SB Seeking To Renegotiate Full Property Tax Trade To County For Fire Service

Six years after the San Bernardino City Council as it was then composed closed out its 137-year-old municipal fire department and arranged to have the county fire department take on fire service and emergency medical response in the county seat, San Bernardino’s current city council this week signaled its intention to renegotiate the exorbitant giveaway of the city’s property tax that was part and parcel of that deal.
San Bernardino was just one of four of San Bernardino County’s cities that in the middle of the last decade opted to close out its municipal or locally controlled fire department in favor of either contracting with the county for fire protection service or turning its fire department over to the county fire department. Between 2015 and 2017, the cities of San Bernardino, Needles, Twentynine Palms and Upland did just that.
In every case, the rationale cited for doing so was to to reduce or in some other fashion deal with the financial burden of maintaining a fire department.
Three factors were at play in the cases of San Bernardino, Needles and Upland wishing to unburden themselves of their fire departments. Those cities operated fire stations manned by firemen who were city employees, as do most cities across the United States, a quintessential part of those cities’ municipal function. In general, most cities are responsible for providing policing, fire protection, constructing and maintaining infrastructure such as roads, curbs, sidewalks, wastewater treatment plants and parks as well as providing other basic civic services.
With the aggressive advance of public employee unions in recent decades in which union members pool their money and use it during election season to mount campaigns against elected officials who do not support generous salaries and benefits for public employees including firefighters, the cost of fire department operations, particularly in California, has risen dramatically.
Simultaneously, the cost of public employee pensions has escalated, threatening the California Public Employees Retirement System with insolvency. Cities and other participants in the state retirement system are contractually bound to bail out the retirement system when that system’s investment earnings do not meet expectations and its coffers dwindle, meaning that cities must divert money from their normal operating budgets to make payments to keep the pension system whole.
In 2012, the City of San Bernardino filed for Chapter 9 bankruptcy protection. That same year, Standard and Poor’s downgraded the City of Upland’s credit rating, which had already fallen from an AA status to A+, to A, with a warning that further erosion of the city’s credit standing was likely to be forthcoming, which would make the city’s borrowing of money prohibitively expensive. Simultaneously, the public accounting firm Mayer Hoffman and McCann said there were serious questions with regard to the City of Upland’s solvency to the point that in a short while “it will be unable to continue as a going concern.” In Needles, the city’s budget deficit was so massive and the red ink hemorrhaging into its books so thick, that its elected officials took the gamble of becoming the only city among San Bernardino County’s 24 municipalities willing to allow the sale of marijuana within its city limits under the terms of 1996’s Proposition 215, the Compassionate Use of Marijuana Act. Needles did so out of desperation, hoping the influx of tax money that might be realized from sales of the drug might help it stave off bankruptcy.
By 2015, San Bernardino, the oldest and largest population-wise of San Bernardino County’s cities, had lingered in bankruptcy for nearly three years. Led at that point by then-City Manager Allen Parker, then-Mayor Carey Davis and then-Assistant City Manager Nita McKay, city officials hatched a plan to liquidate its fire department as part of a cost-cutting measure that would assist the city in its bankruptcy exit plan. After seeking from the county fire division, the Colton Fire Department, the California Department of Forestry and Fire Protection, and the Centerra Group, a Florida-based private company, among others, proposals on which entity might function in place of the city fire department, the city gravitated toward the county as its best option. County officials, however, were leery of putting themselves in the position of being dependent upon payments from the city, which had consistently demonstrated its willingness to ignore its bills. Accordingly, the county was not amenable to simply contract with the city to provide fire services. Rather, the county arranged to have the entirety of the City of San Bernardino – all 61.95 square miles of it – annexed into a fire protection zone previously established in 2006 to serve the desert communities of Helendale and Silverlakes. This zone was designated Fire Protection Service Zone Five, known by the acronym FP-5.
The inclusion of San Bernardino into Fire Protection Service Zone Five entailed the imposition of a $142 per year assessment, subject to a maximum three percent inflationary increase, on the city’s approximately 56,000 parcels, calculated to initially generate some $7.952 million per year in revenue under the auspices of the fire protection district. Simultaneously, the city entered into negotiations with the county to pass through to it the entirety of the city’s ad valorum tax, i.e., property tax to pay for the county to provide it with fire protection. As part of the arrangement, the county thereupon returned to the city the $7.952 million collected through the inclusion of the city’s landowners into the FP-5 assessment district. Taken together with the more than $3 million to be realized by dissolving the department and by the rediversion of the $7.952 million in assessments back to the city, San Bernardino achieved “an $11 million contribution to solvency,” according to a report by a city consultant, Management Partners, which was assisting the city in mapping its way out of bankruptcy.
