Information on the County of Santa Barbara
and City of Goleta Revenue Neutrality Agreement

In 2001, voters approved the incorporation of the City of Goleta, which had previously been part of unincorporated Santa Barbara County.  At that time, voters also approved the Revenue Neutrality Agreement (RNA) ( Revenue Neutrality Agreement, Revenue Neutrality Agreement Amendment No. 1), an agreement that shares tax revenue between the City and County to ensure that all County residents would not be harmed by the transfer of County revenues to the new city government.

Frequently Asked Questions Regarding the Revenue Neutrality Agreement :

What is "Revenue Neutrality"? 
Revenue neutrality is the California Government Code requirement that when cities incorporate the negative fiscal effects from the incorporation must be addressed.  Revenue neutrality often occurs through tax sharing agreements or other revenue exchanges that are provided for by the California Government Code.  In short, the statutory requirement for revenue neutrality is what allows the incorporation of new cities while also ensuring adequate funding remains for the continuation of county-wide services that serve all county residents. Neutrality infers that neither party is disadvantaged.

 

What are County, non-municipal services and do Goleta residents benefit from them?
Santa Barbara County government provides county-wide services that benefit all county residents, regardless of whether they live in a city or unincorporated areas. These include activities like ensuring a criminal justice system, with services by the District Attorney, Public Defender, Courts, Sheriff adult correction facilities and custodial re-entry programs, and Probation supervision and juvenile institution facilities. It also includes election services, a public health system, a mental health system, social services and other "safety net" services for those in need. Upon formation of a new city these county services continue to be provided to all residents. 

 

What services transferred to the new Goleta City government?
With the formation of the Goleta's city government, land use planning, parks and streets including maintenance were turned over to the City. Currently, the City has chosen to contract for municipal law enforcement service from the County's Sheriff Department.  This allows the City of Goleta to avoid costs that would otherwise be required to start up a fully operational municipal police department and avoid the costs associated with staffing specialized services such as Special Weapons & Tactics (SWAT) that are essential when the need arises. Another significant service includes fire protection that could have been transferred to the City, but it was decided in the process to leave this service with the County.  This is often the case with the establishment of new cities as the startup capital costs associated with public safety services is significant. In addition, roads and parks facilities within the new city boundaries were transferred to the City. These facilities were built and maintained with specialty grants or general county revenues, generated from throughout Santa Barbara County, and are now property of the City of Goleta. 

 

What are the basic financial terms of the Revenue Neutrality Agreement?
In 2001, voters approved the incorporation of the City of Goleta and the Revenue Neutrality Agreement (RNA). Prior to the incorporation, the County received a portion of property taxes (approximately 20% to the County, 63% to schools/education and the remaining 17% to special districts), a portion of sales taxes (1% of the then 7.75% rate) and 100% of the transient occupancy taxes (TOT) generated in the proposed city boundaries. 
Under the RNA, for a period of ten years the County and City split the property tax eligible to be shared 50%/50%, sales tax 50%/50% and TOT 40%/60%.  After the ten year period, the County and City split the property tax 50%/50%, sales tax 30%/70% (in favor of the city) and TOT 0%/100% (in favor of the city) in perpetuity. The city thrived during the ten year period and provided its share of local services and built a financial surplus while the County continued to provide its array of county-wide services.  In addition, as a new city, Goleta enjoyed additional funding during their first seven years of existence through increased vehicle license fee payments from the State of California.  These enhanced payments were primarily intended to allow new cities to create their basic infrastructure and address unanticipated costs.  These vehicle license fees from the state are not subject to the RNA and were an additional revenue source to support the City of Goleta's municipal service development.  Lastly, the County provided an interest free loan of $1.5 million, provided an additional $100,000 startup loan and did not charge the City for 5 months of ongoing County services at a cost of $1.5 million to the County Road fund and $2.5 million to the County General Fund to assist the new City.  

 

Who approved the Revenue Neutrality Agreement and Why?
The voters approved the agreement with the incorporation.  In fact, before it went to the voters, the regional agency responsible for approving incorporation proposals, the Local Agency Formation Commission (LAFCO) approved it ( 4-26-01 Agenda, 4-26-01 Minutes, 5-3-01 Agenda, 5-3-01 Minutes, LAFCO Report, LAFCO Supplemental Report, Goleta Incorporation Boundary Map).  LAFCO determined that if it were not for the RNA, it could not approve the incorporation because of the otherwise negative effect on the entire County of Santa Barbara. State law mandated that new cities enter into tax sharing agreements so both City services and County-wide services could continue to be provided throughout the County .

 

How did the agreement consider land uses of the new city's boundaries?
A key consideration of the RNA was the recognition that the City of Goleta boundaries were drawn to include large tax revenue generating areas, such as the Bacara Resort and the Camino Real Marketplace retail and commercial center, and purposefully excluded the high density and more cost-intensive area of UCSB/Isla Vista, which remained in the unincorporated county.  Provisions exist within the RNA for a redistribution of revenue to Goleta should incorporation of Isla Vista into City of Goleta occur.

 

What is the cost to the County for providing services in the City of Goleta versus revenue from the agreement?
As a part of the LAFCO process, a Comprehensive Fiscal Analysis was prepared by an independent firm that clearly showed that the County could not afford to continue core services to the public if there were a 100% transfer of revenue.  The RNA was designed to mitigate a revenue gap to the County caused by incorporation; however, the current revenue is still not adequate to cover the cost of providing County services to Goleta. Even with the RNA and the tax sharing terms, the County incurs a loss each year. 
The most recently calculated County costs for services within the City of Goleta in fiscal year 2013 to 2014 is $11.8 million, and the revenue received under the tax sharing agreements is $8.8 million resulting, in a net annual subsidy to the City of Goleta of $3.0 million.  In addition, the County separately estimated the cost of fire services in the incorporated City of Goleta for the fiscal year 2010 to 2011 at a net loss of approximately $3.1 million. 

 

How was this information communicated to the voters during the incorporation process?
Ballot Measure H2001 which posed the question to voters regarding Goleta cityhood included detailed information regarding the fiscal effect of the incorporation of the City and the subsequent impact on the County.  Voters approved incorporation and the method to transfer revenue to the County to ensure revenue neutrality.  With the vote, per California Law, the RNA became binding.    
In addition to the actual ballot measure, multiple proponents of cityhood stated in campaign literature that "a reputable consulting firm, performed a state required in depth comprehensive financial analysis of the proposal before the voters.  It concluded that the new city would have sufficient revenues to maintain the current level of municipal services, pay the county for county-wide services and build a reasonable reserve without the need for new or increased taxes."

 

Typically agreements can be changed if the parties agree. What is the process to amend the RNA?
The RNA can only be changed by mutual agreement of the parties.  In addition, Section 6 of the RNA addresses the negotiation of amendments to the agreement. The County and City have met on several occasions since incorporation to respond to requests regarding the City's RNA obligations and adjustments have been made to forgive the County's loan to the City of $1.5 million.  County representatives most recently met with the City of Goleta representatives in good faith on four occasions, over a six week period.  No mutual agreement was reached regarding amendments to the agreement.