10.10.06 Preliminary Results Scotia Annexation Study Audio

10.10.06 Scotia Annexation Preliminary Fiscal Impact Analysis

presented by Robert Spencer of MuniFinancial

Meeting Notes

The analysis was conducted based on three different scenarios: best case, status quo and worst case.  The latter included the assumption that Palco would shut it's doors and the resulting impact.  There were essentially two different analysis conducted; the first being the cities general fund and the second being the fire district.  The analysis did NOT include any assumptions about possible environmental clean-up costs, infrastructure condition or such.  Those things are expected to be addressed in the draft environmental impact statements, expected soon.  This analysis was pretty straight forward regarding tax revenue and service delivery costs.  The assumption was to keep the level of service that is currently being done in Scotia, which is considerably higher than the level of service in Rio Dell.  For instance, there are twice as many street lights in Scotia, the roads and public areas are maintained pretty well, etc.  Police protection however was based on the current level of service in Rio Dell.  The next assumption needed for the analysis was the assessed tax value of the homes which would affect the tax revenue.  For this purpose it was presumed that homes up to 1,100sq. ft. would assess for around $175,000, homes 1,100-1,499sq. ft. for $200,000 and homes over 1,499sq. ft. for $225,000.  Commercial property would assess for $100sq. ft and industrial property for $80sq. ft. 

Some of the major one time costs in the report included things such as 2,400sq. ft of office space needed for the 5.4 full time employees that would need to be added, park maintenance equipment, police equipment and a new fire engine to replace one of the Scotia engines that is quite old.  The Rio Dell Volunteer Fire Department currently has 22 firefighters, another 5.7 would need to be added.  Part of the problem with the merger of the fire districts is that an entire new station (with it's related costs) would be added while revenue would not increase by nearly enough to even begin to cover those expenses.  This is something that will have to be resolved in some manner or it could very well derail the entire annexation.  *the fire district will be having an annexation study session on 10.16.06 at 5:30pm at the Rio Dell Fire Hall.

The preliminary results for the general fund portion show that in the worst case scenario the city would be losing approx. $50,000 a year.  Status quo scenario has a less severe rate of loss and best case would pretty much be neutral  (see the power point presentation for the charts).  Robert Spencer stated his belief that the relatively minor losses associated with the status quo scenario would be worthwhile based on the increased benefit to the citizens of Rio Dell.  These benefits include the addition of a parks and recreation system where none currently exists in Rio Dell.  The ball field, the riverside park and the recreation center would certainly be a nice addition to Rio Dell.

The fire district results however are negative in all three scenarios.  The costs would double with the addition of the new fire station but the revenue would only increase a relatively small amount.  When the revenue is divided by the costs, there is a 60-80% deficit, roughly a $70,000 yearly loss that would need to spread over the roughly 300 homes in Scotia.  This means that a special fire district tax assessment would be required and according to Spencer it would require a significant tax increase on those homes.  According to California law, a special tax district has to be approved by the property owners which would be only Palco at this point.  The annexation is going to be dependant on finding a solution to this problem since, according to City Planner John Miller, LAFCO is unlikely to approve any annexation that will result in these kinds of financial losses.  You can forget about "revenue neutral" here.  A tax assessment district will have to be established prior to the annexation being presented to LAFCO.  Special tax assessment districts are pretty commonplace with new developments in California.  MuniFinancial has experience with designing these assessments for other developing areas of California.  I asked Spencer if these assessments have been able to cover the very large deficit we are talking about in this case.  He stated that it would not cover the entire losses since you can not tax the properties so high that the sale of the property is negatively affected.  In addition to the tax assessment, things such as Palco covering some of the large one-time expenses or the city leasing equipment or office space would need to be considered.  The fee's charged at the Rec. Center could be significantly increased to help cover those expenses.  There could also be a special benefit tax district (in addition to the fire district) on the homes in Scotia to help pay for the ball field, street lights, road maintenance and such.  These are the types of solutions that are on the table and will need to be negotiated between Rio Dell and Palco in order to make the numbers work.

*The recent articles in the Times-Standard and The Eureka Reporter about this meeting painted a rosier picture than was actually presented, in my opinion.  The three scenarios presented for the general fund showed only the best case scenario resulting in the desired "revenue neutral" category.  The relatively minor losses associated with the status quo were deemed to be manageable when balanced against the overall benefit to the residents.  The real financial impact can't be known without having the analysis of the current infrastructure and the possible environmental clean-up needed.  Don't forget that the environmental analysis will only be conducted on the property that would become the cities, such as the roads and public right-of-ways.  The mill property will not be looked at unless Winzler and Kelly decides to expand the analysis to trace any leaching.  Despite Palco's assurances that they have tested their mill property and there were no problems found, that is hard to swallow considering the experiences of so many long time employees (some of whom have stated their personal involvement in dumping things such as asbestos at the mill property).  If the annexation were to go forward and then Palco closed their doors, would the city be left holding a possible toxic clean-up site?  I would imagine that Maxxam has smart enough lawyers to shield the parent company from any lawsuits resulting from such a scenario, so where would that leave Rio Dell?  Nobody wants the mill to close but as everyone around here knows, there is always that possibility and it must be carefully examined.  Part of the annexation agreement with Palco could address this concern with some type of monetary set-aside for the exclusive purpose of covering any unforeseen expenses in the future.  Perhaps a portion of the proceeds from the sales of the properties would be appropriate.  This set-aside could be returned to Palco after a period of time if it is not needed for the specified purpose.

I encourage everyone to attend the annexation related meetings and voice any concerns or possible solutions.  Now is the time to speak up and get involved in the process.  This affects every one of us and there is no excuse for holding your tongue and just hoping for the best.  Your council members need your input and involvement, it is not fair to them to complain about their not listening to the citizens if you don't speak your peace long before any agreement is crafted.  Residents of Scotia in particular need to be involved in this process.  There will have to be a substantial tax imposed on those properties prior to any annexation to cover the large losses associated with fire protection and such.  If you are a resident of Scotia and for whatever reason you don't feel comfortable speaking up in the public meetings, then contact a council member directly and speak your peace.  They need to hear from you!

-Sharon