It was a neat trick. In California, additional taxes are not to be levied unless they are first approved by a majority of voters who are to pay them. San Bernardino, through its arrangement with the county, which simply slipped the entirety of the city into FP-5 and then kicked that money back to the city, had imposed on its residents a $142 per year tax without giving them an opportunity to vote on it.
Nevertheless, city officials bitterly and vociferously denied the suggestion that imposing on the city’s residents and landowners the $142 per parcel assessment was tantamount to a bankruptcy tax or that the city was in any way seeking to tax its way clear of bankruptcy.
The deal with the county had come at a price, nonetheless. The city had agreed to give the entirety of its share of the property tax collected on its landholders back to the county.
Property tax is one of the mainstays among revenue streams that a city can count on in California, representing up to a third of its income, the other major influxes of cash being sales tax, use taxes, business license fees, transient occupancy tax or hotel tax, utility tax, documentary transfer tax, property transfer tax in the case of charter cities, regulatory fees, development impact fees, a portion of state gasoline tax collected in the city, a portion of motor vehicle licensing fees for cars registered within the city, franchise fees, fines, penalties, along with federal and state subventions, contributions and augmentations.
Committing the entirety of the city’s share of property tax to defray the cost of fire safety service in the city of 217,734 population, it was realized relatively early on, was something of a mistake. There were numerous other expenses relating to the running of a city beyond the fire department. The police department alone ate up approaching two-thirds – 62 percent – of the city’s available revenue. In addition, the city had commitments to its public works division, community development department, animal services, city attorney’s office, water department, finance department, parks, library, information technology, community and economic development, finance, management and administration divisions.
In 2019, San Bernardino officials were gathering the resolve to approach the County of San Bernardino about the possibility of changing the terms of the city’s arrangement to pay for county-provided fire service that gave away the totality of the city’s property tax revenue. Either inadvertently or purposefully, then-County Executive Officer Gary McBride stood off San Bernardino municipal officials by disclosing what city officials had been denying for four years at that point, which was that the city had made the deal to give away all of its property tax so it could lay claim to the assessments collected through the ploy of annexing the city into FP-5, thereby imposing taxes on San Bernardino’s residents without giving them the opportunity to vote on the levying of that tax. At that point, four of the seven members of the city council who had closed out the fire department in 2015 were yet members of the council – Councilman Fred Shorett and then-Councilman Jim Mulvihill, who had supported the liquidation of the fire department, and then-Councilman Henry Nickel and Mayor John Valdivia, who as councilmen had opposed the county takeover. City officials, faced with the prospect of alerting a large number of their residents to how the city was, essentially, imposing an illegal $150 per year tax on its citizenry, at that point lost their nerve with regard to undoing the property tax giveaway.
This week, with Shorett the only member of the city council who in 2015 supported the shuttering of the municipal fire department remaining on the council, the council vowed to approach the county and open up discussions, indeed negotiations, on restructuring its payments for the county’s provision of fire service to the city, with an eye toward undoing the city’s commitment to fork over 100 percent of the property tax it receives.
At the suggestion of Seventh Ward City Councilman Damon Alexander, the city council at its Wednesday evening meeting discussed scheduling for a future meeting making an effort to “renegotiate the San Bernardino property tax rate with San Bernardino County for fire services.”
Alexander said, “I would like to see that we empower our city manager to renegotiate our San Bernardino property tax rates. We do not currently get any.”
In response, City Manager Robert Field said, “I would just like to ask for flexibility in how we solve this. There’s a lot of different ways in how we skin this. If staff could have some flexibility in how we approach this with the county, that would be much appreciated. The underlying goal is abundantly clear.”
Councilman Shorett said, “This was all done through the bankruptcy and to start the fire district.” He asked Field, “There is a reopener in there, isn’t there?”
“Of sorts, answered Field. “It’s not as robust of an opener as…” he started to say, but was then interrupted by Shorett before he could finish.
