The City of Bakersfield has filed a claim against Kern County stating that county administrators illegally recalculated the city’s share of property taxes on land annexed to the city. That will cost the city millions in lost revenue over the coming years, city administrators said.

But county staff said a recent internal review showed the county had miscalculated for years the taxes due to the city and will withhold $2.3 million in property tax revenue from Bakersfield to make up for it. 

Bakersfield City Manager Alan Tandy said the county, and in particular Auditor-Controller Ann Barnett, is reversing itself on tax splits that were already agreed to for 180 annexations since 2002.

But County Administrative Officer John Nilon and county staff said that the county had been incorrectly calculating the split since at least 2005 and the city has received $2.3 million more than it should have. Of that, about $570,000 belongs to local school districts, Nilon said Thursday. 

The city hasn’t yet filed a lawsuit, but the claim against the county is the first step in that process.

The crux of the dispute is the interpretation of the tax sharing agreement between the two entities. In 1995, Bakersfield signed a tax split agreement with the county that outlined how property taxes will be split for land annexed to the city. That agreement was renewed in 2005.

When property, such as county “pockets” in the city, is annexed to the city, Bakersfield gets part of the property taxes that previously went to the county, to pay for the cost of city services for that property or its owners. The county still gets a share of the taxes, too, though less than before the annexation. The tax split agreement says what that split will be.

Months-long disagreement

Tandy, in the Dec. 3 filing, said Barnett and other county employees have illegally recalculated tax splits for property annexed to the city between 1996 and 2012. Those annexations were already approved by Kern County supervisors in public meetings, and Barnett’s move amounts to a reversal without public procedure, Tandy said.

“We’re dealing with an administrative reversal by the county of 180 separate board actions,” Tandy said. “This is being done with no public notice.”

Steve Teglia of the city manager’s office said the issue has been developing over several months, starting around March when county staff told him they “felt obligated to do things differently going forward” in calculating the tax splits, he said.

Tandy said much of the property at issue is undeveloped and will only increase in value when homes and commercial development are added. That means the city could lose out on millions of dollars in tax revenue in future years, he said. Tandy and city staff put the “ballpark” figure at $500,000 for the amount the city won’t get next year as a result of the county changing how it will calculate the split from now on.

But county administrators said they are legally obligated to correct the past miscalculations.

The city and county each issued their own statements Thursday about the city’s claim after an inquiry to city staff from The Californian, but the issue has been brewing for months.

“The City has been unjustly enriched at the expense of vital services to County taxpayers and local schools,” Nilon said in his statement. “The City has sued the County in an unfortunate attempt to keep the money and reverse the Auditor-Controller’s corrections. The county will vigorously oppose the City’s efforts to receive tax revenues that do not belong to the City.” 

Barnett issued her own statement, saying that tax allocations hadn’t been made in compliance with the city-county agreement.

The cut in tax revenue coming to the city will start with this month’s allocation, according to city staff.

Methods disputed

In letters over the last six months, Tandy and Barnett have disagreed on whether tax revenue meant for the Education Revenue Augmentation Fund, or ERAF, for local schools should be taken out before or after the county and city split up the tax revenues. The county says that the city-county agreement states clearly that funds for ERAF should come out first, before the city-county split. Tandy, in his letters, said that’s not the way it’s been done and the county changing its method shortchanges the city. 

“The new calculation methods would result in the city experiencing a double hit from the ERAF shift in future years” for annexed properties, Tandy said in a July 9 letter to Nilon. “Applying this altered calculation method for all future annexation tax splits would ultimately create a significant, cumulative negative impact on funds available to the city to provide basic services.”

Barnett responded to that letter and said the county hadn’t calculated the split as it should have under the city-county agreement, which is why it changed its method earlier this year. 

In the meantime, annexations apparently have stopped. Any annexations submitted to the Local Agency Formation Commission, which authorizes them, since May haven’t been completed, said Chris Huot of the city manager’s office. Those that already had an agreed-on tax split before the end of May were completed, he said. Kern County Counsel Theresa Goldner said she believed some annexations had been completed since May.

Tandy’s and Nilon’s statements Thursday came just a day after a face-to-face confrontation between the two at a meeting on animal control issues.

The city and county have formed a committee to work out a long-term agreement to share the costs of running the county animal shelter that sits on city land, but reaching consensus on the costs has been a rocky process.