Annexation tax reduced for Rainbow, DeLuz property owners

The Fallbrook Community Air Park and areas in DeLuz and Rainbow which were annexed to the San Diego County Water Authority and Metropolitan Water District of Southern California after the SDCWA and MWD were formed will have the MWD annexation charge on their property tax bills reduced.

On May 10, the MWD board approved a reduction, if not the entire elimination, of annexation levies in 11 areas including five CWA areas. On July 28, the CWA board authorized voter or property owner approval of the modification for the five CWA areas. The Rainbow No. 3 annexation levy was reduced to $382,472, which will allow property owners to pay off the charge in two years, while the levy was eliminated for the Fallbrook Community Air Park, DeLuz Heights Reorganization, DeLuz Heights No. 1, and Rincon Del Diablo No. 4 annexations.

If an area annexes to MWD, the annexation fee includes its fair share payment for existing infrastructure. Prior to the Proposition 13 tax limitations enacted by the state’s voters in 1978, the annexation charge was paid through the levy of special taxes on property tax bills within the annexation area while capping that levy at 0.1875 percent of assessed valuation. Approximately 90 areas used tax levies to raise the annexation charges, which included four percent compounded interest on unpaid balances, and most of those were paid off within 30 years.

The 11 remaining areas have not had sufficient property valuation to cover the tax levies. The rural or undeveloped nature of the land has kept valuation low, and some of the areas have parcels which were acquired by tax-exempt entities which shifts payment responsibility to the remaining parcels.

Two of the areas, an Orange County area which is now a regional park and the Rincon Del Diablo No. 4 area which was acquired for the San Dieguito River Valley Regional Open Space Park, were acquired by public agencies and permanently set aside as open space, so there is no longer any taxable property in those areas.

Many of the areas were annexed into MWD and MWD’s member agencies at the request of local property owners who wanted to ensure future availability of imported water if needed but still utilize well water and have not received water from MWD’s infrastructure.

The Rainbow No. 3 and DeLuz Heights Reorganization annexation charges have been levied for 43 years; the Fallbrook Community Air Park and DeLuz Heights No. 1 charges have been levied for 41 years; and the Rincon Del Diablo levy has taken place for 38 years. The original levies were $2,002,000 for the DeLuz Heights Reorganization, $1,728,000 for Rainbow No. 3, $312,000 for DeLuz Heights No. 1, $59,800 for Fallbrook Community Air Park, and $19,200 for Rincon Del Diablo No. 4. The amounts paid to date, including interest, are $4,499,452 for the DeLuz Heights Reorganization, $2,137,121 for Rainbow No. 3, $188,840 for DeLuz Heights No. 1, $188,078 for Fallbrook Community Air Park, and $14,053 for Rincon Del Diablo No. 4.

Prior to the MWD modification, the total outstanding annexation debt for the 11 agencies was $17,778,416 including $5,758,883 for Rainbow No. 3, $2,791,740 for the DeLuz Heights Reorganization, $1,222,589 for DeLuz Heights No. 1, $51,439 for Rincon Del Diablo No. 4, and $11,998 for Fallbrook Community Air Park. Without the change the DeLuz Heights No. 1 and Rincon Del Diablo No. 4 debt would never be paid off; the Fallbrook Community Air Park assessment would be paid off in one year; the DeLuz Heights Organization charge would be paid off in 15 years; and the Rainbow No. 3 assessment would be paid off in 33 years.

MWD’s board has the authority to “modify the method of raising an amount previously fixed by the Board to be collected by special tax levies as a condition or term of annexation, in any manner which would result in a cash payment or a series of annual levies either of which would have a present value equal to the present value of the amounts remaining to be levied in such area according to terms previously specified by the Board”. The present value of the amounts remaining to be levied shall be determined by the board as of the date the modification is approved.

The MWD board chose to exclude tax-exempt parcels and to use simple interest, rather than compound interest, to determine whether an area has met its obligations to pay off the annexation charge. Under the calculation of simple rather than compound interest, the revised charge is $2,737,562 for the DeLuz Heights Reorganization area, $2,519,593 for Rainbow No. 3, $122,758 for DeLuz Heights No. 1, and $103,747 for Fallbrook Community Air Park. Under that methodology the two DeLuz Heights areas and the airport area have met their payment obligations. The Rainbow annexation and two Western Municipal Water District areas in Riverside County are the three remaining annexation areas whose property owners will continue to pay charges, and MWD will write off all but $851,547 of the current outstanding amount.

The MWD member agencies are required to obtain voter approval for the modification. If the annexation area has at least 12 registered voters, approval by a majority of registered voters is necessary. If fewer than 12 voters reside in the property area, approval by owners of more than one-half of the taxable property value is needed.

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