OPR Guide to the LAFCO Process for Incorporations

State of California Gray Davis Tal Finney GOVERNOR INTERIM DIRECTOR A GUIDE TO THE LAFCO PROCESS FOR INCORPORATIONS Governor’s Office of Planning and Research October 2003 LAFCO Incorporation Guidelines The Governor’s Office of Planning and Research 1400 Tenth Street, Sacramento, CA 95812-3044, 916/322-2318, www.opr.ca.gov Tal Finney, Interim Director Development Team: Toni Symonds - Project Manager, Community Vitalization Unit Director Terry Roberts - Project Manager, State Clearinghouse Director Kathryn Winter - Incorporation Task Force Chairperson Doreen Updike - Administrative Analyst Julia Ouellette - Administrative Analyst October 2003 October 2003 The Governor’s Office of Planning and Research (OPR) would like to acknowledge and thank the members of the Incorporation Task Force for their invaluable assistance in identifying key issues and for providing input into the development of LAFCO Incorporation Guidelines. INCORPORATION TASK FORCE MEMBERS • Chairperson, Kathryn Winter, Office of Planning and Research (OPR) • Terry Roberts, Project Manager, State Clearinghouse Director, Office of Planning and Research (OPR) • Toni Symonds, Project Manager, Senior Policy Advisor, Office of Planning and Research (OPR) • Robert Braitman, Santa Barbara LAFCO • Greg Brummels, State Controller's Office • Tim Campbell, Santa Barbara LAFCO • Christopher Carlisle, Speaker Hertzberg's Office • Tony Carstens, County of Riverside Executive Office • Phil Carter, Pacific Municipal Consultants and City of Elk Grove • William Chiat, County of Santa Barbara • Cathy Creswell, Department of Housing and Community Development • Baxter Culver, California State Association of Counties • Harry Ehrlich, Olivenhain Municipal Water District and California Special District Association • Carolina Jimenez-Hogg, Fresno County Planning & Resource Management Department • Bill Mahoney, Orange County • Anthony Manzanetti, Kronick, Moskovitz, Tiedemann, & Girard and City Attorney for the City of Elk Grove • Jerry McClain, State Controller's Office • Michael Oliver, City of Oakley • Michael Ott, San Diego LAFCO • Catherine Smith, California Special Districts Association • Chris Tooker, Sacramento LAFCO • Rita Velasquez, Elk Grove Community Services District OPR would also like to acknowledge and thank Joyce Crosthwaite, Project Design Consultants and her excellent consultant team that assisted OPR in the development and implementation of the extensive public outreach and stakeholder consultation process and the writing of the final draft of the guidelines. Other members of her team included: • Dan Miller, Rosenow Spevacek Group • Charon Browning, SMB Associates • Robert Ewing, Services Commodities Consulting October 2003 OPR Incorporation Guidelines Table of Contents TABLE OF CONTENTS EXECUTIVE SUMMARY.............................................................................1 I. INTRODUCTION ............................................................................3 A. Background of Incorporation Guidelines ........................................... 3 B. Purposes of the Incorporation Guidelines.......................................... 4 C. How to Use the Incorporation Guidelines.......................................... 4 II. GETTING READY: PRE-INITIATION .....................................................5 A. Before Incorporation Starts: LAFCO’s Role........................................ 5 B. Before Incorporation Starts: The Proponents’ Role ............................. 6 1. Alternatives to Incorporation................................................... 6 2. Consult with LAFCO.............................................................. 7 a. Assist in Identifying Logical Boundaries ................................. 8 b. Facilitate Early Discussions with Affected Agencies................... 8 3. Use of Consultants...............................................................10 4. Initial Fiscal Feasibility Review ...............................................10 III. INITIATING THE INCORPORATION .................................................... 11 A. Initiation by Petition of Registered Voters .......................................11 B. Initiation by Petition of Landowners...............................................12 C. Initiation by Resolution of an Affected Agency ..................................12 D. Processing of Petitions...............................................................12 1. Notice of Intent to Circulate a Petition......................................14 2. Form and Content of a Petition or Resolution..............................14 3. Timing of Petitions..............................................................15 IV. PREPARING AN INCORPORATION APPLICATION.................................... 16 A. Description of Incorporation Proposal.............................................16 B. Comprehensive Fiscal Analysis (CFA) ..............................................17 C. Service Plan............................................................................18 D. Map and Legal Description of Boundaries.........................................18 E. Sphere of Influence (SOI) and Municipal Service Review.......................19 F. Paying for the Incorporation Application. ........................................20 V. REVIEWING THE APPLICATION: LAFCO STAFF ANALYSIS........................ 21 A. Preparation of the Comprehensive Fiscal Analysis (CFA).......................21 1. Gather Financial and Service Level Data....................................23 2. Establish a Service Plan ........................................................24 3. Establish Base Year Costs ......................................................27 4. Calculate Property Tax Transfer..............................................27 5. Develop Budget Projections ...................................................31 a. Establish Budget Projections: Revenues................................32 i. Base Property Tax Allocation ........................................32 ii. Special District Property Taxes......................................32 iii. Property Transfer Taxes..............................................32 iv. Sales Taxes..............................................................33 v. Transient Occupancy Taxes (TOT) ..................................33 July 2002 i OPR Incorporation Guidelines Table of Contents vi. State Revenues.........................................................33 vii. Franchise Fees..........................................................33 viii. Road Related Revenues............................................33 ix. Transportation Related Local Sales Taxes.........................33 x. Other Revenues ........................................................34 b. Establish Budget Projections: Expenditures...........................34 c. Determine An Appropriations Limit.....................................35 d. Effective Date and Transition Period...................................37 e. Financial Feasibility .......................................................39 B. Revenue Neutrality...................................................................39 1. Background.......................................................................39 2. Revenue Neutrality Process....................................................40 a. General Requirements for Revenue Neutrality........................43 b. Method of Calculation.....................................................43 c. Negotiation Process........................................................46 d. Terms and Conditions .....................................................47 C. Integrating CEQA with the Incorporation Process ...............................47 D. Executive Officer’s Report and Recommendation...............................49 1. Contents of Report..............................................................49 2. Distributing the Reports........................................................50 3. State Controller Review of CFA ...............................................50 VI. COMMISSION HEARING AND DECISION ............................................... 51 A. Hearing Notice.........................................................................51 B. Conflicting Proposals.................................................................51 C. Commission Actions...................................................................52 D. Request for Reconsideration........................................................55 VII. CONDUCTING THE PROTEST HEARING............................................... 55 VIII. VOTING: THE INCORPORATION ELECTION.......................................... 56 IX. CERTIFING THE ELECTION RESULTS OF THE ELECTION.......................... 56 X. POST INCORPORATION ................................................................. 57 APPENDICES A. Incorporation Primer B. Glossary C. Initial Fiscal Feasibility Spreadsheet D. Sample Forms E. Notice to Circulate Petitions F. Registered Voter Petition G. Landowner Petition H. Civil Rights & Environmental Justice Issues I. Sample City Council Agenda for a New City J. Sources and Uses of Municipal Funding K. Incorporation Timeline July 2002 ii OPR Incorporation Guidelines Table of Contents LIST OF EXHIBITS 1. Example: Incorporation Boundary and Alternative Boundaries .........................9 2. Typical Timeline for Processing Petitions................................................ 13 3. Example: Transfer of Service Responsibility............................................ 26 4. Example: Calculation of Property Tax Transfer........................................ 29 5. Example: County Property Tax as a Percentage of Revenue Available for General Purposes............................................................................ 30 6. Example: Determination of Provisional Appropriations Limit........................ 36 7. Example: Calculation of Repayment to County......................................... 38 8. Typical Revenue Neutrality Negotiation Process........................................ 42 9. Example: Calculation of Revenue Neutrality Payment................................ 45 10. Impact of the 2000 Amendments on Findings of Consistency......................... 54 July 2002 iii OPR Incorporation Guidelines Executive Summary The Incorporation Guidelines are a result of legislation signed in 2000, which established a process for the creation of statewide guidelines. While the Cortese-Knox Act, the law governing Local Agency Formation Commissions (LAFCOs), had always specified minimum procedures and requirements for incorporation proposals, there were variations among the 58 LAFCOs in processing, content and requirements. Many LAFCOs and incorporation proponents developed a set of “best practices” which, while shared as much as possible, were not always widely disseminated. The intent of the guidelines is to gather these best practices and summarize existing legal requirements into minimum statewide guidelines. The Incorporation Guidelines are advisory and each LAFCO may adopt supplemental policies and procedures. One of the biggest challenges to any incorporation proposal is readily available information. The Incorporation Guidelines provide easy to read information for citizens, for agencies and for proponents about the incorporation process, its timelines, and likely costs. A short “Primer” is included in the appendices to the Incorporation Guidelines, which provides a generalized overview of the entire incorporation process with common sense suggestions gathered from incorporation veterans. The Primer is short enough for LAFCOs and incorporation proponents to easily copy, fax and/or email. However, incorporation is a complex process that must meet legal requirements. Therefore, the main body of the Incorporation Guidelines provides a step-by-step process, with hyperlinks to the relevant Government Code Sections, for those groups and individuals actively engaged in an incorporation. In particular, the Incorporation Guidelines include detailed information and examples about the type of information that should be included in the comprehensive fiscal analysis (CFA). The Incorporation Guidelines also include a suggested process to address the legal requirement of ensuring that incorporations are “revenue neutral”. Thorough preparation is essential for an incorporation. The first section of the Incorporation Guidelines includes recommendations gathered from the workshops and Task Force meetings for potential incorporation proponents, for LAFCOs, and for other affected agencies regarding the efforts that must precede initiating an incorporation proposal. It includes information for proponents about consulting with LAFCO to avoid potential pitfalls, the use of consultants and investigating alternatives to an incorporation. LAFCOs are encouraged to begin their preparation for an incorporation before a proposal is even submitted. The determination of the possible fiscal feasibility of an incorporation has also been a challenge. Preparation of a CFA is expensive and if the proposed incorporation is infeasible, many proponents feel their efforts and money have been wasted. The Incorporation Guidelines contain a recommended “initial fiscal feasibility review” which is designed to help incorporation proponents decide whether to continue with an incorporation effort. The initial fiscal feasibility review only provides a one-year “snapshot” of some of a community’s financial assets and liabilities—it should never be used as a basis for a CFA which includes more comprehensive analysis of potential revenues and expenditures. October 2003 1 OPR Incorporation Guidelines Initiating an incorporation is, in itself, a complex process with tight time limits and various legal requirements for processing and collecting signatures. The process, legal requirements and time limits for initiating an incorporation are described in Section III. As throughout the entire Incorporation Guidelines, hints from incorporation veterans have been included to help make the initiation process easier. All incorporation proponents must prepare an application and while the specific requirements of various LAFCOs differ, there are certain basic requirements for all incorporation applications. Preparing an application to be submitted to LAFCO also requires payment of fees and the Incorporation Guidelines, Section IV, includes information regarding the probable costs of an incorporation application. The review and analysis by LAFCO staff of an incorporation application is detailed and exhaustive as required by law. Section V, “Reviewing the Application: LAFCO Staff Analysis,” contains detailed descriptions of the financial information which needs to be included in a CFA. This section of the Incorporation Guidelines also includes information about revenue neutrality, recommends a sample process and discusses what data should be included (or not) in the ensuing revenue neutrality calculations. Section V also discusses the environmental review process for an incorporation. All incorporations must be heard in public hearings and, if approved, must follow a legally defined process for a Conducting Authority hearing, elections and the final steps in the creation of a new city. These steps are also described in the last sections of the Incorporation Guidelines. Finally, the Incorporation Guidelines also contain some basic information and sources of help for newly incorporated cities. LAFCO’s involvement in incorporation ends after a successful election but some information has been included to assist newly incorporated cities in making a transition to full municipal status. However, new cities should rely on their legal counsel and staff for more complete and updated information. The Appendices (Section XI) contain sample forms and notices as well as the Primer. Existing law requires each LAFCO to adopt written policies and procedures which may augment and supplement these Incorporation Guidelines. Incorporation proponents are strongly urged to consult with LAFCO in their own county to get copies of local policies and procedures. The Incorporation Guidelines are available in PDF format that contains electronic links to the appropriate California Government Code sections. Clicking on the links will move the user to the appropriate section of the Government Code. The entire electronic file containing the Incorporation Guidelines may overwhelm some email servers. If you encounter problems downloading the guidelines it is recommended that you contact LAFCO in their county for a copy of the Incorporation Guidelines or go to your neighborhood library where computers are generally available for public use. October 2003 2 OPR Incorporation Guidelines I. INTRODUCTION This section provides the background to the development of the Incorporation Guidelines, an explanation of their purposes and information about the overall structure and how to use this document. A. BACKGROUND OF INCORPORATION GUIDELINES On September 26, 2000, Governor Gray Davis signed into law AB 2838 (Chapter 761, Statutes of 2000), authored by Assembly Speaker Robert M. Hertzberg. This legislation, titled the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 and codified as California Government Code Sections 56000 et seq., marked the most significant reform to local government reorganization law since the 1963 statute that created Local Agency Formation Commissions (LAFCOs) in each county. The legislation resulted from the recommendations of the Commission on Local Governance for the 21st Century, created by 1997 legislation. The Commission's recommendations were included in its final report, Growth Within Bounds, issued on January 20, 2000. Pursuant to the new requirements in Government Code Section 56815.2, the Governor’s Office of Planning and Research (OPR) was required to convene a task force composed of representatives of cities, counties, special districts, and local agency formation commissions for the purpose of creating statewide guidelines for the incorporation process. Existing law further specifies that the guidelines serve as minimum statewide guidelines for the incorporation process. OPR recommends that LAFCO adopt supplemental policies and procedures that reflect local conditions to further assist the public and affected agencies in understanding the incorporation process. The guidelines are required by law to include: • Information to assist incorporation proponents to understand the incorporation process, its timelines, and likely costs. • Direction to affected agencies regarding the type of information that should be included in the comprehensive fiscal analysis of incorporation, as well as suggestions for alternative ways to achieve fiscally neutral incorporations. These guidelines were the result of an extensive public participation process. Three workshops were held in San Diego, Sacramento and Bakersfield in the fall of 2001 to gather public input into the content of the Incorporation Guidelines. A draft copy of the Incorporation Guidelines was posted on the OPR website for a 30-day public review period. During the public review period, three additional workshops were held in Ukiah, Tracy and Van Nuys to receive comments from interested parties regarding the draft document. In addition, an Incorporation Task Force was formed, comprised of members of LAFCOs, the State Controller, cities, counties, special districts and other interested parties, to identify key issues and provide input into technical content of the Incorporation Guidelines. The Task Force met three times and submitted numerous recommendations that have been incorporated into this document. October 2003 3 OPR Incorporation Guidelines The Incorporation Guidelines reflect the Cortese-Knox-Hertzberg Act and related laws as were in effect on that date. Since state law may be amended periodically, it is critical that users of these Guidelines consult with the State of California, OPR, LAFCO staff and/or legal counsel to ensure that they are aware of the latest amendments to the relevant Government Code sections. In addition, each LAFCO may have policies, procedures and regulations that should be consulted before starting any incorporation effort. B. PURPOSES OF THE INCORPORATION GUIDELINES The Incorporation Guidelines are permissive and intended to be used as a framework for the consistent processing of incorporation proposals by LAFCO, by other affected local governments and by proponents. They are intended to serve as the minimum statewide guidelines for the incorporation process. The Guidelines are advisory to LAFCOs in the review of incorporation proposals (§56815.2) and are consistent with the existing Government Code. C. HOW TO USE THE INCORPORATION GUIDELINES The Incorporation Guidelines are available in hard copy (paper), CD-ROM and PDF format. The PDF and CD-ROM versions ACRONYMS USED IN THE GUIDELINES contain electronic links to the LAFCO—Local Agency Formation Commission appropriate California Government CFA—Comprehensive Fiscal Analysis Code sections. Clicking on the links will move the user to the SOI—Sphere of Influence appropriate section of the CEQA—California Environmental Quality Act Government Code. The Guidelines Acronyms are both defined in the text of the document are organized in the following and in a Glossary in Appendix C. These definitions are manner. provided to assist the reader in understanding the text. For a complete definition of terms, the reader should Section I contains the Introduction always refer to the definition section (§56010) of the Cortese-Knox-Hertzberg Act, the law governing LAFCOs, including information about the for complete definitions. background, purposes and use of the Incorporation Guidelines. Sections II through IX contain a step-by-step guide for processing an incorporation proposal. It is advised that users of these Guidelines read the entire document first to gain an understanding of all the steps in incorporation. Government Code sections are included in parentheses so that readers can refer directly to the appropriate section of the law. Templates, exhibits and sample forms are provided where appropriate. Section X contains a brief discussion of the responsibilities of a new city immediately following incorporation. While LAFCO’s involvement in incorporation generally ends soon after a successful election, this section has been included to assist newly incorporated cities in making a transition to full municipal status. However, new cities should rely on their legal counsel and staff for more complete and updated information. October 2003 4 OPR Incorporation Guidelines Appendices A through G contain a timeline for the incorporation process, the Incorporation Primer, a Glossary, sample forms and notices, an initial fiscal feasibility review spreadsheet which can be used by proponents to conduct a preliminary fiscal review of the proposed incorporation, and an example of an agenda from a new city’s first city council meeting. If the initial fiscal feasibility review indicates potential problems, incorporation proponents can use that information as a basis for future decisions. The initial fiscal feasibility review spreadsheet can be used for a one-year budget but is not a substitute for a LAFCO application or a comprehensive fiscal analysis (CFA). CFAs include more detailed and specific revenues/expenditures for multiple years which are not included in the initial feasibility review spreadsheet. Use of the initial feasibility review spreadsheet as a CFA may result in inadequate financial information which can lead to longer processing times at LAFCO and ultimately more expense for incorporation proponents. II. GETTING READY: PRE-INITIATION The work of research and planning before initiating an incorporation is critical to the process. The following sections include a discussion of pre-initiation steps for LAFCO and incorporation proponents. OPR recommends that LAFCOs and proponents refer to Appendix A to review the steps in the overall process and Appendix C to review key terms used in these Guidelines before getting started. A. BEFORE INCORPORATION STARTS: LAFCO’S ROLE In order to ensure a fair and equitable deliberation by WRITTEN POLICIES LAFCO on incorporation proposals it is important that LAFCO adopt policies and procedures prior to the submittal LAFCO is required to review, of any specific incorporation proposal. At a minimum, approve/disapprove proposals for changes of organization