The end of the decade-long battle between the City of Citrus Heights and Sacramento County may be soon approaching, if the city and the county can agree to a new formula under which the city will make annual payments to the county. The negotiations underscore the confusion and acrimony created by the 1992 law which requires cities to make tax revenue payments to counties under the doctrine of "revenue neutrality." In early 1996, Citrus Heights was scheduled to make the first of 25 annual payments of $5.6 million to the county. The arrangement was expected to end the bickering over revenue neutrality. But the city reneged on the payments, saying it could not afford them, in part because of the declining revenues at the city's regional mall. (Ironically, the profitability of that mall was part of the inducement for Citrus Heights to first seek cityhood in 1986). Most recently, on April 30, the Sacramento County Board of Supervisors voted 5-0 to withhold $2.2 million in property tax revenue generated in the Citrus Heights. Despite that saber rattling, however, city manager Mike Oliver said in May that the city was prepared to pay $2.3 million annually for the next 25 years - a sum that he described as the city's property tax revenues for the inclusive period. He predicted the case would be settled before the scheduled court date in July. "The status is we are continuing with the county and we're hoping that they will see the light," Oliver said. "We believe we are making progress and we will know more in the next 30 days for sure." Despite the projected loss of the city's property tax revenues, Oliver sounded confident that the city would be able to create a redevelopment agency, even though redevelopment projects are financed by tax increment, which is derived from property taxes. "That's part of what we will be negotiating over the next couple of weeks," he said. Although he is not a party to the negotiations, Walter Kieser, a fiscal expert with Economic & Planning Systems in Berkeley, said that it is possible to create a redevelopment agency, in which the county gives back enough property taxes to the city to pay for redevelopment projects, and that the City of Shasta Lake had a redevelopment agency of this kind. Shasta Lake is the only other city besides Citrus Heights to incorporate since the passage of the revenue-neutrality bill. According to Citrus Heights' Oliver, the legacy of litigation that has marked the first decade of Citrus Heights was a "tremendously high price to pay for cityhood," adding that "the state legislature needs to go back and address the issue. We have been left out in the cold." In a lighter moment, he referred to Citrus Heights as "the poster child of revenue neutrality." County Supervisor Illa Collin, however, defended a deal that would take most or all of the city's property taxes. While she said she wanted Citrus Heights to succeed, she also hinted that newly incorporating cities should not be encouraged in Sacramento County. She pointed out the necessity of preserving the tax base in a county where a majority of the population still lives in unincorporated areas. She also said that Citrus Heights would probably become the second-biggest user of the county's judicial and probation services, presumably in view of the city's slum areas. And she was incensed that Citrus Heights City Council had voted to increase the police service failing to pay the county. "Citrus Heights has been using our nickel to provide for increased services. They (city officials) have not wanted to tell their citizens the truth about where the money came from," she said. Collin added that the county was not trying to act punitively toward Citrus Heights. But neither did it seem did she want to send a message of permissiveness to other would-be cities in Sacramento. "The problem in this county is that we have so many others in the wing. They figure if there is a windfall to be had, just as Citrus Heights enriched (itself) by drawing a line around a sales-tax Generator, then they can do it, too." Meanwhile, two legislative attempts to reform Cortese-Knox, the "revenue-neutrality" statute, have moved forward in Sacramento. On May 14, AB 2147 (Thompson) won approval from the Assembly by 67-1. In its present form, the bill does little more than state that tax transfers under revenue-neutrality need a "rational" basis. On the same day, the state approved by a 37-0 vote, SB 1793 (Greene), which instructs local LAFCOs to inform counties which services new cities will assume on their own, and which will be contracted. A senate analysis describes the bill as "much ado about nothing," since LAFCOs already perform this role. A third reform bill, AB 2158 (Ortiz), died in assembly committee in late April. Possibly of greater significance are the ongoing talks between representatives of the California League of Cities and the California State Association of Counties on a new formula for revenue neutrality. If the parties reach a decision, the formula may be inserted into the Thompson bill. Contacts: Mike Oliver, city manager, City of Citrus Heights, (916) 725-2448 Walter Kieser, Economic & Planning Systems, (510) 841-9190 Illa Collin, Saramento County Supervisor (916) 874 5411