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Citrus Heights Settles with Sacramento County

A settlement has been reached in lawsuits between Sacramento County and the city of Citrus Heights over costs to be paid by the new city related to its incorporation. Citrus Heights incorporated in January 1997, and before incorporation had agreed to pay the county $5.6 million in installments for 25 years. That amount was the county's "profit" from taxes after paying for all services in the area during the period Citrus Heights was unincorporated. The new city was to pay a projected total of $140 million over 25 years (see CP&DR, April 1998). Under the terms of the settlement, Citrus Heights is to pay $2.2 million the first year, and a projected $80 million over the next 25 years. The money will come from property tax revenues. Since property tax revenue is first paid to the county, the money cannot be held up by the city. "Essentially, the city is giving up its property taxes," said Ruthann Ziegler, the city's attorney. The original $5.6 million figure was based on expected tax revenues from Sunrise Mall, which is no longer doing as well. New shopping areas outside the city limits are drawing shoppers away from the mall, and more competition from other shopping centers is expected. A Local Agency Formation Commission official who prepared the calculation later admitted it was wrong. A county analysis done in 1997 found that the correct figure should have been $5.1 million, said county supervisor Roger Dickinson. Citrus Heights officials refused to make the first payment after incorporation, and the county sued in November 1997. The city then countersued. Dickinson cast the lone vote on the Sacramento County Board of Supervisors against the settlement. He said it would set a bad precedent for negotiating with other areas of the county that want to incorporate. Almost two-thirds of the county's 1 million residents live in unincorporated areas. Dickinson also said that the settlement wasn't fair since Citrus Heights wasn't paying what it should. "People in Citrus Heights get an enhanced level of municipal services while other people in the county get a decline," he said. Dickinson also said that ballot language that voters agreed to when they voted to incorporate made it clear that it would cost the city $5.6 million a year. But Ziegler said the city seriously questioned the legality and constitutionality of the conditions imposed on its incorporation. The Citrus Heights lawsuits were significant because few cities have incorporated since 1992. That year, the Legislature enacted a revenue-neutrality law which requires cities to be fiscally viable to incorporate. Cities are prohibited from incorporating if the incorporation would have a negative fiscal effect on a county. The law has essentially stopped incorporations. The dispute, and the desire for other communities throughout the state to incorporate, led to the introduction of several bills in the legislature. One bill, AB 2147 by Assemblyman Bruce Thompson, R-Fallbrook, would repeal the revenue neutrality law. It passed the assembly, and was sent to the Senate Local Government Committee where no hearing datewas set. Several areas in Southern Orange County, near Thompson's district, are interested in incorporating. Under the Citrus Heights settlement agreement, the county was assured that the city would not use future redevelopment areas to siphon off property taxes that the county was expecting. Ziegler said that the agreement includes a "reopener clause" if there is a major shift in the way property taxes and city revenue are received by the city, such as if changes are made in the way revenue is distributed by the state government. Contacts: Supervisor Roger Dickinson, (916) 874-5485. Ruthann Ziegler, Kronick Moskovitz, (916)321-4500