PREVIOUSLY

• Developer of McKay Ranch Subdivision, a Proposed 320-Unit Housing Development in Cutten, Seeks Annexation from Humboldt Community Services District

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The North McKay Ranch Subdivision could eventually provide hundreds of new homes for local residents — if it ever gets built.

The long-planned development near Cutten calls for up to 320 residential units and 22,000 square feet of commercial space to be built in phases over many years, but movement on those plans has come to a standstill. Eleven months after developer Kurt Kramer applied to get the project site annexed into the Humboldt Community Services District — a necessary step to supply its buildings with water and sewer — no action has been taken.

“They haven’t turned it down,” Kramer said in a recent phone interview, “but it’s a year later and nothin’s happened. It’s embarrassing.”

Kramer is frustrated by the inaction, which he sees as a sign that the state and local governments can’t be serious when they talk about how much California needs new housing construction.

“This is crazy,” he said. “It’s basically stopping progress.” He suspects that the inaction may be related to the “progressive” political bent of the district’s board, which has manifested as a “no growth” attitude, from his perspective.

“I would like to think that when people say they need housing, that they mean it, but I just don’t believe them anymore,” Kramer said.

Terrence “TK” Williams, general manager of the Humboldt Community Services District (HCSD), said it’s not a matter of political willpower but rather a question of financing: Who’s going to pay for the new infrastructure?

The district’s board of directors did consider Kramer’s annexation request last February, Williams said, and two of the board members — Heidi Benzonelli and Michael Hansen — were designated as an ad hoc committee to investigate the matter further. However, they have yet to figure a way to make the finances pencil out.

The district’s primary idea has been to ask the County of Humboldt for a larger share of property tax revenues, but the county has proved unwilling to give that up. Williams said district personnel has met several times with county staff in hopes of finding a path forward that doesn’t saddle HCSD’s current ratepayers with the costs of the North McKay Ranch Subdivision — or any other new development within its boundaries, for that matter.

Williams explained that the HCSD is already over-extended financially.

“Over the past 20 years, the District has invested tens of millions of dollars of ratepayer money to construct water and wastewater infrastructure that will support a population of over 45,000 people,” he said. “These investments have been in response to significant pressure from the County of Humboldt and from developers for housing projects that were supposedly imminent.”

But those developments have not materialized. Rather than booming to 45,000 residents, the current population within HCSD’s boundaries has remained relatively flat at about 20,000, Williams said.

“This means that the infrastructure that was built to support 45,000 people was paid for and is being maintained by fewer than 20,000 people,” he said. “This is the primary reason that the District’s rates are as high as they are.”

As shown in the map below, the North McKay Ranch Subdivision site is located just outside of the district’s service boundaries (shown in red) but within its sphere of influence (in yellow). (Zoom in to see the the project site itself, shown in black.) 

Because the property sits outside HCSD’s current boundaries, the district doesn’t stand to gain much in the way of property tax revenue by annexing the parcels in question. Most of that revenue would instead go to the state and the county. The reason has to do with California’s taxation methods and something called “incremental property tax revenues.”

Since the 1978 passage of Prop. 13, annual property taxes have been capped at one percent of each property’s assessed value, which has reduced state and local government property tax revenues over time. And in recent decades, the state has been redirecting more of those revenues to schools, leaving less for cities, counties and special districts.

For example, Humboldt County’s General Fund used to receive between 30 and 40 percent of the tax revenues on properties in its jurisdiction. But since 1992, when the state legislature shifted the way it shares those revenues, the county’s portion has dwindled.

“[T]he General Fund now receives about 16% on average,” Humboldt County Public Information Specialist Cati Gallardo said in an email. Again, that’s down from 30 to 40 percent a few decades ago. 

Still, the county’s share of new property tax revenues dwarfs that of the HCSD, which only receives about 2 percent of property taxes within its boundaries. And Prop. 13 made matters worse.

Prior to 1978, the county would “share” an agreed upon portion of its property tax revenues with special districts like HCSD whenever there were new developments within those districts’ service areas. When a property is subdivided and developed, it substantially increases in value, which means more property tax revenues. This additional amount is called “incremental property taxes.” 

But in the post-Prop. 13 world, special districts in Humboldt County, including HCSD, no longer get a cut of those incremental property taxes. 

In meetings with the county, HCSD personnel has asked for an extra two percent of incremental property tax revenues from the county for any new development within its boundaries. This revenue would help pay for the infrastructure needed to serve the North McKay Ranch Subdivision and any future projects.

When the Outpost first spoke with Williams about these negotiations, shortly before Christmas, he remained hopeful.

“The County has not rejected the proposal for incremental property taxes but has also not yet agreed to provide [them] to the District,” he said.

But according to Gallardo, it’s not likely to happen.

“It is not standard practice for counties to divert tax revenue to a CSD,” she said in an email. An exception might be made if the community services district were assuming responsibility for a service that the county was already providing, but that’s not the case here. 

“The district has requested an additional 2%, in the area proposed to be annexed, which would reduce the General Fund’s share from 16% to 14% and provide HCSD with an additional $30,000 annually at full buildout,” Gallardo said.

But if the North McKay Ranch Subdivision gets built, the county will need those revenues in order to provide services for its residents, she explained. 

“Based on a [proposed] full buildout of the subdivision, which will take many years, we estimate the General Fund would receive roughly $270,000 per year to provide the broad range of public services needed including law enforcement, road maintenance and social services, among others,” Gallardo said.

The county was under the impression that HCSD had gotten the message that its request had been denied.

“[D]uring the most recent meeting, it was understood that the district would explore alternative funding options,” Gallardo said.

When we followed up with Williams this week, he asked for additional time to consult with the members of the ad hoc committee — Benzonelli and Hansen — and eventually he emailed a statement saying the district doesn’t consider the negotiations closed.

“The representatives of the District who have attended meetings with the County have left with the impression that … [they] would continue negotiating with the County regarding property tax allocation,” his email says. Without those revenues, the district’s options are limited.

Williams pointed to a state law that prohibits the use of ratepayer money to finance projects that support growth geographic expansion. Which is bad news for Kramer and his project.

“Given the District’s limited resources, we can only focus on pursuing grants that help reduce the cost of providing services to our existing ratepayers,” Williams explained.

Kramer remains flabbergasted by the situation. 

“It’s really unbelievable,” he said. Because his project site is within HCSD’s sphere of influence, he’s legally prohibited from seeking water and sewer hookups elsewhere. 

“So they got me stuck where I can’t do anything on my own, and yet they won’t take me in, so I can’t get additional hookups,” he said.

He has managed to get hookups at one house in the Phase One portion of the site plan (in green on the map at the top of this post) but said that process required probably $10,000 and special permission from LAFCo (the Humboldt Local Agency Formation Commission).

“So I’m hooked up to that one, and now I’m trying to just develop the two lots on either side and sell those homes off. And I can’t do it!” he said. “So it’s a mess.”

Gallardo pointed out that, regardless of the county’s negotiations with HCSD, the development agreement for the North McKay Ranch Subdivision says that Kramer, as the developer, is required to install water tanks, replace a sewer main and pay HCSD-imposed backbone fees before receiving service from the district.

Kramer said that’s yet another obstacle.

“That’s the way they’re going to kill the second phase of the project is by not doing anything — not putting in pipes in the ground that benefit the project. … Everything that that development [agreement] was written up for basically [says] it was my responsibility to do all of these capital improvements. Now they doubled my connection fee, and none of that fee goes to any improvements that benefit the project,” he said. “This is the other end of ‘no growth.’”