and LAFCO should take a comprehensive view of its existing reorganization consistent with rules related to incorporations, determine whether written policies, procedures modifications are warranted and make the information and guidelines adopted by the available to LAFCO’s Commission, local governments, Commission (§56375). special districts and the public. The following is a list of preparatory activities a LAFCO should consider: • Review and update LAFCO general policies and procedures which relate to or affect incorporation. • Review and update any specific incorporation policies, procedures, and guidelines. • Establish a standard application form. • Establish a schedule of fees. • Establish standards for appropriate incorporation boundaries and alternatives. • Establish a policy regarding the adoption of the Sphere(s) of Influence. • Establish a process for triggering LAFCO facilitation in the revenue neutrality agreement process. October 2003 5 OPR Incorporation Guidelines • Review LAFCO’s and the State’s rules and procedures related to financial contributions to incorporation efforts. • Identify the County Auditor’s ratio. The public, in particular, should have access to comprehensive information on the incorporation process, application forms, requirements, processing times, fee schedules, standards of review for incorporations and other relevant information. LAFCO plays several roles in the incorporation process including educating the public on the incorporation process, facilitating communication between affected local government parties and community groups and reviewing/approving the proposal. When developing incorporation policies and procedures LAFCO should address each of these roles. OPR recommends that LAFCOs consider developing a formal pre-application process which includes having community members meet early in the process with LAFCO staff to become better educated on the process and form a cooperative working relationship with LAFCO. At a minimum the pre-application process should include the following procedures: • An internal tracking system to maintain updated information on changes in incorporation law, contacts with potential incorporation groups/individuals and a mailing list of potential incorporation proponents. • Development of an information packet on the incorporation process and procedures which LAFCO will follow in reviewing the proposal. • A meeting and consultation among incorporation proponents, LAFCO and affected local agencies to clarify expectations of the incorporation process. • A review of the draft application including boundaries, alternative boundaries, descriptions and other application requirements. B. BEFORE INCORPORATION STARTS: THE PROPONENTS’ ROLE 1. Alternatives to Incorporation Approximately 6,500,000 people, or 18% LAFCO’S ROLE IN AN INCORPORATION of California’s population, live in Incorporation proposals are often motivated by unincorporated communities. While dissatisfaction with the status quo. these communities vary in size and One of LAFCO’s roles is to be an intermediary and character, they have the same range of facilitator that is required, by law, to identify issues challenges that cities face—changes in and to resolve them in an equitable manner. the character of their community, LAFCO staff must communicate clearly the standard housing/jobs balance, provision of of review, the requirements, the estimated cost and services, increased traffic and growth. the probable timing of an incorporation proposal. Sometimes these communities see incorporation as the only means to acquire the political visibility and credibility to address their problems and they may be unaware of other alternatives. October 2003 6 OPR Incorporation Guidelines OPR recommends that proponents investigate alternatives to incorporation prior to initiating an incorporation. As an example, a special district may be a more cost effective means for obtaining services than incorporation. “Choices for the Unincorporated Community: A Guide to Local Government Alternatives in California” (Institute of Governmental Affairs, University of California at Davis, September 1981) contains a comprehensive discussion of alternatives to incorporations for unincorporated areas. Below is an excerpt from “Choices for the Unincorporated Community”. Residents considering incorporation, should consider the following questions before making a formal proposal to LAFCO: • What is the problem, if any, driving the desire for change in the existing governmental structure? Can the problem be addressed by other means? • What is the role of the County government in the community? Is the County willing or able to address the identified problems? • What is the community’s relationship to other adjacent communities? • What would the proposed boundaries look like and how would that affect other agencies and communities? • What is the past history of local efforts to incorporate? • How is the community changing? • What is the community’s capacity for self-governance? • How are services currently provided and how would they change? Does the area have the ability to provide municipal level services if incorporated? • Who is likely to benefit from a change and who is likely to lose? Once these questions are answered, residents may have a better understanding of why they want to incorporate and whether incorporation will actually solve the problem(s) which concern them. 2. Consult with LAFCO Of all the actions incorporation proponents can take INCORPORATIONS CAN BE EXPENSIVE to help ensure a successful incorporation process, Proponents are generally required to early and frequent consultation with LAFCO, and pay for LAFCO fees and staff costs, with other affected agencies, such as the County and consultant costs, preparation of the special districts, is the most important. Proponents CFA, application, map and legal can often become overwhelmed by the technical, descriptions as well as environmental legal and procedural requirements of incorporation. review. It is not unusual for an incorporation to cost more than $100,000. LAFCO staff should be available to assist proponents in understanding the process, in facilitating communication among all the affected agencies and in helping all parties avoid the most common pitfalls in an incorporation. October 2003 7 OPR Incorporation Guidelines a. Assist in Identifying Logical Boundaries Developing a logical incorporation boundary is the first and most fundamental step in an incorporation effort. It is strongly recommended that proponents develop the boundary in conjunction with LAFCO staff early in the process—even before deciding to move forward with any incorporation efforts. Developing logical boundaries and alternatives early in the process with LAFCO staff can save time and money for proponents. See Exhibit 1, Example: An Incorporation Boundary and Alternative Boundaries. LAFCO’s policies and procedures on incorporations should include a list of criteria which LAFCO will use in evaluating boundaries and should reference items such as the existing boundaries and spheres of influence of existing cities and special districts, flood plains, communities of interest and the readiness of the area to incorporate. b. Facilitate Early Discussions with Affected Agencies LAFCO staff should be available to convene a meeting of representatives from affected agencies and other interested parties to ensure early input into the proposed incorporation proposal and boundaries. October 2003 8 OPR Incorporation Guidelines EXHIBIT 1 EXAMPLE: INCORPORATION BOUNDARY AND ALTERNATIVE BOUNDARIES RANCHO SANTA MARGARITA Proposed Incorporation Alternative Boundary #2 Boundary Alternative Boundary #4 Alternative Boundary #6 Maps Courtesy of Orange County LAFCO (Not all alternatives are displayed.) October 2003 9 OPR Incorporation Guidelines 3. Use of Consultants LAFCO is legally responsible for the information in the Executive Officer’s report and must ensure that it is accurate, complete and objective. LAFCO may need assistance in meeting those requirements and may contract for an outside consultant. If LAFCO requires additional assistance, it may require that the proponents pay for the costs of hiring a consultant. Even if the proponents have already prepared an incorporation application, LAFCO may need to contract for an independent consultant to verify information and review the conclusions presented in the application. Consultants are typically used for a variety of tasks. They may have the comprehensive and current knowledge of local government financing needed to prepare a CFA, of local government structure, of LAFCO polices and procedures and of incorporation processes. Consultants are often responsible for helping in establishing logical boundaries in conjunction with LAFCO; preparing and developing the CFA including revenue neutrality negotiations; preparing the application, reports, petitions and other forms as needed; monitoring the proposal; and providing technical assistance. The manner in which consultants are used varies but generally matches one of the two following models: • LAFCO hires the consultant. The proponents deposit money with LAFCO to cover consultant costs. The consultant works for and is paid by LAFCO with the funds deposited by the proponents. Proponents do not have control over the consultant’s work, timing or end product. • Incorporation proponents hire the consultant. The consultant works for and is paid by the proponents. The proponents have more control over the preparation of the application and related studies. Both methods can be successful. Proponents should discuss the use of consultants with LAFCO early in the process. 4. Initial Fiscal Feasibility Review If proponents decide to take a PREPARING A CFA closer look at incorporation, it The preparation of a CFA is the legal responsibility of may be helpful to perform a LAFCO. In practical terms, that means that LAFCO will preliminary assessment of the determine who prepares the CFA and when the CFA shall be fiscal resources available to a prepared. It is recommended that proponents discuss the potential new city. The method of preparation of the CFA with LAFCO prior to preliminary assessment, or initial beginning any incorporation efforts. Failure to do so may result in the processing of the application being delayed and fiscal feasibility review, is in additional costs to the proponents. Proponents are designed to help community typically required to pay for the costs of the CFA. groups conduct a quick appraisal of the potential for incorporation. An initial fiscal feasibility review spreadsheet, provided in Appendix D, can be used by incorporation proponents to determine if revenues will be available to support municipal level services. The initial fiscal feasibility spreadsheet is NOT intended to be used as a substitute for a CFA. It is only intended to be used as a means to educate proponents regarding the fiscal potential for incorporation. October 2003 10 OPR Incorporation Guidelines III. INITIATING THE INCORPORATION The Cortese-Knox-Hertzberg Act requires that areas proposed for incorporation include at least 500 registered voters (§56043). The legal process for incorporating a new city can be initiated (§56047), or started, in three ways. They are: • Registered Voters: A petition signed by at least 25% of the registered voters residing in the proposed incorporation area is submitted to LAFCO. The Registrar of Voters must verify the number of valid signatures on petitions of registered voters. • Land Owners: A petition signed by at least 25% of the landowners owning at least 25% of the assessed value of land within the proposed incorporation area. The County Assessor’s Office must verify the petitions of landowners. • Legislative Body: The legislative body of an affected agency (§56014) can adopt a resolution of application. An affected agency is any city, special district or county which contains territory, including a sphere of influence, within the proposed incorporation boundaries. If the territory identified in the resolution is within the boundaries of a city the “incorporation” process would follow under the procedures for a special reorganization rather than the change of organization process. Each method of initiation is described in detail in the following sections. Proponents are encouraged to check with LAFCO regarding local policies, procedures and guidelines. Sample forms are provided in Appendix E. A. INITIATION BY PETITION OF REGISTERED VOTERS Most incorporations are initiated through a registered voter petition. The process of explaining the goals of an incorporation effort to potential signers of petitions is an important step in the education of a community about the issues involved in and the purpose of incorporation. The process of gathering signatures on petitions is also a means of determining the level of support for incorporation and of gathering feedback from residents. If the incorporation is to ultimately succeed at the polls, it must have a high degree of community consensus and the petition effort is part of the process to develop that consensus. A registered voter petition for incorporation requires the signatures of not less than 25% of the total number of registered voters residing in the area to be incorporated (§56764(a)). A sample petition is included in Appendix E. Petitions must be prepared and processed in accordance with the legal requirements of the Cortese-Knox-Hertzberg Act. The legal requirements for the process, form and content of incorporation petitions are specific and complex. LAFCO’s Executive Officer and LAFCO legal counsel should review all registered voter petition forms when the proponents file a “Notice of Intent” (§56700.4) to circulate petitions with LAFCO. This preliminary review can lessen the possibility that petitions will be rejected for errors after the proponents have gathered signatures. October 2003 11 OPR Incorporation Guidelines Existing law states that the signatures on an incorporation petition shall be verified by the elections official of the county and that the costs of verification of the signatures shall be provided for in the same manner and by the same agencies which bear the costs of verifying signatures for an initiative petition in the same county (§56383(e)). Proponents are strongly encouraged to check with LAFCO staff, the county and the Registrar of Voters in their own county to determine the costs of verification. LAFCOs may adopt regulations governing contributors, expenditures and other activities relating to the petition process (§56700.1). Proponents should check with LAFCO about these regulations prior to circulating petitions. B. INITIATION BY PETITION OF LANDOWNERS Incorporations may also be initiated by petition of landowners (§56048). This type of initiation requires the signatures of not less than 25% of the total number of landowners who own property valued at a minimum of 25% of the total assessed value of land in the proposed incorporating area (§56764(b)). Landowner petitions are usually verified by the County’s Assessor’s Office which uses the most recent assessment rolls (§56708). However, in some California counties, the Registrar of Voters may verify landowner petitions as well as registered voter petitions. While infrequently used, this type of initiation may be more useful when less densely populated communities want to form a new city. Except for the type of signatures collected and the agency which verifies the petitions, the requirements for the form, the content and the processing of an incorporation initiated by landowners is the same as for registered voters. The incorporation must still ultimately be voted on in an election and must ensure that it has the support of registered voters. The proponents among the landowners assume the leadership role in the incorporation process and are responsible for completion of all application requirements including the payment of fees. C. INITIATION BY RESOLUTION OF AN AFFECTED AGENCY Any affected agency in the area proposed for incorporation may become the applicant by adopting a Resolution of Application (§56654). The resolution may also be preceded by a “Notice of Intent” and must include all of the same components as incorporation initiated by petition except for the signature requirements (§56654(c)). The agency board assumes the leadership role in the incorporation process and is responsible for completion of all application requirements including the payment of fees. D. PROCESSING OF PETITIONS The following sections explain the processing of petitions initiating incorporation. Exhibit 2 provides a Typical Timeline for Processing Petitions. October 2003 12 OPR Incorporation Guidelines EXHIBIT 2 TYPICAL TIMELINE FOR PROCESSING INCORPORATION PETITIONS Notice of Intent to Circulate Petition (§56700.4) (cid:200) Date of First Signature on Petition (§56705(a)) (cid:200) 180 days (cid:200) Date of Last Signature on Petition (§56705(a), §56706(2)) (cid:200) 30 days (law prohibits more than 60 days) (cid:200) LAFCO Submits Petition for Verification (§56706) (cid:200) (cid:200) Petition Sufficient: Petition Insufficient LAFCO Issues Certificate of Sufficiency (§56709) (§56706(a)) (cid:200) (cid:200) INCORPORATION PROPOSAL PROCEEDS Additional Signature Collection (§56706(2)) (cid:200) 15 days (cid:200) LAFCO Certifies Results (§56706(c)) (cid:200) Petition Insufficient (cid:200) PROPOSAL TERMINATED October 2003 13 OPR Incorporation Guidelines 1. Notice of Intent to Circulate a Petition Before circulating a petition for incorporation, incorporation proponents must file a “Notice of Intent” (§56700.4) to circulate a petition or to adopt a Resolution of Application. Although recommended by OPR, affected local agencies are not required to circulate a Notice of Intent to LAFCO and other affected and interested agencies prior to the adoption of the resolution (56654). The Notice of Intent must include the name, mailing address and signature of the proponents (§56068) and a written statement (not exceeding 500 words) stating the reasons for the proposed incorporation. The Notice of Intent must be filed with LAFCO. A sample Notice of Intent form is included in Appendix E. Only after filing the Notice of Intent with LAFCO may the petition be circulated. LAFCO’s Executive Officer is required, upon receiving the Notice of Intent, to notify affected agencies and jurisdictions (§56658). 2. Form and Content of a Petition or Resolution The text of a petition or resolution of application is similar for all three types of initiation. Sample petition forms and notices are REVIEW OF PETITIONS included in Appendix E. The text of a petition or resolution of application must include the following A petition is a legal document and (§56700): must be prepared in accordance with the requirements of the law. It is strongly recommended that the • A statement that the proposal is made proponents and LAFCO use the pursuant to Government Code Section 56000 “Notice of Intent” filing as an et seq. opportunity to review the petition to ensure legal conformance. • A brief statement of the nature of the proposal and listing of other changes of organization. This could include the special districts that are proposed for reorganization as a result of the incorporation, detachment or annexation of territory and or changes in applicable governmental boundaries. • A map and description of the proposed incorporation boundaries and alternatives. • Proposed terms and conditions. Although LAFCO has the ability to add, delete or modify proposed terms and conditions, the incorporation proponents should include some terms and conditions to ensure that petitions signers understand the consequences of incorporation. • A statement of the COLLECT MORE THAN YOU NEED reason(s) for the proposed incorporation. In collecting signatures on a petition incorporation proponents should plan on collecting at least 10% to 15% more signatures A clear statement of the than the minimum requirement to compensate for signatures reasons for incorporation found to be invalid. Each circulator of a petition should review is critical for the the map of the incorporation area with each signer of the education of petition petition to confirm his/her residence. This helps reduce the signers. number of invalid signatures. • A statement as to whether the petition is signed by registered voters or landowners. • The names of three proponents who will be the main contacts for the proposal. October 2003 14 OPR Incorporation Guidelines • A request that further proceedings be taken by LAFCO pursuant to the Cortese- Knox-Hertzberg Act. • A statement of whether the proposed incorporation is consistent with the spheres of influence previously adopted by LAFCO. The petition can also propose a name for the new city or town (§56722), and provisions for appointment of a city manager and other city officials (§56723). The form of the petition must provide for each signer's printed name, street address (post office boxes are not sufficient), signature and the date of signature (§56704). Each signer of the petition must be either a registered voter or landowner, depending on which type of petition is being circulated, within the boundaries of the proposed incorporation. For landowner petitions, each signature must be accompanied by a description of property owned within the incorporation area, such as an assessor's parcel number. 