City Attorney Summarizes Status of Pass-Through Agreement

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One of the biggest questions of the post-Redevelopment Agency world is what became of the city of Davis-Yolo County Pass-Through Agreement. The city attorney this week has a memo on the RDA dissolution process that has a brief summary of where the Pass-Through Agreement stands.

Through the Redevelopment Agency, the city and county entered into a Pass-Through Agreement that established the formula for the Redevelopment Agency’s tax-increment sharing with Yolo County.

City Attorney Harriet Steiner writes, “The Agreement provides the County with an allocation of property tax in excess of what it would receive if the Redevelopment Plan were not in effect.”

The Pass-Through Agreement provides, however, “that the Agency may cease making its payments if the County approves urban development within the City’s Planning Area. The County Auditor-Controller has been distributing payments to the County based on the formula set forth in the Pass-Through Agreement since the dissolution of the Redevelopment Agency, and the County has not approved any urban development within the City’s Planning Area during that time.”

She writes, “This is consistent with AB 1X 26 and AB 1484, which provide that the taxing entities should receive pass-through payments in accordance with existing pass-through agreements as if the Redevelopment Agency were still in existence. If, however, the County were to approve urban development within the City’s Planning Area, the City and Successor Agency would have the option to terminate the Pass-Through Agreement and the County would no longer be eligible for pass-through allocations under that Agreement.”

In March 2011, as the governor was moving to end RDA, “the Redevelopment Agency and the City of Davis also entered into a Public Works Agreement, which required the Redevelopment Agency to transfer $5,431,669 to the City to cover an anticipated funding gap for specific priority projects, including (1) a new hotel-conference facility; (2) a downtown mixed use parking structure; (3) the relocation of the Hunt-Boyer tankhouse; (4) improvements to the Central Park restroom and playground; (5) acquisition and rehabilitation of a South Davis restaurant building (for relocation of Caffe Italia); and (6) downtown streetscape improvements.”

Legislation was adopted in June and RDA was eliminated effective February 1, 2012. At that point, the city RDA “was prohibited from entering into any new contracts that would be necessary to undertake redevelopment activities between the date of adoption of AB 1X 26 and the elimination of the Redevelopment Agency on February 1, 2012. The Redevelopment Agency therefore held the 2011 Bond Proceeds until its dissolution in February 1, 2012, and did not enter into any contracts to spend the 2011 Bond Proceeds.”

The city was unable to move forward with the projects laid out above “because the City has anticipated that the funds from the Public Works Agreement would be combined with the 2011 Bond Proceeds to fund those projects.”

The City therefore “held the $5,431,669 received through the Public Works Agreement until such time that the Redevelopment Agency or its successor was in a position to use the 2011 Bond Proceeds, and some or all of the contemplated projects could be fully funded.”

AB 1X 26 also called for the formation of an Oversight Board that is required to review and approve certain Successor Agency actions.

The Oversight Board consists of seven members, with one member appointed by each of the following entities: (1) the Mayor of the City of Davis, (2) the County Board of Education, (3) the County Board of Supervisors, (4) Chancellor of the California Community Colleges, (5) the largest special district (by property tax share) with territory in the jurisdiction of the former Redevelopment Agency, (6) a member of the public appointed by the Board of Supervisors, and (7) a member representing the employees of the former Redevelopment Agency, appointed by the Mayor.

Under AB 2, the law “provides authority for the creation of community revitalization and investment authorities (“Revitalization Authorities”), which have the power to receive property tax increment funds to be used for redevelopment purposes, through the same constitutional provisions that authorized redevelopment agencies to receive tax increment funds.”

The Revitalization Authority can be done by the city or a JPA (Joint Powers Agency). In order to qualify for the Revitalization money, the area must meet criteria including median income less than 80 percent of the state average, three of four for higher unemployment, higher crime rates, deteriorating infrastructure and deteriorated commercial or residential structures.

Ms. Steiner notes, “City staff has not done a comprehensive survey of the City, but it is very unlikely that there are significant areas in the City that would qualify for inclusion in a Revitalization Area.”

