County Of Sonoma Agenda Item Summary Report Department: Permit and Resource Management Department Name and Phone Number: Pete Parkinson - (707) 565-1925 Board Date: 11/8/2011 4/5 Vote Not Required Deadline for Board Action: AGENDA SHORT TITLE: Williamson Act Contracts Implementation of Shorter Contract Term per AB 1265. REQUESTED BOARD ACTION: 1. Adopt the attached resolution to implement AB 1265 by converting all Williamson Act contracts from 10 years to 9 years and take related actions; 2. Direct staff to provide mailed notice to all contract holders advising them of the Board s determination and of their right to avoid a shortened contract term by filing a notice of non-renewal; 3. Authorize notices of non-renewal to be accepted through February 1, 2012; and, 4. Direct staff to begin accepting new Williamson Act Contract applications beginning January 3, 2012. CURRENT FISCAL YEAR FINANCIAL IMPACT - None. Explanation (if required): No fiscal impact in current fiscal year. Positive revenue impacts in FY 12-13 are discussed in background. Prior Board Action: October 2009: Board considered a report on the status of the County s Williamson Act program and directed staff to stop accepting applications for new contracts. Alternatives Results of Non-Approval: Results of Non-Approval: If AB 1265 is not implemented the County will not receive additional revenue in FY12-13 and Williamson Act contract holders will not have their tax benefits reduced.
Background: Background and Prior Board Actions The California Land Conservation Act of 1965 commonly referred to as the Williamson Act enables local governments to enter into contracts with private landowners for the purpose of restricting the land to agricultural or related open space uses. In return, landowners receive reduced property tax assessments based upon those restricted uses. The contracts are binding for a 10-year period and automatically renew annually unless a non-renewal is initiated by either the owner or the County. Sonoma County has about 2,500 parcels under Williamson Act contracts, comprising approximately 295,000 acres or approximately 31 percent of the County s land area. The reduced property tax assessments under the Williamson Act save contract property owners in Sonoma County over $14 million annually. However, this savings for agricultural and open space property owners results in a revenue loss for the entities that receive property tax dollars, including the County. The County s share of the property tax loss averages approximately $4 million per year. Since 1971, local governments have received an annual state subvention to replace a portion of the forgone property tax revenues. Most recently, Sonoma County received approximately $430,000 in annual subvention revenue from the state, which covered only about 12 percent of the County s lost property tax revenues. In addition, the Assessor s Office spends an estimated $300,000 per year in staff time to administer the program. Nonetheless, the County has been willing to absorb these substantial costs because the Williamson Act has been an essential tool for supporting the County s vital agricultural economy. As the state s budget troubles have grown over the past several years, Williamson Act subvention payments have been targeted by the legislature and the governor. In 2009-10, no subventions were paid. In 2010-11, only $1,000 was budgeted for subventions statewide. Williamson Act subventions were eliminated entirely in the state s 2011-12 budget and most observers believe they will not return. In October 2009, as a result of the state s suspension of subvention payments during that budget year, the Board directed staff to stop accepting applications for new Williamson Act contracts. Since that time the Board has only approved modifications to existing contracts that exchange land from one contract to another, modify the type of contract or add only minor amounts of land as a result of a lot line adjustment. Overview of AB 1265 AB 1265 (Nielsen) was passed by the legislature and signed by Governor Brown as an urgency measure this summer. 1 The bill was supported by a wide spectrum of agricultural, environmental and government organizations, including the California Farm Bureau Federation and CSAC. AB 1265 shifts tough decisions about maintaining the Williamson Act from state to local government by giving counties the option to replace lost subvention revenue by imposing an additional cost on the owners of Williamson Act contract parcels. The key provisions of AB 1265 are as follows: 1. Allows the Board of Supervisors to shorten the length of Williamson Act contracts by one year, from 10 years to 9 years. 2. If contracts are shortened, a charge will be added to the annual tax bill for Williamson Act contract holders; the charge is calculated on 10 percent of the difference between the Prop. 13 (factored base year) value and the annual composite Williamson Act value. 1 A similar bill, SB 863, was passed in 2010 but repealed as part of the state s budget actions in early 2011.
