITY. The CITY shall accompany each payment of Transient Occupancy Tax to the COUNTY with an accounting of the Transient Occupancy Tax paid to the COUNTY. The COUNTY shall have the right to conduct, at its expenses, audits or reviews of the CITY’s collection of Transient Occupancy Tax and the CITY shall cooperate with such audits or reviews. 7. Procedure for Allocation of Tax Revenue 7.1. Percentages of Shared Revenue specified in Section 6 of this Agreement will be distributed by the Party receiving it from the State in monthly estimated payments and quarterly adjustments, based on the payments and quarterly true ups provided by the State Board of Equalization (SBOE). ) at regular intervals to be determined by CITY and COUNTY staff. 10 7.2. Property T ax Revenue will be distributed by COUNTY pursuant to the Teeter plan. Upon notification of the Completion of Annexation of an Annexing Territory, designated officials of the COUNTY and CITY will sign a written agreement approving the calculations. 7.3. An annual reconciliation of the Property T ax Revenue and Sales Tax Revenue distribution will be conducted by designated officials of the COUNTY and CITY. Such payments and reconciliations may be subject to an outside audit at the request of either Party. Both designated officials shall cooperate fully with any audit the costs of which shall be shared equally by the Parties . 7.4. The Parties may agree to employ a consultant to assist with these calculations, the costs of which shall be shared equally between them. 8. Assumption of Services after Annexation CITY shall assume responsibility for providing fire services and all municipal services to annexing territoriesAnnexing Territories upon completionCompletion of annexationAnnexation and shall make good faith efforts to annex territories in a logical manner that minimizes transition problems for the previous service provider. 9. Cost Recovery Either Party shall be entitled to exclude Business Development Costs from Shared Revenues received by that Party before making the payments required by Section 7 as further provided in this Section 9, if the Party seeking reimbursement establishes by a preponderance of the evidence that a business would not be attracted or retained, if the Business Development Cost were not committed or incurred. Not less than ninety (90) days priorA Party seeking to committing to or incurringexclude Business Development Costs, the Party proposing to incur such costs (“the Providing Party”) shall provide written notice to the other Party (the “Reimbursing Party”) of thatthe intent to exclude such costs as provided herein. The notice shall provide sufficient information about the costs to permit the Reimbursing Party to evaluate the amount and proposed use of the funds. Within fifteen (15) days after receipt of the notice, the Reimbursing Party may request and the Providing Party shall provide any additional information the Reimbursing Party reasonably determines necessary to evaluate whether the proposed uses of the funds and the amount are reasonable. The Reimbursing Party shall provide any written objections to the Proposing Party within forty-five (45thirty (30) days from receipt of the notice. If no objection is received within said time period, the Business Development Cost shall be deemed approved. If objections are raised, the Parties shall use their best efforts to resolve the dispute. If they are unable to resolve the dispute within sixty (60) days from the Reimbursing Party’s receipt of the notice, the parties shall proceed withProviding Party may initiate the dispute resolution process as set forth in Section 12. 10. Amendments 11 Any amendments or modifications to this Agreement must be in writing, approved by the governing bodies of both parties, and executed by designated officials of the COUNTY and CITY. Either party may request that the other party renegotiate one or more terms of this Agreement if: (1) there is a significant outside eventoccurrence or series of occurrences or financial experience that directly or indirectly relates to a Party’s expectations under this Agreement and that change or experience materially impacts that Party’s revenues or financial ability to provide services; or (2) there are changes in statutory law, court decisions or state administrative interpretations which have a material effect on the meaning, implementation or effects of this Agreement. Items (1) and (2) above are collectively called a “significant event.” 10.1. A request to renegotiate one or more terms of this Agreement will be made in writing, addressed to the other partyParty. The request will specify the basis for the request. 10.2. Unless a partyParty disputes that the requirements for renegotiation pursuant to this subsection exist, the Parties will meet within 30 days from the receipt of the request and will commence to renegotiate in good faith. Each Party shall select its representatives to participate in the negotiations. A dispute over whether negotiations are required by this Section 10 shall be subject to dispute resolution pursuant to Section 12. 10.3. 10.3 If the Parties fail to reach agreement on proposed amendments to this Agreement to mitigate a significant event within 180 days from the request to renegotiate or, if the existence of a significant event is submitted to arbitration, from the date of the arbitrator’s decision, the Party seeking the amendment may initiate dispute resolution pursuant to Section 12. In the arbitration each party shall submit its proposed amendment or its reasons for refusing to amend the agreement. If each party proposes an amendment, the arbitrator shall determine (1) whether an amendment is reasonably necessary to mitigate the material, adverse effect of a significant event and (2) which proposed amendment is most effective in mitigating the adverse effect with the least unnecessary modification of the original intent of the Agreement. If the arbitrator determines that an amendment is necessary, the Agreement shall be amended by the proposed amendment selected by the arbitrator under (2) in this section 10.3. 