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Annexation No. 2018-01 for the County Island Annexation at Seventeenth Street and Tustin Avenue September 3, 2019 Page 3 DISCUSSION In June 2018, the City Council directed staff to initiate the annexation process for the 24.78-acre County island at the northeast comer of Seventeenth Street and Tustin Avenue within the City's sphere of influence. Parcels within the annexation area include 49 single-family residential parcels, three commercial parcels, two multi -family residential parcels and three vacant parcels of land. During the annexation process, several actions were identified that need City Council action. These actions include approval of a Cooperative Agreement with the County of Orange, approval to submit the annexation application to OC LAFCO, approval of a general plan amendment to redesignate the properties to be consistent with the City's General Plan, an amendment application to rezone the properties to be consistent with the city's Zoning Ordinance, and approval of a Water Service Agreement with the City of Tustin. These actions are discussed in more detail below. Staff is recommending that the City Council approve the following actions needed for the annexation. Cooperative Agreement The annexation process requires the City and County of Orange to enter into a Cooperative Agreement. The Cooperative Agreement will encompass three elements: 1) recognize the property tax transfer that will need to occur once the annexation area becomes part of the City; 2) document the one-time payment of $711,814 from the County to the City for Public Works Agency related improvements and maintenance projects that are needed within the County island boundaries to bring this area into compliance with City standard; and, 3) allows the County to complete the development process for the two projects currently under review by the County that are located within the annexation boundaries. First, the Cooperative Agreement reinforces the transfer of property taxes that will occur once the properties are annexed to the City. For this specific proposal, the City and County will rely on a Master Property Tax Transfer Agreement that governs annexation areas. This document, which was approved by the Board of Supervisors and City Council on October 28, 1980, identifies the allocation of property tax revenues between the jurisdictions. This agreement states that the County will receive 41.4715 percent and the City shall receive 58.5285 percent of the County's share of the one percent basic levy of property tax from the annexation, which is higher than the approximately 18 percent County/City allocation rate. Based on a fiscal analysis prepared by AECOM dated May 15, 2019 for the annexation, it is estimated that the City will receive roughly $92,000 annually in property tax and property tax in lieu of vehicle license fee revenue once the properties are annexed to the City. Second, several public improvement features (i.e. streets, sidewalks, street trees, lighting etc.) within the annexation area were built to County standards, which slightly differ from the City's standards. In order to compensate the City for the cost of converting these features to City standards, the County has agreed to a one-time payment to the City in the amount of $711,814. This will allow the Public Works Agency the ability to make enhancements that will bring the annexation area closer into compliance with City standards. 75C-3