Report Prepared by: Craig J. Cornwell, City Attorney
Title
SUBJECT: Adopt Resolution 2026-48 Approving the First Amendment to the Property Tax Sharing Agreement with the County of Merced
REPORT IN BRIEF
Considers adopting a Resolution approving the First Amendment to the Property Tax Sharing Agreement with the County of Merced. The First Amendment extends the term of the Agreement for three (3) additional years, with all remaining terms and conditions remaining unchanged.
RECOMMENDATION
City Council - Adopt a motion adopting Resolution 2026-48, a Resolution of the City Council of the City of Merced, California, Approving the First Amendment to the Property Tax Sharing Agreement with the County of Merced, Dated August 16, 2016.
Body
ALTERNATIVES
1. Approve as recommended by staff; or
2. Approve, subject to modifications by the City Council; or
3. Deny.
AUTHORITY
Charter of the City of Merced, Section 200. State of California Revenue and Taxation Code.
CITY COUNCIL PRIORITIES
Economic Development.
DISCUSSION
The California Revenue and Taxation Code requires cities and counties to enter into a property tax sharing agreement before the Local Agency Formation Commission (LAFCO) may consider an application for annexation. Without a valid agreement in place, the City would be unable to process future annexations through LAFCO.
The City of Merced and the County of Merced are currently parties to a ten (10) year Property Tax Sharing Agreement that was approved on August 16, 2016. The agreement expires on August 16, 2026.
The City and County have maintained property tax sharing agreements since 1980. The original agreements remained in effect until 1995, followed by a new agreement executed in 1997 that expired on December 31, 2014. The current agreement, approved in 2016, established the following property tax sharing provisions for annexed territory:
• The City receives 100% of the property taxes that would otherwise be allocated for County Fire Services.
• The City receives 100% of the property taxes that would otherwise be allocated to the County General Fund, less the City's Educational Revenue Augmentation Fund (ERAF) share.
• The City reimburses the County 63% of the post-ERAF property tax revenues attributable to the County General Fund for County services provided to City residents.
• The resulting net distribution allocates approximately 53% of the property tax revenue to the City and 47% to the County.
As stated above, the current Property Tax Sharing Agreement expires on August 16, 2026. Action by the City Council is necessary to ensure the agreement remains in effect and to avoid any interruption in the City's ability to process future annexation applications through LAFCO.
Recommendation
Staff recommends approval of the First Amendment to the Property Tax Sharing Agreement. The First Amendment extends the term of the Agreement through August 16, 2029. All remaining terms and conditions of the Agreement remain unchanged. This approach provides continuity for future annexation activities while allowing the City and County an opportunity to reevaluate the property tax sharing formula before committing to a longer-term agreement.
IMPACT ON CITY RESOURCES
Extending the Property Tax Sharing Agreement will allow the City to continue processing annexation applications through the Local Agency Formation Commission (LAFCO). Future annexations support economic development, expand the City's tax base, and generate additional property tax and other municipal revenues.
ATTACHMENTS
1. Resolution and Property Tax Sharing Amendment
2. Current Property Tax Sharing Agreement