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Old Posted Aug 2, 2007, 3:00 PM
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City told North Natomas annexation would lose money
By Terri Hardy - Bee Staff Writer
Last Updated 6:30 am PDT Thursday, August 2, 2007
Story appeared in METRO section, Page B4


One of the largest annexation proposals in Sacramento's history is in jeopardy because a city analysis has concluded the plan is a money-losing venture.

Should the city absorb the 1,430-acre "panhandle" near North Natomas, it would be saddled with road repairs and other needed improvements estimated at $7.4 million -- and wouldn't recoup enough in additional tax revenue to make it worthwhile, said Russ Fehr, city finance director.

"The result is very little gain for the city," Fehr told the Sacramento City Council this week. "I'd be hard pressed to say why we would go forward under these terms."

The panhandle is a vertical swath of Sacramento County land bordered on the north by Elkhorn Boulevard and on the south by Interstate 80. It is bisected by Del Paso Road.

The financial report raised doubts about the annexation plan that has been slowing moving through the city bureaucracy for seven years.

One possible but far-from-certain alternative exists, Fehr said. If the city were allowed to annex only the northern portion of the panhandle above Del Paso, it would have fewer expenses and the deal could pencil out.

Mayor Heather Fargo said the next logical step is to determine whether the annexation of just the northern portion is a viable option.

"The key to all this is reaching an agreement with the county or we can't go forward," Fargo said. "We need to figure out what we want to do."

Paul Hahn, the county's head of municipal services, said that the city's truncated panhandle plan is "problematic" but he'll continue to work with the city on a solution.

"We're not trying to be troublesome," Hahn said. "We thought we had an agreement already arranged."

Fehr warned City Council members that under state law the county has all the power in negotiations, with an ability to veto the project and a requirement that it must approve any financing plan.

"It's like we're playing poker and they're allowed to pick cards out of the deck," Fehr said.

If a deal can be worked out, the proposal must then be approved by the Local Agency Formation Commission -- the agency in charge of political boundaries.

North of Del Paso Road is mostly raw agricultural land, and developers are seeking to construct 3,000 new homes there. The Grant Joint Union High School District also wants to build a $152 million education complex with both a high school and a junior high school.

The land south of Del Paso contains commercial buildings and industrial businesses. The older area needs $5.2 million in road improvements, $660,000 in storm drainage work and nearly $1.5 million to connect to the city's water system.

Attorneys representing the major landowner in the south as well as the home developers in the north said their clients supported the idea of lopping off the area below Del Paso. But LAFCO frowns on creating an island of unincorporated area surrounded by the city, said executive director Peter Brundage.

"It creates service problems," Brundage said. "The law discourages it."

Fehr said the question would go to county supervisors, as part of a final tax sharing agreement. So far, no firm arrangement has been inked.

Under the deal points as they are now, property taxes would be split evenly between the city and county. For sales taxes, the county would continue to get its current "base" level, and anything over that from the southern portion would be divided between the city and county. In the north, 100 percent of sales tax revenues would go to the city.

Residents and businesses would see their utility users tax go to 7.5 percent from the county's 2.5 percent. The county would keep the 2.5 percent and the city would get the rest.

Also under the plan, the city would get $12.6 million over time from developer fees for building needs in North Natomas, an area that currently is looking for $74 million for promised roads, parks and other improvements. The fees would help fund a library, community center, fire and police facilities, a regional park and traffic signals.

This arrangement would allow the county to continue receiving the revenue it currently collects. The city would become responsible for providing services.

Fargo wondered if the county seemed willing to look at other funding sources to pay for the area's current infrastructure needs. Fehr said they had other priorities.

"They had a take-it-or-leave-it attitude," Fehr said.

Even if financial details could be worked out, other obstacles remain.

Some Natomas residents voiced opposition to the plan Tuesday. They said before the city takes on another area to develop, it should first provide promised police and fire protection, as well as amenities such as parks, to the North Natomas community.

And, they said the city should not allow development in the area until they achieve 100-year flood protection.

"We'd like to see building cease until these issues are taken care of," said Tristan Godt, a North Natomas resident.

Scot Mende, the city's new growth manager, remained optimistic. "The area north of Del Paso has been planned for development for a very long time, and we'll find a way to get that annexed."
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