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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34 Comments

  1. Davis Progressive

    the good news is that we still have the pass-through agreement. the bad news is that we no longer have redevelopment money for the projects highlighted.

  2. CalAg

    “The Agreement provides the County with an allocation of property tax in excess of what it would receive if the Redevelopment Plan were not in effect.” Harriet Steiner

    Any ideas if the county is still receiving more this excess allocation?

    Doesn’t this mechanism make the payoff to the county invisible to the City of Davis budget process?

    1. Matt Williams

      CalAg said … “Doesn’t this mechanism make the payoff to the county invisible to the City of Davis budget process?”

      The “invisibility” of the whole Pass-Through process has been an issue I have raised multiple times in public comment to the Council and in the formal meetings of the Finance and Budget Commission.  There is absolutely no reason why the incoming and outgoing transactions associated with the Pass Through Agreement monies shouldn’t appear in the City Budget.  That has been and continues to be a failure in transparency and a failure of Fiscal Responsibility.

      That issue is even more important now that the sources of funds from the RDA is so radically changed.

      1. CalAg

        Agreed 100%. Thanks for digging. It is jaw dropping that one can’t simply asked the City Manager or the Finance Director (or any member of the City Council for that matter) and get a straight answer on how much money is currently going to Yolo County under the PTA.

        I know Brazil is reading this, so how about it Dirk? Just announce it in open public hearing tomorrow night.

  3. Frankly

    So we give more of our tax revenue to the county to prevent the county from developing around us and we also don’t develop around us to generate tax revenue.

    Damn we sure pay a lot to keep the Davis NIMBY, change-averse, no-growthers happy.

  4. Anon

    In March 2011, as the governor was moving to end RDA, “the Redevelopment Agency and the City of Davis also entered into a Public Works Agreement, which required the Redevelopment Agency to transfer $5,431,669 to the City to cover an anticipated funding gap for specific priority projects, including (1) a new hotel-conference facility; (2) a downtown mixed use parking structure; (3) the relocation of the Hunt-Boyer tankhouse; (4) improvements to the Central Park restroom and playground; (5) acquisition and rehabilitation of a South Davis restaurant building (for relocation of Caffe Italia); and (6) downtown streetscape improvements.”

    Do I assume correctly that the approx $5.5 million can still be spent on the above listed 6 categories?

    Frankly: “So we give more of our tax revenue to the county to prevent the county from developing around us and we also don’t develop around us to generate tax revenue.

    I am not following the second part of that sentence.  How do we not “develop around us to generate tax revenue”?

    The Pass-Through Agreement has always felt a bit like extortion to me – perhaps the entire issue needs to be revisited…

      1. Davis Progressive

        i’d go with bribery myself.

        but the point is that the county wants revenue, the city wants to control its own land use, it seems reasonable to compromise on this.

        1. CalAg

          The City doesn’t need to provide a kickback to the County to control our borders. We’re already in control via the County General Plan, Measure R, and the City’s control over access to our water and sewer infrastructure.

      1. CalAg

        The tax revenue from an adversarial development on the borders of Davis would go 100% to the county. That was the bogyman to justify the Pass Through Agreement.

        Would be interesting to know if the City gets a tax share from El Macero or Willowbank. They pay for access to City services but I don’t know if that makes the City whole.

         

        1. Frankly

          True, but you need to consider the first point… that Davis would not elect to annex and develop what the county would develop.  How feasible would a county-only development be on the outskirts of Davis without the city connecting that development to city services?  Davis would tend to hold most of the development cards.  However, since we always fold we have to pay the county to not play any other hand.

          1. Don Shor

            Here’s Dave Rosenberg’s version of events: http://www.daverosenberg.net/articles/pta.htm
            This is a key point, which all of us remember well:

            the remaining three Supervisors who represented areas outside Davis indicated their intent to approve Mr. Ramos’ project. …
            The City was advised that legally, the County was completely within its rights to approve such a project, and further, the project could be self-sustaining and need not to be dependent on Davis’ sewer, water or drainage systems.

            I gather that Dave wrote this about 2000, so here is an interesting note:

            And this protection will continue until a certain revenue threshold is reached, which is predicted to occur around 2008 to 2010….

