BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 851|
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THIRD READING
Bill No: AB 851
Author: Mayes (R)
Amended: 8/18/15 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 a local agency
formation commission uses to authorize the disincorporation of a
city.
Senate Floor Amendments of 8/18/15 require that all public
property of the disincorporating city must be transferred to the
successor or successors designated by the local agency formation
commission, rather than to the county, and make other technical
changes.
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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.
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
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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:
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
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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.
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;
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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 851:
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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
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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.
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) Requires all public property of the disincorporating city to
be transferred to the successor or successors designated by
the commission
10)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).
11)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
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until the county changes them.
12)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
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.
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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
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
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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
SUPPORT: (Verified8/19/15)
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
League of California Cities
Los Angeles County Local Agency Formation Commission
Marin Local Agency Formation Commission
Nevada County Local Agency Formation Commission
Orange County
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
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Santa Barbara Local Agency Formation Commission
San Bernardino County Local Agency Formation Commission
San Luis Obispo Local Agency Formation Commission
Solano Local Agency Formation Commission
Sonoma Local Agency Formation Commission
Urban Counties Caucus
OPPOSITION: (Verified8/19/15)
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,
Wood, Atkins
NO VOTE RECORDED: Alejo, O'Donnell, Olsen, Waldron, Weber
Prepared by:Anton Favorini-Csorba / GOV. & F. / (916) 651-4119
8/20/15 14:26:00
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