Receive a presentation addressing a request from Dunnigan community representatives for County financial support and other resources to sustain and enhance fire protection, other community services, and infrastructure; provide related direction to staff. (No general fund impact) (Pogledich) (Est. Time: 10 min)

This item responds to a request by the Dunnigan Fire Protection District (Dunnigan FPD or District) to consider creating a community service district (CSD) to provide enhanced fire protection, infrastructure, and other services in the Dunnigan area. Supervisor Barajas asked for staff to develop a Board item addressing this request and, at the suggestion of the County Counsel, he agreed that the item should also generally special district governance and revenue strategies for enhancing services in rural communities.

The Dunnigan FPD request arose from circumstances that are familiar in many rural communities but particularly acute in economically disadvantaged areas. The District’s fire chief asserts that limited revenue, high service demands, and lack of community support for a special assessment (which was rejected by a substantial margin) place the District in a challenging financial position. The fire chief expects that additional efforts to establish a special assessment will be unfruitful, and County staff have long acknowledged that such revenue-raising efforts are more challenging in disadvantaged communities. And while the District has a development impact fee that helps with facility-related burdens arising from new development, development impact fees do not cover the cost of staffing or many other ongoing service costs.

Together with the chair of the local general plan advisory committee, the chief asked County staff and Supervisor Barajas to examine ways to support the District while also addressing broader service and infrastructure needs—including deficient roads, drainage, and parks, among other concerns—of the Dunnigan community. Suggestions included the creation of a community services district, a sales tax sharing agreement with the County for new development, and potential changes to the scope of the existing County Service Area in Dunnigan.

This staff report addresses these suggestions and introduces additional strategies for addressing the concerns raised. While the following discussion uses the Dunnigan example to explain various strategies and how they can be implemented, the strategies can be used in any of the County’s rural communities. The conclusion of this staff report highlights key issues that require or would benefit from Board direction.

 A.        Governance and Revenue—General Considerations.
The County has several community service areas (CSAs) that provide public services—typically, water and wastewater services—in discrete geographic locations. The County also has two CSDs that do essentially the same thing in Esparto and Knights Landing. CSAs and CSDs each raise revenue from charges (typically, special assessments) paid by the local community for the services provided, but CSAs and CSDs can also generate revenue through special taxes. A key difference is that CSAs are governed and administered by the County, while CSDs are independent of the County and are governed by community members that serve on their governing boards and hire staff or consultants to perform the work of the CSD.

An initial challenge with the Dunnigan request is that creating a CSD would not, by itself, create new revenue or other resources to aid in addressing service and infrastructure deficiencies. A new CSD in Dunnigan, therefore, could be created to provide fire protection and address other community service and infrastructure needs, but its revenue would initially be limited to the Dunnigan FPD property tax increment. Ordinarily, a special assessment (or possibly, special tax measure) would be the leading strategy for generating new revenue. But as illustrated by the unsuccessful effort to obtain community approval of a new special assessment, efforts to fund a new CSD through a special assessment or tax measure--particularly in an economically disadvantaged community—face a daunting path.

With some input from the District fire chief and local general plan advisory committee chair, staff have evaluated several other ways to support local fire protection and new or increased community services. Each is addressed in turn. The following discussion does not suggest or propose any changes to the current practice of allocating County general fund revenue for fire protection districts during the annual budget process. Instead, all the strategies discussed below are intended to supplement the existing policy.

B.         Sales Tax Sharing.
Sales tax sharing, in concept, could occur either (1) on a perpetual (ongoing) basis to support district operations generally or (2) through limited-term agreements with specific, defined objectives. Both options are considered in turn.

The District fire chief proposed that the County consider sharing a portion of any new sales tax revenue generated by the Dunnigan Truck and Travel Center, an approved project expected to break ground in 2025. The project divides a 100-acre parcel for development and operation of a truck and travel center, with vehicle fueling and charging, a convenience store, restaurants, a truck dealership, truck repair and servicing, travel-related retail, a 60-room motel, and overnight parking for trucks. To support an expected increase in calls for service and other related District needs, as understood by staff, the fire chief is proposing (among other ideas) that County sign a binding agreement similar in nature to the property tax sharing agreements negotiated for city annexations of unincorporated area lands.

The Office of the County Counsel does not believe that the County can contract to perpetually share sales taxes in this manner. State law authorizes sales tax sharing agreements between cities and counties in very limited circumstances. Nothing in state law, however, authorizes a sales tax sharing agreement between a county and a special district. Further, because such an agreement would create an ongoing constraint on the fiscal and budgetary discretion of the Board of Supervisors, it would likely violate established principles that restrict “contracting away” aspects of the Board’s legal authority and thereby restricting the powers of future Boards.