        2. Frankly

          This is in my links favorites/bookmarks… a great explanation of the pass-though-agreement and the connection with RDA.

          From the County’s perspective, the County was in desperate need of money, particularly in the aftermath of Proposition 13. Yolo County’s need for revenue was exacerbated by the County’s emphasis on preserving farmland.

          Now add the City of Davis to that list.

          Yes, the cost of this is very high in deed.

          What is the opportunity cost per acre to the city and county for refusing to develop on the periphery?  I see it as being much, much greater than the value derived from locking up so much peripheral land into permanent ag easements.  Much, much greater.

           

          1. Don Shor

            What is the opportunity cost per acre to the city and county for refusing to develop on the periphery?

            The county loses money when the city develops on its periphery, since land is taken from the tax rolls of the former to go to the latter. Maybe that isn’t what you meant?

          2. Matt Williams

            Don, if my memory serves me correctly, I was told by a senior Planning and Public Works official at the County that because of the arcane property tax rules in the State of California post-Prop 13, the County would actually be more adversely affected fiscally if a development adjacent to a City were to stay in the County rather than be annexed by the City.

            The explanation for that was that the State keeps for itself the City share of the revenues rather than passing that revenue source to the jurisdiction that is responsible for covering the cost of services to the residents of the development. A simple explanation of that is that the revenues to the County in both annexation and non-annexation scenarios are essentially the same, but the costs of services in the non-annexation scenario are much, much higher than in the annexation scenario. When the City annexes the development, the City gets additional revenues to cover the costs of services, and that additional revenue comes from the State’s share of the taxes.

            To the best of my recollection, that is how it was explained to me.

        3. Frankly

          I thought that CA counties get a share of property taxes.  In fact, I thought, except for local schools, the counties actually get a greater percentage of property tax revenue that do cities.  They also get a share of other taxes generated by economic activity and earnings from the new development.

        4. Frankly

          I think if the development is in the county, the city does not benefit from property tax… but the county gets a share of all city-annexed property tax.

          It makes sense from a perspective of services being needed and needing to be funded.

          One thing that does not get very much press these days is county unfunded liabilities.  As I understand, most counties are having the same budget problem as cities for over-paying and over-committing to employees.

          Think about how if and when county services are cut because of budget problems, the voters in the other communities will see Davis peripheral development as the cash cow and there will be growing animosity that the residents of Davis won’t accept any growth.  I would expect the pass-though agreement to fall apart unless the city of Davis is willing to pay even greater extortion money.

           

           

        5. Mark West

          “Think about how if and when county services are cut because of budget problems, the voters in the other communities will see Davis peripheral development as the cash cow and there will be growing animosity that the residents of Davis won’t accept any growth.”

          I think the problem is a little more basic than that.  The County has the obligation to manage population growth around the region by determining where that growth should occur.  The preference in Yolo County has been to assign the growth primarily to the existing cities in part to protect the one great asset that the County has, its agricultural lands. This is actually fits with the preference of the voting majority in Davis as the clear preference is to protect farm land.

          The problem arises when the City refuses to accept responsibility for their share of the regional population growth. When that happens, the County’s direct recourse is to approve developments on County land adjacent to the City. That basically is what has happened in the past when the zero growth fanatics in Davis effectively blocked residential development and the County threatened to approve Mace Ranch on County land.

          Currently, the Pass Through Agreement is the only thing that prevents the County from acting in this manner again as I believe Measure R is only applicable to the City, preventing annexation of peripheral land, but does not prevent the County from approving development on that same land.

           

          1. Don Shor

            Maybe Davis, Woodland, and the county could get together and develop a nice innovation park on some of that Pescadero clay soil along 113.

          2. Don Shor

            Unlike Davis, Woodland has been updating their General Plan, with a series of workshops and public meetings and a dedicated web page on the topic.
            http://cityofwoodland.org/gov/depts/cd/woodland_general_plan_2035/default.asp
            There was quite a bit of controversy during the process when one scenario that was being seriously considered had a projected increase of 10,000 houses by 2035. A citizens group formed to try to limit that to 4,000 houses.
            https://www.facebook.com/choose4000
            Seems to me that if Woodland can go through this process, Davis can.