3. Landowner retains the Williamson Act tax benefit but pays an annual charge for the program; County realizes additional revenue to offset loss of state subventions. 4. Landowners who serve a notice of non-renewal for their Williamson Act contract will not be subject to the additional charge on their tax bill. 5. County must notify contract owners of the hearing to consider implementation of AB 1265 (today s hearing) and must provide a separate notice if the Board decides to implement AB 1265, including the owners rights to avoid reduced contract term and additional charge by non-renewal. 6. Applies only in years when Williamson Act subventions are less than half of the foregone property tax revenue. 7. AB 1265 sunsets on January 1, 2016 unless extended by Legislature. A complete copy of AB 1265 is attached. Issues 1. Additional Revenue to the County. If your Board decides to implement AB 1265 and reduce Williamson Act contracts to a 9-year term, the Assessor s office estimates that the County will receive approximately $ 1.4 million annually. This revenue would be available to the County s general fund beginning in FY 2012-13. While this revenue would be available to help close the anticipated budget gap in FY 12-13, the Board is cautioned that other unrelated expenditure increases as well as slowing property tax delinquency revenues and additional property tax administration losses could more than offset this increased revenue. 2. Impact to Williamson Act contract holders. The additional revenue for the County comes from charges added to the tax bills of Williamson Act contract holders. The additional cost for individual contract holders is highly variable and depends on the base-year value of the property. In general, the greater the tax reduction enjoyed under the Williamson Act, the greater the cost to the contract holder if AB 1265 is implemented. Owners who have held property for a long time generally have a lower base-year value and would, therefore, generally see a relatively smaller AB 1265 charge on their tax bill. The charge will be higher for owners who acquired the property more recently because they typically have a higher base-year value. The Assessor s office has developed an online calculator where owners can determine the potential AB 1265 charge for their specific property. The Assessor estimates that annual charges will range from a low of $1 to a high of $18,454. The average charge will be $575 and the median is estimated at $265. The Sonoma County Farm Bureau has provided a letter asking the Board not to implement AB 1265 for 2012 (see attachment). The Farm Bureau states that AB 1265 would place undue economic burdens on the backs of the agricultural sectors at a time when the industry can least afford it. They also ask that the Board authorize acceptance of new contract applications. 3. Should the County enter into new Williamson Act contracts? As noted above, the County has not accepted new Williamson Act contract applications for two years. In 2009, the fate of state 2 AB 1265 does not apply to wildlife habitat contracts, a relatively uncommon contract type.
subventions was unclear. Most observers now believe that subventions are unlikely to return in the foreseeable future, if ever. However, AB 1265 now provides a mechanism that allows the County to more than recover the lost subvention revenue while contact property owners retain most of their tax relief benefit. With no new contracts approved since 2009, some pent-up demand for new contracts exists. However, staff believes this demand will not be overwhelming. In the three years from 2007 through 2009, the Board approved 15 new Williamson Act contracts. Since the County stopped accepting new contract applications, staff estimates that 10 to 15 owners with potentially qualifying properties have expressed interest in a new contract. The fiscal impact of approving new contracts is difficult to estimate because the reduction in tax revenue is so dependent on the specific properties involved. Notwithstanding the cost to the County in the form of foregone property tax revenue, the County has consistently supported the Williamson Act as an essential tool for sustaining Sonoma County s agricultural economy. This support is adopted as County policy in the General Plan and has been reflected in Board decisions over the years. Given that local implementation of AB 1265 will provide more revenue than the County received from prior state subventions, staff recommends that if the Board decides to implement AB 1265 that the Board also direct staff to begin accepting new Williamson Act contract applications in 2012. Alternative. If the Board believes that the fiscal impact of accepting new Williamson Act contract applications is too great, the Board could limit these applications only to non-prime agricultural properties (mainly grazing lands). 2 These properties typically have lower agricultural income, which makes the property tax break more important to their financial viability. Because the properties typically have lower base values, the cost to the County in foregone property tax revenue will also be less and fewer new contracts would be sought. Summary and Recommendation The elimination of state subventions puts counties in the unfortunate position of deciding whether to simply accept another reduction in local discretionary revenues, whether to stop participating in a program that supports a vital economic sector, or to increase costs for the very property owners that the Williamson Act was designed to benefit in the first place. While the choices are unpleasant, staff believes that AB 1265 provides an incentive for the County to continue supporting this essential agricultural program. Although the cost is borne by contract property owners, the net result is that they retain 90 percent of their current financial benefit under the Williamson Act. Accordingly, staff recommends the following: 1. Adopt the attached resolution to implement AB 1265 by converting all Williamson Act contracts from 10 years to 9 years and take related actions; 2. Direct staff to provide mailed notice to all contract holders advising them of the Board s determination and of their right to avoid a shortened contract term by filing a notice of non-renewal; 3. Authorize notices of non-renewal to be accepted through February 1, 2012; and, 4. Direct staff to begin accepting new Williamson Act Contract applications starting January 3, 2012.
Attachments: Draft Board of Supervisors Resolution Exhibit A: Text of AB 1265 Exhibit B: Sonoma County Farm Bureau Letter, October 17, 2011 On File With Clerk: None.