10.4. Regardless of the existence of any significant event as described in this Section 10, the parties will meet at least once every five years to discuss whether the terms of this Agreement still are effective to carry out the intent of the Parties in entering into this Agreement. If there is concern by either Party that the intent of that Party in entering into this Agreement is no longer being fulfilled, then the Parties will commence to renegotiate in good faith. The purpose of this renegotiation will be to determine if there are other provisions for inclusion in the Agreement that would more effectively fulfill the intent of the Party that had a concern without significantly detracting from the purposes of the original Agreement. 11. Remedies Upon Default Subject to dispute resolution as provided in Section 12, below, a Party may terminate this agreement for a material breach as further provided in this Section 11. If the governing body of a Party contends that another Party is in material breach of this Agreement, it shall give written notice of the breach to the other Party and specify the steps it contends the other Party must take 12 to cure the breach, unless it contends that the breach cannot be cured. If the non-breaching Party contends that the breach cannot be cured, the notice shall so state. Within thirty (30) days after a notice of breach has been given, the Parties in a joint meeting of the governing bodies or through the use of ad hoc committees, at the election of the Party which contends that the other Party is in material breach of this Agreement, shall meet in an attempt to resolve the dispute. The Parties may agree to such additional meetings and additional time, as they mutually agree. If the dispute is not resolved to the satisfaction of the non-breaching Party, the non-breaching Party shall have the right to terminate this Agreement, if the breach is not cured within sixty (60) days of the last meeting held to resolve the dispute. If the breach cannot be cured within said time period, the non-breaching Party shall not have the right to terminate the Agreement, if the other Party commences to cure the breach within said time period and diligently proceeds to cure the breach as soon as it is feasible to complete the cure of the breach. If the Agreement is terminated pursuant to this Section11, the breaching Party shall have no right to receive Shared Revenue from the non-breaching Party. Property Tax Revenue shall continue to be split as provided in paragraph 6 in areas that have been annexed prior to the termination of the Agreement 12. Dispute Resolution 12.1. Inadmissibility. Should any disputes arise as to the performance of this Agreement, COUNTY and CITY agree to use the dispute resolution process set forth below, including if a Party disputes the right of the other Party to terminate this Agreement pursuant to paragraph 11. All conduct, testimony, statements or other evidence made or presented during the meeting described in subsection 12.2 shall be confidential and inadmissible in any subsequent arbitration proceedings brought to resolve a dispute arising under this Agreement. 12.2. Initiation of Process. COUNTY or CITY may initiate the dispute resolution process by submitting written notification to the other of a potential dispute concerning the performance of this Agreement. or other matters subject to dispute resolution. This written notification shall state what is in dispute, shall include supporting documentation relied upon by the Party initiating arbitration, and shall request a meeting between the County Executive Officer and the City Manager, or their respective designees, to determine whether a resolution of the disagreement is possible without third Party intervention. This meeting shall be scheduled to take place within forty (40) days of receipt of the written notification of the dispute. At the meeting, the respective representatives of the COUNTY and the CITY shall attempt to reach an equitable settlement of the disputed issue(s), subject to review and approval by the Board of Supervisors and the City Council. The Parties may agree to undertake mediation, using a mutually agreed upon third party mediator. 12.3. Binding Arbitration. A. If the meeting and subsequent review by the Parties’ governing bodies provided for in subsection 1210.2, 11 or through the process established under subsection 12.2 fails to fully resolve the dispute, the matter may then be submitted by either Party to the American Arbitration Association (“Arbitrator”) to appoint a single, neutral arbitrator for a 13 decision. The Parties may agree upon an Arbitrator not appointed by the AAA. The arbitration shall be conducted pursuant to the procedures set forth in Chapter 3 (commencing with Section 1282) of Title 9 of the California Code of Civil Procedure. The Arbitrator’s decision shall be based on the following factors: (1) evidence relevant to the issue being decided; (2) timeliness in raising the issue at hand; (3) whether the moving Party has met its burden of persuasion; and (4) any other factors the Arbitrator deems appropriate. B. The matter shall be heard by the Arbitrator within forty-five (45) days from the date that a Party is served with a Notice of Request for Arbitration by the other Party and a final decision by the Arbitrator must be made within thirty 30 days from the date the arbitration hearing is completed. The arbitration hearing date shall be established by the Arbitrator in accordance with the Code of Civil Procedure