3. Timing of Petitions All signatures must be gathered within a six-month (6) period from the date of the first signature (§56705). Incorporation petitions must be submitted to LAFCO for filing within 60 days of the date of the last signature on the petition. The total number of valid signatures necessary to meet the 25% requirement for a petition of registered voters will be established as of the date of the last voter registration report prior to the date of the first signature on the petition (§56071, §56706) and Election Code 9113-9115). It is important that incorporation proponents plan the timing of their petition drive carefully to meet these statutory requirements. Within 30 days after the date a petition is received by LAFCO, the Executive Officer shall cause the petition to be examined and shall issue a "Certificate of Sufficiency" or "Notice of Insufficiency" (§56706(a)) after the results of the examination are received. The County’s Registrar of Voters examines registered voter petitions to determine the number of valid signatures (§56707). Landowner petitions are examined based on a comparison of signatures and the "most recent assessment roll" (§56708). If the petition is determined to be insufficient based upon the number of signers, LAFCO’s Executive Officer will notify the proponents by certified mail. The proponents have 15 days after the date of this notice to submit a supplemental petition to LAFCO’s Executive Officer (§56706(b)(1)). It is important to note that this 15-day period is the only chance to collect the additional number of required signatures if the original number of signatures is insufficient. Within 10 days of the date the supplemental petition is filed, LAFCO’s Executive Officer will have the petition examined and certify in writing the result of his/her examination. If the petition is found to be insufficient, it will be filed as a public record "without prejudice" to any future incorporation effort in the same area (§56709). Without prejudice means that proponents can begin the process of initiating another incorporation without waiting a specified period of time. October 2003 15 OPR Incorporation Guidelines IV. PREPARING AN INCORPORATION APPLICATION Incorporation applications must include a variety of information and studies. LAFCO should develop and publish a standard list of information which is to be included in the application. The minimum information (§56652) which must be submitted to LAFCO includes: • A petition or resolution of application initiating the proposal; • A description of the incorporation proposal; • A map and legal description of the proposed incorporation area. • The names of the officers or persons, not to exceed three in number, who are to be furnished with copies of the Executive Officer’s report and who are to be furnished with mailed notices and copies of the Executive Officer’s report. LAFCO is also authorized to require other data and information necessary for the analysis of the application. While some incorporation applications may also include a CFA, it is strongly recommended by these guidelines that the preparation of CFAs be started after submittal of an incorporation application to LAFCO. The Cortese-Knox-Hertzberg Act’s timelines for submittal of petitions, noticing and other requirements related to an incorporation application are mandatory. However, the timelines for review and processing are generally advisory. Proponents should consult with LAFCO to determine a schedule for processing an incorporation application which will be consistent with the requirements of the individual LAFCO and the law (§56106). Subsections (d) and (e) of Section 56652 provide LAFCO’s Commission and its Executive Officer with the authority to require additional information as needed to process the incorporation proposal. State law also empowers each LAFCO to adopt additional written procedures for the evaluation of proposals (§56375(g)). Incorporation proponents are strongly encouraged to check with LAFCO staff in their county to obtain an application and to determine if there are specific procedures or policies adopted by that LAFCO which may affect the incorporation. A. DESCRIPTION OF INCORPORATION PROPOSAL Existing law requires each incorporation proposal to include information relative to the “nature” of the proposal (§56652(b)). OPR recommends that the nature of the proposal be described in the following manner. October 2003 16 OPR Incorporation Guidelines • The reasons for proposing incorporation. The reasons for incorporation vary and include, but are not limited to: improving local public services; capturing existing or accessing new revenues to support local services; giving a community local control over land use planning; creating a locally accountable governing body; and, pursuing local policy. • A clear statement of concerns, issues or problems, if any, INCORPORATION PROPOSAL with the existing governmental structure. While capturing existing or • Any changes proposed from the way public services are accessing new revenues may currently being provided. For example, if the incorporation be a motivating factor for proposes the reorganization of special districts as part of the proposing incorporation, the Cortese-Knox-Hertzberg Act incorporation, those governmental changes should be states that incorporations included in the description of the incorporation proposal. should not occur primarily for financial reasons (§56815). • A brief history of the incorporation area including the results of any previous incorporation efforts. • Demographic, geographic and economic data which describe the incorporation area. This information can be readily obtained from the United States Census Bureau or other public agencies. B. TIMING OF THE COMPREHENSIVE FISCAL ANALYSIS (CFA) Following submission of an incorporation application, LAFCO’s Executive Officer will prepare, or cause to be prepared by PREPARING A CFA contract, a CFA and will release that The preparation of a CFA is the legal responsibility of analysis for public review (§56800). LAFCO. In practical terms, that means that LAFCO will determine who prepares the CFA and when the CFA shall be While some incorporation proponents prepared. It is recommended that proponents discuss the may prepare their own CFAs and submit method of preparation of the CFA with LAFCO prior to them to LAFCO with their application, beginning any incorporation efforts. Failure to do so may LAFCO has the ultimate responsibility for result in the processing of the application being delayed and in additional costs to the proponents. Proponents are ensuring that the information is typically required to pay for the costs of the CFA. accurate, complete and objective. Some LAFCOs may require that the proponents pay for the costs of hiring an independent consultant to verify or supplement the work of the proponent’s consultant. This COMMUNICATION AMONG LOCAL GOVERNMENT ENTITIES can increase the processing time for incorporations and add to the costs. OPR recommends that preparation of the CFA not LAFCOs are encouraged to work begin until after a successful initiation of the incorporation closely with counties and incorporation proponents to and after submittal of an application to LAFCO. facilitate the preparation of the CFA and a revenue neutrality LAFCOs are encouraged to adopt written policies and agreement. procedures for a pre-initiation review of an incorporation proposal, preparation of a CFA (§56300(a)), a schedule of fees and clear and consistent standards of review for a CFA and an incorporation proposal. LAFCOs are also encouraged to work closely with counties and incorporation proponents to facilitate the preparation of the CFA and a revenue neutrality agreement. The steps in the preparation of a CFA are described below under Section V. A, Preparation of the Comprehensive Fiscal Analysis. October 2003 17 OPR Incorporation Guidelines The CFA becomes a part of the Executive Officer’s Report and is submitted to the Commission prior to their consideration of the incorporation proposal (§56665). C. SERVICE PLAN All incorporation applications must be accompanied by a service plan. A service plan is a proposal submitted by the incorporation proponents detailing which municipal services, after incorporation, will be provided by the new city or by other agencies (§56653). A service plan should include, at a minimum, the following: • A description of the local public agencies presently serving the area including maps of service areas; • The range and level of services currently provided; • Proposed changes in the governmental structure (e.g., districts proposed to be dissolved and/or merged with the new city); and • Increased or decreased range and level of services potentially available in the community if incorporated and how the difference, if any, will be financed. WHO PROVIDES WHAT SERVICES AFTER INCORPORATION? Services Which A New City May Assume Services that the County Must Continue to Provide • Law enforcement • Special services (welfare, child protective • Fire protection and paramedics (some cases) services, etc.) • Water and sewer (some cases) • Health services (medical care, mental health, public health) • Planning (land use, environmental review, • Criminal justice (courts, prosecution, jails, zoning, building inspection, etc.) probation, etc.) • Public works (streets, engineering, traffic • Regional parks (in some cases) signals, streetlights, drainage, etc.) • Local parks and recreation • Elections and voters services • Libraries (in some cases) • General government (assessor, treasurer, recorder, tax collector, etc.) • Animal control • Planning and environmental services Special Districts may also be formed and/or expanded to provide a wide variety of serves. D. MAP AND LEGAL DESCRIPTION OF BOUNDARIES All incorporation applications must include a map and legal description of the proposed incorporation boundaries including a rationale for the boundaries proposed and a description of possible boundary alternatives. Since LAFCO has the legal responsibility to consider, among other items, the effect of the proposed incorporation on the provision of services, its social and economic impact on the county and proposed city, and its conformity with LAFCO’s policies on orderly development (GC 56668), incorporation proponents are strongly encouraged to work with LAFCO staff early in the process to develop a logical incorporation boundary.. OPR recommends that an incorporation boundary recognize other local agencies’ boundaries and SOIs; include a variety of land uses; consider topography and transportation routes; October 2003 18 OPR Incorporation Guidelines recognize communities of interest especially if environmental justice communities may be affected; and not create islands of unincorporated territory. Government Code Section §56668(f) states that one factor to be considered when reviewing a proposal is the “…definiteness and certainty of the boundaries of the territory, the nonconformance of the boundaries with lines of assessment or ownership, the creation of islands or corridors of unincorporated territory and other similar matters affecting the proposed boundaries”. To ensure consistency with this requirement, incorporation applications should include a metes and bounds legal description. However, individual LAFCOs may require the preparation of a metes and bounds description at different stages during the process. Incorporation proponents are responsible for the cost of preparation of both the map and the metes and bounds legal description. Please refer to Section II, B-2 for a more complete list of factors which determine a logical incorporation boundary and alternatives. Existing law requires LAFCO to consider alternative boundaries (§56668). OPR recommends that incorporation proponents begin consultation with LAFCO as early as possible to reduce the likelihood of having to pay for the development and analysis of additional boundary alternatives after the application is filed. E. SPHERE OF INFLUENCE (SOI) AND MUNICIPAL SERVICE REVIEW A Sphere of Influence (SOI) is defined as the “…probable physical boundaries and service area…” (§56076) of an agency. An SOI includes territory not within the corporate limits of the agency but which is expected to be annexed at some time in DETERMINING A NEW SPHERE OF the future. There may be communities or territory closely INFLUENCE connected with a proposed incorporation area which are not LAFCO may either approve a SOI ready to be included in the new city but need to be for a new city at the time of acknowledged for future planning. The impacts of LAFCO’s Commission hearing or delay consideration of the SOI for incorporation on the proposed SOI should be considered as up to one year after voter part of the incorporation application and may, although not approval (§56426.5). required to, be included in the CFA. It is recommended that incorporation proponents develop a proposed SOI together with the proposed incorporation boundary and alternatives. LAFCO may either approve a SOI for a new city at the time of LAFCO’s Commission hearing or postpone consideration of the SOI for up to one year (§56426.5) after voter approval. One advantage of deferring the SOI decision for the full year is that the new city council has time to consider the SOI in connection with the new city’s general plan process. Beginning in January of 2001, LAFCOs are required to undertake a municipal service review prior to the adoption or update of an SOI (§56430). Incorporation proponents need to consult with LAFCO to determine how and when a service review will be prepared for an incorporation proposal or a newly incorporated city. OPR recommends that LAFCO develop a policy that clearly states when a service review for an incorporation proposal or a newly incorporated city will be conducted. The policy should also clearly state when a service review will be prepared for other agencies whose boundaries or SOIs may change as a result of incorporation. October 2003 19 OPR Incorporation Guidelines F. PAYING FOR THE INCORPORATION APPLICATION. Fees for incorporation proposals vary and are set by each LAFCO. All LAFCOs should adopt general fee schedules to allow potential applicants the ability to estimate the potential incorporation costs. Incorporation proposals can be charged on an actual cost-recovery basis, on a deposit system, as a set fee or by other methods. Proponents are required to fund the incorporation effort, including the costs of LAFCO to develop information and process the application. The cost of incorporations has ranged from $50,000 to $150,000 LOAN FROM THE STATE based on the experience of several incorporation efforts For an incorporation that has been over the past 5 years. initiated by a successful petition, LAFCO (§56383(g)) may forward a request for a Since incorporation is almost always a volunteer effort, loan from the Controller of the State of raising the necessary funds can be a challenge. For California. The State, not LAFCO, can incorporation proceedings that have been initiated by a approve the loan which then becomes an obligation of the new city. Repayment of successful petition, LAFCO may, upon receipt of the loan must be made within 2 years of substantial proof submitted by the proponents that they the effective date of the incorporation. are unable to raise sufficient funds, take no action on the proposal and forward a written request for a loan to the Controller of the State of California (§56383(g)). This is a new provision of the Cortese- Knox-Hertzberg Act. The proponent’s written request should state the amount requested and should be sufficient to cover incorporation expenses. The written request may also include, but is not limited to, the following: • Bank statements of incorporation accounts • Audit of funds of incorporation accounts • Affidavits signed by the proponents • Information as necessary to verify that the incorporation proponents are unable to raise sufficient funds LAFCO shall forward the loan request, along with the certification of insufficient funds as supplied by the proponents, to the State Controller by registered mail. State funds are NOT automatically granted to an incorporation effort and are subject to availability and other budgetary limitations of the State. It should be noted that LAFCO has no discretion or authority over the State funds or incorporation loans; LAFCO’s role is to simply forward the request and certification to the State Controller for consideration. If the loan is approved, repayment of the loan shall be made a term and condition of LAFCO approval and may be included as part of the ballot measure when incorporation goes to the voters. If the incorporation is successful, the loan shall become a legal obligation of the newly formed city and shall be shown as an expense in the budget projections of the CFA for the proposed city. Repayment of the loan must be made within two years of the effective date of incorporation. If the incorporation proposal is denied by the Commission or defeated at an election, the loan shall be forgiven. October 2003 20 OPR Incorporation Guidelines V. REVIEWING THE APPLICATION: LAFCO STAFF ANALYSIS After the incorporation application and fees have been submitted, LAFCO staff will mail a notice of receipt of the application to all interested and affected agencies and the proponents (§56658). LAFCO staff then has 30 days to review the application for completeness. If the application is considered complete, LAFCO’s Executive Officer will issue a Certificate of Filing (§56651) which indicates that the application is ready for a public hearing. LAFCO must then set a public hearing for the incorporation within 90 days. However, if the application is not complete, LAFCO’s Executive Officer must notify the applicants within 30 days of submittal if the application is incomplete and must specify those parts of the application which need additional information (§56658(g)) to be deemed complete. Once the application is complete, LAFCO staff must analyze the merits of the proposal, evaluate it for consistency with existing laws and adopted LAFCO policies and procedures, conduct the environmental review, prepare or cause to be prepared the CFA, complete the revenue neutrality process and prepare the Executive Officer’s report. As necessary and as provided in the Cortese-Knox-Hertzberg Act (§56652), LAFCO’s Executive Officer can also request additional information to process the incorporation application. The staff review may take up to a year depending on the completeness of application, the complexity of the proposal and the experience and staffing level of LAFCO. A. ENVIRONMENTAL JUSTICE CONSIDERATIONS IN INCORPORATIONS In analyzing the merits of the proposal, LAFCO staff should consider their responsibilities under federal and state civil rights and environmental justice laws. This chapter describes the framework for developing an effective review process which reflects the laws and policies related to civil rights and environmental justice. Factors that are required to be considered in the review of the proposal and that may have significant civil rights and environmental justice implications include, among other items, population, per capita assessed valuation, the need for organized community services including the present cost and adequacy of existing services and the probably effect of the incorporation on the area and adjacent areas (§ 56668). Further, LAFCO is required to specifically identify the effect of the proposed action on social and economic interests in the proposed new city and the county government structure. In order for civil rights and environmental justice to be properly considered, OPR recommends that relevant information collected during municipal service reviews as well as other local studies on social and economic indicators in the region be used in considering the incorporation proposal. In general, federal and state civil rights laws prohibit actions by public entities which disproportionately affect one category of individuals including, but not limited to, race, creed, ethnicity, disability, family status, sexual orientation and income. Environmental justice is defined in state law as the fair treatment of people of all races, cultures, and incomes with respect to the development, adoption, implementation, and enforcement of environmental laws, regulations, and policies (GC §65040.12(e)). October 2003 21 OPR Incorporation Guidelines Environmental justice has particular implications for Staff and Board Training review of incorporation proposals, as LAFCO will be considering boundaries and service plans that directly OPR recommends that LAFCOs address who will be included and who will excluded provide for ongoing training of staff and board members relative from the new city and what impact the inclusion and to the application of federal and exclusion will have on the both the residents of the new city state civil rights statutes that and the surrounding community including those that apply to local government may have been historically undeserved and/or entities. environmentally overburdened. The 2000 amendments to CKH Act also recognize the potential impact of LAFCO decisions on environmental justice. (GC §56001): “Encourage orderly growth and development which are essential to the social, fiscal, and economic well-being of the state… The Legislature also recognizes that providing housing for persons and families of all incomes is an important factor in promoting orderly development. Therefore, the Legislature further finds and declares that this policy should be effected by the logical formation and modification of the boundaries of local agencies, with a preference granted to accommodating additional growth within, or through the expansion of, the boundaries of those local agencies which can best accommodate and provide necessary governmental services and housing for persons and families of all incomes in the most efficient manner feasible. “ Other sections of these guidelines provide guidance on boundaries, service plans and adoption of sphere’s of influence. Appendix H includes additional background on LAFCO’s civil rights and environmental justice responsibilities. These guidelines include a number of recommendations which encourage broad public participation and incorporation proposal analysis which would affirmatively support the civil rights and environmental justice responsibilities of LAFCO including: • Educate the public on the role of LAFCOs and the incorporation review process. Appendix A includes a “Primer on Incorporations” that was developed to assist LAFCO with this purpose. • Adopt general policies and procedures relative to the undertaking of the review of incorporation applications. This will avoid any appearance of an unequal review of some applications. • Develop and publish a schedule for review and Commission consideration to maximize the ability of the public to participate in the process. • Convene stakeholders and facilitate collaborative efforts to address issues and challenges that are identified during the early consultation with the proposal proponents which may, ultimately, eliminate the need for the incorporation of a new city. Consider the impacts of the proposed incorporation across county lines if that would more appropriately address the community of interest. • Publish the Draft Executive Director’s Report and provide for a 21-day public review period before scheduling the report to be considered by LAFCO. • Hold meetings and public documents in language other than English, where affected populations are reasonably expected to be non-English speakers. • Sponsor public workshops prior to the hearing at which the incorporation proposal will be considered. October 2003 22 OPR Incorporation Guidelines B. PREPARATION OF THE COMPREHENSIVE FISCAL ANALYSIS (CFA) The CFA (§56800) is a critical part of LAFCO’s Executive Officer's report. It includes several legally required components and is usually prepared and processed in a series of sequential steps. Those steps are described in the following sections. OPR recommends that preparation of the CFA begin after submittal of an application to LAFCO to ensure that multiple versions of the CFA do not have to be prepared. This will help to keep costs and preparation time at a minimum. As previously mentioned, it is important in the preparation of the CFA to have identified alternative boundary scenarios early in the incorporation process. The early identification of alternative boundaries will allow greater efficiency in the collection and segregation of related costs and revenues. Adding or excluding areas can have a significant impact on the CFA, on revenue neutrality, and on the amount of property tax transfer. The revenue neutrality impact analysis of the CFA should also incorporate alternative boundary scenarios so that any agreement on a revenue neutrality mitigation payment plan can be adjusted to reflect the financial impacts of alternative boundaries. The CFA must also address revenue neutrality. Incorporations should not occur primarily for financial reasons (§56815) and, under the Cortese-Knox-Hertzberg Act, should result in a similar exchange of both revenue and responsibility for service delivery among affected agencies. Negative financial impacts to affected agencies must be identified and mitigation measures proposed. A suggested process for determining revenue neutrality impacts and mitigation is also described in a subsequent section of these Incorporation Guidelines. 