Orcutt Housing Project Hits Dead End on Road to Annexation

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This article was underwritten in part by the Mickey Flacks Journalism Fund for Social Justice, a proud, innovative supporter of local news. To make a contribution go to sbcan.org/journalism_fund.

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A proposed housing and commercial space project in Orcutt hit a dead end last week when the county’s Board of Supervisors rejected a tax exchange agreement with the City of Santa Maria. Now, the project developer is left to pursue a larger, builder’s remedy project on the site. 

Richards Ranch is a field with a few eucalyptus trees off of Union Valley Parkway between Orcutt and Santa Maria’s airport. For more than six years, a development team led by property owner Michael Stoltey has worked to build a mixed-used project on the site. The project would include 400 apartments, 100 townhomes for sale, and commercial space, including space for stores. 

To build the project’s commercial component, the project needs a water source that isn’t readily available in Orcutt. For nearly 30 years, Orcutt’s water policy has dictated that agriculture, generally, has rights to the community’s groundwater. The City of Santa Maria will sell its water (which it buys from the State) to developers looking to build housing in Orcutt, but it doesn’t sell its water for commercial properties. 

Developer Stoltey submitted a proposal alongside the City of Santa Maria to annex the property into Santa Maria, providing the commercial space in the project a water source. While that annexation plan has failed, the development team still has the option to pursue its backup builder’s remedy project. 

Plan B: Builder’s Remedy

In 2023, Stoltey and the Richards Ranch development team filed an alternative, larger housing project under builder’s remedy, a state housing provision that allows housing developers to bypass zoning restrictions if a portion of their project includes affordable units.

The project would build 750 apartments in several buildings (20 percent of those units would be affordable). It would not include commercial space, except for a storage facility, which has low-water use. Last summer, Stoltey told the Independent that the development team preferred the annexation project. 

Now, Stoltey and the Richards Ranch development team said it had no choice but to continue pursuing legal remedies and the builder’s remedy application. 

“This is not the outcome we were seeking — we viewed this process as an opportunity for a cooperative, regional solution — but the county’s actions leave us with no viable alternative,” Stoltey said in an email to the Independent.

Tax Agreement Doesn’t Pencil Out

The tax exchange agreement would allow the Local Agency Formation Commission (LAFCO) to review a proposal to annex the 44-acre property, Richards Ranch, into the City of Santa Maria. If LAFCO had approved the annexation, the commercial component of the project would have had a water source. The county said that tax agreement would cost the county too much money. 

The rejection comes after two independent fiscal impact studies — one paid for by the developer and one paid for by both the county and Santa Maria — said the annexation would profit the county. In the city- and county-funded analysis, prepared by Willdan, the study determined that as long as the county received 33 percent of the property tax revenue, which makes up a large part of the general fund, it would break even. 

But county staff said the analysis didn’t account for other losses in revenue and underestimated how much fire services would cost the county. For example, the county argues that it would lose out on the money future property owners would pay to the Orcutt Community Facilities District — a district that levies taxes for public infrastructure, public safety services, parks, and flood and storm protections. The county put their loss at $425,000 annually by calculating the revenue they would receive if the development was in the county. These calculations do not include a breakdown of how city services would impact costs. 

The county also made note of the cost for public safety services, arguing that the Santa Barbara County Fire Department would more often serve the area, due to the proximity of County Fire stations. 

In total, the county argues that losing the land while still providing services would cost the county approximately $212,000 each year. 

‘Throwing the Baby out with the Bathwater’

Property owner Michael Stoltey, as well as representatives from housing development organizations, asked the county to put a “pause” on the decision until June so that the city and county had a chance to negotiate and “reconcile what we believe are material issues in the staff analysis at a high level,” Stoltey said. 

Jeff Pemstein from the National Association of Homebuilders said that he had 40 years of experience in the field and time to review the fiscal analyses. He didn’t think the county and city were far apart in negotiation, and that ending the conversation now would be like “throwing the baby out with the bathwater.” 

‘I Don’t Feel Proud About This’

Supervisors Bob Nelson, Roy Lee, and Laura Capps voted to reject the tax exchange agreement. Supervisor Nelson said he thought the board had all the information they needed and would not vote for a continuance. He said that he wasn’t sure he would even support the exchange if the county’s proposal had been chosen, due to other policy implications and services delivery concerns. 

Third District Supervisor Joan Hartmann voted against the rejection. She said that while the site has complications, it would provide much-needed housing for the county, as well as infrastructure. 

“I think the developer has been trying every which way to Sunday to figure out what might work, and running into roadblocks everywhere,” she said, “and I don’t feel proud about this.” 

So What Happens Now? 

Stoltey and the county are currently involved in two lawsuits. A suit filed last year alleges the county acted in bad faith when processing the property’s builder’s remedy application. That lawsuit includes an allegation that 4th District Supervisor Bob Nelson acted antagonistically toward the project. Last summer, Supervisor Nelson told the Independent these allegations were untrue. 

A second suit filed last month alleges that the county disregarded the California  Department of Housing and Community of Development’s guidance on the completion status of its application. Should the county lose this suit, it would be on the hook for more than $7.5 million in fines. 

In an email to the Independent, Stoltey said the development team is still willing to reengage with the county to build housing at the site.