section 1282.2. The Arbitrator shall prepare in writing and provide to the Parties factual findings and the reasons on which the decision of the Arbitrator is based as described in Code of Civil Procedure sections 1283.4 and 1283.6.The decision of the Arbitrator shall be controlling between the CITY and the COUNTY and shall be final. Except as provided in Code of Civil Procedure sections 1286.2 and 1286.4, neither Party shall be entitled to judicial review of the Arbitrator’s decision. The Party against whom the award is rendered shall pay any monetary award and/or comply with any other order of the Arbitrator within sixty (60) days of the entry of judgment on the award. C. Costs. The Parties shall share equally the Arbitrator’s fees and expenses. Each Party shall bear its own costs, expenses and attorney’s fees and no Party shall be awarded its costs, expenses, or attorney’s fees incurred in the dispute resolution process. 13. Mutual Defense of Agreement If the validity of this Agreement is challenged in any legal action by a Party other than COUNTY or CITY, then COUNTY and CITY agree to defend jointly against the legal challenge and to share equally any award of costs, including attorney’s fees, against COUNTY, CITY, or both. 14. Waiver of Retroactive Recovery If the validity of this Agreement is challenged in any legal action, CITY and COUNTY hereby waive any right to the retroactive recovery of any Sales Tax Revenue, Property Tax Revenue or Transient Occupancy Tax transferred pursuant to this Agreement prior to the date on which such legal action is filed in a court of competent jurisdiction. 15. Modification 14 The provision of this Agreement and all of the covenants and conditions set forth herein may be modified or amended only by a writing approved by the governing bodies of the Parties and duly authorized and executed by both the COUNTY and CITY. 16. Entire Agreement With respect to the subject matter hereof only, this Agreement supersedes any and all previous negotiations, proposals, commitments, writings, and understandings of any nature whatsoever between COUNTY and CITY except as otherwise provided herein. 17. Notices Whenever notice is permitted or required under this Agreement, it shall be deemed given when personally served by personal delivery or overnight courier or when delivered by fax or email, but only if receipt of the fax or email is acknowledged, or 48 hours after it is deposited in the United States mail with proper first class postage affixed thereto and addressed as follows:. If to CITY: If to COUNTY: City of Ukiah County of Mendocino Attention: City Manager County Counsel 300 Seminary Road Administration Center Ukiah, CA 95482 501 Low Gap Road, Rm. 1030 FAX: Ukiah, CA. 95482 Email:jchambers@cityofukiah.com FAX: Email: or at such other address as such party may previously have advised the other party by notice similarly given. 18. Approval, Consent and Agreement Wherever this Agreement requires a Party’s approval, consent, or agreement, the Party shall make its decision to give or withhold such approval, consent or agreement in good faith, and shall not withhold such approval, consent or agreement unreasonably or without good cause. 19. No Third Party Beneficiaries The only Parties to this Agreement are the CITY and the COUNTY. There are no third party beneficiaries. Only the CITY and the COUNTY shall have standing to initiate any proceedings to enforce, interpret or adjudicate any matter arising under or pertaining to this Agreement. COSTCO ADDENDUM 15 Notwithstanding any other provision of this Agreement to the contrary, Sales Tax Revenue from a Costco Wholesale Corporation store commencing operation in the City of Ukiah shall be shared between the CITY and COUNTY as follows. 1. Except as provided in section 2, below, the CITY shall retain 100% of sales tax revenue attributable to the Costco store and such revenues shall be excluded from the definition of Shared Revenue, until the City has been reimbursed for all costs incurred by the City to facilitate the location of the Costco store in the City, as set forth in the attached Exhibit D. 2. If any of the costs in Exhibit D are paid, in whole or in part, from the proceeds of the City of Ukiah Redevelopment Agency 2011 Series A Tax Allocation Bonds or, from the proceeds of the sale of all or any portion of the real property in the Redwood Business Park owned by the Successor Agency to the now dissolved City of Ukiah Redevelopment Agency, or from any other source than the CITY’s General Fund, the CITY shall retain 100% of the Sales Tax Revenue attributable to the Costco store and such revenue shall be excluded from the definition of Shared Revenue, until the City has received additional Sales Tax Revenue attributable to the Costco store equal to 50% of those costsadditional funds. For example, if the costs identified in Exhibit D equal $6 Million and the City uses $3 Million from Tax Allocation Bonds and $1 Million from another non-General Fund source of funds to pay $4 Million of that $6 Million cost, and the CITY uses $2 Million of General Funds revenues to pay the balance of those costs, the CITY must recover $8Million ($6 Million plus $4 Million x 50%)) from sales tax revenue attributable to the Costco store before it must commence sharing such revenue with the COUNTY pursuant to Section 3, below. 3. Commencing in the first full year after the City has received the Sales Tax Revenue as required by sections 1 and 2, above, the Sales Tax Revenue attributable to the Costco store shall be apportioned between the CITY and COUNTY as follows: YEAR CITY COUNTY 1 90% 10% 2 80% 20% 3 70% 30% 4 60% 40% 5 50% 50% In all subsequent years, the Sales Tax Revenue attributable to the Costco store shall be treated as Shared Revenue subject to Sections 6 and 7 of this Agreement.