1. Gather Financial and Service Level Data Existing law requires LAFCO to prepare the CFA (§56800) from data provided by affected public agencies, franchise agencies and the county. Data collection should be coordinated by LAFCO to ensure that it is efficient and cost-effective. The data collection begins with a data request letter mailed, generally by LAFCO, to all agencies with territory within or currently serving the proposed area of incorporation. The data request letter must also be sent to the county committee PLAN AHEAD on school district organization and each school district within Close coordination is critical in the proposed incorporation boundary. The data request letter the preparation of a CFA. Often should also include a provision that the agency both LAFCO and incorporation acknowledge receipt of the letter within 15 days and that it proponents begin working with agencies and the county a full respond to the content of the letter within a specified and year ahead of the submittal of reasonable time frame as established by LAFCO’s Executive the application to ensure efficient Officer (§56658(b)). In the case of state agencies needing to timing of data collection. provide data, the Executive Officer is encouraged to communicate with the agency to establish a reasonable timeframe. In the data request letter, the affected agencies should be asked to verify existing levels of service, associated costs, and revenues associated with the provision of service(s) to the proposed incorporation area. This information is used to establish the base year costs and revenues (§56810). October 2003 23 OPR Incorporation Guidelines Data used for the CFA must be from the most recent fiscal year for which data are available preceding the issuance of the Certificate of Filing (§56800). When the prior fiscal year data requested by LAFCO is unavailable, the responses to LAFCO’s data request letters and/or the CFA shall document the source and methodology of the data used. Counties end their fiscal year on June 30th; however, the final financial data may not be available until August or September due to the length of time needed to assemble and prepare the financial information. The Executive Officer’s report and CFA must be completed and heard at a public hearing by LAFCO’s Commission within the same fiscal year or the data must be updated and/or a new CFA prepared. Therefore, the timing of data collection is critical to an incorporation. OPR recommends that data request letters be sent to all agencies and county departments at the start of a fiscal year (July 1) although data may not be available until August or September. Responses should be received by October or November if the CFA and LAFCO Executive Officer’s reports are to be completed during the current fiscal year. If precise cost figures and levels of service are not available or if the reporting agency does not collect data specific to the proposed incorporation area, the reporting agency must document the source of information and the method used to extrapolate the data. Projected general government costs are frequently based on staffing levels, salaries, and associated costs for cities of similar size. LAFCOs and proponents can use the data gathered from affected agencies to establish a service plan. 2. Establish a Service Plan The CFA must analyze the fiscal implications of proposed changes in services (§56810). Cities can provide services through one of two models. A municipality can be a “full-service” city which means that it provides all municipal level services (such as fire, police, garbage collection, water, sewer, etc.) through city employees in departments governed by the city council. Alternatively, a city can be a contract city, providing many of these services through contract(s) with service providers such as special districts, the county or private companies providing contract municipal services. Either model can be successful but has different impacts on data collection and ultimately on the CFA. To determine which agencies or county service departments must be contacted to provide data, it is necessary to know what services are proposed in the service plan to be transferred to the new city. California cities are required to provide only a limited number of municipal services, including: • General legislative functions. • Land use planning and control over land use and development. (May also be provided by means of a contract with other entities such as the county or private firms.) • Law enforcement (May be provided by means of a contract with other entities). • Animal control (May also be provided by contract). • Maintenance of public roads and other public property owned by the city. (May also be provided by means of a contract with other entities such as the county or private firms.) October 2003 24 OPR Incorporation Guidelines The agencies, special districts and/or county departments providing these services should receive a data request letter. The following are services that a city may provide and, if it does, then data needs to be collected to analyze the costs associated with providing these services: • Fire protection and suppression • Libraries • Parks and recreational services • Street lighting • Street median maintenance • Domestic water • Wastewater treatment and disposal • Solid waste management • Flood control • Social services or community services Existing law requires any public agency to furnish LAFCO’s Executive Officer with any records or information that are needed for the preparation of the CFA or Executive Officer’s Report (§56658(b)(2)). OPR recommends that all agencies or departments providing these services be sent data request letters if changes in the provision of services are part of the incorporation proposal. Time and money can be saved in the data gathering process if LAFCO maintains a consistent schedule for undertaking municipal service reviews. Exhibit 3 is a hypothetical example of which services might be transferred to a new city and would therefore have to be analyzed as part of the CFA. October 2003 25 OPR Incorporation Guidelines EXHIBIT 3 EXAMPLE TRANSFER OF SERVICE RESPONSIBILITY Post-Incorporation Level of Public Service Current Provider Funding Source Provider Service New City (contract User Fees, Animal Control County No Change with County General Fund Administrative Services (§56650- County New City Likely Increase General Fund 56668.5) User Fees, Wastewater Water District Water District No Change Property Tax User Fees, Water Water District Water District No Change Property Tax Emergency County Fire User Fees, Fire Fund, County Fire District No Change Medical District Property Tax County Fire Fire Protection County Fire District No Change Fire Fund District New City (local) County Flood Control Drainage/Flood and County Flood County No Change Property Tax, General Control Control District Fund (regional) Land Use No Change User Fees, County New City Regulation (demand-based) General Fund District Property County Library County Library Libraries No Change Taxes, Fines and Fees, District District State Aid Building No Change County New City User Fees Inspection (demand-based) New City (contract Police Protection County Likely Increase General Fund with public agency) Trash Collection County (franchise New City (franchise and Disposal No Change User Fees with private firm) with private firm) (public) Road Fuel Taxes, General Maintenance, County New City Likely Increase Fund Public Works County County User Fees, Grants, Public Transit Transportation Transportation No Change Subventions and Authority Authority Property Taxes County Service Parks and Area or User Fees, General New City Likely Increase Recreation Community Fund Services District Street Lighting County New City No Change General Fund October 2003 26 OPR Incorporation Guidelines 3. Establish Base Year Costs Once data gathering is complete, LAFCO will develop an estimate of the base year costs (§56800(a)). Base year costs are the costs to provide municipal level services if the incorporation area had been a city during the base year. The primary examples of identifiable base year costs include law enforcement, animal control, public works administration (not funded by gas tax revenues), code enforcement and the net cost of land use planning and regulation. Base year costs are used to determine a base year budget as WHAT IS NOT INCLUDED IN BASE well as the property tax revenue transferring to the new YEAR COSTS city and ultimately, the new city's ability to provide • Revenues that were not realized, adequate municipal services. Base year costs (and received or collected during the revenues) are also used to calculate revenue neutrality base year. (§56810). • Project specific revenues, such as development impact fees. When determining base year costs, LAFCO must include all • Special revenues used to cover direct and indirect costs associated with the current costs such as federal grants or CDBG funds. provision of existing services in the proposed incorporation • Revenue from development boundary. These costs should reflect the actual or currently under construction. For estimated costs at which the existing level of services could example, a new commercial be provided by the proposed city and should include any development, which would not go general fund expenditures necessary to support or subsidize on the tax rolls and did not a fee-supported service if the costs of providing the service produce sales tax or user tax revenues until the fiscal year are not fully recovered through fees. following the base year, would not be included. LAFCO must identify the costs being transferred to the new city that will result in an administrative cost reduction to other agencies. LAFCO should also compare the costs of any existing services to the costs of services provided in cities with similar populations and geographic size that provide a similar level and range of services. This may help to determine a reasonable estimate of the costs expected to be borne by the new city. Revenues should not be included in the base year budget unless they were realized, received or collected during the base year. Revenues, which were project-specific or are used to cover, either partially or wholly, costs are usually not included. These offsetting revenues might include federal monies used for specific projects. Finally, revenue resulting from development currently under construction is excluded from the base year costs. For example, a new commercial development, which would not go on the tax rolls and did not produce sales tax or user tax revenues until the following fiscal year, would not be included. 4. Calculate Property Tax Transfer An important component of the CFA is the calculation of the estimated transfer of property tax from the county and any affected special districts to the new city. The property tax transfer calculation results in the county and affected special districts transferring property tax revenues to the new city in proportion to the services responsibilities assumed by the new city. October 2003 27 OPR Incorporation Guidelines The Cortese-Knox-Hertzberg Act (§56810) provides a formula by which a share of the property taxes is transferred from the county and special districts to a newly incorporated city. The property tax transfer, or allocation, to the new city is calculated by LAFCO by multiplying the total net cost of transferred services by the Auditor's ratio, as described below and shown in Exhibit 4, Calculation of Property Tax Transfer. LAFCO determines the total net cost, based on information supplied by the county and other affected local agencies as described during data gathering, of all services to be transferred to the new city. The total amount of revenue from all sources available for NET COSTS general purposes means the total amount of revenue, which Net cost includes both direct costs an affected local agency may use on a discretionary basis and overhead (indirect costs) funded for any purpose. The total amount of revenue does not by general-purpose revenues. The include revenue (§56810(a-c)) which, by statute, is required total net cost excludes any portion to be used for a special purpose; revenue from fees, of the total costs funded by special purpose revenue, federal revenues, charges, or assessments which are levied to specifically and revenues derived from fees, offset the cost of particular services and do not exceed the charges or assessments. Examples cost reasonably borne in providing these services; and of these revenues include land use revenue received from the federal government which is planning fees, building permit fees, required to be used for a specific purpose. Revenues that gas tax revenues, landscape and lighting assessments, and animal were project specific or were used to either partially or licensing fees. wholly cover costs for a specific project are also usually not included. The total net cost is multiplied by the Auditor’s ratio to produce the base property tax allocation, or the amount to be transferred to the new city. The Auditor’s ratio is the ratio of property taxes allocated to the general fund of the county and each affected agency during the prior fiscal year to all revenues received by the county and affected agencies for general purposes during the prior fiscal year. The Auditor-Controller of the affected county determines the ratio. The Auditor-Controller establishes the ratio each year pursuant to Section 93 of the Revenue and Taxation Code. Auditor-Controllers from different counties may determine the ratio by different methods. LAFCO, the county and the proponents should review the methodology of the Auditor-Controller to determine if the ratio is consistent with existing law and the recommendations of these guidelines. LAFCO’s Commission uses the Auditor’s ratio and the net cost of services to determine the amount of property tax revenue to be transferred to the new city. (See Exhibit 4, Calculation of Property Tax Transfer and Exhibit 5, Example: County Property Tax as a Percentage of Revenue Available for General Purpose.) The formula used by LAFCO to determine the base property tax transfer as established in Government Code Section 56810 is depicted below. Total Net Cost of Transferred Services x Auditor’s Ratio = Base Property Tax Allocation October 2003 28 OPR Incorporation Guidelines EXHIBIT 4 EXAMPLE CALCULATION OF PROPERTY TAX TRANSFER A. 2000-01 County Cost Estimates Net County Cost Sheriff Department $2,929,347 Animal Control 74,480 Code Enforcement 53,829 Street Lighting 116,878 Total Expenditures – General Fund $3,174,534 B. Transfer of Tax Base Total Expenditures Subject to Transfer $3,174,534 County Auditor’s Ratio 2000-01 28.84% Property Tax Base Transferred from County $915,560 C. Calculation of Tax Allocation Factor (TAF)* Assessed Value (FY 2002/2003) $4,051,833,786 Total Property Tax Collected @1% AV 40,518,338 Property Tax Base Transferred from County $915,560 Tax Allocation Factor 2.26% *Please note that this is a simplified version of the calculation of TAF. This calculation can be more complex and the tax rate may vary within the new city. October 2003 29 OPR Incorporation Guidelines EXHIBIT 5 EXAMP LE COUNTY PROPERTY TAX AS A PERCENTAGE OF REVENUE AVAILABLE FOR GENERAL PURPOSES 2000-01 Item Revenues PROPERTY TAX REVENUE Current Secured $47,064,968 Current Unsecured 2,489,979 Prior Unsecured 62,117 Supplemental – Secured 791,623 Supplemental – Unsecured 14,107 Penalties & Cost Delinquencies 3,307,826 Airplane 210,462 Timber 95,059 Racehorse 10,381 Total $54,046,522 OTHER GENERAL PURPOSE REVENUE Redemption Fees $111,446 Deed Fees 2,870 Sales Tax 12,409,401 Property Transfer Fee 1,558,301 AB 1661 – ERAF 1,457,906 Franchise Fee 2,514,174 Interest Income 12,264,030 Commissions 12,175 Rental Income 182,969 Motor Vehicle-In-Lieu 47,845,516 Other State in-lieu taxes 15,469 Tobacco Tax 10,453,426 Homeowners In-Lieu 1,084,732 Williamson Act 5,813,928 State Other 2,837,000 Net Revenue Available for General Purposes $98,563,343 TOTAL GENERAL PURPOSE REVENUES $152,609,865 Property Tax as % of General Purpose Revenues 36.32% October 2003 30 OPR Incorporation Guidelines 5. Develop Budget Projections Using the financial data gathered from agencies providing services during the prior fiscal year, the base year costs/revenues and the property tax transfer as determined by LAFCO, the CFA must include budget projections for the proposed new city (§56800(a-c)). Budget projections must include: • The costs to the proposed city of providing services during the three fiscal years following incorporation. • The revenues of the proposed city during the three fiscal years following incorporation. • The effects of the costs and revenues on any affected local agency during the three fiscal years following incorporation. • Any other information needed to make the findings as required for an incorporation proposal. Existing law requires budget projections for only the first TESTING LONG-TERM FINANCIAL three (3) years after incorporation. However, during the FEASIBILITY first seven (7) years after incorporation, a city receives To accurately analyze the long- some state revenues based on a formula of three (3) times term financial feasibility of a the number of registered voters. After the seventh year, proposed incorporation, OPR revenues, such as Motor Vehicle In-Lieu fees and State Gas recommends that the CFA provide taxes, are subject to a formula based on the actual budget projections for ten (10) population of the city. The revenues received during the years to reflect the drop in revenues collected by the new city first seven years after incorporation may represent a after the state revenues decrease significant but impermanent level of funding for any new in the eighth year. city. A ten-year projection allows for a more accurate estimate of a new city’s long-term financial feasibility. Generally, the budget projections should reflect a reasonable cost of living increase or inflationary factors. A CFA must also include in its budget projections a transition period budget. A transition period is the time between the effective date of the incorporation and the date on which the new city must assume full service responsibility. The effective date is significant because the flow of revenue to the new city is affected by that date. For example, third quarter sales tax revenues are generally not received by a city until the end of the fourth quarter. Please refer to the section site chapter and section on Effective Date for a more complete discussion of this issue. During the transition period, the new city receives certain revenues but services are still provided by the county. This allows the city time to organize its operations in anticipation of full city-hood. The new city receives certain revenues during this period, such as motor vehicle in-lieu fees and sales taxes that may allow it to create a fund balance to carry over into the first full fiscal year. To make this calculation, the CFA needs to assume an effective date and the length of the transition period. The effective date should be established by LAFCO working with the incorporation proponents. October 2003 31 OPR Incorporation Guidelines Finally, the CFA’s budget projections should be presented on a cash basis. New cities must operate on a cash basis since they have no initial fund balances on which to depend for cash flow. Further, the cash basis approach provides a more realistic picture of both the year-end surpluses (or deficits), which will be experienced by the new city. See Appendix G for information on typical sources and uses of municipal funding. a. Establish Budget Projections: Revenues The new city’s general fund and special purpose revenues usually come from a variety of revenue sources. A CFA, at a minimum, should provide estimates of revenue from the following revenue sources: i. Base Property Tax Allocation As discussed above, the Cortese-Knox-Hertzberg Act provides a formula by which a share of the property taxes is transferred from the county and other affected local agencies to the new city. The process requires LAFCO to determine the total net PROPERTY TAXES cost of transferred services based on information supplied by the affected local agencies, during the prior fiscal year. The As a result of Proposition 13, the property tax rate is net cost includes both direct and indirect costs funded by the constitutionally limited to 1% of general fund. The total net cost is multiplied by the Auditor’s assessed value. Cities must ratio. LAFCO uses the Auditor’s ratio and the net cost of share the 1% revenue with other transferred services to determine the annual amount of agencies providing services such property tax for the new city. The base property tax can as schools, counties and special districts. On a statewide basis increase each year as allowed per statute and by any change of cities currently receive an ownership and new development. average of 11% of total property tax revenues. Counties receive - Besides establishing the maximum property tax rate, 13%. Proposition 13 also limits the rate at which the assessed values of individual properties may increase. Specifically, the assessed value may increase by an annual rate of no more than 2% when held in the same ownership, and is increased to market value at the time of sale. The total property tax collected will increase as property ownership changes and new development takes place. ii. Special District Property Taxes Current property tax revenues of certain special districts that are dissolved (see Service Plan) or have territory detached as a result of incorporation would be transferred to the new city upon incorporation. The new city may also receive the current fund balance (reserves) of the affected dependent special district upon dissolution or a proportionate share of the fund balance and service liabilities upon detachment of territory from the district. Redevelopment agencies and Mello-Roos districts may not be affected by incorporations but proponents should work closely with the county and LAFCO to determine any impacts of incorporation on these agencies. iii. Property Transfer Taxes The amount of Property Transfer Tax received by the new city will depend upon the level of resale activity and new development within the incorporation area. A conservative annual property turnover rate should be assumed, based upon information from the county, land developers, and/or real estate agents in the area. October 2003 32 OPR Incorporation Guidelines iv. Sales Taxes Upon incorporation, the new city will be eligible to SAMPLE CITY BUDGETS AVAILABLE receive a percentage of the sales tax charged on FROM LEAGUE OF CALIFORNIA CITIES qualifying retail sales from businesses within the proposed incorporation area. The estimated sales Through a joint service of the California tax Society of Municipal Finance Officers revenues should be based on data from the State (CSFMO) and the League, more than 100 Board of Equalization. city budgets are available through the League library. (www.cacities.org) v. Transient Occupancy Taxes CSMFO encourages members to develop (TOT) budgets that are useful as both a management and communication tool. If the proposed incorporation area contains hotels, To this end, CSMFO offers a budget motels or other facilities that provide short-term review and awards program that and/or overnight accommodations, a similar recognizes city budgets that meet amount of TOT revenues previously collected by the specific presentation criteria. One copy of each budget is submitted as a loan county can be assumed to be available to the new copy for the League library. city to the extent that the new city imposes, at least initially, a similar level of TOT. This data can Incorporation proponents may be be interested in examining budgets from a obtained from the county and is based on the similar region or cities with a approved TOT rate, average daily room rates, and comparable size population. estimated daily occupancy rates. vi. State Revenues Upon incorporation, the new city will be eligible to receive Motor Vehicle In-Lieu Fees and off- highway vehicle license taxes. These revenues are collected by the State’s Department of Motor Vehicles and allocated to cities on a per capita basis. These revenue sources are based on three (3) times the number of registered voters during the first seven years after incorporation. At the beginning of the eighth year, the State will recalculate these revenues based upon the actual population of the city. vii. Franchise Fees Upon incorporation, the new city will receive franchise fees currently paid to the county by the affected utilities including gas, electric and cable television providers. Additional franchise fees may also be received from the new city’s solid waste disposal/recycling service if applicable. The estimated annual franchise fees can be obtained directly from the county or utilities during the data-gathering phase of the CFA preparation. viii. Road Related Revenues A significant portion of road fund revenues are calculated and allocated to cities on a per capita basis. Similar to other state revenues, road fund revenues are initially based on three times the registered voter population. In the eighth year following incorporation, these revenues would be adjusted to account for the actual population rather than three times the registered voter population. Revenues derived from these gasoline taxes are restricted to use on road maintenance and improvement. ix. Transportation Related Local Sales Taxes Voters in many urban counties impose an additional sales tax levy through a ballot measure to fund transportation improvements. Apportionment of these sales tax revenues may be based on a formula using population, miles of public roads and taxable sales. October 2003 33 OPR Incorporation Guidelines x. Other Revenues Estimates for other revenues can be obtained from the county and include land use related, planning, permit and inspection fees, motor vehicle code fines and forfeitures, and other miscellaneous revenues including DMV abandoned vehicle reimbursement, parking fines, non- planning related charges for services, regulatory fees, applicable parcel taxes and assessments, and other charges. b. Establish Budget Projections: Expenditures In general, the new city’s level of expenditures will be based on the cost of transferred services currently provided by the county and other local agencies. However existing law does not provide an exact