Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2032

Introduced by Assembly Member Linder

February 16, 2016

An act to amend begin delete Section 56770 end delete begin insert Sections 56770, 56804, 56813, 56816, 57405, 57407, and 57412 end insert of the Government Code, relating to local government.

LEGISLATIVE COUNSEL’S DIGEST

AB 2032, as amended, Linder. Change of organization: cities: disincorporation.

begin delete

Existing

end delete

begin insert (1) end insert begin insert   end insert begin insert Existing end insert law, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, provides the authority and procedure for the initiation, conduct, and completion of changes of organization and reorganization for cities and districts. The act prohibits the local area formation commission from approving or conditionally approving any proposal that includes a disincorporation of a city unless the commission determines, among other things, that the disincorporation is consistent with the intent of the act, the disincorporation will address necessary changes to spheres of influence of affected agencies, and the service responsibilities of the city proposed for disincorporation have been assigned.

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This bill would make a nonsubstantive change to this provision.

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This bill would additionally require the commission to determine that the proposed disincorporation is consistent with the intent that all debt and contractual obligations and responsibilities of the city being disincorporated be the responsibility of the same territory for repayment, that existing and projected future revenues of the city to be disincorporated are sufficient to meet all expenditures, debts, and obligations of the former city, as specified, and that the appropriate appointing power of the successor or successors approves the terms of continuing employment or transfer of any employees from employment with the disincorporated city to employment with the successor or successors. By imposing new duties on local officials, this bill would impose a state-mandated local program.

end insert begin insert

(2) Existing law requires the executive officer of the commission to prepare a comprehensive fiscal analysis for any proposal that includes an incorporation, as specified. Existing law requires the comprehensive fiscal analysis to include, among other things, a review and documentation of specified costs associated with the proposed disincorporation.

end insert begin insert

This bill would require the comprehensive fiscal analysis to include an analysis of the former city’s most recently completed financial statements audited by a certified public accountant, as specified. The bill would additionally require the executive officer to obtain written input from the successor or successors proposed to assume responsibility for the former city’s operations during the preparation of the comprehensive fiscal analysis, as specified. The bill would additionally require the comprehensive fiscal analysis to include, among other things, a review and documentation of all debt obligations and current long-term liabilities of the city proposed for disincorporation and specified revenue sources. The bill would require the executive officer to provide the successor or successors at least 30 days to evaluate and validate the accuracy and sufficiency of the data used to prepare the comprehensive fiscal analysis. By imposing new duties on local officials, this bill would impose a state-mandated local program.

end insert begin insert

(3) Existing law requires the commission to determine the amount of property tax revenue to be exchanged by the affected city and any successor or affected local agency for a proposal that includes a disincorporation of a city and sets forth the procedures to be followed in making that determination.

end insert begin insert

This bill would revise these provisions to require the determination to be included in the comprehensive fiscal analysis, as specified.

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(4) Existing law states the intent of the Legislature that a proposal that includes a disincorporation of a city result in a determination that the debt or contractual obligations and responsibilities of the city being disincorporated be the responsibility of the same territory for repayment. Existing law requires the city being disincorporated to provide a written statement prior to issuance of a certificate for filing for a proposal that includes a disincorporation that includes specified information relating to its debts and contractual obligations.

end insert begin insert

This bill would additionally require that statement to include, among other things, the amount of money in the possession of custodians and trustees and an identification of whether any of the money is restricted, and a statement of whether there is any pending or potential litigation or claims against the city proposed to be disincorporated.

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(5) Existing law requires the county tax collector to collect a tax that has been levied by the disincorporated city that remains uncollected.

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This bill would additionally require the county tax collector to collect an assessment that has been levied by the disincorporated city that remains uncollected. By imposing new duties on local officials, this bill would impose a state-mandated local program.

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(6) Existing law requires all money paid into the county treasury pursuant to provisions relating to the disincorporation of a city to be placed to the credit of a special fund established for the purpose of settling the affairs of the disincorporated city.

end insert begin insert

This bill would provide that the successor or successors to the disincorporated city are not liable to creditors of the former city, if at all, other than for those amounts actually paid into that special fund.

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(7) Existing law requires the board of supervisors to provide for the collection of debts due to a city being disincorporated and to wind up its affairs, as specified.

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This bill would instead require the governing board of the successor to the city being disincorporated to provide for the collection of debts due to the city and to wind up its affairs, as specified.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

SECTION 1.  

Section 56770 of the Government Code is
amended to read:

56770.  

The commission shall not approve or conditionally
approve a proposal that includes a disincorporation, unless, based
on the entire record, the commission makes all of the following
determinations:

(a) The proposed disincorporation is consistent with begin delete the end delete begin insert both
of the following: end insert

begin insert (1) end insert begin insert   end insert begin insert The end insert intent of this division to provide for a sustainable system
for the delivery of services.

begin insert

(2) The intent stated in Section 56816 that all debt and
contractual obligations and responsibilities of the city being
disincorporated shall be the responsibility of the same territory
for repayment.

end insert

(b) The commission has considered the service reviews of
municipal services and spheres of influence of the affected local
agencies, and the disincorporation will address the necessary
changes to those spheres of influence, if any.

(c) It has reviewed the comprehensive fiscal analysis prepared
pursuant to Section 56804.

(d) It has reviewed the executive officer’s report and
recommendation prepared pursuant to Section 56665, and the oral
or written testimony presented at its public hearing.

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(e)

end delete begin insert

(e) Existing and projected future revenues of the city to be
disincorporated are sufficient to meet all expenditures, debts, and
obligations of the former city or, if there are not sufficient revenues,
the tax rate upon which the commission conditions its approval
for disincorporation shall be sufficient to meet all identified
financial shortfalls of the former city.

end insert

begin insert (f) end insert  The service responsibilities of the city proposed for
disincorporation have been assigned through terms and conditions
authorized by Sections 56885.5, 56886, and 57302, and Chapter
5 (commencing with Section 57400) of Part 5.

begin insert

(g) The appropriate appointing power of the successor or
successors approves the terms of continuing employment or
transfer of any employees from employment with the
disincorporated city to employment with the successor or
successors.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 56804 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

56804.  

begin insert (a) end insert begin insert   end insert For any proposal that includes a disincorporation,
the executive officer shall prepare, or cause to be prepared by
contract, a comprehensive fiscal analysis begin insert that includes an analysis
of the former city’s most recently completed financial statements
audited by a certified public accountant and identifies any concerns
raised by the certified public accountant. The executive officer
shall obtain written input from the successor or successors or the
petitioners proposed to assume responsibility for the former city’s
operations during the preparation of the comprehensive fiscal
analysis to assist in determining whether revenue shortfalls, if any,
will leave unfunded debts or liabilities after disincorporation end insert . This
analysis shall become part of the report required pursuant to Section
56665. Data used for the analysis shall be from the most recent
fiscal year for which data is available, preceding the issuances of
the certificate of filing. When data requested by the executive
officer in the notice to affected agencies, pursuant to paragraph
(2) of subdivision (b) of Section 56658, is unavailable, the analysis
shall document the source and methodology of the data used. The
analysis shall review and document each of the following:

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(a)

end delete

begin insert (1) end insert  The direct and indirect costs incurred by the city proposed
for disincorporation for providing public services during the three
fiscal years immediately preceding the submittal of the proposal
for disincorporation.

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(b)

end delete

begin insert (2) end insert  The direct and indirect costs incurred by the city proposed
for disincorporation for current and proposed capital improvements,
facilities, assets, and infrastructure.

begin delete

(c)

end delete

begin insert (3) end insert  The sources of funding, if any, available to the entities
proposed to assume the obligations of the city proposed for
disincorporation.

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(d)

end delete

begin insert (4) end insert  The anticipated costs, including all direct and indirect costs,
to the entities proposed to assume the obligations of the city
proposed for disincorporation in the provision of services to the
area proposed for disincorporation.

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(e)

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begin insert (5) end insert  When determining costs, the executive officer shall also
include all direct and indirect costs of any public services that are
proposed to be transferred to state agencies for delivery.

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(f)

end delete

begin insert (6) end insert  The revenues of the city proposed for disincorporation during
the three fiscal years immediately preceding the initiation of the
disincorporation proposal.

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(7) All debt obligations and current and long-term liabilities of
the city proposed for disincorporation, including the balance of
restricted and unrestricted funds available to extinguish the
obligations and liabilities.

end insert begin insert

(8) The required financing mechanism(s) to address any
shortfalls and obligations for those responsibilities identified in
this section, including, but not limited to, taxes or assessments.

end insert begin insert

(9) A determination of the proportion that the amount of
property tax revenue derived by the city being disincorporated
pursuant to subdivision (b) of Section 93 of the Revenue and
Taxation Code bears to the total amount of revenue from all
sources available for general purposes received by the city being
disincorporated in the prior fiscal year. For purposes of making
this determination and the determination required by paragraph
(3) of subdivision (c) of Section 56813, “total amount of revenue
from all sources available for general purposes” means the total
amount of revenue that the city being disincorporated may use on
a discretionary basis for any purpose and does not include any of
the following:

end insert begin insert

(A) Revenue that, by statute or ordinance, is required to be used
for a specific purpose.

end insert begin insert

(B) Revenue from fees, charges, or assessments that are levied
to specifically offset the cost of particular services and that do not
exceed the cost reasonably borne in providing these services.

end insert begin insert

(C) Revenue received from the federal government that is
required to be used for a specific purpose.

end insert begin delete

(g)

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begin insert (10) end insert  Any other information and analysis needed to make the
findings required by Section 56770.

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(b) The executive officer shall provide the successor or
successors at least 30 days to review, evaluate, and validate the
accuracy and sufficiency of the data used to prepare the
comprehensive fiscal analysis.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 56813 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

56813.  

(a) If the proposal includes the disincorporation of a
city, as defined in Section 56034, the commission shall determine
the amount of property tax revenue to be exchanged by the affected
city and any successor or affected local agency pursuant to this
section.

(b) The commission shall notify the county auditor of the
proposal, the affected local agencies to be extinguished, and the
services proposed to be transferred to new jurisdictions, and
identify for the auditor the changes to occur.

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(c) If the proposal would not transfer all of the service
responsibilities of the disincorporating city to the affected county
or to a single affected agency, the commission and the county
auditor shall do all of the following:

(1) The county auditor shall determine the proportion that the
amount of property tax revenue derived by the city being
disincorporated pursuant to subdivision (b) of Section 93 of the
Revenue and Taxation Code bears to the total amount of revenue
from all sources, available for general purposes, received by the
city being disincorporated in the prior fiscal year and provide his
or her response within 15 days of receiving notification from the
commission pursuant to subdivision (b). For purposes of making
this determination and the determination required by paragraph
(3), “total amount of revenue from all sources available for general
purposes” means the total amount of revenue which the city being
disincorporated may use on a discretionary basis for any purpose
and does not include any of the following:

(A) Revenue that, by statute or ordinance, is required to be used
for a specific purpose.

(B) Revenue from fees, charges, or assessments that are levied
to specifically offset the cost of particular services and that do not
exceed the cost reasonably borne in providing these services.

(C) Revenue received from the federal government that is
required to be used for a specific purpose.

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(2)

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begin insert (c) end insert  The commission shall determine, based on information
begin delete submitted end delete begin insert certified end insert by the begin insert governing body of the end insert city being
disincorporated, an amount equal to the total net cost to that city
during the prior fiscal year of providing those services that an
affected agency will assume within the area subject to the proposal.
For purposes of this paragraph, “total net cost” means the total
direct and indirect costs that were funded by general purpose
revenues of the city being disincorporated and excludes any portion
of the total cost that was funded by any revenues of that agency
that are specified in subparagraphs (A), (B), and (C) of begin delete paragraph
(1). end delete begin insert paragraph (9) of subdivision (a) of Section 56804. end insert

begin delete

(3)

end delete

begin insert (d) end insert  For the services to be transferred to each affected local
agency, the commission shall multiply the amount determined
pursuant to begin delete paragraph (2) end delete begin insert subdivision (c) end insert by the proportion
determined pursuant to paragraph begin delete (1) end delete begin insert (9) of subdivision (a) of
Section 56804 end insert to derive the amount of property tax revenue used
to provide services by the city being disincorporated during the
prior fiscal year within the area subject to the proposal. The county
auditor shall adjust the amount so determined by the annual tax
increment pursuant to the procedures set forth in Chapter 6
(commencing with Section 95) of Part 0.5 of Division 1 of the
Revenue and Taxation Code, to the fiscal year in which the affected
agency receives its next allocation of property taxes.

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(d)

end delete

begin insert (e) end insert  If the proposal for disincorporation would transfer all of the
service responsibilities of the city proposed for disincorporation,
other than those that are proposed to be discontinued, to a single
successor, the commission shall request the auditor to determine
the property tax revenue allocated to the city being disincorporated
by tax rate area, or portion thereof, and transmit that information
to the commission.

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(e)

end delete

begin insert (f) end insert  The executive officer shall notify the auditor of the amount
determined pursuant to begin insert paragraph (9) of end insert subdivision begin delete (c) or (d), end delete begin insert (a)
of Section 56804 or of subdivision (e) of this section, end insert as the case
may be, and, where applicable, the period of time within which
and the procedure by which the transfer of property tax revenues
will be effected pursuant to this section, at the time the executive
officer records a certificate of completion pursuant to Section
57203 for any proposal described in subdivision (a), and the auditor
shall transfer that amount to the affected agency or agencies that
will assume the services as determined by the commission. Any
property tax not transferred to an affected agency pursuant to
begin insert paragraph (9) of end insert subdivision begin delete (c) end delete begin insert (a) of Section 56804 end insert shall be
transferred to the affected county.

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(f)

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begin insert (g) end insert  For purposes of this section, “prior fiscal year” means the
most recent fiscal year preceding the issuance of the certificate of
filing for which data is available on actual direct and indirect costs
and revenues needed to perform the calculations required by this
section.

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(g)

end delete

begin insert (h) end insert  Any action brought by a city, county, or district to contest
any of the determinations of the county auditor or the commission
with regard to the amount of property tax revenue to be exchanged
by the affected local agencies pursuant to this section shall be
commenced within three years of the effective date of the
disincorporation.

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begin insert SEC. 4. end insert   

end insert

begin insert Section 56816 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

56816.  

(a) It is the intent of the Legislature that any proposal
that includes the disincorporation of a city result in a determination
that the debt or contractual obligations and responsibilities of the
city being disincorporated shall be the responsibility of that same
territory for repayment. To ascertain this information, the city shall
provide a written statement that begin insert is certified by its legislative body
and end insert determines begin delete and certifies end delete all of the following to the commission
prior to the issuance of a certificate of filing for a disincorporation
proposal, pursuant to Sections 56651 and 56658:

(1) The indebtedness of the city.

(2) The amount of money in the city’s treasury begin insert , including an
identification of any money that is restricted end insert .

begin insert

(3) The amount of money in the possession of custodians and
trustees and an identification of any money that is restricted.

end insert begin delete

(3)

end delete

begin insert (4) end insert  The amount of any tax begin delete levy end delete begin insert levy, direct assessment, end insert or other
obligation due the city that is unpaid or has not been collected.

begin insert

(5) Current and long-term receivables owed to the city.

end insert begin insert

(6) A statement of whether there are any pending or potential
litigation or claims against the city, including potential liability.

end insert begin delete

(4)

end delete

begin insert (7) end insert  The amount of current and future liabilities, both internal
debt owed to other special or restricted funds or enterprise funds
within the agency and external debt owed to other public agencies
or outside lenders or that results from contractual obligations,
which may include contracts for goods or services, retirement
obligations, actuarially determined unfunded pension liability of
all classes in a public retirement system, including any
documentation related to the termination of public retirement
contract provisions, and the liability for other postemployment
benefits. The information required by this paragraph shall include
any associated revenue stream for financing that may be or has
been committed to that liability, including employee contributions.

begin insert

(8) The annual amount of voter-approved pensions levied by
the city and a determination of unfunded pension tax liability owed
to the California Public Employees’ Retirement System.

end insert

(b) The begin delete city shall provide a written statement identifying the end delete
successor agency to the city’s former redevelopment agency, if
any, begin insert shall be determined end insert pursuant to Section 34173 of the Health
and Safety Code.

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 57405 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

57405.  

If a tax begin insert or assessment end insert has been levied by the
disincorporated city and remains uncollected, the county tax
collector shall collect it when due and pay it into the county
treasury on behalf of the designated successor agency or county
to wind up the affairs of the disincorporated city.

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 57407 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

57407.  

begin insert (a) end insert begin insert   end insert All money paid into the county treasury pursuant
to this chapter shall be placed to the credit of a special fund
established for the purpose of settling the affairs of the
disincorporated city.

begin insert

(b) The successor or successors to the disincorporated city shall
not be liable to creditors of the former city, if at all, other than for
those amounts actually paid into the special fund established
pursuant to subdivision (a). For purposes of this section, creditors
include, but are not limited to, employees and bondholders of the
disincorporated city.

end insert

begin insert

begin insert SEC. 7. end insert   

end insert

begin insert Section 57412 of the end insert begin insert Government Code end insert begin insert is amended to
read: end insert

57412.  

The begin delete board of supervisors end delete begin insert governing body of the
successor end insert shall provide for collection of debts due the city and
wind up its affairs. Upon an order by the begin delete board of supervisors, end delete
begin insert commission, end insert the appropriate begin delete county end delete officer begin insert of the successor end insert shall
perform any act necessary for winding up the city affairs, with the
same effect as if it had been performed by the proper city officer.

begin insert

begin insert SEC. 8. end insert   

end insert begin insert

If the Commission on State Mandates determines that
this act contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division
4 of Title 2 of the Government Code.

end insert