BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 851|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 851
Author: Mayes (R)
Amended: 6/30/15 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/24/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 75-0, 5/22/15 - See last page for vote
SUBJECT: Local government: organization: disincorporations
SOURCE: California Association of Local Agency Formation
Commissions
DIGEST: This bill amends the procedure that local agency
formation commissions may use to authorize the disincorporation
of a city.
ANALYSIS:
Existing Law:
1)Establishes the Cortese-Knox Hertzberg Local Government
Reorganization Act of 2000, which specifies procedures for
local government changes of organization, including city
incorporations, disincorporations, annexations to a city or
special district, and city and special district
consolidations.
AB 851
Page 2
2)Vests responsibility for controlling boundaries with local
agency formation commissions (LAFCOs) in each county. LAFCOs
are responsible for coordinating logical and timely changes in
local governmental boundaries, conducting special studies that
review ways to reorganize, simplify, and streamline
governmental structures, and preparing a sphere of influence
for each city and special district within each county. LAFCOs
regulate boundary changes through the approval or denial of
proposals for these changes by other public agencies or
individuals.
3)Prescribes a process for disincorporation, which is similar to
most boundary changes that require numerous steps in the
following order:
a) First, there must be a completed application to LAFCO,
including a petition or resolution, a generic plan for
services, an environmental review document, and a property
tax exchange agreement between the county and the city.
b) Second, LAFCO must hold a noticed public hearing, take
testimony, and may approve the proposed city
disincorporation. LAFCO may impose terms and conditions
that spell out what happens to the city's property, assets,
and liabilities. If LAFCO disapproves, the proposed
disincorporation stops. A LAFCO may not approve a
disincorporation that impairs any indebtedness, such as
bonds, or any other contractual obligation, such as
pensions.
c) Third, LAFCO must hold another public hearing to measure
protests. The proposed disincorporation stops if there is
a majority protest; that is, if more than 50% of the city's
voters file written protests. Absent a majority protest,
LAFCO must order an election on the proposed
disincorporation.
d) Fourth, a disincorporation election occurs among the
city's voters. A successful city disincorporation requires
majority-voter approval.
e) Finally, LAFCO's staff files documents to complete the
disincorporation.
4)Establishes processes for LAFCOs to implement the
disincorporation, as follows:
AB 851
Page 3
a) Following the disincorporation election, the LAFCO or
the county conducts an audit to determine the city's
current debt, the amount of money in its treasury, and the
amount of unpaid taxes or other obligations owed to the
city.
b) Prior to the effective date of a disincorporation,
public officers must turn over public property to the
county board of supervisors and the city council must turn
over all city funds to the county treasurer.
c) Once the disincorporation is in effect, the county board
of supervisors is responsible for winding up the affairs of
the former city. Residents of the former city no longer
have any rights or duties as inhabitants or voters of a
city. The county tax collector may collect any levied but
uncollected taxes owed to the disincorporated city, and the
county may collect or sue for all debts owed the city.
Other territories within the county are not responsible and
may not be taxed for the debts or liabilities of the former
city. Instead, if the assets of the former city aren't
sufficient to cover the city's debt payments, the county is
required to levy a tax on the formerly incorporated
territory that raises enough money to make the payments.
5)Establishes voter approval requirements for new local taxes.
Beginning in 1978, voters approved a series of constitutional
amendments that established voter-approval requirements for
new local taxes. Proposition 13, approved in 1978, greatly
constrained local governments' ability to raise property tax
rates and required all new local government special
taxes-taxes dedicated to a particular purpose-to be approved
by two-thirds of voters. In order to implement Proposition
13, the Legislature passed AB 8, which created a formula to
allocate the reduced property taxes among local governments,
based on the share that they received in 1978. Subsequently,
Proposition 218 (1996) required new general taxes-taxes to
raise money for general purposes-to be approved by a majority
of voters.
This bill:
1) Amends the Cortese-Knox-Hertzberg Act to make several
changes to the process that LAFCOs must use to approve a
disincorporation.
AB 851
Page 4
2) Describes specific minimum contents for the plan for
services following disincorporation. This plan for services
must describe:
a) The services currently provided to the city, and
what agency will provide those services in the future;
b) The services that will be discontinued or
transferred, how those services were financed before,
and how they will be financed in the future;
c) The existing financing of services, including
financial tools such as bonds, assessments, or taxes;
d) The status and exit plan for any bankruptcy
proceeding;
e) Any state enforcement action or other order
relating to services provided by the city; and
f) A written statement from each entity that will
provide services that it has received the plan for
services.