“Let’s just be lookin’ at that,” Shorett said. “I don’t want to say too much. I’m not reading your facial expressions real well, but we’ve had some conversations, and I think we gave up a lot to do that, to get out of bankruptcy, with the fire district, and I think it’s time we reopen it and reevaluate it.”
“Go in there and try to negotiate and get some of our tax funds back,” Alexander said.
The motion to direct Field to proceed passed unanimously.
“We’ve got the global direction,” said Field. “We understand.”
San Bernardino’s action could touch off further changes with regard to the county fire department’s evolving relationship with many of the county’s cities.
In 2004, the Hesperia City Council in a highly controversial move closed out its municipal fire department, the existence of which predated the incorporation of Hesperia in 1988, and contracted with the county fire department for fire safety service.
On July 1, 2008, the Victorville Fire Department, which had existed in one form or another since 1926, was closed out and the city contracted with San Bernardino County and its fire service division for fire protection and emergency medical services. As a consequence, a fire station the City of Victorville had under construction at that time and which was completed in 2009, lay dormant for the entire duration that the county was handling Victorville’s fire service. In February 2017, the Victorville City Council reversed course and voted 4-1 to terminate the city’s contract with the San Bernardino County Fire Protection District when that contract was scheduled to end on July 5, 2018, and reestablish the Victorville Municipal Fire Department. The Victorville Fire Department is now in place and functioning out of all of Victorville’s fire stations, including the one that remained unused by the county.
The San Bernardino County Fire Protection District has 1,043 employees, is the primary fire protection service provider to approximately 19,278 of the county’s 20,105 square miles, and serves more than 60 incorporated municipalities and unincorporated communities within four regional service zones within the county – Mountain, North Desert, South Desert and Valley – including the City of Grand Terrace, the City of Hesperia, the City of Needles, the City of San Bernardino, the City of Twentynine Palms, the City of Upland, the Town of Yucca Valley, and unincorporated areas.
In 2017, when Upland, represented by then-acting-City Manager Marty Thouvenell, negotiated the county takeover of its then-111-year-old municipal fire department, it did so from a position of weakness. What had previously been an annual $8.5 million fire department budget in Upland in 2014-15 had ballooned to nearly $11 million in 2016-17 because of rampant overtime paid to Upland’s firefighters in the year before the county moving in to take on fire protection in the City of Gracious Living. The deal Thouvenell worked out with Supervisors Janice Rutherford and Curt Hagman, then-County Chief Executive Officer McBride, then-County Fire Chief Mark Hartwig and the Local Agency Formation Commission called for annexing the entirety of the Upland City Limits into a county fire service assessment district and imposing on each of the city’s parcel owners a $157 per year assessment along with turning over to the county in perpetuity 54 percent of the property tax collected in the city to pay the county for providing the city with fire protection service.
Many Upland residents, including former City Councilman Glenn Bozar, decried that arrangement as a poor deal. Bozar, who had been a member of the council in 2016 when the city began to explore the possibility of shuttering its fire department in favor of a contract with county fire department, said the council had authorized Thouvenell to do no more than explore the concept and provide numbers on costs that could be compared. What occurred instead after Bozar left the city council in late 2016,he said, was an application with the Local Agency Formation Commission for the shuttering of the fire department and annexation of the city into a fire assessment district on terms he would never have voted to accept. That application was processed and approved, which imposed on Upland’s residents not only an assessment Bozar said he considered to be a double tax, but the city surrendering more than half of its property tax revenue.
“It was ridiculously unreasonable,” Bozar said. “From a financial standpoint it had no basis in logic or fairness. The city gave away far too much.”
Bozar said the rationale for exploring the county’s assumption of firefighting duties in Upland was to see if a county takeover would save the city money. What occurred instead, he said, was the city cutting a bad deal in which it gave up too much revenue to the county, while losing control over the fire department.
With the Red Brennan citizens group challenging the legality of the fire zone assessments used to fund the fire department’s operations in both unincorporated communities and incorporated cities, coupled with Victorville officials showing the will to end that city’s contractual relationship with the county fire department altogether, and San Bernardino now leading the charge in exploring whether the county is insisting on too large of a share of property tax to defray fire department operations in the county seat where the county fire department is the de facto municipal fire service provider, the way is now open for cities such as Upland, Twentynine Palms and Needles to revisit whether they are paying too much of their limited revenue toward the provision of fire service.
-Mark Gutglueck

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