BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 781 (J.Perez)
Hearing Date: 08/15/2011 Amended: 07/12/2011
Consultant: Mark McKenzie Policy Vote: G&F 5-3
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BILL SUMMARY: AB 781 would enact a successor governance
structure for a city that is disincorporated pursuant to pending
legislation. The bill would establish a Community Services
District (CSD) to provide continuation of specified services,
transfer certain powers and duties to the county, and require
the local agency formation commission (LAFCO) to oversee the
terms and conditions of the disincorporation.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
County mandate unknown reimbursable mandate costsGeneral
----------(see staff
comments)----------
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
The Cortese-Knox-Hertzberg Act controls how local officials
change the boundaries of cities and special districts, and
designates a LAFCO in each county to oversee boundary changes.
Besides the more common annexations to cities and special
districts, LAFCOs also control district formations,
consolidations, and dissolutions, as well as city
incorporations, consolidations, and disincorporations. Existing
law authorizes a county to create a municipal advisory committee
to advise the board of supervisors and an area planning
commission to carry out the county's land use planning and
development in a designated area.
The Community Services District Law generally authorizes the
establishment of CSDs to provide over 30 types of public
services and facilities, and provides special statutes for the
delivery of additional services. CSDs are often established to
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provide services in an unincorporated area as an alternative to
incorporation or as a transition into cityhood. Existing law
provides for the election of CSD directors, and specifies
requirements for open government, such as adoption of annual
budgets, setting up designated reserves, following the Brown
Act, holding regular meetings, and following standard auditing
rules. CSD laws also require voter approval of special taxes
and property owners' approval of benefit assessments, as
required by Propositions 13, 62, and 218.
With just over 100 residents, the City of Vernon in Los Angeles
County has the smallest population of California's 481 cities,
and only 62 registered voters. Vernon's city government has
attracted attention over allegations of corruption, misspending,
and mismanagement. City officials have since acted to reduce
the salaries of city council members, appointed a housing
committee to formulate a new policy for managing the city-owned
housing, and hired an independent watchdog to recommend further
measures. Critics contend that these measures are insufficient
to counteract the lack of democratic checks and balances that
are essential to open and fair governance.
AB 46 (J. Pérez), which is currently pending on the Senate
Floor, would disincorporate every city that had fewer than 150
residents on January 1, 2010. Vernon is the only city that
meets the bill's population criterion. AB 46 is silent on how
local officials will implement the intricate details surrounding
Vernon's disincorporation, but AB 781 addresses a number of the
governance issues that would result from disincorporation.
Among other things, this bill would:
Require the LAFCO to take all actions necessary to provide for
the formation of the CSD by the effective date of the
disincorporation, and require the county to pay LAFCO's
validated costs associated with formation of the CSD.
Designate the county board of supervisors as the CSD governing
board and require the CSD to provide fire protection, water,
telecommunication, gas, electric utility services, and
continued street maintenance.
Require the county sheriff to provide law enforcement
services, and authorize the CSD to provide parcel tax proceeds
and other revenues to fund a higher level of law enforcement
service than is otherwise funded by the county.
Designate the county board of supervisors as the legislative
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body of the redevelopment area of the disincorporated city.
Continue any parcel taxes previously imposed by the
disincorporated city and remit tax proceeds to the CSD
consistent with the purposes of those taxes. The CSD would
also continue other service fees, charges, or rates, as
specified, and may continue electric utility franchise fees.
Require the CSD to be the custodian of all records pertaining
to the services it provides, and the county as the custodian
of all other records.
Require the county board of supervisors to negotiate any
property tax exchanges on behalf of local agencies affected by
the disincorporation.
Require the county board of supervisors to appoint a municipal
advisory commission (MAC) and adopt an expedited permit
process for business, development, and health and safety
permits comparable to the permit process that existed in the
disincorporated city, as specified.
Require the county board of supervisors to appoint an area
planning commission (APC) to advise the county on land use
planning for the territory of the CSD.
