BOS Agenda Date :.Januaiy 10, 2CiO(5

County of Santa Clara
Board of Supervisors
Supervisorial District Four
Supervisor James T. Beali, Jr.

TEAREF1.10.06

DATE:

January 10, 2006

TO:

Board of Supervisors

FROM:

James T. Beall, Jr.

Supervisor, District 4

Liz Kniss

Supervisor, District 5

SUBJECT: TEA agreement with the cities of Los Altos Hills, Cupertino, Saratoga and Monte
Sereno

RECOMMENDED ACTION

Direct Administration to meet with representatives and consultants from Los Altos Hills,

Cupertino, Saratoga and Monte Sereno to discuss their current TEA agreement with the
County of Santa Clara and explore the possibility of developing a mutual beneficial
amendment that will allow the cities to offer other agreements for services with the County in

exchange for their TEA funding and forward recommendations to the Finance and
Government and Operations Committee for review.

Board oi"Supervisors: Donald F, Gage, Blanca Alvarado, Pete McHugh,Jim Beall, Liz KnIss
County' Executive: Peter Kutras Jr.

BOS Agenda Date January 10, 2006

FTSCAT. TMPT JCATIONS

This action could reduce County revenues, however, it is anticipated that any loss will be

offset by service and project agreements with cities. The report back will include potential
costs.

REASONS FOR RECOMMENDATION

This recommendation will allow the County to explore an agreement with these four cities,

with the goal of rectifying this funding inequity in a way that is satisfactory to the County.

These four cities currently contract with the County for several key services within their
communities. These include, but are not limited to, contracting for Sheriff, Disaster

Preparedness and Library Services. In addition, the cities have worked with us in recent years
to annex County pockets and reduce our costs of servicing these neighborhoods under a good
government approach. All of the cities have expressed a willingness to discuss other

agreements for services with the County in exchange for their TEA funding. They understand
the County's financial picture and are interested in a win—win situation as a result ofthese

meetings. To encourage discussion along these lines, the cities have prepared a list of potential
services and funds that they would be willing to provide to the County in exchange for the
TEA funds (see attachment A).

We have requested that this item be referred to staff so that they might review the cities'

proposals and develop a County list of proposed services. Ifthese negotiations prove fruitful,
the state legislature will need to enact legislation changing the TEA formula for these cities.
Several legislators have offered to assist in this effort. In order to meet legislative deadlines,
the cities and County must develop a tentative agreement by early this year that they can

present to the legislature for passage in 2006. It is recommended that the legislative process be
allowed to proceed so that any agreement could be put in place in 2006.

RACKGROUND

When Proposition 13 passed in 1978, it froze property taxes at their current levels. This action
created significant problems for cities that at the time had low property tax rates, because they
couldn't raise those rates to meet their community needs. In Santa Clara County,four cities

Board of Supervisors; Donald F. Gage, Blanca Alvarado, Pete tvlcHugh, Jirn Beall, LizKniss
Counti' Executive: Peter Kutras Jr.

BOS Aaencla Date January 10, 2006

were significantly below the average rate: Los Altos Hills, Cupertino, Saratoga and Monte
Sereno.

Section 98 ofthe California Revenue and Taxation Code was passed to correct this situation,

giving qualified cities what is referred to as Tax Equity Allocation(TEA). Ifthe County
accepted trial court funding, it also had to provide at least 7% ofthe property tax to its cities.
Santa Clara County told its TEA cities that the amount ofrevenues the County would receive
from trial court funding would not offset the amount it would lose by bringing its TEA cities
up to 7%.

Consequently, State Senator John Vasconcellos, representing much of Santa Clara County,
authored an amendment which limited the four TEA cities in Santa Clara to just 55^ of what

other TEA cities in the state received;(55% ofthe 7% floor ofthe 1% of assessed valuation).
The four TEA cities in the Santa Clara County are the only cities in the state disadvantaged by
this legislation.

The amount of money lost each year, while amounting to just 2/10 of 1% ofthe County's
budget, is significant to these small cities. In recent years these cities and the County have
made several attempts to change this formula, but these efforts were unfruitful largely because

the County was concerned about losing this revenue stream during a period of fiscal restraint.
The last attempt was in 2001, and though the cities and County were unable to reach
agreement, they agreed to revisit this issue when everyone felt it was possible to create a
win—win solution for all parties.