3) Includes several provisions that govern the exchange of
property tax revenues following a disincorporation, as well
as related technical changes to the Revenue and Taxation
Code, including that it:
a) Requires the LAFCO to determine the amount of
property tax-and the corresponding increase in the state
appropriations limit-that goes from the former city to
other local agencies (such as schools and the county)
b) Specifies a formula that LAFCO must use to make
this determination. Specifically, local agencies that
take over service provision get a share of the
disincorporating city's property tax that is
proportional to the share of total costs that are
attributable to the cost of the services that they take
on. For example, if the cost of providing fire
protection was 25% of the city's total costs to provide
services, the entity that is taking over fire protection
would receive 25% of the property tax revenues formerly
going to the city. Agencies that do not take over any
services do not receive any property tax revenue.
c) States the Legislature's intent that the debts and
contractual obligations of a city that disincorporates
shall be the responsibility of the same territory for
repayment. In order to carry out this provision, AB
AB 851
Page 5
851:
i) Requires a city to give the LAFCO a
written statement of its debt, funds in its
treasury, unpaid taxes that the city is owed, and
current and future liabilities that are owed to
lenders or by contract, including pensions.
ii) Requires the city to identify the
successor agency for its former redevelopment
agency. (Under current law, the commission is
charged with determining these amounts AFTER the
disincorporation completes.)
4) Requires the standard LAFCO report that accompanies any
proposal to include a comprehensive fiscal analysis that
reviews and documents, including the cost of providing
services and the revenues in the past 3 fiscal years, the
sources of funding available to the entities that take over
providing services, and the related costs of those
services. These costs must include both the direct costs
and indirect costs of providing the services.
5) Defines indirect costs for the purposes of the
Cortese-Knox-Hertzberg Act.
6) Requires the LAFCO to make several findings before
approving a disincorporation, including that:
a) The disincorporation proposal is consistent with
the intent that it provide sustainable delivery of
services;
b) The LAFCO considered the relevant municipal
service reviews, and the disincorporation will address
necessary changes to spheres of influence;
c) The LAFCO reviewed the fiscal analysis and the
executive officer's report on the proposal; and
d) Service responsibilities have been assigned
through terms and conditions that the LAFCO imposes
under its existing authority to conditionally approve
proposals.
7) Requires that a single question regarding the
disincorporation be placed on the ballot if multiple
organizational changes are proposed.
AB 851
Page 6
8) Repeals several provisions that require taxes to be levied
on the formerly incorporated territory to pay off
indebtedness that remains after the disincorporation, as
well as other provisions that conflict with the new process
that AB 851 establishes.
9) Makes several technical changes to existing LAFCO law
where it refers to incorporation but not disincorporation,
in order to:
a) Declare the Legislature's intent that the
disincorporation be processed in a timely fashion;
b) Prohibit a city contemplating disincorporation
from increasing compensation for the governing board or
the city's expenditures or financial obligations beyond
what has already been approved in the city's budget;
c) Allow the local agency that conducts proceedings
for the disincorporation of a city to levy a special tax
on behalf of that city (as is already allowed with other
types of boundary changes).
10) Provides that the general plan, zoning ordinances, and
conditional use permits issued by the disincorporated city
to continue in force for the formerly incorporated territory
until the county changes them.
11) Extends the sunset period for an alternative method to
determine property tax allocations resulting from city
annexation from 2015 to 2021.
Background
Seventeen cities have disincorporated in California's history,
but only two cities that have disincorporated since the creation
of LAFCOs in 1963. The City of Cabazon, located in Riverside
County, was disincorporated in 1973, and went through the
process contained in LAFCO law. The Town of Hornitos, located
in Mariposa County, was disincorporated by statute in 1972.
More recent discussions surrounding the issue of
disincorporation are in reference to several cities in
California that were impacted by Governor Jerry Brown's 2011
"realignment" of some state responsibilities and commensurate to
AB 851
Page 7
local governments. The realignment proposal and subsequent
budgetary actions redirected Vehicle License Fee (VLF) revenues
from cities to other local governments. This created particular
fiscal hardships for recently incorporated cities and cities
that annexed inhabited areas with the expectation that they
would receive VLF revenue that would make the annexation
financially viable. After several failed legislative attempts to
remedy this issue, cities like Jurupa Valley have continued to
discuss possible disincorporation.
