After 12 long months, the City of Fresno is once again expanding.
The delay, though coinciding with the coronavirus pandemic, wasn’t caused by the outbreak of a virus.
Rather, the expiration of an 18-year-old contract between the City and County of Fresno over how to split the pie of property tax revenues from freshly-annexed properties has left homebuilders alike in a lurch.
That includes Eddie Fanucchi, the owner of a property in west Fresno who is seeking to build roughly 500 housing units on 89 acres of land in the area between W. Ashlan Ave., N. Polk Ave., W. Shields Ave. and N. Bryan Ave. in the midst of a housing crunch in California and the San Joaquin Valley.
Fanucchi, city, and county officials spent much of the past year attempting to shepherd his parcel through the initial stages of annexation without the two government agencies having a master tax sharing agreement on the books.
“Without the tax sharing agreement in place, we are not able to annex this property,” Fresno Mayor Jerry Dyer explained to the Fresno City Council on Thursday. “Ultimately what we end up doing is holding a developer hostage, if you will, who’s trying to build new homes.”
Under the expired deal, the City of Fresno receiving 38 cents of every property tax dollar on new properties annexed from the County, while the County received the other 62 cents per dollar.
In 2020, that didn’t sit well with Fresno City Council members and then-Fresno Mayor Lee Brand. Fast forward one year and Dyer is in the same boat.
“We don’t believe the 62 percent share on annexation is fair,” Dyer said, noting infrastructure and public safety demands serviced by the city budget.
Last week, the Fresno County Board of Supervisors unanimously approved a project-specific tax sharing agreement for Fanucchi’s property.
The deal, negotiated between the two sides, maintained the old tax sharing agreement split but required the City of Fresno to assume control and maintenance of key roads surrounding the new development.
“It didn’t answer all of their demands, and it didn’t answer all the questions regarding the big picture tax sharing agreement, but at least we’re sending the signal that Fresno County – we’re willing to move forward,” Fresno County Board President Steve Brandau said at a press conference last week.
A fight over roads
The condition to assume control of roads prompted fresh questions from two Fresno City Council members – Esmeralda Soria, whose district would assume the new development, and Miguel Arias.
“If you read the tax-sharing agreement – it doesn’t tell the full story of what else is going to happen in that region,” Arias argued.
At the top of the list? With new roads to pave and maintain, how would the city pay for it?
“I’d like to hear from the administration if we’re going to take ownership of these county roads, is the administration going to recommend American Rescue funds to go fix those county roads, or are we going to take it from Measure C, or the SB 1, or the general fund?”
Tim Orman, chief of staff to Mayor Jerry Dyer and the city’s principal negotiator with the county on the deal, quickly interjected in the back-and-forth between Arias and Soria.
“None of the above.”
Fresno’s municipal code requires revenue neutrality for development. In simpler terms, development must pay for itself.
The agreement governing this new project, for which the City of Fresno assumes control and maintenance of key roads around the properties, coincides with an agreement struck between City officials and Fanucchi to create a new, second community facilities district (CFD) governing the property to generate funds for on-going public safety services in the area.
CFDs, as enabled by the Mello-Roos Act, enable municipal governments to form special taxing districts to fund additional local infrastructure needs and public services.
Typically, residents within a CFD have their taxes appear as a line item on their property tax bill along with municipal and school bonds.
The pair of CFDs not only closes the gap to paying for road work and public safety expenses, Dyer and Orman told the Council, it leaves the city in a better situation than many would anticipate.
“The second CFD is going to give us more money – or equal amount – as if we had flipped this amount to 62 percent for the city,” Dyer noted.
Checking City vs. County perspectives
Despite the rosy projections laid out by Dyer, Arias was unconvinced and worried about the on-going precedent being set by County lawmakers.
“What the county did is – a bunch of cowards in my view,” Arias interjected. “They passed [the agreement] 5-0 because they’re forcing us to pass on the cost to the residents. It doesn’t cost them a penny out-of-pocket. They’re forcing us to increase the cost of housing to homebuyers.”
Fresno City Council President Luis Chavez chimed in, tendering the perspective of Fresno County.
“You look at [the County’s] pension obligations of over a billion dollars, I can assure you that every single penny that they factored into this revenue sharing agreement is factored into their expenses,” Chavez said.
The true elephant in the room, Chavez added, was the fact that Fresno County has a so-called “Me Too” clause for tax sharing agreements with its cities.
If Fresno gets an increase in its share via a still-to-be negotiated master tax sharing agreement, all 14 other Fresno County cities get the same increase, leading to harsh budget shortfalls for the County of Fresno.
“We’re going to have to come to terms with reality, what we can actually do,” Chavez said.
For Chavez, Thursday was an opportunity to clarify the City of Fresno’s position relative to continuing or halting expansion for builders and county leaders.
Where do future projects, negotiations go from here?
“I don’t know of any other one-off projects that are in the works,” Dyer said. “And it would be my hope that this is will be the last.”
Dyer estimated that the two sides may be able to come to a master tax sharing agreement in the next 90 days.
“I’m going to hold you to 90 days,” Soria replied. “Because that’s what you told us at the beginning when you came into office – 90 days.”
Eight months after taking office, Dyer summed up the situation as it takes two to tango.
Shortly after issuing his 90 day countdown, Fresno lawmakers approved the one-time tax deal unanimously enabling the property to continue the annexation process into the city limits.