Understanding this, the cities recently decided to take a different approach. Given the
inherently political nature ofthis issue, they have decided to focus on the development of an

agreement between County Supervisors and elected officials from each city. It is felt that this
approach would focus less on budget items and more on larger policy issues that need to be
resolved for an agreement to take place.

While the cities understand the County's reluctance to change current policy, they feel it is
possible to change the TEA formula in a way that is fair to the County.

Board of Supervisors: Donald F. Gage, Blanca Alvarado, Pete McHugh, Jim Beall, Liz Kniss
Count/ Executive: Peter Kutras Jr.

BOS Agenda Date January 10, 2006

CONSEQUENCES OF NEGATTVE ACTION

Trends in government funding and rising costs of providing service have necessitated the need
for partnerships at the regional and local levels. The future will bring increased needs for such
agreements between agencies to leverage both funding and service delivery — and to show our
citizens that we provide efficient and effective government. The County has been very
successful in the past in providing public safety, library, and other services to these
communities. In return they have been cooperative in sharing street maintenance, park
improvements and residential services. Failure to meet with the cities to negotiate a beneficial
outcome for all agencies may jeopardize this partnership philosophy that has been so
beneficial.

STEPS FOLT.OWTNG APPROVAL

County staff will meet with city representatives and consultants, to explore the possibility of
developing a mutually beneficial amendment to the current TEA agreement with the cities for
consideration by the Finance and Government Operations Committee. Any legislative action
that needs to occur should also be discussed in the meeting.
ATTACHMENTS

•TEA.History
• AttachA

Board of Supetvisors: Donald F. Gage, Blanca Alvarado, Pete McHugh, Jirn Beali, Liz Kniss
County Executive: Peter Kutras Jr.

coy^

County of Santa Clara
Office of the County Executive
county GQvemnnent Center. East Wing
70 west Hedding Street
San Jose. California 951 to

(408)299-2424

CO

TO:

DAVE ANDERSON,SARATOGA CITY MANAGER
DAVID KNAPP,CUPERTINO CITY MANAGER
MAUREEN CASSINGHAM,LOS ALTOS HILLS CITY MANAGER
BRIAN LOVENTHAL,MONTE SERENO CITY MANAGER

FROM:

RICHARD WTITENBERG
COUNTY EXECUTIVE

DATE:

JUNE 28,2001

SUBJECT: TEA HISTORY

I think we had a good meeting recently about the TEA issue and reached some
understanding about each other's perspectives. You asked the Coimty to
chronicle the history of this issue to Ell in some gaps for you.I hope the
following achieves that end.

The first Trial Court Funding Legislation was passed in 1988 and provided for
over $400 million in State revenues to partially fund the trial courts which,up to

that time,had been funded solely by counties. The State acknowledged fhat in
fact these courts were State courts and that coimties should not have to bear the

burden.They also acknowledged that coxmties had significant fiscal problems as
a residt of ballot and State action and the Trial Court Funding measure was an

attempt to provide some relief.Twenty of the smallest counties had their entire
trial court costs bought out by the State and the rest were told that the 1988

legislation was a down payment and that additional costs would be picked up by
the State in the future.

Language was added to the legislation as it was progressing that provided for
payments from covmty property tax dollars to cities that were considered no
and low property tax cities". These cities were defined as those that after
Proposition 13 had a property tax rate of less than ten percent. The cities in Santa
Clara Coimty were Cupertino,Saratoga,Los Altos Hills and Monte Sereno. The
other cities were primarily located in Los Angeles County and Ventura Coimty.
The amendment required that counties begin transferring some of their property
BooKl of Supervisors: Donald F. Gage. Blanca Alvarodo. Pete McHugh. James T. Beall Jr.. Liz Knlss
Couniy Exccuiivc; Richard Wliienberg

©

taxes to these cities to bring them up to a seven percent property tax rate over
time.

Our argument at the time against this amendment was that all of these cities
were "contract cities". The four cities in this County contracted with ths Sheriff

for police services,which costs less than operating their own police departments.
Also,these cities were part of the Central fire District. If you added the Fire
District tax rale to the cities' rates,they would all be well over the ten percent
and consistent with the other dtieis in the coimty.(Attachment 1 shows cnirrent

rates.)Counties were not successful in their arguments and the legislation passed
with the TEA amendment.