News reports on the possible disincorporation of the City of
Adelanto in San Bernardino County have persisted despite
assurances by city officials that the City has the budget for
one more fiscal year and that they continue to look into long
range revenue generating and saving opportunities. Most
recently, a Santa Barbara grand jury released a report earlier
this month calling for the City of Guadalupe to disincorporate
due to fiscal mismanagement, a declining tax base, and
increasing debt obligations. The Guadalupe City Council has not
taken any steps to suggest they will follow the recommendation
of the grand jury.
Comments
1)Purpose of the bill. As discussions of disincorporations
continue, AB 851 proactively addresses problems with the
disincorporation process. The statutes prescribing the
disincorporation process have not been significantly updated
since the inception of LAFCOs in 1963. Since then, LAFCOs
have had decades of experience with boundary changes. AB 851
applies this experience in order to rationalize the
disincorporation process. AB 851 ensures that the full
effects of disincorporation are identified and understood
before voters have to make a decision by (1) requiring a more
detailed plan for services that is able to make provisions for
discontinuing services, and (2) ensuring that the financial
condition of the city is fully evaluated prior to LAFCO
approval of the disincorporation. In addition, AB 851 brings
the disincorporation procedure into full compliance with the
mandates of Propositions 13 and 218. Under existing law, the
intended procedure for dispensing with debt and unfunded
liabilities requires counties to levy a tax without voter
approval. As a result, the current process is not in
compliance with Propositions 13 and 218. This could result in
AB 851
Page 8
the county at large being responsible for the debts and
unfunded liabilities of a city that has disincorporated. This
bill does not encourage disincorporations; in fact, by
ensuring that the full effects are known up front, it may
discourage disincorporations and encourage cities to pursue
other means to address their financial challenges.
2)Who has the say? AB 851 creates a process whereby services,
and associated liabilities, can be transferred to other local
agencies in the county, as outlined in the plan for services
and the terms and conditions of the transfer. Yet it leaves
the decision to disincorporate with the city proposing
disincorporation, the LAFCO, and the residents of the city.
While affected local agencies must be notified of the plan for
services, they are not required to agree with it. In other
LAFCO proceedings, there is an effort to balance the rights of
all affected parties. For example, city incorporations only
require the vote of residents in the territory proposing
incorporation, but the city and county must agree on a
property tax exchange. In the case of disincorporations,
there may be a balance to be struck between the rights of the
residents of the city, who may be heavily impacted by poor
service that their city currently provides, and the rights of
the other affected parties (such as residents in the
unincorporated area), who may be more numerous but less
heavily impacted by the process.
3)Follow the money. The way that property taxes are reallocated
under AB 851 differs from the way property taxes are divvied
up under typical boundary changes. In most boundary changes,
property taxes are exchanged between affected agencies under a
mutual agreement, but AB 851 requires LAFCO to determine the
allocation of a disincorporated city by formula, based on the
services that the affected entities take on. There are
legitimate reasons for prescribing a formula, such as avoiding
complex negotiations over what might be small amounts of
property tax. However, there are other ways of allocating
property tax, such as by using the formula developed by the
Legislature after AB 8. Each of these different allocation
methods creates different winners and losers.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
AB 851
Page 9
SUPPORT: (Verified7/14/15)
California Association of Local Agency Formation Commissions
Alameda Local Agency Formation Commission
California Special Districts Association
California State Association of Counties
Contra Costa Local Agency Formation Commission
Imperial County Local Agency Formation Commission
Marin Local Agency Formation Commission
Nevada County Local Agency Formation Commission
Orange Count
Orange County Local Agency Formation Commission
Riverside County
Riverside Local Agency Formation Commission
Rural County Representatives of California
San Bernardino County
San Diego Local Agency Formation Commission
San Mateo Local Agency Formation Commission
Santa Barbara Local Agency Formation Commission
San Bernardino County Local Agency Formation Commission
San Luis Obispo Local Agency Formation Commission
Sonoma Local Agency Formation Commission
Urban Counties Caucus
OPPOSITION: (Verified7/14/15)
None received
ASSEMBLY FLOOR: 75-0, 5/22/15
AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Wilk, Williams,
AB 851
Page 10
Wood, Atkins
NO VOTE RECORDED: Alejo, O'Donnell, Olsen, Waldron, Weber
Prepared by:Anton Favorini-Csorba / GOV. & F. / (916) 651-4119
7/14/15 19:05:54
**** END ****