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SB 1318 Attempts to Leverage LAFCO to Deliver Services without Adequate Resources

One of Many Consequences of State Annexations and Incorporations Revenue Sweep in 2011;State’s Climate Change Goals Affected as Well

April 15, 2016
Sen. Lois Wolk’s (D-Davis) new bill, SB 1318 attempts to force cities and special districts to provide services to unincorporated areas outside their jurisdictions by prohibiting local agency formation commissions (LAFCO) from approving any future annexations or changes in their spheres until they do.
This proposal is opposed by the League, California Chamber of Commerce, California Building Industry Association, California Special Districts Association, Cal LAFCO, multiple local LAFCOs and other groups.

The battle over this measure is yet another example of the policy mess that was created for future annexations and incorporations by another budget-panicked decision by the Legislature and Gov. Jerry Brown to pass SB 89 of 2011. It boils down to not having the financial resources to address a problem. SB 89, which was rushed through and adopted in a matter of hours with no public hearings, eliminated special financial allocations of vehicle license fee allocations relied upon by new incorporated cities and other cities annexed residents in adjacent unincorporated areas.

Starting in 2004, cities had a financial incentive of $50 per-capita for every resident that they annexed into a city. These ongoing revenues helped offset additional service costs. Many cities made the good-government decision annex, but then lost all these funds when SB 89 passed. Cities now have little to work with when considering future annexations of unincorporated areas, especially poorer areas with deteriorated infrastructure and services.  

LAFCO’s were required by SB 244 (Wolk) of 2011 to identify “disadvantaged unincorporated communities” within LAFCO-designated city spheres of influence. Many of these areas under county jurisdiction are characterized by inadequate or deteriorated infrastructure and poor quality services. Residents of these areas are often poor. So whether the area remains under county jurisdiction, or is considered for annexation to a city, the question is the same: who pays to fix up this deteriorated area?  

There are some tools to try and build on. The League worked with Sen. Wolk in 2014 to develop SB 614 which authorized tax increment financing to help address infrastructure problems in these areas. This is only a partial tool, however, because it requires vibrant property tax growth to function, which often will not occur in such poor areas. The tool could become more attractive if the state would offer additional financial incentives and matching funds.  

Leverage efforts like SB 1318 that ignore local fiscal realities won’t work. Many of the affected cities are struggling with their own financial problems. Rather than another mandate, if legislators really want to help improve services to poorer county incorporated areas, then they should work to develop replacement funding for SB 89. The Governor's Administration needs to be involved as well because the Governor has vetoed attempts to craft fixes in recent years.   

Incorporations — Bills Introduced Again to Attempt to Help Recently Incorporated Cities

Four recently incorporated cities in Riverside County — Eastvale, Wildomar, Menifee and Jurupa Valley — were harmed severely from the passage of SB 89, and the prospects for future incorporations are virtually impossible.

Numerous legislative efforts, supported by the League, have been launched to assist these communities. Proposals have ranged from a “complete fix” which would help both those communities harmed since 2011 and reestablish incentives for future incorporations. Other proposals were narrowed to a “lifeboat” to only assist the four cities that were harmed. Despite a vastly improved state budget and financial condition, and state costs estimated at less than $25 million per year, the Governor has vetoed such attempts.

This year, two measures have been introduced and supported by the League that propose a fix via a property tax adjustment for the four recently incorporated cities: AB 2277 (Melendez) and SB 817 (Roth).

These bills resolve the funding issue for the four cities with a statutory formula that provides them with shares of property tax to offset the amount of vehicle license fee revenue they would have received. In future years, the amount will be adjusted according to the same rules applied to other cities. In short, these cities will be treated equally with all other cities.  

Restoring needed funding and avoiding the potential disincorporation of these new cities also provides long-term policy benefits to the state. Many of these funds will go to restore funding to local police and enhance public safety. Land use incentives should be considered as well. The four affected cities are located in one of the fastest growing regions of California.

Climate Impacts: Other Reasons Why the State Should Care

With the passage of the landmark AB 32 in 2006, California established ambitious greenhouse gas reduction goals. Getting there will require multiple tools and policies, including reducing vehicle miles traveled through efforts to concentrate new growth in denser forms.  

City patterns of growth tend to be much more compact than typically seen in county incorporated areas. Changes to city boundaries must be approved by LAFCOs which are designed to promote orderly growth. Home to 83 percent of California’s  population, cities are critical to California’s present and future. Annexations and incorporations must be made fiscally viable if development in California is to occur in an orderly and compact form

The passage of SB 89 not only defunded newly incorporated cities and recent annexations, it also made future incorporations or annexations of inhabited areas unlikely. From a climate perspective, compact growth should be rewarded, but the financing no longer supports sensible annexations and incorporations. Neglecting this issue will hamper the state’s climate change goals.

Time to Fix Underlying Problem

Efforts like SB 1318 reflect the lack of a solution to the fiscal and policy consequences created by SB 89. With billions flowing into the state treasury, it is time to address the underlying issues, restore funding to communities that were harmed and ensure that sensible annexations and incorporations are fiscally viable in the future.

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