        6. CalAg

          “Currently, the Pass Through Agreement is the only thing that prevents the County from acting in this manner again …” @ Mark West

          Mark: Not true. If the City of Davis refused to provide water and sewer connections, any proposed development would be DOA. Given the increasing costs of such infrastructure, the project would have to be thousands of acres to pencil out without the City’s cooperation, which (of course) would be subject to referendum.  In addition, that type of development is now prohibited by the Yolo County General Plan. More recently, new water legislation makes it highly unlikely that a big new well-based water system on the border of Davis could get state approval.

          It would be smarter for Yolo County to establish a new City just outside the Davis and Woodland spheres of influence if they want to entitle new urban development.

          In the days of Mace Ranch, it was theoretically possible for a “small” 800 acre project to adsorb the cost of  their water and sewer infrastructure, but we’ll never know because the City (under Rosenberg’s leadership) never called the County/developer’s bluff. Was it a scare tactic expertly manipulated by Rosenberg, or a legitimate risk?

           

  5. CalAg

    Here’s the link to the staff report –
    http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/CouncilMeetings/Agendas/20151103/09-Redevelopment-Agency-Dissolution-Process-Update.pdf

    Steiner’s letter is appended at the back of the document (pages 09-10 thru 09-11).

    Greenwald has already quoted the relevant section:

    The Redevelopment Agency, the City of Davis and Yolo County entered into a Pass-Through Agreement that established the formula for the Redevelopment Agency’s tax- increment sharing with Yolo County. The Agreement provides the County with an allocation of property tax in excess of what it would receive if the Redevelopment Plan were not in effect. The Pass-Through Agreement provides, however, that the Agency may cease making its payments if the County approves urban development within the City’s Planning Area. The County Auditor-Controller has been distributing payments to the County based on the formula set forth in the Pass-Through Agreement since the dissolution of the Redevelopment Agency, and the County has not approved any urban development within the City’s Planning Area during that time. This is consistent with AB 1X 26 and AB 1484, which provide that the taxing entities should receive pass-through payments in accordance with existing pass-through agreements as if the Redevelopment Agency were still in existence. If, however, the County were to approve urban development within the City’s Planning Area, the City and Successor Agency would have the option to terminate the Pass-Through Agreement and the County would no longer be eligible for pass-through allocations under that Agreement.

    This is incredibly non-transparent. It appears to me that:
    (1) the City of Davis is continuing to provide Yolo County with >$3M per year
    (2) there is still >$60M to go under the terms of the pass-through agreement renewal
    (3) the money goes directly to Yolo County and never hits the City’s balance sheet
    (4) the leadership of the City has not been forthcoming in publicly disclosing this annual redistribution of the Davis taxpayer’s money

    It’s amazing that this isn’t being discussed in the context of the debates about upcoming parcel taxes.

    1. Matt Williams

      We may have our conflicts on other subjects CalAg, but we are in complete agreement on how the Pass-Through Agreement is handled. The four points at the end of your comment above are absolutely spot on.

  6. Robb Davis

    There remains much confusion at the state level (given seemingly contradictory pieces of legislation about RDA) about many RDA-related issues.  There are slowly being dealt with.  The fact is the State instructs County Auditor-Controllers to continue to distribute pass through monies.  The City, at this point, has no choice.  The original RDA dissolution bills did not deal with the issue of pass throughs but this is what is happening and has been happening.  The City’s pass-through agreement is set to expire in 2025 but could end earlier of the County breaks its terms.  Like all property tax money, it goes to the County first and is then redistributed.  It is (perhaps not surprisingly) difficult to determine the exact “loss” to the City of this process.  That information should be forthcoming and I am committed to finding out what it is.

    1. Matt Williams

      Robb, thank you for your continued follow-up on this issue. With that said, is there any accounting reason why the in and out accounting transactions for the Pass-Through Agreement aren’t easy to find in the current City Budget, or in any of the annual City Budgets since the Pass-Through Agreement went into affect?

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