These restrictions would not, however, prevent the County from entering into specific, limited-term contracts with a fire protection district to provide enhanced services, hire staff, purchase equipment, or for other specific purposes. In effect, this is what the County has been doing since the Board of Supervisors initially authorized up to $1.5 million in general fund support for local fire protection districts in 2023 (Attachment A). The Board’s discretionary policy of providing general fund support through the annual budget process is implemented through district-specific agreements with specific tasks or objectives, and the same basic approach could extend to new sales tax revenue within districts impacted by new development.

If the Board would like to further consider this approach, staff recommend a future Board item to explore potential advantages, disadvantages, and related policy options. For example, issues such as how to measure “new” sales tax revenue, when to consider allocating it to a fire protection district (or other special district), and how it could effectively supplement other forms of County support (such as the annual dedication of general fund revenue) are among the issues that would require careful consideration if the Board were to develop a policy of general application. Alternatively, the Board may consider "new" sales tax revenue sharing through contracts with a defined scope on an ad hoc basis. However, establishing a clear policy would help limit requests and provide a structured framework to guide staff analysis and Board deliberations.

As a final note, staff acknowledge the possibility of a future County sales tax measure that could potentially provide a revenue stream to help support fire protection districts and other community services. A successful countywide 2024 ballot initiative in Sonoma County established a 1/2 cent sales tax to support local fire protection, prevention, emergency paramedic services and disaster response--it is expected to generate about $60 million annually for those purposes. Any such measure in Yolo County would generate much less revenue because of the smaller tax base and, by restricting the revenues to specific purposes (as with any special tax), other significant non-enumerated County service and infrastructure needs could not be addressed. This staff report does not propose discussion of a sales tax measure on March 25 or seek any related Board direction.

C.         Development Agreements.
Development Agreements are a means of obtaining additional benefits from a new development project, beyond what the County (or a CFD) can legally compel, in exchange for “vesting” the right to build a project in accordance with laws and regulations existing at the time of approval. Development Agreements cannot be compelled, but most developers will negotiate a Development Agreement if they believe it will help—or be essential to—the approval of their project.

While the “sky is the limit” in a Development Agreement, in practice it is often difficult to negotiate substantial community benefits and the scope of an agreement is influenced greatly by the scope of the project (and the developer’s expectations on profitability, which can be hard to assess). Small projects support very modest Development Agreements, as a general rule. Accordingly, this approach will also have its limits but it should be used wherever possible to address existing deficiencies in fire protection or other local services and facilities.

D.         Community Facilities Districts and Mello Roos Taxes.
The final option evaluated for this staff report has not been previously used by the County aside from the Davis Library special tax but, in the judgment of staff, deserves careful consideration in connection with any significant future development proposals: creation of a community facilities district (CFD) and associated “Mello Roos” special tax measure to create additional revenue—beyond property and sales taxes—to support new public facilities and services.

Put simply, despite the “district” nomenclature, a CFD is not a public agency or entity but rather a financial instrument to generate revenue for public facilities and services. CFDs provide an alternative method of financing certain public facilities and services, especially in developing areas and areas undergoing rehabilitation. Virtually any public agency, including the County and special districts (including a CSD, CSA or fire protection district), can create a CFD by a two-step resolution process and without any action by LAFCO. Once a CFD is established, parcels are annexed into it and become subject to special taxes, which are approved through a landowner vote during the development process (often just by the project proponent as the sole affected landowner) and levied on the annual tax roll. A financial consultant develops the rate and method and apportionment for the special taxes, and there is considerable flexibility in setting rates. The resulting taxes are then passed on to the businesses and homes built as part of the development and provide ongoing revenue (rather than one-time, as is typically the case with a Development Agreement) to support the facilities and services necessitated by the project. The entity creating a CSD governs it, which for practical purposes means it controls the use of the special tax revenues.

Compared with other options discussed herein, a CFD and related special (Mello Roos) taxes possess the following general advantages:

For these reasons, staff recommend further evaluation of the potential creation of CFDs and related special taxes in connection with any significant future development proposals. Such opportunities may come along rarely and the initial burden of establishing a CSD likely precludes using it for smaller projects. But a General Plan policy or other "institutionalized" means of ensuring that a CFD receives careful consideration during the development process is strongly advisable.

TOPICS FOR BOARD DIRECTION

At the close of the presentation on March 25, the Board is encouraged to provide feedback on at least the following topics: