Amended in Assembly April 5, 2016

Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2032


Introduced by Assembly Member Linder

February 16, 2016


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

LEGISLATIVE COUNSEL’S DIGEST

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

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(1) Existing 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 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.

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(2)

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begin insert(1)end insert Existingbegin delete lawend deletebegin insert law, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000,end insert requires the executive officer ofbegin delete theend deletebegin insert a local agency formationend insert commission to prepare a comprehensive fiscal analysis for any proposal that includesbegin delete an incorporation,end deletebegin insert a disincorporation,end insert 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.

This bill wouldbegin delete 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 wouldend delete additionally require the comprehensive fiscal analysis tobegin delete include, among other things,end deletebegin insert includeend insert a review and documentation of allbegin delete debt obligations andend delete currentbegin insert andend insert long-term liabilities of the city proposed forbegin delete 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 deletebegin insert disincorporation.end insert

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(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.

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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

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begin insert(2)end insertbegin insertend insertbegin insertThe actend insert 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.begin delete Existing lawend deletebegin insert To ascertain this information, the actend insert requires the city being disincorporated to provide a written statementbegin delete prior to issuance of a certificate for filing for a proposal that includes a disincorporationend delete that includes specified information relating to its debts and contractual obligations.

This bill would additionally require that statement tobegin delete 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.end deletebegin insert include the amount of any assessment due the city that is unpaid or uncollected.end insert

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(5) Existing law

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begin insert(3)end insertbegin insertend insertbegin insertThe actend insert requires the county tax collector to collect a tax that has been levied by the disincorporated city that remains uncollected.

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.

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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

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begin insert(4)end insertbegin insertend insertbegin insertThe actend insert 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.

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

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The

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begin insert(5)end insertbegin insertend insertbegin insertTheend insert 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.

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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

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P4    1

SECTION 1.  

Section 56770 of the Government Code is
2amended to read:

3

56770.  

The commission shall not approve or conditionally
4approve a proposal that includes a disincorporation, unless, based
5on the entire record, the commission makes all of the following
6determinations:

7(a) The proposed disincorporation is consistent with both of the
8following:

9(1) The intent of this division to provide for a sustainable system
10for the delivery of services.

11(2) The intent stated in Section 56816 that all debt and
12contractual obligations and responsibilities of the city being
13disincorporated shall be the responsibility of the same territory for
14repayment.

15(b) The commission has considered the service reviews of
16municipal services and spheres of influence of the affected local
17agencies, and the disincorporation will address the necessary
18changes to those spheres of influence, if any.

19(c) It has reviewed the comprehensive fiscal analysis prepared
20pursuant to Section 56804.

21(d) It has reviewed the executive officer’s report and
22recommendation prepared pursuant to Section 56665, and the oral
23or written testimony presented at its public hearing.

24(e) Existing and projected future revenues of the city to be
25disincorporated are sufficient to meet all expenditures, debts, and
26obligations of the former city or, if there are not sufficient revenues,
27the tax rate upon which the commission conditions its approval
28for disincorporation shall be sufficient to meet all identified
29financial shortfalls of the former city.

30(f) The service responsibilities of the city proposed for
31disincorporation have been assigned through terms and conditions
32authorized by Sections 56885.5, 56886, and 57302, and Chapter
335 (commencing with Section 57400) of Part 5.

P5    1(g) The appropriate appointing power of the successor or
2successors approves the terms of continuing employment or transfer
3of any employees from employment with the disincorporated city
4to employment with the successor or successors.

5

SEC. 2.  

Section 56804 of the Government Code is amended
6to read:

7

56804.  

(a) For any proposal that includes a disincorporation,
8the executive officer shall prepare, or cause to be prepared by
9contract, a comprehensive fiscal analysis that includes an analysis
10of the former city’s most recently completed financial statements
11audited by a certified public accountant and identifies any concerns
12raised by the certified public accountant. The executive officer
13shall obtain written input from the successor or successors or the
14petitioners proposed to assume responsibility for the former city’s
15operations during the preparation of the comprehensive fiscal
16analysis to assist in determining whether revenue shortfalls, if any,
17will leave unfunded debts or liabilities after disincorporation. This
18analysis shall become part of the report required pursuant to Section
1956665. Data used for the analysis shall be from the most recent
20fiscal year for which data is available, preceding the issuances of
21the certificate of filing. When data requested by the executive
22officer in the notice to affected agencies, pursuant to paragraph
23(2) of subdivision (b) of Section 56658, is unavailable, the analysis
24shall document the source and methodology of the data used. The
25analysis shall review and document each of the following:

26(1) The direct and indirect costs incurred by the city proposed
27for disincorporation for providing public services during the three
28fiscal years immediately preceding the submittal of the proposal
29for disincorporation.

30(2) The direct and indirect costs incurred by the city proposed
31for disincorporation for current and proposed capital improvements,
32facilities, assets, and infrastructure.

33(3) The sources of funding, if any, available to the entities
34proposed to assume the obligations of the city proposed for
35disincorporation.

36(4) The anticipated costs, including all direct and indirect costs,
37to the entities proposed to assume the obligations of the city
38proposed for disincorporation in the provision of services to the
39area proposed for disincorporation.

P6    1(5) When determining costs, the executive officer shall also
2include all direct and indirect costs of any public services that are
3proposed to be transferred to state agencies for delivery.

4(6) The revenues of the city proposed for disincorporation during
5the three fiscal years immediately preceding the initiation of the
6disincorporation proposal.

7(7) All debt obligations and current and long-term liabilities of
8the city proposed for disincorporation, including the balance of
9restricted and unrestricted funds available to extinguish the
10obligations and liabilities.

11(8) The required financing mechanism(s) to address any
12shortfalls and obligations for those responsibilities identified in
13this section, including, but not limited to, taxes or assessments.

14(9) A determination of the proportion that the amount of property
15tax revenue derived by the city being disincorporated pursuant to
16subdivision (b) of Section 93 of the Revenue and Taxation Code
17bears to the total amount of revenue from all sources available for
18general purposes received by the city being disincorporated in the
19prior fiscal year. For purposes of making this determination and
20the determination required by paragraph (3) of subdivision (c) of
21Section 56813, “total amount of revenue from all sources available
22for general purposes” means the total amount of revenue that the
23city being disincorporated may use on a discretionary basis for
24any purpose and does not include any of the following:

25(A) Revenue that, by statute or ordinance, is required to be used
26for a specific purpose.

27(B) Revenue from fees, charges, or assessments that are levied
28to specifically offset the cost of particular services and that do not
29exceed the cost reasonably borne in providing these services.

30(C) Revenue received from the federal government that is
31required to be used for a specific purpose.

32(10) Any other information and analysis needed to make the
33findings required by Section 56770.

34(b) The executive officer shall provide the successor or
35successors at least 30 days to review, evaluate, and validate the
36accuracy and sufficiency of the data used to prepare the
37comprehensive fiscal analysis.

38

SEC. 3.  

Section 56813 of the Government Code is amended
39to read:

P7    1

56813.  

(a) If the proposal includes the disincorporation of a
2city, as defined in Section 56034, the commission shall determine
3the amount of property tax revenue to be exchanged by the affected
4city and any successor or affected local agency pursuant to this
5section.

6(b) The commission shall notify the county auditor of the
7proposal, the affected local agencies to be extinguished, and the
8services proposed to be transferred to new jurisdictions, and
9identify for the auditor the changes to occur.

10(c) The commission shall determine, based on information
11certified by the governing body of the city being disincorporated,
12an amount equal to the total net cost to that city during the prior
13fiscal year of providing those services that an affected agency will
14assume within the area subject to the proposal. For purposes of
15this paragraph, “total net cost” means the total direct and indirect
16costs that were funded by general purpose revenues of the city
17being disincorporated and excludes any portion of the total cost
18that was funded by any revenues of that agency that are specified
19in subparagraphs (A), (B), and (C) of paragraph (9) of subdivision
20(a) of Section 56804.

21(d) For the services to be transferred to each affected local
22agency, the commission shall multiply the amount determined
23pursuant to subdivision (c) by the proportion determined pursuant
24to paragraph (9) of subdivision (a) of Section 56804 to derive the
25amount of property tax revenue used to provide services by the
26city being disincorporated during the prior fiscal year within the
27area subject to the proposal. The county auditor shall adjust the
28amount so determined by the annual tax increment pursuant to the
29procedures set forth in Chapter 6 (commencing with Section 95)
30of Part 0.5 of Division 1 of the Revenue and Taxation Code, to
31the fiscal year in which the affected agency receives its next
32allocation of property taxes.

33(e) If the proposal for disincorporation would transfer all of the
34service responsibilities of the city proposed for disincorporation,
35other than those that are proposed to be discontinued, to a single
36successor, the commission shall request the auditor to determine
37the property tax revenue allocated to the city being disincorporated
38by tax rate area, or portion thereof, and transmit that information
39to the commission.

P8    1(f) The executive officer shall notify the auditor of the amount
2determined pursuant to paragraph (9) of subdivision (a) of Section
356804 or of subdivision (e) of this section, as the case may be,
4and, where applicable, the period of time within which and the
5procedure by which the transfer of property tax revenues will be
6effected pursuant to this section, at the time the executive officer
7records a certificate of completion pursuant to Section 57203 for
8any proposal described in subdivision (a), and the auditor shall
9transfer that amount to the affected agency or agencies that will
10assume the services as determined by the commission. Any
11property tax not transferred to an affected agency pursuant to
12paragraph (9) of subdivision (a) of Section 56804 shall be
13transferred to the affected county.

14(g) For purposes of this section, “prior fiscal year” means the
15most recent fiscal year preceding the issuance of the certificate of
16filing for which data is available on actual direct and indirect costs
17and revenues needed to perform the calculations required by this
18section.

19(h) Any action brought by a city, county, or district to contest
20any of the determinations of the county auditor or the commission
21with regard to the amount of property tax revenue to be exchanged
22by the affected local agencies pursuant to this section shall be
23commenced within three years of the effective date of the
24disincorporation.

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25

SEC. 4.  

Section 56816 of the Government Code is amended
26to read:

27

56816.  

(a) It is the intent of the Legislature that any proposal
28that includes the disincorporation of a city result in a determination
29that the debt or contractual obligations and responsibilities of the
30city being disincorporated shall be the responsibility of that same
31territory for repayment. To ascertain this information, the city shall
32provide a written statement that is certified by its legislative body
33and determines all of the following to the commission prior to the
34issuance of a certificate of filing for a disincorporation proposal,
35pursuant to Sections 56651 and 56658:

36(1) The indebtedness of the city.

37(2) The amount of money in the city’s treasury, including an
38identification of any money that is restricted.

39(3) The amount of money in the possession of custodians and
40trustees and an identification of any money that is restricted.

P9    1(4) The amount of any tax levy, direct assessment, or other
2obligation due the city that is unpaid or has not been collected.

3(5) Current and long-term receivables owed to the city.

4(6) A statement of whether there are any pending or potential
5litigation or claims against the city, including potential liability.

6(7) The amount of current and future liabilities, both internal
7debt owed to other special or restricted funds or enterprise funds
8within the agency and external debt owed to other public agencies
9or outside lenders or that results from contractual obligations,
10which may include contracts for goods or services, retirement
11obligations, actuarially determined unfunded pension liability of
12all classes in a public retirement system, including any
13documentation related to the termination of public retirement
14contract provisions, and the liability for other postemployment
15benefits. The information required by this paragraph shall include
16any associated revenue stream for financing that may be or has
17been committed to that liability, including employee contributions.

18(8) The annual amount of voter-approved pensions levied by
19the city and a determination of unfunded pension tax liability owed
20to the California Public Employees’ Retirement System.

21(b) The successor agency to the city’s former redevelopment
22agency, if any, shall be determined pursuant to Section 34173 of
23the Health and Safety Code.

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24begin insert

begin insertSECTION 1.end insert  

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begin insertSection 56804 of the end insertbegin insertGovernment Codeend insertbegin insert is
25amended to read:end insert

26

56804.  

For any proposal that includes a disincorporation, the
27executive officer shall prepare, or cause to be prepared by contract,
28a comprehensive fiscal analysis. This analysis shall become part
29of the report required pursuant to Section 56665. Data used for the
30analysis shall be from the most recent fiscal year for which data
31is available, preceding the issuances of the certificate of filing.
32When data requested by the executive officer in the notice to
33affected agencies, pursuant to paragraph (2) of subdivision (b) of
34Section 56658, is unavailable, the analysis shall document the
35source and methodology of the data used. The analysis shall review
36and document each of the following:

37(a) The direct and indirect costs incurred by the city proposed
38for disincorporation for providing public services during the three
39fiscal years immediately preceding the submittal of the proposal
40for disincorporation.

