The Fresno City Council voted unanimously on June 25 to let its tax-sharing agreement with Fresno County lapse unless a new deal can be negotiated before it expires on Aug. 29, effectively slowing the city’s growth outside of its current limits for the foreseeable future.
In its fourth extension (it went into effect in 2003 and expired in June 2017), the tax-sharing agreement — a seemingly mundane memorandum of understanding between the city and Fresno County — has significant impact on where future growth can occur and whether the city can afford to provide services to new developments while maintaining similar levels of service in older neighborhoods.
Mayor Lee Brand supports the council’s decision. “We cannot continue to grow when we are subsidizing new development,” he said.
A primary sticking point in the discussions is whether Fresno should be entitled to a higher percentage of property tax revenue from new developments annexed into the city. Currently, the city receives 38% of property tax revenue generated from developments not yet within city limits, similar to other cities in Fresno County, but pays for 62% of public services in those same areas, according to a study prepared by Economic and Planning Systems, Inc., a consultant to the city.
“I’m tired of answering to residents in the center of our city who are subsidizing the growth on the edge of our city,” said Esmeralda Soria, council member for District 1.
While the primary disagreement is over how property tax revenues for lands annexed into the city will be split, there could be negotiations around other policies that control where the city is allowed to grow in the future. The current agreement stipulates the conditions under which the city can expand its current growth boundary and build southeast of the city.
Suburban developers have long pushed the city to annex a large swatch of primarily agricultural land southeast of Fresno. Earlier this year, the City Council formed a General Plan Implementation Review Committee to examine the feasibility of this move, along with other policies designed to promote development within city limits where infrastructure is already in place.
Fresno officials also recently secured $625,000 in state affordable housing funds to update the southeast development area specific plan — required under the current city/county memorandum of understanding — for identifying needed infrastructure and who will be responsible for paying for new roads, water and sewer lines and parks.
The southeast development area does not yet have a secure water supply for future housing development.
If a new agreement cannot be reached by Aug. 29, the property tax revenue split will be negotiated case-by-case, per state law, each time a developer requests annexation to the city, according to city attorney Douglas Sloan. The process could take as long as one year for each development.
The council also selected a committee composed of members Soria, Garry Bredefeld and Miguel Arias, along with a representative from the mayor’s office, to represent the city in negotiations with the county. County officials have not yet decided who will represent their interests in negotiations.
A solution to incomplete neighborhoods?
Jean Rousseau, chief administrative officer for Fresno County, said he prefers to extend the agreement for another year, but understands the concern expressed by city council members. “We recognize that some of the development that’s been done over the years has not been in your interest or in our interest, ” he said in his comments to the council.
Under previous agreements, the county allowed developers to build within the city’s growth boundary without requiring the developments to meet the city’s standards. That practice, along with a pattern of annexing some development but not those surrounding them, has left many neighborhoods with an unfinished patchwork of sidewalks and bottlenecked roads.
These policy decisions are particularly evident driving on Clinton Avenue west of Highway 99, where sidewalks abruptly end, and begin again as the road narrows for a few blocks before widening again to four lanes.
If and when these “fringe” neighborhoods get annexed, the city must assume responsibility to install sidewalks, improve the roads, or add parks, as needed. Property tax revenue is a significant source of income for the city’s general fund — thus the reason the city seeks to capture a potentially larger share. But property taxes are also a significant source of revenue for county services, including managing the courts and many social services that city residents rely on.
The county had, in the past, competed with the city for new suburban and commercial development, but Rousseau signals a different direction. “The county is essentially out of the development business,” he said. “We measure success in the county by how much growth we push to the cities.”
Rousseau said the city and county have made recent progress in identifying how to collaborate and share revenues for needed improvements on roads, such as Ashlan Avenue, which serve both city and county residents. But such measures rely on goodwill of both parties, and any future agreements can clarify fiscal responsibilities.
Under the current tax-sharing agreement, the city and county have a 50/50 split of taxes generated from properties already within city limits, which could be interpreted as a fiscal incentive to contain new growth within current city boundaries.
These negotiations could put pressure on the city’s historically permissive approach to outward growth. Fresno city planners estimate that there is enough vacant land within city limits to build another 134,693 housing units without any further annexation. According to Mike Prandini, president and CEO of the Building Industry Association of Fresno and Madera counties, there is enough demand to build roughly 2,500 homes for sale in the metropolitan area each year.
Despite ample land supply within city limits, developers are reluctant to build within city limits where some water and sewer lines, widened roads, and sidewalks are commonly in place, citing a lack of demand from buyers and some infrastructure challenges. Much of the available land for development within city limits is in the Fresno Unified School District, where homes are generally more affordable relative to comparable homes in Clovis Unified or Central Unified.
For residents of older neighborhoods, outward growth presents a challenge. In the wake of Proposition 13, a ballot measure passed by California voters in 1978 to limit property tax increases by local governments, cities have progressively looked to developer impact fees and Mello-Roos property tax assessments — an additional assessment for some property owners — to pay for parks, street maintenance, and other local infrastructure. Older neighborhoods are left to rely on general fund revenue and grants to address local service and infrastructure needs.