Since 1965, the California Land Conservation Act – also known as the Williamson Act – has been the state’s primary tool in helping to preserve agricultural and open space lands. The Act allows local governments to enter into long-term (10-year) contracts with private landowners, who voluntarily restrict their land to agricultural and open-space uses –in exchange for paying a lower tax rate on those properties. According to the California Department of Conservation, the Williamson Act saves agricultural landowners from 20 percent to 75 percent in property tax liability each year – reductions that made the difference between profit and loss for the majority of California ranchers in the Central Valley and surrounding foothills.
Seven years after the Williamson Act was passed, the California Open Space Subvention Act was adopted, which allowed the state to reimburse local agencies for the loss of tax revenue. In 1998, the funding was extended to Farm Land Security Zone contracts: 20-year contracts that offer an even greater tax-break for enrolled property owners. But that funding was effectively cut from the state’s budget in the 2009-10 Fiscal Year, under Gov. Arnold Schwarzenegger. The state’s funding for the program – which had previously been around $36 million –was slashed to $1,000 statewide.
During their meeting on August 7, the Colusa County Board of Supervisors received a presentation from Community Development Director Greg Plucker, who explained how the loss of subvention funding had affected the county over the past eight years, and what the county’s options were moving forward.
According to Plucker, Colusa County has a total of about 318,000 acres enrolled in Land Conservation Act Contracts, with approximately 59,000 acres under the 20-year Farm Land Security Zone contracts, and 260,000 acres enrolled in standard Williamson Act Contracts. Before the state funding was slashed, Colusa County received about $856,000 in subvention funding. Since Fiscal Year 2009-10, the county has received nothing for the loss in tax revenue.
“It effectively eliminated the state’s subvention program, and it shifted the financial responsibility for the state program to the local level – although the state has retained regulatory oversight,” Plucker said. “Basically, they still tell the counties and a few cities how to implement the Williamson Act statutes.”
Following Plucker’s presentation to the board, the three supervisors at the meeting – Gary Evans, Denise Carter and John Loudon –agreed by consensus to form an ad hoc committee to explore the options available to the county to recoup some of those lost property tax revenues.
“This is really based on – it’s the lack of funding in the general fund,” Supervisor Carter said. “And as our budget gets tighter, and our pension obligations go up, we’ve got to look at ways to generate money into our general fund.”
What are the county’s options?
Plucker said that to date, the county has essentially done nothing since the state’s subvention stopped coming in – save for taking action to not accept new Land Conservation Act contracts. Since Fiscal Year 2009-10, the county has continued with the status quo, operating with $856,000 less in revenue to their general fund.
“The board has talked about it, and expressed some concerns and issues associated with the program, but there has not been any formal organized presentation and action that the board has had, and that’s what part of today’s meeting is about,” Plucker said.
One option is for the county to opt for non-renewal of Land Conservation Act contracts, which over time would regenerate the entirety of that $856,000 annually in recaptured taxes. Landowners with contracts would be gradually exited out of the program, over a period of nine years or 19 years, depending on their type of contract. At the end of that time frame, they would be paying 100 percent of their otherwise normal property taxes. Taxes for those landowners would rise sharply – and quickly.
“In the first few years, your tax rate increases pretty darn quick,” Plucker told the board. “Then what happens is it levels off the rest of the term of the contract.”
Colusa County Assessor Arnold Gross said on Monday morning that the total value for their taxes – at the end of the 10-year phase out – would essentially double under non-renewal. Only one county in the state (Imperial) has gone the non-renewal route, and they elected to do so immediately after the state subvention funding stopped coming in, Gross said. If Colusa County elects to go in that direction, Plucker said that the board would need to hold a hearing where the they would determine whether or not they would non-renew the contracts. If the board votes to non-renew, a notice would be sent to all the contract owners in the county, who would be given an opportunity to pretest the non-renewal. If a contract holder were to submit a letter of protest, it would freeze their tax rate at the restricted value for three years.
“Basically, you get a three-year reprieve and then your tax rate becomes accelerated until you’re completely out of the program in nine or 19 years, depending on the contract type,” Plucker said.
Plucker also mentioned another option that was less burdensome on taxpayers, but still allowed the county to recoup about a third of the lost state subvention funding. Plucker told the board that around the time the subvention funding went away, a lot of concerns were raised with the loss of funding, and the state’s shifting financial responsibility to the local level – especially from small, rural, agricultural-based counties.
“It resulted in a series of amendments to the bills, and to the Land Conservation Act amendment itself,” Plucker said. “One of the processes I’d like to talk to you (about) – what I’m going to refer to as the AB 1265 process – was an amendment that allows the recapture of 10 percent of the difference between the restricted assessed value (under the contract) and the current market rate.”
AB 1265 allows counties to voluntarily execute contracts revisions that reduce 10-year contracts to nine years, and 20-year contracts to 18 years. The 10 percent shorter contracts allow landowners to keep 90 percent of their tax savings, and counties to receive tax money they would not otherwise get. A total of 11 counties have already implemented that process.
“It applies in any year where the county or counties have received less than half the subvention funding from the previous year. So, basically, ever since the state’s done this, the county would qualify for that,” Plucker said, adding that the process would generate just over $290,000 in revenue to the county, or about 34 percent of the lost subvention funding.
Plucker said the process was flexible, as the board would review it on a yearly basis. In order to implement the process, written notification would have to be sent to contract holders of a public hearing, in which the board would decide whether or not to do so. If the board votes to move forward with the AB 1259 process, they would be required to send a notice of determination to all contract holders, who would be given the opportunity to opt out of the increased property tax.
“In reality, that solution is that they would have to self non-renew – get out of the program… So they either pay a little more, or ultimately pay everything back by getting out of the program,” Plucker said. “The difference is, you’re out of the program, and you’re going to end up, over nine years, paying the market rate, as opposed to you’re just paying an additional 30 percent – or whatever the calculation ends up – in property taxes (every year)… It’s equivalent to (the state) holding a gun to your head and saying, ‘Either you accept this or you’re getting kicked out of the program, and you’re gonna do that yourself.”
Another option for the county was to undergo a comprehensive update of its land conservation act program policies – which he said were disjointed and had failed to keep up with legislative changes – and compare existing contracts with those updated standards and policies, and selectively non-renew contracts that were no longer compliant with the new process. He noted Santa Clara County had taken that route, and non-renewed about 12 percent of the contract land there.