LAGUNA HILLS : City, County Reach Annexation Impasse

After six months at the bargaining table, city negotiations to annex the North Laguna Hills area have reached an impasse, the city manager said.

The city and county, at odds over the division of property and sales taxes from the area after annexation, have only moved further apart, City Manager Bruce Channing told the City Council on Tuesday night.

“There is a great deal of frustration on my part,” Channing said. “There remain significant and fundamental differences between us.”

The city’s most recent offer--to let the county continue collecting 100% of the property taxes from North Laguna Hill’s 4,600 residents--was turned down by county negotiators, who also want a portion of the area’s sales tax money, Channing said.

One penny of the county’s seven-cent sales tax levied on each dollar traditionally stays at the city level. Channing said he believes that the county is trying to set a precedent that may help offset its own budget woes by cutting into that revenue. A county share of the sales tax in North Laguna Hills would pave the way for similar claims in future annexation attempts by other cities, he said.

The state revenue and tax code says property tax is the sole bargaining chip in any annexation process. Channing argues that the city’s offer to relinquish 100% of that revenue should end any need for negotiation.

Council members agreed that becoming the first city in Orange County to surrender a sales tax percentage to the county would be a bad move. They also strongly criticized the county staff’s dealings, which have stalled an annexation considered to be a top priority of the community.

“The residents (in North Laguna Hills) want to be a part of this community, they want their services improved like ours have been,” Councilwoman Melody Carruth said. “The citizens in North Laguna Hills are literally being held hostage.”

Under the county staff’s most recent offer, the county would take 95% of North Laguna Hills’ property taxes, about $1.3 million, and 7% of its sales taxes, about $98,000. After five years, the sales tax figure would drop to 3%. That proposal would garner the county $1.41 million a year from the area, as opposed to the $1.38 million they would receive under the city plan.

In an effort to sidestep county staff, the City Council adopted a resolution outlining the city’s most recent offer. The resolution will now go to the Board of Supervisors, and council members said they are optimistic that their offer will be reconsidered.

If city and county officials agree on a division of taxes and services for the area, the annexation request will go to the Local Agency Formation Commission for final approval.