P10   1(b) The direct and indirect costs incurred by the city proposed
2for disincorporation for current and proposed capital improvements,
3facilities, assets, and infrastructure.

4(c) The sources of funding, if any, available to the entities
5proposed to assume the obligations of the city proposed for
6disincorporation.

7(d) The anticipated costs, including all direct and indirect costs,
8to the entities proposed to assume the obligations of the city
9proposed for disincorporation in the provision of services to the
10area proposed for disincorporation.

11(e) When determining costs, the executive officer shall also
12include all direct and indirect costs of any public services that are
13proposed to be transferred to state agencies for delivery.

14(f) The revenues of the city proposed for disincorporation during
15the three fiscal years immediately preceding the initiation of the
16disincorporation proposal.

17(g) Any other information and analysis needed to make the
18findings required by Section 56770.

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19
(h) All current and long-term liabilities, including, but not
20limited to, debt obligations, of the city proposed for
21disincorporation, including the balance of the restricted and
22unrestricted funds available to extinguish the obligations and
23liabilities.

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24begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 56816 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
25read:end insert

26

56816.  

(a) It is the intent of the Legislature that any proposal
27that includes the disincorporation of a city result in a determination
28that the debt or contractual obligations and responsibilities of the
29city being disincorporated shall be the responsibility of that same
30territory for repayment. To ascertain this information, the city shall
31provide a written statement that determines and certifies all of the
32following to the commission prior to the issuance of a certificate
33of filing for a disincorporation proposal, pursuant to Sections 56651
34and 56658:

35(1) The indebtedness of the city.

36(2) The amount of money in the city’s treasury.

37(3) The amount of any taxbegin delete levyend deletebegin insert levy, assessment,end insert or other
38obligation due the city that is unpaid or has not been collected.

39(4) The amount of current and future liabilities, both internal
40debt owed to other special or restricted funds or enterprise funds
P11   1within the agency and external debt owed to other public agencies
2or outside lenders or that results from contractual obligations,
3which may include contracts for goods or services, retirement
4obligations, actuarially determined unfunded pension liability of
5all classes in a public retirement system, including any
6documentation related to the termination of public retirement
7contract provisions, and the liability for other postemployment
8benefits. The information required by this paragraph shall include
9any associated revenue stream for financing that may be or has
10been committed to that liability, including employee contributions.

11(b) The city shall provide a written statement identifying the
12successor agency to the city’s former redevelopment agency, if
13any, pursuant to Section 34173 of the Health and Safety Code.

14

begin deleteSEC. 5.end delete
15
begin insertSEC. 3.end insert  

Section 57405 of the Government Code is amended
16to read:

17

57405.  

If a tax or assessment has been levied by the
18disincorporated city and remains uncollected, the county tax
19collector shall collect it when due and pay it into the county
20treasury on behalf of the designated successor agency or county
21to wind up the affairs of the disincorporated city.

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22

SEC. 6.  

Section 57407 of the Government Code is amended
23to read:

24

57407.  

(a) All money paid into the county treasury pursuant
25to this chapter shall be placed to the credit of a special fund
26established for the purpose of settling the affairs of the
27disincorporated city.

28(b) The successor or successors to the disincorporated city shall
29not be liable to creditors of the former city, if at all, other than for
30those amounts actually paid into the special fund established
31pursuant to subdivision (a). For purposes of this section, creditors
32include, but are not limited to, employees and bondholders of the
33 disincorporated city.

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34

begin deleteSEC. 7.end delete
35
begin insertSEC. 4.end insert  

Section 57412 of the Government Code is amended
36to read:

37

57412.  

The governing body of the successor shall provide for
38collection of debts due the city and wind up its affairs. Upon an
39order by the commission, the appropriate officer of the successor
40shall perform any act necessary for winding up the city affairs,
P12   1with the same effect as if it had been performed by the proper city
2officer.

3

begin deleteSEC. 8.end delete
4
begin insertSEC. 5.end insert  

If the Commission on State Mandates determines that
5this act contains costs mandated by the state, reimbursement to
6local agencies and school districts for those costs shall be made
7pursuant to Part 7 (commencing with Section 17500) of Division
84 of Title 2 of the Government Code.



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