formula for establishing the first year’s expenditures for a new city. Budget projections are based on a series of judgment decisions related to other established cities, past experience and the type and levels of services. In addition, the level of services provided and the type of provider (either the new city or a contract entity) will impact the annual projection of cost. OPR recommends that LAFCO clearly identify the assumptions underlying the projections of costs. These projected costs can also be based on a review of the budgets of similar sized cities. The types of expenditures usually include: • General governmental administrative functions such as: city manager, city clerk, city attorney, and finance director. • General governmental administrative operations and facilities such as: telephones, computers, photocopy machines, office space and council meeting location. • Community development such as land use planning and regulation, permit issuance, and code enforcement. • Public safety such as law enforcement, fire protection, emergency medical and animal control. • Public works such as street maintenance and repair, street lighting, landscape and park maintenance, storm drain maintenance and repair, local flood control, and public facility maintenance and repair. • Community services such as parks, open space, libraries, cultural arts, senior citizens and adult and youth recreation programs. • Non-departmental costs such as lease/rent for office space, utilities, liability insurance costs, communication and computer expenses, custodial services, and miscellaneous supplies. • Water and sewer and other utility services. • Transition year repayment, is the reimbursement to the county for the net cost of services provided during the transition year. A contingency fund based on a percentage of estimated expenditures should be reflected in the CFA projections to cover unforeseeable expenses. Most cities attempt to reserve a minimum percentage of the operating budget in unappropriated reserves as prudent fiscal policy. OPR recommends that a contingency fund in the range of 10-20% of estimated expenditures be included in the CFA. October 2003 34 OPR Incorporation Guidelines It is important to note that the CFA may THE GANN LIMIT show a cumulative funding surplus, but that funding surplus should not be Proposition 4, the Gann Initiative approved by the California directly identified as an operating voters in 1979, sets a constitutional appropriations limit on governmental agencies. reserve. A reasonable unappropriated reserve fund, in addition to a The appropriations limit is simply the amount of money that a governmental agency can spend in a fiscal year. The contingency fund, is necessary. appropriations limit is determined provisionally by LAFCO Although the preferred level of a reserve during the incorporation process. fund can vary and should be based on The voters at the first municipal election held following the the past experience of comparable new first fiscal year after incorporation set a permanent cities, a minimum reserve of at least appropriations limit. See Section V. (A.5.c) and Exhibit 6 10% is recommended. A reserve fund, in for an example of the calculation for the Gann limit. addition to a contingency fund, is required because: • A new city has no historical track record on the cost or level of services required to meet the expectations of the newly incorporated community. • Unanticipated expenditures could occur due to major disasters, emergencies, liability claims, and litigation settlements. • Local finances may be subject to changes based on the State’s budget. • Changing economic conditions could result in a decrease in general fund revenues. • Funds may have to be budgeted for non-road-related capital improvement projects. As the new city grows in staffing and assumes services from the county and outside contractors, there will be a need for new facilities, vehicles and other major equipment. c. Determine An Appropriations Limit The next step in preparing the CFA is the determination of an appropriations limit for the proposed city (§56812). LAFCO estimates the amount of revenue anticipated to be received by the new city in its first full year of operations from the “proceeds of taxes.” These are revenues from taxes rather than from fees, assessments or service charges. The second step is adjusting the amount of the “proceeds of taxes” to reflect an increase in the cost of living and to establish the provisional limit by projecting the second full operating year costs (including the impact of inflation and population changes). The inflation rate is assumed to be based on current accepted cost of living indices with an anticipated percentage population increase. Exhibit 6 depicts a hypothetical example of a calculation of a provisional appropriations limit. The new city council shall determine the proposed permanent appropriations limit of the city that will be submitted to the voters. This limit is based on the amount of revenue actually received by the new city during the first full fiscal year of operation, adjusted for an increase in the cost of living and population during the next full fiscal year of operation. The permanent appropriations limit of the new city shall be set at the first municipal election, which is held following the first full fiscal year of operation. October 2003 35 OPR Incorporation Guidelines EXHIBIT 6 EXAMPLE DETERMINATION OF PROVISIONAL APPROPRIATIONS LIMIT Proceeds of Taxes* Property Tax $1,087,018 Sales Tax 3,094,801 Motor Vehicle In Lieu 2,550,481 Property Transfer Tax 337,118 Section 2105 405,810 Section 2106 291,336 Section 2107 545,469 Section 2107.5 6,000 Transportation Sales Taxes 381,810 Subtotal $8,699,843 Interest Earnings 521,991 Total Proceeds of Taxes $9,221,834 Cost of Living Factor 3.00% Population Growth 1.90% Provisional Limit $9,673,703 *These are estimates of revenues anticipated during the first full year of incorporation. October 2003 36 OPR Incorporation Guidelines d. Effective Date and Transition Period LAFCOs must establish an effective date of incorporation. The effective date is the date upon which the new city is deemed organized or incorporated. During the period between the incorporation election and the effective date, the new city does not have legal standing but the newly elected city council can meet as a city council-elect. These meetings are primarily focused on getting organized for the effective date of incorporation. Activities usually include preparing the required legal documents to be adopted by the new city council on its effective date, securing a location to conduct city business and hold city council meetings, hiring of key interim staff, securing of interim insurance coverage and SELECTING AN EFFECTIVE DATE other administrative activities. The effective date of a new city can significantly impact the cash flow of a All city council-elect meetings are subject to the Ralph M. new city. Revenues received on a Brown Act. The legislative intent of the Brown Act is that quarterly, bi-annual or annual basis public agencies conduct their business and make their (property and sales taxes and franchise fees) may be delayed and decisions in open public meetings. Each board, not immediately available to a new commission, committee, or other body of a local agency city based upon the effective date created by charter, resolution or formal action of a and the timely filing of the required legislative body is a legislative body itself and is covered documents to receive these revenues. by the requirements of the Brown Act. This includes the It is strongly recommended that incorporation proponents coordinate city council of a newly incorporated city. the effective date carefully with LAFCO, the county and the State. On the effective date set by LAFCO (and following a positive vote in the election), the new city council begins to organize the new city’s administrative structure at its first meeting by adopting the existing ordinances of the county. These ordinances will remain in full force for at least 120 days following incorporation or until the new city council adopts ordinances superseding the county ordinances, whichever occurs first. Under State law, the new city does not assume direct responsibility for providing services during the transition period between the effective date of incorporation and July 1 following the effective date. The county and other affected agencies continue to provide municipal level services during the transition period while the new city prepares to take over this responsibility. Following the transition period, the new city must provide the services that it is authorized to provide. The responsibility for police protection, accident investigation, animal control, land use planning, building and safety, and public streets, among other services, are transferred from the county and other affected agencies to the new city. The new city is then operational in all respects. To ensure equity between costs and revenues for the county during the transition period, the county can request reimbursement for the net cost of services provided during the transition period (§57384). If the county requests reimbursement, LAFCO is required to impose it as a term of approval. The new city has up to five years to reimburse the county for the net cost, unless waived by the county (See Exhibit 7, Calculation of Repayment To County). October 2003 37 OPR Incorporation Guidelines EXHIBIT 7 EXAMPLE CALCULATION OF REPAYMENT TO COUNTY A. Expenditures Sheriff Department $3,200, 977 Animal Control 90,269 Code Enforcement 58,821 Street Lighting 123,996 Gross Cost of Transition Year Services 3,474,062 B. Revenues Property Tax $915,560 Sales Tax 758,530 Franchise Fees 51,483 Fines and Forfeitures 11,300 Less Transition Year Revenues Received by County 1,736,872 C. Net Transition Repayment Amount 1,737,190 D. Annual Repayment for Five Years $347,438 ($1,737,190 ÷ 5) October 2003 38 OPR Incorporation Guidelines Government Code Section 56810 defines net cost of services as: • The total direct and indirect expenses to the county of providing services; • Adjusted by any subsequent change in the Consumer Price Index, and • Less any revenues, which the county retains, that was generated from the formerly unincorporated territory during the period of time the services were provided by the county. e. Financial Feasibility LAFCO must make a determination that the proposed city is expected to receive revenues sufficient to provide public services and facilities and ensure reasonable reserves during the three fiscal years following incorporation. Although it is assumed that it is the intention of all new cities to improve services, feasibility is best determined by comparing existing costs, revenues and levels of service to those expected after incorporation. One of the key issues weighed in the evaluation of incorporation is the proposed city’s fiscal feasibility and its impact on neighboring cities and communities. “Feasible” is broadly defined under the Cortese-Knox-Hertzberg Act as capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, legal, social and technological factors (§56038.5). C. REVENUE NEUTRALITY In 1992, the State enacted legislation designed to reduce the negative fiscal impact incorporations can have on counties and other affected agencies, termed "revenue neutrality." Under the revenue neutrality law (§56815) LAFCO WAYS TO ACHIEVE REVENUE NEUTRALITY cannot approve a proposal for incorporation unless it finds that the amount of revenues the new city A broad range of mitigation measures to receives from the county and affected agencies after achieve revenue neutrality is permitted. These may include tax sharing agreements, incorporation would be substantially equal to the lump-sum payments, payments over a fixed amount of savings the county or the affected period of time, modification of incorporation agencies would attain from no longer providing boundaries or any other terms which are services to the proposed incorporation area. A broad acceptable to all the parties involved. A less range of mitigation measures is permitted as is a than substantially equal exchange of revenues and expenditures is also possible if less-than-substantially equal exchange if the county the county and affected agencies agree to it. and affected agencies agree to the transaction. 1. Background During the 1980s, unincorporated communities with high levels of revenue through sales tax and property tax were usually the first to successfully incorporate in the Post Proposition 13 period. Because sales and property taxes are generated on a geographic or situs basis, while municipal and countywide (regional) services are provided on an as-needed basis, it was possible to “capture” sales and property taxes by incorporating high tax generators into a new city. Doing so, however, deprived counties of necessary tax revenues, which, prior to the incorporation, had been available to pay for countywide services. October 2003 39 OPR Incorporation Guidelines After Proposition 13, local agencies could no longer alter the property tax rate to compensate for lost revenue when a new city incorporated and started receiving sales and other tax revenue. Other communities in the unincorporated area who had relied on the county to provide municipal level services found their revenue sources reduced. Counties, facing revenue losses due to the incorporation, were forced to reduce services simply because there were no practical alternatives such as raising additional revenue. The revenue neutrality law was an attempt to make the tax allocation more equitable by requiring LAFCO to ensure that counties and districts are held harmless from new incorporations. Counties have dual responsibilities for Funding the New City services. The County is the provider of law enforcement services in the unincorporated area. It often provides fire Due to the revenue neutrality protection as well. Additionally, it is the county that provisions in existing law, the new provides for the rest of the criminal justice system to all city may have approximately the county residents—services such as the District Attorney, same revenue base to provide services that the county or district correctional facilities, Probation, and Public Defender. In had prior to incorporation. addition, the social services and public health care systems are almost exclusively provided by counties. These If new fees or taxes are included services are provided regardless of where people live and in the ballot question, approval of are funded by the same revenue stream that previously the incorporation may require a could be diverted to an incorporating city. Revenue two-thirds vote under Proposition 218. neutrality has generally removed the financial incentive for communities to incorporate as counties do not lose The financial viability of the more revenues over and above the costs associated with proposed new city is the primary services to be transferred. However, counties may still fundamental question before have strong financial incentive to facilitate incorporations LAFCO. especially if there is strong citizen sentiment to create the new city, the county’s financial base is assured, and the county may avoid the long-term costs of providing municipal level services to rapidly developing communities. The incorporation of a new city usually requires additional expenditures for executive staff and governance cost for which there is no transfer of revenue from the county or district. Additional revenues that are provided to new cities by the State may offset some of these costs. Over time, the new city will be able to make land use decisions, reorder fiscal priorities and otherwise influence the future revenue streams of the city. Incorporations that have occurred since the passage of the revenue neutral provisions have generally resulted in additional revenues or terms that are designed to facilitate the new city’s fiscal health, particularly in the first years following the incorporation. 2. Revenue Neutrality Process The revenue neutral standard in law (§56815(a)) is: “that any proposal that includes an incorporation should result in a similar exchange of both revenue and responsibility for service delivery among the county, the proposed city and other subject agencies”. Section 56815(b) prohibits LAFCO’s approval of an incorporation proposal unless it finds that revenues and expenditures are “substantially equal”. Section 56815 thus favors neither the new city nor the county or district. Section 56815(c)(1) does provide authority for LAFCO to approve a proposal that is not revenue neutral if both (all) parties agree to the proposal’s fiscal effects. October 2003 40 OPR Incorporation Guidelines A revenue neutral process, conducted as a part of an incorporation proceeding, should serve to bring the parties affected by the incorporation proposal together for the purpose of reaching a mitigation agreement (if required) that all parties can endorse and will serve as the factual basis for the findings required by §56815. Even if agreement among the parties regarding fiscal mitigation cannot be reached, the process will still provide the factual basis for the development of potential mitigation measures that may be imposed by the Commission. Refer to Exhibit 8 for an illustration of a Typical Revenue Neutrality Negotiation Process. The purpose and intent of the revenue neutral policy is to: • Prescribe the process for data collection, analysis and discussion of the elements that must be included in a revenue neutral transaction. • Assist participants in the process to develop proposed terms and conditions that will meet the standards prescribed in the law and enable LAFCO to make the necessary findings. • Help the parties to reach a revenue neutrality agreement through a rational and predictable process by facilitating the gathering of information from affected parties or fiscal consultants, providing a forum for negotiations, and guiding LAFCO staff when serving as an intermediary to resolve conflicts in the negotiations. • Develop a basis for a default revenue neutral finding/agreement if one is not forthcoming in the negotiation process. OPR recommends LAFCOs develop policies for the purpose of implementing revenue neutrality requirements (§56815). The following process is suggested for determining and resolving the issue of revenue neutrality. It is intended to be a model only; individual LAFCOs should either adopt this policy or a revenue neutrality process tailored to unique local conditions. All revenue neutrality policies should be reviewed by legal counsel to ensure compliance with existing law and to ensure that any terms and conditions are legally enforceable. October 2003 41 OPR Incorporation Guidelines EXHIBIT 8 EXAMPLE TYPICAL REVENUE NEUTRALITY NEGOTIATION PROCESS Incorporation Petition Filed Review Departmental Costs & Revenues Initiate Comprehensive Provided by the County, LAFCO Staff Fiscal Analysis Reviews & Agrees or Amends Draft Comprehensive Convene Revenue Fiscal Analysis Neutrality Committee for Negotiations Board of Supervisors & No Agreement Chief Petitioners Adopt Agreement Agreement Public Hearing Draft LAFCO Staff Drafts Comprehensive Fiscal Analysis Revenue Neutrality Proposal LAFCO Staff Drafts Terms & Conditions, Staff Report & Recommendations LAFCO Hearing October 2003 42 OPR Incorporation Guidelines a. General Requirements for Revenue Neutrality Any proposal that includes incorporation should provide for a similar exchange of both revenue and responsibility for service delivery among the county, the proposed city, and other affected agencies. LAFCO may not approve a proposal that includes an incorporation unless it finds that the following two quantities are substantially equal §56815(b): • Revenues currently received by the local agency transferring the affected territory that, but for the operation of revenue neutrality, would accrue to the local agency receiving the affected territory, • Expenditures, including direct and indirect expenditures, currently made by the local agency transferring the affected territory for those services that will be assumed by the local agency receiving the affected territory. LAFCO may approve a proposal that includes an incorporation if it finds either of the following: • The county and all of the subject agencies agree to the proposed transfer (§56815(c)), or • The negative fiscal effect has been adequately mitigated by tax sharing agreements, lump-sum payments, payments over a fixed period of time, or any other terms and conditions pursuant to §56886. The terms of a revenue neutrality agreement must be negotiated between the proponents, county and special district officials in accordance with a policy adopted by the local LAFCO. The agreement may be in the form of revenue sharing, lump sum payments, payments over a fixed period of time, or any other term and condition (§56815(c)(2)). Revenue neutrality negotiations are initiated during the preparation of the CFA. After the preliminary results of the CFA are compiled, the county, proponents and LAFCO use the information to structure payments for revenue neutrality. The negotiated terms of the agreement are then used to create the public hearing draft of the CFA for consideration by LAFCO during the public hearing on incorporation. b. Method of Calculation The calculation of revenue neutrality should be based on the following standards (see Exhibit 9, Calculation of Revenue Neutrality Payment) and agreements should be negotiated pursuant to the following policies: • Revenue neutrality agreements should be based on county costs and revenues for the most recent prior year for which data are available. • Only identifiable and recurring revenues and expenditures should be evaluated for purposes of determining revenue neutrality. Generally, anticipated or projected revenue growth should not be included. • Expenditures for services transferred to a new city should be evaluated on a “net cost” basis. Services funded on a full cost recovery basis (such as building inspection) are by definition revenue neutral and should not be included in the analysis. October 2003 43 OPR Incorporation Guidelines • Costs of capital improvements are nonrecurring costs and should not be included in the calculation. • Countywide costs for regional services and administrative functions including Chief Administrative Officer, Clerk of the Board, Auditor-Controller, Board of Supervisors and other administrative functions, which are required to support county governance of both incorporated and unincorporated areas, should not be included in defining services transferred to the new city. • Inflationary factors should not be included in the analysis of revenue neutrality unless the resulting agreement provides for annual adjustment of mitigation payments based on actual data. • Restricted and unrestricted revenues should be evaluated separately. An agency could pay a portion of its annual revenue neutrality payment with restricted funds if both agencies agree and a legally enforceable mechanism for payment can be created. October 2003 44 OPR Incorporation Guidelines EXHIBIT 9 EXAMP LE CALCULATION OF REVENUE NEUTRALITY PAYMENT REVENUE NEUTRALITY – GENERAL FUND Revenues Transferred Property Taxes $915,560 Sales Tax 2,916,300 Real Property Transfer Tax 111,425 Franchise Fees 582,339 Total Revenues Transferred $4,525,624 Expenses (Net of Rev. Offsets) Sheriff Department $2,929,347 Animal Control 74,480 Code Enforcement 53,829 Street Lighting 116,878 Total Expenses Transferred $3,174,534 Additional Future Revenues to County 2,289 (Property Tax Administration Fees, .25%) County Surplus or (Deficit) ($1,348,800) October 2003 45 OPR Incorporation Guidelines c. Negotiation Process The role of LAFCO staff in the revenue neutrality CONSENSUS BUILDING process is to facilitate discussions and to ensure compliance with the revenue neutrality requirements. Understanding the process of negotiation is critical to a successful revenue neutrality negotiation process. The After completion of the Draft CFA, LAFCO staff should following steps are taken from “Breaking convene a revenue neutrality negotiating committee the Impasse” by Susskind and Cruikshank: composed of representatives of the county, other Pre-negotiation affected agencies and the proponents of the proposed • Get started incorporation during preparation of the CFA. The role • Decide the representatives of the revenue