After the legislation was signed,the Coimty Executive met with the City
Managers of the four cities to determine if they were amenable to minimizing the

impact of the TEA property tax transfer.It was pointed out that the County's
property tax rate of 26% was below the 33% average for counties.(This disparity
remains since the ERAF transfer.) After several discussions,the cities agreed to

accept 55% of what the chaptered legislation said they were entitled to and
agreed to support new legislation that would provide for that in Santa Clara
County. That legislation was enacted with the cities' support in 1989 and the
TEA transfer was phased in as required.In the current fiscal year,over $3 million
in County property tax revenue was transferred to the four cities.

I want to emphasize that in addition to the TEA revenue received by the cities,
the cities have received some additional benefits from the County:

• Statute requires that a TEA transfer be reduced dollar for dollar by any
amoimt of tax revenue eliminated by that dty. The City of Saratoga voters

eliminated their utility users tax of approximately $ 730,000.Instead of
completely eliminating the TEA transfer in the applicable year,the County
offered to reduce the transfer in three steps of33% each over three years. This
saved the City $730,000 and cost the County a like amount.

• Later, when the voters of Saratoga approved a bond issue for the new library,
the Coimty did not oppose legislation which allowed the former utility tax to

be replaced with debt service revenue and reinstated the TEA transfer. This
will cost the Coimty $730,000 per year as long as the annual debt service
equals or exceeds that amoimt.

• Through a miscalculation on the part of the County,the ERAF shift for the
TEA cities was backfilled by the County for several years,costing the County
$2.6 million.Instead of recovering the overpayment,the County decided to
forgive the overpayment and let the TEA cities keep the $2.6 million.

• When the local fire districts,including Saratoga,Los Altos,South County and
Central Fire, were threatened with a significant loss in property taxes,the
County made forgiveness legislation its highest legislative priority for two
years. That effort saved the fire districts approximately $13 million."Hus was
of direct benefit to the TEA cities which all depend on these fire districts.
I believe we all left the meeting with the understanding that the Coimty would
be supportive of efforts that could help the cities, but not at the expense of the

County. We would be happy to work with you to achieve greater financial
stability for your cities and the Coimty.
Attachment

cc

Jane Decker,Eteputy Coimty Executive
John Guthrie,Director,Finance Agency
Dave Elledge,ControUer-Treasurer

City

1 TEA City

TRA

Acct

City/Fire Share of Tax
Detail

Total

Campbell

010-006

00901

0.1334945646

0.1^334945646

Gilroy

002-001

01901

0.1293115351

0.1293115351

Milpitas

012-003

03401

0.1803140611

0.1803140611

004-001

03901

0.1379574134

0.1379574134

Mtn. View

005-001

04401

0.2003815069

0.2003815069

Palo Alto

006-014

05001

0.1202294931

0.1202294931

San Jose

041-341

05401

0.1951868061

0.1951868061

Santa Qara

007-007

05905

0.1189250867

0.11«9250867

Sunnyvale

009-000

06403

0.1641434793

0.1641434793

Los Altos w/Fire

011-001

02401

0.1506466341

0.1506466341

Los Altos no Fire

011-069

02401

0.0487583767

011-069

23036

0.1156506350

013-003

01401

0.0223600481

013-003

23018

0.1509126349

003-001

02651

0.1204020765

003-001

23018

0.1312962427

014-010

02601

0.0432236156

014-010

23036

0.1025226624

016.001

03801

0.0082698844

016-001

23018

0.1461492938

015-001

06101

0.0335164787

015-001

23018

0.1424287534

Morgan Hill

j

Fire]
Cupertino

Yes

Firel
Los Gatos

Firej
Los Altos Hills

Yes

Fire]
Yes

Monte Sereno

Firej
Saratoga

Yes

Firej

0.1644090117

0.1732726830

0.25,16983192

0.1457462780

0.1544191782

0.1759452321

6/13/01

11/3/200511:37 AM

-7231850.xls - 6 years'summary

tea Transfer per AB 8 Calculation
Cupertino
AB8 before TEA

Current TEA @55%
AB8 after TEA
IfTEA@100%

Gounty additional toss if

a

b
c=a+b
d

e=b-d

FY0203

FY0304

FY0405

FY0506

FY0102

FY0001

$ 1 666 059 $ 1,551,326 $ 1,501,565 $ 1,438,210 $ 1,404,304 $
$ 2',719',363 $ 2.511,868 $ 2.428,899 $ 2^71,590 $ 2,186,814 $ 1,910,/45