Require the county to continue the general plan, zoning
ordinances, conditional use permits, and legal nonconforming
uses, and require any land use authorized prior to
disincorporation to continue for 10 years, except as
specified.
Require the CSD to finance the operations of the MAC and
authorize the CSD to finance land use planning authorized by
the APC.
Prohibit the CSD from increasing gas or utility rates for at
least a year following the creation of the district except to
satisfy bond covenants or contractual obligations, or if the
MAC finds that a fiscal emergency exists following a CSD
audit, as specified.
Require the county board of supervisors to maintain existing
business license tax rates for at least five years, including
any specified adjustments.
Prohibit the county board of supervisors from applying any
existing utility users tax in the disincorporated city or
levying a utility users tax for five years following the
disincorporation. Future utility users taxes are subject to
approval by the voters of the unincorporated territory of the
county.
Under existing law, a LAFCO may charge the proponent of a
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proposal for reorganization for any costs it incurs for
proceedings. This bill, on the other hand, imposes duties on
LAFCO and requires the county to pay for validated expenses
related to the formation of the CSD out of a special fund
established for settling the affairs of the disincorporated
city. Pursuant to existing law, all city money is transferred
to this special fund in the county treasury upon
disincorporation. In addition to establishing the CSD, LAFCO
must also determine all assets and liabilities of the former
city and assign them to successor entities. It is unclear
whether LAFCO has the authority to recover all of its costs
related to a statutory disincorporation without a proposal
sponsor. It also appears unlikely that LAFCO would have
sufficient time to settle all affairs related to the governance
transition prior to the effective date of the disincorporation
specified in AB 46 (within 90 days of the bill's effective
date). Generally, LAFCO costs are not reimbursable by the state
because of their authority to charge fees to proponents of
reorganization proposals. This bill, however, raises some
uncertainty about whether the state would be responsible for
reimbursement of LAFCO costs that are not explicitly covered in
the bill.
AB 781 would also place a number of new duties and restrictions
on Los Angeles County as a successor to the disincorporated
city. The bill places specific requirements on the county for
the creation of a MAC and an APC, and requires the CSD to
finance the operations of the MAC. Since the CSD is authorized,
but not required to finance the operations of the APC, the
county would likely be eligible for state reimbursement of any
associated costs. In addition, the bill requires the county to
establish an expedited permit process for business, development,
and health and safety permits comparable to the permit process
that existed in the disincorporated city. The state would
likely be responsible for reimbursing the county for this higher
level of service. It is unclear whether the county could
provide an expedited permit process under the current fee
structure. The bill would also prohibit the county from
changing the existing rates or structure of the business license
fees and utility user taxes that applied to the City of Vernon
for five years following disincorporation. These restrictions
may be deemed a higher level of service than what is provided
elsewhere in the unincorporated areas of the county.
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Staff notes that it is highly likely that the County could seek
reimbursement for the new duties and higher levels of service
imposed by the bill. These costs are currently unknown because
of the unsettled complexity related to the disincorporation and
the extent to which the county would be responsible for any
remaining liabilities of the disinicorporated city following the
conclusion of LAFCO proceedings. Staff estimates that costs
related to the formation of the APC and the establishment of an
expedited permit process would be at least several hundred
thousand dollars. Ongoing costs to administer these functions,
and costs associated with any unforeseen duties are unknown.
The bill is designed to transfer revenues that were formerly
dedicated to the provision of certain services to the CSD to
continue the same level of service. Some city revenues,
however, will not be subject to transfer to successor agencies.
For example, Vehicle License Fee (VLF) revenues and state and
local funds provided for local streets and roads will not be
transferred to the CSD, and the county is not likely to receive
the same proportion of funds that the city previously received.
Taking these, and possibly other revenues off the table raises
questions about whether the successor entities will have to
subsidize the operations of the disincorporated area.
Staff notes that the requirements of this bill are contingent
upon the enactment of AB 46 (J. Perez), which would require the
disincorporation of a city with a population of fewer than 150
persons as of January 1, 2010.