neutrality committee is to develop a • Draft protocols/agenda mitigation agreement. • Conduct joint fact-finding Due to the schedule of most incorporations, it is Negotiation recommended that the revenue neutrality committee • Invent options for mutual gain complete negotiation of the agreement within 90 days; • Produce a written agreement however, this should remain flexible as long as the • Bind parties to the agreement schedule and progress toward an agreement is being • Ratify the agreement maintained. At the conclusion of the negotiating period, LAFCO’s Executive Officer will certify that an Implementation agreement has been reached or has not been reached. • Link the agreement to approval • Monitor If an agreement is reached, ratification will be by • Create a context for renegotiation resolution of the County Board of Supervisors and by letter from the incorporation proponents. The documents demonstrating an agreement to the provisions should be returned to LAFCO staff for inclusion in the comprehensive fiscal analysis, staff report and recommendations to be presented at the public hearing. The terms of the revenue neutrality agreement will also be included as terms and conditions in LAFCO’s resolution, if the incorporation is approved. Revenue neutrality agreements should include a description of methodology and assumptions underlying the terms of the agreement. It is recommended that agreements which involve revenue neutrality mitigation payments should establish terms based on the following agreed upon provisions: • The annual net revenue loss to the county and other affected agencies resulting from the proposed incorporation. • The duration of mitigation payments. • The cumulative revenue neutrality impact based on the annual net revenue loss and the duration of the mitigation payments, including annual inflationary factors and discount rates if applied. • The specific annual mitigation amount to be paid by the new city, including the annual payment amount, and variations to reflect cash flow, expenditure levels and other agreed upon variables • In instances in which the revenue neutrality agreement requires tax sharing between the new city and the county, payment should be effected as directly from the revenue source as permitted by State law. October 2003 46 OPR Incorporation Guidelines The effective date of incorporation and the anticipated lead-time for receipt of revenues can also be considered in revenue neutrality agreements. The effective date should be set to establish adequate initial account balances for the new city as it assumes service responsibilities, but should not otherwise conflict with the intent of fiscal neutrality. Revenue neutrality agreements should also provide for a process of adjustment after incorporation in order to account for unforeseen economic or legislative events significantly affecting the flow of local revenue. If the negotiating parties do not reach agreement, the status of the negotiations should be referred to LAFCO for discussion of outstanding issues at the first available meeting as determined by the Executive Officer. If revenue neutrality issues are not resolved, OPR recommends that LAFCO staff draft proposed terms and conditions dictating revenue neutrality terms for use in the comprehensive fiscal analysis and for recommendation to LAFCO at its public hearing. d. Terms and Conditions Terms and conditions for implementation of revenue neutrality may include provisions for tax sharing agreements, lump-sum payments, payments over a fixed period of time, modification of incorporation boundaries or any other terms and conditions permitted by law (§56815). The term of mitigation payments may be either ongoing or limited to a specific number of years. Revenue neutrality agreements that provide for ongoing payments may provide for the permanent sharing of revenues between the new city and affected agencies if agreed to by the parties involved and if a means of adjustment after incorporation is included. Any terms and conditions that mitigate the negative fiscal effect of a proposal that contains incorporation shall be included in LAFCO’s resolution. D. INTEGRATING CEQA WITH THE INCORPORATION PROCESS The Public Resources Code, §21000 et sequitur, also known as the California Environmental Quality Act (CEQA), requires public agencies to evaluate the potential environmental effects of their actions. Only discretionary actions that are defined as projects are subject to CEQA. A project is the whole of an action that has the potential for resulting in either a direct physical change to the environment, or a reasonably foreseeable indirect physical change to the environment (CEQA Guidelines §15378). CEQA’s procedural requirements encourage citizen participation in the environmental review process. Incorporations are projects subject to CEQA and require environmental review (CEQA Guidelines §15378). LAFCO, as the lead agency for the environmental review, must prepare the required documentation and may charge the incorporation proponent (the applicant) fees to cover costs. The environmental documentation must address the possible environmental impacts resulting from the incorporation but does not need to speculate on impacts which may result from unknown future city council actions. The timing of the environmental review is critical to incorporation and should be started as soon as possible after submittal of the incorporation application. The environmental review process must be completed before LAFCO can make a final decision on an incorporation proposal. October 2003 47 OPR Incorporation Guidelines LAFCO may make one of three environmental determinations with respect to the potential environmental effects of an incorporation. The project may qualify for an exemption from CEQA, which requires no further analysis. If an exemption is not appropriate, LAFCO should prepare an Initial Study to determine whether a Negative Declaration or an Environmental Impact Report (EIR) must be prepared (CEQA Guidelines §15063). If the project will not result in potentially significant environmental effects, LAFCO may prepare a Negative Declaration. If the project has the potential to result in one or more significant environmental effects, an EIR must be prepared. These three basic determinations are described in more detail below: • The incorporation is exempt under §15320 of the CEQA Guidelines. A notice of exemption should be filed with the County Clerk upon approval of the incorporation. • The incorporation does not have the potential to result in significant environmental impacts, based on an initial study. If an initial study shows no substantial evidence that the project may result in significant adverse environmental impacts, LAFCO may prepare and adopt a negative declaration. A notice of determination must be filed with the County Clerk upon adoption of the negative declaration and approval of the incorporation. (CEQA Guidelines Section 15075) • The incorporation has the potential to result in significant environmental impacts, based on an initial study. If the initial study shows substantial evidence that the project may result in significant adverse environmental impacts, the preparation of an environmental impact report (EIR) is required. A notice of determination must be filed with the County Clerk upon certification of the final EIR and approval of the incorporation. (CEQA Guidelines Section 15094) LAFCO’s environmental determination must be based on the description of the proposed action. Therefore, the “project description” or the description of the proposed incorporation will be important in determining whether the incorporation may have a significant effect on the environment. Characteristics of a project that may lead to significant environmental effects include: • The project may lead to a direct physical change in the environment, such as dust, noise, odors or traffic resulting from construction and operation of facilities. • The project may lead to indirect physical change in the environment which is not immediately related to the project but which is caused indirectly by the project, such as new population growth or air pollution associated with new population growth. If it is determined that an EIR is required, the EIR must discuss possible mitigation measures and alternatives to the proposed project, as means of reducing the potential significant impacts of the proposed incorporation. Therefore, LAFCOs should be prepared to consider alternatives to the proposed incorporation boundaries as one possible type of project alternative. This is consistent with LAFCO's responsibility to consider alternative incorporation boundaries for other reasons (see Section IV.B.). October 2003 48 OPR Incorporation Guidelines CEQA review can add time and cost to the incorporation process. The CEQA statute permits public agencies to recover costs of CEQA review through fees charged to the project proponents/applicant. The cost and time for processing a CEQA exemption is negligible. The cost of preparing a Negative Declaration can range from a few hundred dollars to a few thousand dollars depending on whether mitigation measures must be developed to completely eliminate significant effects. A typical Negative Declaration can require up to three to six months to process. When an EIR is required for a project, preparation and processing time can be up to a year and costs are difficult to estimate but can be tens of thousands of dollars. E. EXECUTIVE OFFICER’S REPORT AND RECOMMENDATION LAFCO’s Executive Officer is required to review the application and prepare a final report on the incorporation application with recommendations to approve or disapprove the incorporation (§56665). 1. Contents of Report The Executive Officer’s report must address, but not be limited to, the following sections: • Factors which were considered in the review of the proposal (§56668). • Incorporation Boundaries-- may also establish a sphere of influence. • Plan for Services. • Comprehensive Fiscal Analysis. • Terms and Conditions. • Recommended findings. • Recommended determinations. LAFCO must specify the terms and conditions which result from the revenue neutrality negotiations (§56886) and other special circumstances. These terms and conditions may include, but are not limited to, the following: • Continuation of services following incorporation. • Payments and taxes required by changes in service responsibilities or for revenue neutrality. • Disposition of money, property and rights of use, such as water or utility capacity rights. • Disposition of special district responsibilities, district governing boards and employees. • The effective date of incorporation. October 2003 49 OPR Incorporation Guidelines 2. Distributing the Report Existing law states that the Executive Officer’s report must be completed and distributed not less than five (5) days prior to the date of LAFCO’s commission's hearing (§56665). However, this is the minimum amount of time the Executive Officer’s report must be made available. OPR recommends that the Executive Officer’s report be made available at the same time the notice of public hearing is published (§56154) or 21 days before the hearing. The Executive Officer is required to notify all interested parties that the incorporation report is available for public review by publishing notice in a newspaper of general circulation serving the proposed incorporation area and by mailing notice to all affected agencies, the proponents and all persons who have filed a written request for notification (§56150 and §56160). The notice shall specify the locations where the report can be reviewed and the time period in which the State Controller’s review can be requested. 3. State Controller Review of CFA Any interested person or agency may request a review of the CFA by the Office of the State Controller. This request must be made within 30 days from the date that LAFCO’s Executive Officer provides notice that the Executive Officer’s report is complete and available for public review (§56801). The request by an interested person or agency must specify, in writing, any element of the comprehensive fiscal analysis that the State Controller is requested to review and the reasons the State Controller is requested to review each element. LAFCO’s Executive Officer should, in consultation with the State Controller’s office, prepare an estimate of the cost of the review and deliver the estimate to the requesting individual or agency. This estimate should include the charges by the State Controller, LAFCO staff costs, and costs for any consultants required to assist the State Controller with the review. The individual or agency requesting the review will be asked to deposit the estimated cost of the analysis with LAFCO’s Executive Officer. After a request for review has been made and the appropriate deposit has been submitted to LAFCO, the Executive Officer shall contract with the State Controller for review of the CFA. The contract should specify the elements to be reviewed and the estimated cost of the review. Prior to executing the contract, the parties requesting the review must deposit with LAFCO’s Executive Officer, the total estimated cost of conducting the review. If the State Controller identifies a need for an additional deposit prior to executing the contract, the party or parties requesting the review shall be notified and will be responsible for depositing the additional amount with LAFCO’s Executive Officer. The State Controller will not proceed with the review until sufficient funds are deposited to cover all costs. Within 45 days of receiving the CFA (§56801(c)), the State Controller is required to issue a report to LAFCO’s Executive Officer regarding the accuracy and reliability of the information, methodologies, and documentation in the CFA. Time limits imposed upon LAFCO by the Cortese-Knox-Hertzberg Act shall be tolled while the State Controller conducts its review and prepares its report. October 2003 50 OPR Incorporation Guidelines VI. COMMISSION HEARING AND DECISION When an application for incorporation is deemed complete, LAFCO’s Executive Officer will issue a certificate of filing, with a copy to the proponents’ (§56651), specifying the date of LAFCO’s hearing on the proposal. The public hearing must be set within 90 days of the issuance of the certificate of filing. A. HEARING NOTICE All meetings must meet the legal requirements for public notice. Notice of the hearing must be sent to the proponents, the county, affected agencies and those requesting a mailed notice in writing. Notice must also be given in all the following ways: • Notice given in electronic format on LAFCO’s website (§56150); and • Notice posted on or near the doors of the meeting room (§56158) at least 21 days prior to the date of the hearing (§56159); and • Notice published in one or more newspapers of general circulation (§56153) at least 21 days prior to the date of the hearing (§56154); and • Notice mailed to affected and interested parties at least 21 days prior to the date of the hearing (§56156 and §56157). To the extent a proposed incorporation becomes NOTICE REQUIREMENTS controversial, multiple public hearings may need LAFCO is NOT required to mail a notice to all to be held. OPR recommends that LAFCOs hold residents living within the incorporation at least one public hearing in the community boundaries. Residents may request, in writing, to be placed on the appropriate mailing list for proposing incorporation to allow residents a notices of incorporation hearings and/or convenient opportunity to provide input. distribution of incorporation reports. LAFCO may charge for distribution of incorporation LAFCO’s hearing may be continued but may not reports or notices. be postponed more than 70 days from the date specified in the original public hearing notice. Prior to any continuance of the incorporation hearing, LAFCO must give the proponents an opportunity to address any potential impacts or hardships on the incorporation effort that may result from a delay. The Commission is required to consider the potential impacts on the incorporation proponents prior to making a decision on the duration of any continuance (§56666(c)). B. CONFLICTING PROPOSALS If two or more incorporation proposals pending before LAFCO conflict or are in any way inconsistent with one another (as determined by LAFCO), LAFCO may determine the relative priority for hearing the proposals (§56655). However, in the absence of a determination by LAFCO, priority is given to the proposal first filed with LAFCO. October 2003 51 OPR Incorporation Guidelines C. COMMISSION ACTIONS At the conclusion of the public hearing, but no later than 35 days after the hearing, LAFCO is required to adopt a resolution that states LAFCO’s determination on the incorporation proposal. LAFCO may approve, approve with conditions or disapprove the plan for incorporation (§56880). When considering an incorporation proposal, LAFCO is required to consider the following factors (§56668): • The population, population density, and potential for growth. • The need for organized community services, and effect on adequacy of services. • The effect of the proposal on adjacent areas and local government structure. • The conformity of the proposal with adopted LAFCO policies and priorities. • The effect of the proposal on integrity of agricultural lands. • The definiteness and certainty of the proposed physical boundaries. • Consistency with county General Plan and specific plans. • The sphere of influence of any affected local agency. • The comments of any affected agency. • The ability of the new city to provide services, including sufficiency of revenues. • Timely availability of adequate water supplies. • The extent to which the proposal helps achieve its allocation of regional housing needs. • Comments from land owners. • Any information relating to existing land use designations. Incorporation proposals which would result in certain conditions are prohibited by law, including incorporations which would result in unincorporated islands (§56744) and annexation of land within a Farmland Security Zone (see exceptions, (§56749). If LAFCO approves or conditionally approves the proposal, the resolution must contain certain information including (§57100): • A statement of the type of change of organization or reorganization being acted on. • A description of the exterior boundaries of the territory for each change of organization or reorganization approved by the commission. • The name or names of any new or consolidated city or district. • All of the terms and conditions upon the change of organization or reorganization approved by the Commission. • The reasons for the change of organization or reorganization. October 2003 52 OPR Incorporation Guidelines • A statement as to whether the regular county assessment roll or another assessment roll will be utilized. • A statement that the affected territory will or will not be taxed for existing general bond indebtedness of any agency. • Any other matters that the Commission deems material. If LAFCO approves or conditionally approves the proposal, the resolution must also contain certain findings (§56720 and §56815) including: • The proposed incorporation is consistent with the intent of the Cortese-Knox-Hertzberg Act (see Exhibit 10). • The Commission has reviewed the spheres of influence of the affected local agencies and the incorporation is consistent with those spheres of influence. • The Commission has reviewed the CFA and State Controller’s Report, if any. • The Commission has reviewed the Executive Officer's report and recommendation and the testimony presented at its public hearing. • The proposed city is expected to receive revenues sufficient to provide public services and facilities and a reasonable reserve during the three fiscal years following incorporation. Finally, if LAFCO approves or conditionally approves the proposal, the resolution must also do the following (§56881): • Make the findings and determinations pursuant to §56375 including the determination of property tax revenue to be exchanged by the affected local agencies. • Determine that public service costs are likely to be less than or substantially similar to the costs of alternative means of providing the service (only applies if the incorporation proposal was initiated by the Commission pursuant to §56375 [a]). • Determine that the proposal promotes public access and accountability for community services needs and financial resources (only applies if the incorporation proposal was initiated by the Commission pursuant to §56375 [a]). • Assign a temporary name, if no name has otherwise been assigned to the affected territory. • Initiate protest proceedings (see Section VII below). After the Commission takes action, the Executive Officer must mail a copy of the resolution to the proponents and to each affected local agency whose boundaries would be changed by the proposal. Clerical errors or mistakes in the resolution may be corrected by the Executive Officer without Commission action (§56883). If the proposal is denied, no similar proposal for incorporation involving the same or substantially the same area shall be initiated for at least one year after the date of adoption of the resolution terminating proceedings (§56884). However, the Commission has the authority to waive this restriction if found to be detrimental to the public interest. October 2003 53 OPR Incorporation Guidelines EXHIBIT 10 IMPACT OF THE 2000 AMENDMENTS ON FINDINGS OF CONSISTENCY When a LAFCO considers an application for incorporation, LAFCO must make a number of findings (§56720), including that the proposed incorporation is consistent the intent of the Cortese-Knox-Hertzberg Act. Amendments to the Act in 2000 (AB 2838, Chapter 761, Statutes of 2000) have modified and strengthened the link between approval of proposed incorporations and orderly development. AB 2838 added more specificity to the purpose of the Act by amending several intent and procedural sections including Government Code Sections 56001, 56301 and 56300. MORE DEFINITION TO ORDERLY GROWTH AND THE ROLE OF LAFCO While promoting orderly development has always been a fundamental purpose of LAFCO, the 2000 amendments added emphasis by stating that: the provision of affordable housing, discouraging sprawl, preserving open space and prime agricultural lands and efficiently extending government services are all important elements of promoting orderly development. Further, the 2000 amendments included provisions that state that a preference should be granted to accommodating additional growth within or through the expansion of the boundaries of those agencies which can best accommodate and provide necessary governmental services and housing to persons and families of all incomes. Historically, the impact of a proposed incorporation on the future development of housing affordable to lower income households did not necessarily come into question when a LAFCO was considering an application for incorporation. The support for protecting prime agricultural lands was also enhanced in the 2000 amendments through the inclusion of language which states that one of the purposes of LAFCO is to preserve prime agricultural lands (56301). The Act still directs LAFCO to guide development away from existing prime agricultural lands unless the development would promote the planned, orderly efficient development of the area (§56377). In practice, this could mean that once one farm was converted to residential or commercial purposes other adjacent or nearby areas could also be included in incorporation proposals with the clear intent that ultimately these lands would very likely be converted to non-agricultural uses. Although the 2000 amendments did not change §56377, the new purpose and intent language emphasizes the responsibility of LAFCO to consider the preservation of prime agricultural land. WRITTEN POLICIES The 2000 amendments also require LAFCO to establish written policies and procedures that encourage and provide planned and well-ordered, efficient urban development patterns. Prior to these amendments, LAFCO was only directed to establish policies with no requirement that they be written or be implemented through specific procedures. This new requirement for written policies and accompanying procedures may challenge some LAFCOs as it will take some consensus building to draft and adopt language which a Commission can support. OPR recommends that LAFCOs do not postpone the review and adoption of its policies and procedures on incorporations until a proposal is before the Commission. Fair and equitable procedures are best developed in the absence of a specific application. A LAFCO may want to review the incorporation policies and procedures of other LAFCOs as part of its consideration and approval process. IMPACT OF 2000 AMENDMENTS The requirement for written policies and procedures coupled with the changes to the purposes of LAFCO and definition of orderly growth will impact the deliberative process of the Commission. In some cases, the Executive Officer’s report will be more extensive than the Commission may have previously seen. Findings of consistency of the proposed incorporation with the adopted policies and procedures will also increase the areas in which LAFCO’s decision is open to legal challenge. The Commission, in the exercise of its legislative authority is generally protected from challenges related to the specific content of the decision. Commissions are however, open to procedural challenges. To the extent that a LAFCO previously operated under unwritten policies and procedures, LAFCO will now be evaluated on how well it follows its own process. October 2003 54 OPR Incorporation Guidelines D. REQUEST FOR RECONSIDERATION Any person or affected agency may file a written request with LAFCO’s Executive Officer requesting reconsideration of any resolution approving incorporation. The request must comply with the provisions of §56895 and policies adopted by LAFCO. There may be a fee for filing the reconsideration request. The request must state the specific change requested and what new or different facts or applicable new law warrant the reconsideration. The request must be filed within 30 days of the adoption of a resolution by LAFCO. If LAFCO receives a request for reconsideration, it shall not take any further action on the incorporation proposal until LAFCO Commission acts on the request. The Executive Officer must place the request on the agenda of the next LAFCO hearing for which public notice can be provided, to receive oral and written testimony. The hearing may be continued from time to time but the continuance shall not exceed 35 days from the date in the original public hearing notice. The person or agency that filed the request may withdraw it at any time prior to the conclusion of LAFCO’s hearing. At the conclusion of its consideration, LAFCO Commission may approve or disapprove with or without amendment, wholly, partially, or conditionally, the request. The determination of LAFCO is final and conclusive. No person or agency shall make any further request for the same change or a substantially similar change, as determined by LAFCO. VII. CONDUCTING THE PROTEST HEARING A conducting authority has the responsibility to hold a public hearing to count protests received for an incorporation proposal. LAFCO is designated by law as the "conducting authority" for city incorporations. LAFCO Commission may delegate its conducting authority function to LAFCO’s Executive Officer (§57000(c)). Within 35 days following the adoption of the Commission’s resolution of approval and reconsideration period (§57002), LAFCO must issue a "Notice of Hearing" scheduling the date for the conducting authority protest hearing on the incorporation. The notice must be provided in all of the following three ways (§57025): 1) Publication in a newspaper of general circulation in the incorporating area (§56153). The publication must occur at least 21 days prior to the hearing date (§56154). 