$ 4,385,422 $ 4.063,194 $ 3,930,464 $ 3,709,800 $ 3,591,117 $—3,135,389

$ 4,9445a9i6 4,567,033 $ 4^416,479.. $ 4;lS0,t64 $ 3,976;025 $
$ (%224i9b);: $ ■(2,055,165) $ (1,987;281), $ (a-,858,574) $ (1,789,211) $ (1,563,337)

TEA @10(5%

Los Alto Hills

AB8 before TEA

Current TEA @55%
AB8 after TEA

a

b
c=a+b

$ 1,349,087 $ 1,226,706 $ 1,131,875 $ 1,059,022 $ 1,034,524 $ 849,059
$ 500j>26 $ 456,535 $ 421j>83 $ 396,319 $ 381,417 $ 313,976
$ 1.850,014 $ .1,683,240 $ 1,553,858 $ 1.455,341 $ 1415,940 $ 1.163.035

e=b-d

$
$

AB8 before TEA

a

$

57,586

Current TEA @55%

b

$

399,233

L

c=a+b $

456,819

$

If'FEA

100%

CbiintyidditibnaHbss if
tea:

d

■ .830i063, .$ 767^241 t 720;579: $
(40^8495^^; ■ , (373,528) $ (345i2^$ir$ ' (324^2^17 $

693^485 $ , .W66
(3T2;068) $. (256v890)

100%

Monte Sereno

AB8 after TEA

IfTEA @lOO%
d $
CoubtyadaitionaHossif e=b-d $

$

725,878.,. $
(326,645). .$

52,121

$

45,612
315,441

49,271

340,786

$

43,932
301,595

36,792
252,000

360,606 $_
412.727 $_

390,056 $

361,053 S

345,526 $

288,792

655,646 $
(295,041) $

619.610' $'
(278,825) $

573,530 $
. (258i088) . $

548,354 $:
(246,759) $

458,181

^

$

1,604,068 $

1,550,284 $

1.318,576

(206,182)

TEA @100%

Saratoga

C«iStTOA@55%
AB8 after TEA

b $ i!532',918 $ M92;602 $ ^08,728 $ 1^220,4g $ ^56,947. |

c=a+b $ 3.545,294 $ 3.219;780 $.. 3.027,470 .$ 2,824,537 $ 2,707,231 $ ^895,820
A

<t o 7117 101 "S 2 532 003 $ 2 379,506 $ - 2-i219i035. $ 2,T03j540 $ 1;049i534

TE A @100 %

Santa Clara County - tax loss to TEA cities

i (™, , (3.me33, .
TEA @100%

::\DOCUME-imNE~1.DEC\LOCALS-1\TempUotus.Notes.Data\[-7231850.xls]6years'summary
s:\PT\Tax Agencies\CITIES\&[File] \6 years' summary

Attachment A

DRAFT Deal Points

Assume maintenance for Creston area and Stevens

Canyon Road; annex Creston, if possible politically;
Cupertino

51,000

annex Quarry area; assume maintenance for Stevens
Creek County park; take over library or assume
some/all library costs
t

Expand senior and recreation services and funding

Los Altos Hills

8,000

Monte Sereno

3,800 the amount of TEA funds; fund storm drain expansion

3-5 yr road/storm maintenance contract for at least
or other specific County project benefiting the city
Give CDBG funds back to County; restore cuts to

Sheriff's Office (2 traffic deputies, DARE and School
Resource Officers) Assume routine road maintenance
on Mt. Eden Rd. form Villa Oaks to City Limits and
Saratoga

30,000

Bainter Rd. City limits to Redberry Rd and Redberry
from Bainter to end. Take over signal Maintenance at

Lawrence Expressway at Saratoga Ave. Also roadside
litter and landscape maintenance along Lawrence with
In the City limits)

Some cities already give their CDBG funding to the

County, this practice could be reviewed and expanded;
cities will consider "maintenance of effort" contracts

with County in which the County might provide
General

services that are currently performed by other
entities; Cities will also consider other County

proposals on a case by case basis. It must be noted
that all projects in this list are for discussion only, and
do not constitute a commitment on the part of any
city.

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