2) Posting of a notice on or near the doors of the meeting room or on any official bulletin board (§56158). The notice must be posted at least 21 days prior to the hearing (§56159). 3) Direct mailing to each affected city, county, district, proponents, landowners and to persons requesting special notice. The mailed notice must be sent by first class and deposited in the US mail at least 21 days prior to the hearing date (§56155 and §56157). October 2003 55 OPR Incorporation Guidelines The purpose of the hearing is to collect and count written protest from registered voters within the incorporating area. LAFCO, acting as the conducting authority, does not have the discretion to modify the incorporation proposal or to terminate incorporation proceedings without sufficient protest being recorded. LAFCO’s conducting authority hearing may be continued for up to 60 days. Within 30 days of the conclusion of the hearing, the Commission shall make a finding regarding the value of the written protests and take one of the following actions (§57077): • Terminate the proceedings if a majority protest exists (§57078); or • Call an election on the question of incorporation if there is no majority protest. Following the protest determination, the County Registrar of Voters begins the process of preparing the incorporation for a vote at the next general election unless a special election is requested and approved by LAFCO. If proceedings are terminated by majority protest, no substantially similar proposal for the same territory may be filed within two years of the date of adoption of the resolution terminating proceedings (§57090). However, the Commission may waive this restriction if found to be detrimental to the public interest. VIII. VOTING: THE INCORPORATION ELECTION Elections for incorporation are usually placed on the ballot of the next general election. Incorporation elections are considered county elections for the purpose of administering the Election Code and the Political Reform Act. If a special election is requested, the incorporation proponents may be required to pay for the costs of the special election. If the incorporation is successful, the new city will be liable for payment of election costs (§57150(b)). In the event the issue fails, the county absorbs the election costs. LAFCO’s Executive Officer must draft an impartial analysis (§56898) of the incorporation issue for inclusion in the incorporation ballot. The Commission may review the text of the impartial analysis and approve or modify it, if the Commission has instituted a review procedure. The review must be completed in sufficient time to consider and approve or modify the analysis and submit the analysis to the officials conducting the election, not later than the last day for submitting rebuttal arguments. Existing law specifies how the ballot language is required to be stated beginning with Government Code §57133 including identification of terms and conditions which may have the effect of imposing or increasing liability for payment of taxes, assessments or service charges. IX. CERTIFYING THE ELECTION RESULTS Following an incorporation election, the County Board of Supervisors is required to certify the election results by adoption of a resolution and must forward a copy to LAFCO. If the election approves the incorporation, LAFCO staff must prepare a "Certificate of Completion", which signals the end of the incorporation process (§57178). October 2003 56 OPR Incorporation Guidelines If the incorporation is disapproved by majority vote, the Commission must execute a “Certificate of Termination” (§57179). No substantially similar proposal for the same territory may be filed within two (2) years of the adoption of the Certificate of Termination (§57090). The effective date of the new city should have been identified as part of the Commission resolution of approval. The Commission has exclusive authority to set the incorporation effective date (§57202). The Executive Officer must record the Certificate of Completion with County Recorder's office within 90 days of the election (§57203). X. POST INCORPORATION After incorporation, LAFCO’s work is complete. However, the work of the new city has just begun. Appendix F is an example of an agenda for the first meeting of a newly incorporated city. This is only an example; all newly incorporated cities should seek legal advice regarding the requirements for a newly incorporated city and newly elected city council. OPR recommends that all new cities contact the League of California Cities, which offers several publications, classes and workshops for new city councils. It is also recommended that all LAFCOs obtain a copy of the League of California Cities publication, “A Guide For New Incorporated Cities” (March 1986) for distribution to newly incorporated city councils. LEAGUE OF CALIFORNIA CITIES It may seem for a brief moment after the incorporation results certify the creation of your new city that the hard work is over. Fortunately, it has just begun—fortunately because shepherding a new city through its formative stages is a rewarding and exciting endeavor, one that will shape the character and direction of the city for years to come. The purpose of this publication is to make this process easier by providing practical advice and guidance to new city officials as to what must typically be accomplished during the periods immediately prior to and following the first council meeting. Newly elected officials in a new city often feel somewhat at a loss as to what to do immediately following the election; this manual is intended to provide pragmatic step-by-step assistance so that new officials can devote their time not to trying to reinvent the wheel, but to consideration of the important issues facing them… It is critical that council members have a basic understanding of conflict of interest laws…After the city is officially incorporated, all meetings of the city council are to be open and public in accordance with the Brown Act…Action of a city council can be taken only at duly convened public council meetings, at a place designated by ordinance…before the city can undertake to approve any discretionary project, it must review the possible environmental impact of the project pursuant to the California Environmental Quality Act….. From “A Guide For New Incorporated Cities” League of California Cities, March 1986. October 2003 57 STATE OF CALIFORNIA Gray Davis Tal Finney GOVERNOR INTERIMDIRECTOR A GUIDE TO THE LAFCO PROCESS FOR INCORPORATIONS APPENDICES Governor’s Office of Planning and Research October 2003 OPR Incorporation Guidelines Appendices Table of Contents TABLE OF CONTENTS A. Incorporation Primer ...................................................................... 1 B. Glossary...................................................................................... 8 C. Initial Fiscal Feasibility Spreadsheet...................................................12 D. Civil_Rights_and_Environmental_Justice_Issues .....................................13 E. Sample Forms..............................................................................16 1. Notice of Intent to Circulate Petition .........................................16 2. Registered Voter Petitions ......................................................17 3. Landowner Petition...............................................................18 F. Sample City Council Agenda for a New City ..........................................19 G. Typical_Sources and Uses of Municipal Funding......................................25 H. Incorporation Timeline...................................................................26 October 2003 i OPR Incorporation Guidelines Appendices APPENDIX A INCORPORATION PRIMER The purpose of this document is to provide basic information and practical advice on the entire incorporation process—starting with a group of residents discussing their community’s future to the first months of a newly incorporated city’s life. It is hoped this will help both citizens and Local Agency Formation Commission (LAFCO) staff unfamiliar with incorporations to avoid potential risks or pitfalls. I. INTRODUCTION This primer is NOT intended to be an all-inclusive and definitive guide to the requirements for incorporations. Interested parties should obtain a copy of The Governor’s Office of Planning and Research (OPR) Incorporation Guidelines which explain the minimum legal requirements of the Cortese-Knox-Hertzberg Act of 2000. In LAFCO’S ROLE IN AN INCORPORATION addition, many individual LAFCOs have adopted Incorporation proposals are often motivated by policies and procedures augmenting the dissatisfaction with the status quo. minimum legal requirements. It is critical that One of LAFCO’s roles is to be an intermediary and any individual, group, agency or community facilitator that is required, by law, to identify issues interested in incorporation carefully review the and to resolve them in an equitable manner. OPR Incorporation Guidelines and meet with LAFCO staff must communicate clearly the standard your LAFCO staff. of review, the requirements, the estimated cost and the probable timing of an incorporation proposal. II. BEFORE YOU START Incorporations usually start with a group of residents forming a committee to explore the possible incorporation of their community. An incorporation committee defines and articulates incorporation goals, raises funds, collects signatures, assembles application materials, works with LAFCO staff and consultants, testifies at hearings and negotiates changes in the proposal. While each incorporation is unique, a committee of interested local residents is typically the impetus for incorporation. A. Be Realistic For any incorporation to succeed, it must have widespread community support since the voters must approve all successful incorporations. Therefore, INCORPORATIONS CAN BE EXPENSIVE ensuring that the residents are educated about the incorporation is critical during the incorporation process. Proponents are generally required to pay for LAFCO fees and staff costs, consultant It is recommended that the incorporation committee costs, preparation of the CFA, meet with people living in the incorporation area and in application, map and legal descriptions adjoining communities which may be directly affected by as well as environmental review. It is not the proposal. Fund raising is another crucial task because unusual for an incorporation to cost more the proponents of the incorporation are responsible for than $100,000. developing the information that will go into an application and for paying the costs of processing the application. October 2003 1 OPR Incorporation Guidelines Appendices B. Look at Alternatives Most unincorporated communities face the same challenges that cities face—changes in the character of their community, housing/jobs balance, provision of services, increased traffic and growth. Some communities see incorporation as a means to help address their problems without being aware of other alternatives. OPR strongly encourages any community investigating incorporation to explore a range of alternatives with their fellow residents, elected representatives, LAFCO and county officials before embarking on an incorporation effort. WHAT IS A LOGICAL INCORPORATION BOUNDARY? A logical incorporation boundary does the following: • Is realistic in its recognition of political opportunities and constraints. • Recognizes existing jurisdictional boundaries of other agencies including special districts and cities. • Includes a variety of land uses for a balanced community. While LAFCO has no direct authority to set or alter existing land use patterns, it will consider if a proposed new city will have a variety of land uses for fiscal balance. • Considers topography, geography, historic boundaries and urban limit lines if adopted. • Recognizes existing spheres of influence (SOI). • Recognizes communities of interest or areas which may have financial, geographic or other various links to the incorporation area. • Recognizes the ability and readiness of the area to provide municipal level services. • Is consistent with the stated goals of incorporation. If the goal of incorporation is to give an area control over land use decisions, then the boundary should include areas which might have an impact on land use decisions. • A logical incorporation boundary should not, if at all possible: Split a parcel by city boundaries. • A logical incorporation boundary should not, if at all possible: Create islands which are unincorporated areas surrounded by incorporated territory. LAFCO is prohibited by law from creating islands. • A logical incorporation boundary should not, if at all possible: Use school districts, zip codes, postal addresses or other boundaries which often serve multiple jurisdictions. C. Consult with LAFCO Of all the actions incorporation proponents can take which will help to ensure a successful incorporation process, early and frequent consultation with LAFCO is the most important. The incorporation process can seem long and complicated and LAFCO staff can help the incorporation proponents avoid the most common pitfalls. It is strongly recommended that proponents develop the proposed boundaries of the new city with LAFCO staff early in the process—even before deciding to move forward with any incorporation efforts. The inclusion (or exclusion) of territory has a profound impact on the incorporation proposal and the preparation of the comprehensive fiscal analysis (CFA). D. Why Incorporate? Incorporation shifts local government responsibility for an unincorporated area under the jurisdiction of a county board of supervisors to a newly established city council. The reasons for incorporation efforts may vary and can include, but are not limited to, the following: October 2003 2 OPR Incorporation Guidelines Appendices SERVICES: Incorporations can be proposed to improve local public services. Cities can provide extensive services but are also required to fund their share of the cost to provide countywide services though a process called “revenue neutrality” which is explained in following sections. WHO PROVIDES WHAT SERVICES AFTER INCORPORATION? Services Which A New City May Assume Services that the County May Continue to Provide • Law enforcement • Special services (welfare, child protective services, • Fire protection and paramedics (some cases) etc.) • Water and sewer (some cases) • Health services • Planning (land use, environmental review, zoning, • Criminal justice (courts, prosecution, jails, probation, etc.) building inspection, etc.) • Public works (streets, engineering, traffic signals, • Regional parks streetlights, drainage, etc.) • Elections and voters services • Local parks and recreation • General government (assessor, treasurer, recorder, • Libraries (in some cases) tax collector, etc.) • Animal control REVENUES: Incorporation may be proposed to capture increased revenues to support local services. LOCAL CONTROL: An incorporation may MUNICIPAL REVENUES be proposed to give a community more Cities can use a variety of revenue. A good source of local control over land use, growth, information about the types of revenues available to planning policy and other governmental cities is the California State Controller’s Annual Cities activities. report which is available online. Another source is the League of California Cities’ library which contains many city budgets. REPRESENTATION: Incorporations may also be proposed to create a politically accountable governing body (a city council) in a limited geographic area. Some incorporations are proposed because residents feel that a city council may be more accessible, more visible and responsive to the needs of their particular community. E. But Can It Fly? An Initial Feasibility Review If incorporation seems to be a potentially feasible option, the next step may be to conduct an initial fiscal analysis of the proposed incorporation. Some communities have found that a preliminary assessment of the potential to incorporate a community has been valuable. An initial feasibility review is designed to help community WARNING! groups conduct a quick appraisal of the potential for incorporation. Many incorporation groups focus on the An initial feasibility review is NOT a comprehensive fiscal analysis (CFA). It is fiscal impacts of incorporation—does the community only an educational tool. Use of the initial have the financial resources to support a municipality? feasibility review as a CFA may result in However, there are other issues which must also be inadequate financial information, longer addressed which would help a community determine if processing times and more expense incorporation is right for them. At a minimum, any community which is considering incorporation should first think about the following questions (taken from Institute of Governmental Affairs booklet “Choices for the Unincorporated Community”): October 2003 3 OPR Incorporation Guidelines Appendices • What is the problem, if any, driving the desire for change in the existing governmental structure? Can the problem be addressed by other, more efficient means? • What is the role of the County government in the community? Is the county willing or able to address the identified problems? • What is the community’s relationship to other adjacent communities? • What would the proposed boundaries look like and how would that affect other agencies and communities? • What is the past history of local efforts to incorporate? • How is the community changing? • What is the community’s capacity for self-governance? • How are services currently provided and how would they change? • Who is likely to benefit from a change and who is likely to lose? Incorporations have to be financially feasible. While this is often seen as the primary test for incorporation, it is only one of many standards of review LAFCO will use. F. The Comprehensive Fiscal Analysis (CFA) The primary issue for most incorporations is the fiscal feasibility of the proposed new city and the law requires that a Comprehensive Fiscal Analysis (CFA) be prepared. Determining the fiscal feasibility of an incorporation through preparation of the CFA can be expensive and the cost is usually borne by the incorporation proponents. The OPR Incorporation Guidelines recommend that a CFA be started after an application is submitted to LAFCO to help keep costs at a minimum. The OPR Incorporation Guidelines contain detailed information on the preparation of a CFA, sources of revenues, examples of financial calculations and a one-year fiscal feasibility spreadsheet to help incorporation proponents. III. THE MAIN STEPS IN THE INCORPORATION PROCESS The procedure for the incorporation of an unincorporated community in the State of California may require at least a year of formal review. The purpose of such a process is to ensure that any proposed incorporation is economically feasible, in the best interests of the community and environmentally and logically sound. The procedures for incorporation should be followed carefully to avoid delays and to reduce the risk of potential litigation. The processing of an incorporation proposal can be divided into several separate stages. These are: 1) Initiating the incorporation process; 2) Application to LAFCO; 3) LAFCO staff review; 4) LAFCO Commission hearing; 5) Election and the first year; October 2003 4 OPR Incorporation Guidelines Appendices A. Initiating the Incorporation Process Incorporation can be initiated in one of three ways--by resolution of a public agency, by petition of registered voters or by petition of landowners. A notice of the proponents’ intent to circulate a petition must be filed with LAFCO before starting and there are strict, legal time limits for gathering signatures. Proponents and LAFCO should use the “Notice of Intent” filing as an opportunity to review the petition and schedule to ensure legal conformance. Once enough signatures are collected, the petitions COLLECT MORE THAN YOU NEED are submitted to LAFCO and must be verified by the appropriate agency. If there are irregularities with Incorporation proponents should plan on petitions or signatures, some signatures may be collecting at least 10% to 15% more disqualified which may mean that additional signatures than the minimum requirement to compensate for invalid signatures. signatures may need to be obtained. B. Application to LAFCO Once the petitions are verified, proponents must prepare a LAFCO application. The application must include: • A map and legal description of the boundaries of the proposed incorporation area; • Justification for the proposal; FIRST THINGS FIRST! • A plan for the transfer/provision of It is recommended that the incorporation public services; and boundaries be developed with LAFCO prior to submitting an application but that the CFA be • Other information as requested by started after submitting the application to LAFCO. LAFCO. If the application is deemed complete by LAFCO, the Executive Officer will issue a Certificate of Filing and schedule a public hearing. C. LAFCO Staff Review The staff reviews all the application materials submitted, conducts its own analyses, performs the environmental review, determines the property tax transfer and revenue neutrality payments, solicits comments and produces a final report. The comprehensive fiscal analysis (CFA) is also usually prepared at this stage. REVENUE NEUTRALITY The CFA is one of the crucial elements of an The law states that an incorporation should not incorporation application. It provides the occur primarily for financial reasons and should financial information LAFCO needs to ensure result in a substantially equal exchange of both that the proposed new city is fiscally stable, revenue and service responsibility. LAFCO cannot self-sufficient and the reallocation of approve an incorporation unless it finds that the revenues among affected agencies is revenues currently received by the county are substantially equal to expenditures for services equitable. The preparation of a CFA is being transferred to the new city. Consult the OPR complex, must satisfy legal requirements and Incorporation Guidelines for more information on should not be started without consulting with revenue neutrality. LAFCO. LAFCO’s Executive Officer can request the submittal of additional information/studies or make changes in the original proposal. LAFCO’s staff review can take as long as twelve (12) months. October 2003 5 OPR Incorporation Guidelines Appendices Incorporation proponents are required to pay fees and costs for processing of the application and providing any additional information requested by LAFCO. LAFCO staff works cooperatively with all interested parties WHY WASN’T I NOTIFIED? to ensure that a thorough, complete and accurate proposal LAFCO is NOT required to mail a is developed for LAFCO’s Commission's consideration. When notice to all residents living within the proposed incorporation is ready for a public hearing, the incorporation boundaries. LAFCO’s Executive Officer will schedule the item for a Residents may request, in writing, public hearing and prepare a report with a recommendation to be placed on the appropriate which will be sent to the proponents, interested parties and mailing list for notices of LAFCO’s Commission prior to the public hearing. incorporation hearings and/or distribution of incorporation D. LAFCO Commission Hearing reports. LAFCO’s Executive Officer is responsible for preparing a staff report that will be considered at the public hearing. At the public hearing, LAFCO’s Commission hears the staff report and testimony of interested parties both supporting and opposing the incorporation. LAFCO’s Commission may continue the hearing to a future date or close the public hearing and act on the proposal. LAFCO’s Commission has the authority to approve, deny or conditionally approve the incorporation proposal. If LAFCO’s Commission approves the proposed incorporation, it must adopt a written resolution approving the incorporation and it must contain the following information: • Confirmation that LAFCO has considered all the information and factors that it is legally required to consider, • Written findings regarding consistency between the incorporation and the intent of the Cortese-Knox-Hertzberg Act, • Conditions of approval, if any, • Any other terms and conditions, • A description of the final boundaries of the incorporating area, • A temporary name for the new city if none has been assigned, and • The effective date of the incorporation. If LAFCO’s Commission denies the proposed incorporation, no similar application can be filed for at least one year unless LAFCO’s Commission waives that prohibition. E. Request for Reconsideration Any person or agency may file a request for reconsideration with LAFCO’s Commission within 30 days after the resolution of approval is adopted. LAFCO must not take any further action on the incorporation proposal until a public hearing is held and the Commission acts on the request. F. Protest Hearing October 2003 6 OPR Incorporation Guidelines Appendices If the approval of the incorporation still stands after a request for reconsideration, LAFCO’s Commission will hold a public hearing to count protests to the incorporation. A protest hearing will be held after being duly noticed. LAFCO does not have the discretion to modify the incorporation proposal. LAFCO must terminate the incorporation proceeding if a majority protest is recorded. G. Election and First Year If not terminated by a majority protest, the AFFORDABLE HOUSING AND THE NEW CITY incorporation will be placed on the ballot of the next general election (unless a special State law recognizes the vital role local election is requested). LAFCO’s Executive governments play in the affordability of housing. Every city council in California is required to adopt Officer must draft an impartial analysis of the a comprehensive, long-term housing element in its incorporation issue for inclusion on the ballot. general plan which provides for, and does not The Commission may review and approve the unduly constrain, affordable housing development. impartial analysis. A simple majority vote is Housing element law also requires the Department required for final approval of the of Housing and Community Development (HCD) to incorporation. review local housing elements for compliance with State law. After the incorporation is approved by the voters, LAFCO’s work is complete. However, the work of the new city has just begun. It is recommended that all new cities contact the League of California Cities which offers several publications, classes and workshops for new city councils. October 2003 7 OPR Incorporation Guidelines Appendices APPENDIX B GLOSSARY Affected agency: An affected agency can be a city, county or special district which contains, or whose sphere of influence contains any territory for which an incorporation is proposed or ordered either singularly or as part of a reorganization. Auditor’s ratio: The Auditor’s ratio is the ratio of property taxes allocated to the general fund of the county and each affected agency to all revenues received by the county and affected agencies for general purposes during the prior fiscal year. Base year costs: Base year costs are the costs that would have been incurred to provide municipal level services if the incorporation area had been a city during the base year. CEQA: California Environmental Quality Act, the law regulating the environmental review process. Public Resources Code Section 21000 et. seq. Certificate of Completion: The document prepared by LAFCO’s Executive Officer and recorded with the county recorder that confirms the final successful resolution of a change of organization or reorganization. Certificate of Filing: A certificate issued by a LAFCO Executive Officer when an application is accepted for filing. A certificate of filing shall be in the form prescribed by the Executive Officer and shall specify the date upon which the proposal shall be heard by LAFCO’s Commission. Certificate of Sufficiency: A certificate of sufficiency indicates whether the requisite number of signers signed the petition. If the petition does not contain the requisite number of signatures, a notice or certificate of insufficiency shall be provided by the appropriate reviewing agency. Change of Organization: A change of organization means any of the following: city incorporation; district formation; annexation to, or detachment from, a city or district; disincorporation of a city; district dissolution; consolidation of cities or special districts; and, merger or establishment of a subsidiary district. Comprehensive Fiscal Analysis (CFA): An analysis of the projected revenues and expenditures resulting from a proposed incorporation. Conducting Authority: LAFCO’s Commission of the principal county of the entity proposing a change of organization or reorganization, unless another conducting authority is specified by law. Contract City : A city that provides municipal services through a contract(s) with service providers such as special districts, the county or private companies providing municipal services. County Auditor-Controller: The Auditor and Controller of most counties typically performs fiscal management and control of County revenues and appropriations, administration of the secured and unsecured real property tax system, payment of all claims, payroll and travel accounting, tabulation of the annual County and special district budget, grants accounting, and other fiscal services. Specific duties may vary by county. October 2003 8 OPR Incorporation Guidelines Appendices Determination: A decision of LAFCO’s Commission contained within LAFCO’s resolution of approval as required by Government Code Section 56880. Direct costs: Direct costs are costs associated directly with providing a service such as salaries, benefits, supplies, maintenance, equipment and professional services costs. Effective date: The effective date is the date upon which the new city is deemed organized or incorporated. Feasible: A term defined by law as capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, legal, social, and technological factors. Findings: Government Code Section 56720 states LAFCO’s Commission may not approve or conditionally approve any incorporation, unless the Commission finds, based on the entire record, that the proposed incorporation is consistent with the intent of the law, that the Commission has reviewed the spheres of influence of the affected local agencies and the incorporation is consistent with those spheres of influence, that the Commission has reviewed the comprehensive fiscal analysis, that it has reviewed the executive officer's report and recommendation and that the proposed city is expected to receive revenues sufficient to provide public services and facilities and a reasonable reserve during the three fiscal years following incorporation. These findings must be made in writing in the Resolution of Approval. Franchise fees: Franchise fees are fees currently paid to the county by the affected utilities including gas, electric and cable TV providers. Franchise fees may also be received from solid waste disposal/recycling services, if applicable. Full service city: A city which provides all municipal level services (such as fire, police, garbage collection, water, sewer, etc.) through city employees in departments governed by the city council. Gann Limit: The Gann limit is a constitutional appropriations limit on governmental agencies. The appropriations limit is the amount of money that a governmental agency can spend in a fiscal year. General Fund: General funds are unrestricted or discretionary revenues used to fund any municipal service expenditure. Examples of General Fund revenues include, but are not limited to, general property taxes, sales taxes, transient occupancy taxes, franchise fees and property transfer taxes. Incorporation: The incorporation, formation, creation, and establishment of a city with corporate powers. Indirect costs: Costs associated with supporting a direct service function that may include, but are not limited to: personnel support; administration and policy, legal, accounting/financial support; general insurance; and facility operation and maintenance. Initial feasibility review: A preliminary fiscal assessment of a community’s potential to incorporate, as described in the OPR Incorporation Guidelines. Initiation by petition: A method of starting the incorporation process involving a registered voter or landowner petition for incorporation, requiring the signatures of a specific percentage of the total number of registered voters or landowners residing in the area to be incorporated. October 2003 9 OPR Incorporation Guidelines Appendices Islands: An island is unincorporated territory completely surrounded by a city or by territory of a city on one or more sides and the Pacific Ocean on the remaining sides. LAFCO: An acronym for the Local Agency Formation Commission. Metes and bounds legal description: A metes and bounds description (metes refers to directions and distances, bounds refers to monuments, both physical and legal), describes the perimeter of a parcel of land. A metes and bounds description is often lengthy, as it may contain bearings and distances for each line, descriptive geometry of each curve, and references to other adjacent or nearby parcels of land. Mitigation: Mitigation includes: avoiding environmental impacts by not taking a certain action or parts of an action; minimizing impacts by limiting the degree or magnitude of the action and its implementation; rectifying the impact by repairing, rehabilitating, or restoring the impacted environment; reducing or eliminating the impact over time by preservation and maintenance operations during the life of the action; and, compensating for the impact by replacing or providing substitute resources or environments. Motor Vehicle In-Lieu fees: Motor vehicle fees consist of vehicle license, registration, weight, and driver’s license fees, and various other charges related to vehicle operation. The vehicle license fee (VLF) is imposed for the privilege of operating a vehicle on the public highways in California. This tax is imposed in lieu of a local personal property tax on automobiles and is administered by the State Department of Motor Vehicles. All of the revenues from this tax, other than administrative costs and fees on trailer coaches and mobile homes, are constitutionally dedicated to local governments. Municipal level services: Services typically provided by cities such as fire, police, garbage collection, water, sewer, etc. Municipal Service Review: A review of the municipal services provided in the county or other appropriate area such as a proposed incorporation area designated by LAFCO’s Commission. Notice of Intent: (to Circulate a Petition) A notice filed by incorporation proponents with LAFCO prior to circulating any petition for change of organization. Ordinance: An ordinance is a law adopted by the state, county, city or other appropriate agency. Primer: The Primer is a brief overview of the incorporation process that can be used as general information by people unfamiliar with incorporations. Proponent: A proponent is the person or persons who file a Notice of Intent to circulate a petition. Reorganization: A reorganization is two or more changes of organization initiated in a single proposal. Resolution: A document prepared by LAFCO’s Commission indicating approval of a proposed incorporation and initiating confirmation by the voters. Revenue Neutrality: The intent of the California Legislature (Government Code Section 56815) that any incorporation should result in a similar exchange of both revenue and responsibility for service delivery among the county, the proposed city, and other affected agencies and that an incorporation should not occur primarily for financial reasons. October 2003 10 OPR Incorporation Guidelines Appendices Sales Tax: Sales taxes are taxes charged on qualifying retail sales by businesses within the proposed incorporation area. Service Plan: A service plan is a proposal submitted by the incorporation proponents detailing which municipal services, after incorporation, will be provided by the new city and by other agencies. SOI: A Sphere of Influence (SOI) means a plan for the probable physical boundaries and service area of a local agency, as determined by LAFCO. Special district: An agency of the state, formed pursuant to general law or special act, for the local performance of governmental or proprietary functions within limited boundaries. State Controller: The State Controller is the state's chief financial officer and is elected by a vote of the people every four years. Duties of the State Controller are prescribed by the Constitution with additional powers or functions set by statute. TOT: Transient Occupancy Taxes (TOT) are taxes collected on hotels and motels. Transition period: The period of time between the successful election for an incorporation and the date upon which the new city is deemed organized or incorporated. Unincorporated communities: Territory not within the boundaries of an incorporated city. October 2003 11 OPR Incorporation Guidelines Appendices APPENDIX C INITIAL FISCAL FEASIBILITY SPREADSHEET October 2003 12 OPR Incorporation Guidelines Appendices Appendix D Civil Rights and Environmental Justice Issues This appendix includes background on the civil rights and environmental justice responsibilities of LAFCO. A. Federal Framework The Constitutional basis for environmental justice lies in the Equal Protection Clause of the U.S. Constitution. The Fourteenth Amendment LAFCO EJ PROGRAMS expressly provides that the states may not “deny to In response to these recent federal any person within [their] jurisdiction the equal actions, many state and local agencies protection of the laws” (U.S. Constitution, amend. that receive federal funding have XIV, §1). initiated environmental justice programs of their own. OPR recommends that On February 11, 1994, President Clinton signed LAFCOs consider whether it would be useful to implement their own Executive Order (E.O.) 12898, titled “Federal Actions environmental justice program in order to Address Environmental Justice in Minority to further their responsibilities under Populations and Low-Income Populations.” The CKH Act. executive order followed a 1992 report by the U.S. Environmental Protection Agency (U.S. EPA) indicating that “racial minority and low-income populations experience higher than average exposures to selected air pollutants, hazardous waste facilities, and other forms of environmental pollution.” E.O. 12898 directed federal agencies to incorporate environmental justice into their missions. In a memorandum accompanying E.O. 12898, President Clinton underscored existing federal laws that could be used to further environment justice. These laws include Title VI of the Civil Rights Act of 1964 and the National Environmental Policy Act (NEPA), among others. Title VI prohibits any recipient (state or local entity, or public or private agency) of federal financial assistance from discriminating on the basis of race, color, or national origin in their programs or activities (42 USC §2000d to §2000d-7). State and local agencies that receive federal funding must comply with Title VI. Under the Civil Rights Restoration Act of 1987, this requirement is not limited to the programs and activities that receive direct federal funding, but applies to all agency activities. B. State Framework Anti-discrimination laws existed in California prior to the passage of the first environmental justice legislation in 1999. The California Constitution prohibits discrimination in the operation of public employment, public education, or public contracting (Article I, §31). State law further prohibits discrimination under any program or activity that is funded or administered by the state (§11135). The Planning and Zoning Law prohibits any local entity from denying any individual or group of the enjoyment of residence, land ownership, tenancy, or any other land use in California due to the race, sex, color, religion, ethnicity, national origin, ancestry, lawful occupation, or age of the individual or group of individuals (GC §65008). The Fair Employment and Housing Act (FEHA) specifically prohibits housing discrimination on the basis of race, color, religion, sex, sexual orientation, marital status, national origin, ancestry, familial status, disability, or source of income (§12900, et seq) October 2003 13 OPR Incorporation Guidelines Appendices In 1999, Governor Davis signed SB 115 (Solis, Chapter 690, Statutes of 1999), that defines environmental justice in statute and establishes OPR as the coordinating agency for state environmental justice programs (GC §65040.12). As the primary agency with responsibility for approving changes in boundaries, LAFCO play an important role in coordinating growth and ensuring that proposed changes are consistent with environmental justice obligations. C. Forms of Inequity Problems of environmental justice can be broken down into two categories: procedural inequity and geographic inequity. In other words, unfair treatment can manifest itself in terms of process or in terms of results. Procedural inequity occurs when the planning process is not applied uniformly. Examples of procedural inequity include: “Stacking” commissions or committees with certain interests while ignoring the interests of other segments of the community, such as minority and low-income residents. Holding meetings at times or locations that minimize public participation by certain groups or individuals. Using English-only written or verbal communication when a non-English speaking population will be affected by a planning decision. Requiring lower levels of mitigation for projects affecting low-income or minority populations. Unevenly enforcing environmental rules. Geographic inequity describes a situation in which the burdens of undesirable land uses are concentrated in certain areas of the county while the benefits are received elsewhere. Municipal service reviews can play a key role in identifying these inequities and should therefore, when available, be used in reviewing incorporation proposals. LAFCO may need to adjust boundaries to ensure that geographic inequities are not exacerbated by the establishment of a new city. Examples of geographic inequity include: Certain areas of the county have a disproportionate share of industrial facilities that handle or produce hazardous waste, while the economic benefits are distributed to other areas (in the form of jobs and tax revenue). Certain areas have a disproportionate share of waste disposal facilities, while the benefits of such facilities are received by the community or region as a whole. Certain areas experience more of the environmental benefits associated with community centers, parks, and open space, while other neighborhoods have fewer such amenities. D. Information and Analysis As discussed throughout these guidelines, informed decisions regarding the incorporation proposal requires good information. A clear identification of the lands, population and facilities (existing and proposed) is essential in analyzing the information in the application. When evaluating the issues identified in this chapter that relate to environmental justice, LAFCO may wish to consider the following data layers: Base map of the study area. General plan designations of land use (existing and proposed). October 2003 14 OPR Incorporation Guidelines Appendices Current demographic data: Population (location and density); Income (distribution of very-low, low, moderate and above moderate income groups); Ethnicity (distribution of minority populations); Age (distribution of seniors and children throughout the community) Location of public facilities that enhance community quality of life, including open space, water quality, and fire protection. Location of industrial facilities with its existing and projected service needs and other uses that contain or produce materials that, because of their quantity, concentration, or physical or chemical characteristics, pose a significant hazard to human health and safety. Location of existing and proposed schools. Location and density of existing and proposed residential development. Preventing and reversing historical problems of procedural and geographic inequity requires accurate information in order to develop policies and prioritize implementation measures. EJ INFORMATION HAS MANY USES Data obtained in the incorporation review process can be used by LAFCO and other public agencies for: • Improving the community participation process. • Identifying low-income/minority neighborhoods under-served by public facilities and services that enhance quality of life. • Considering the equitable distribution of public facilities and services. • Considering infrastructure and housing needs. • Identifying low-income/minority neighborhoods where facilities and uses that pose a significant hazard to human health and safety may be over-concentrated. • Screening of issues for potential environmental justice implications. October 2003 15 OPR Incorporation Guidelines Appendices APPENDIX E SAMPLE FORMS October 2003 16 OPR Incorporation Guidelines Appendices October 2003 17 OPR Incorporation Guidelines Appendices October 2003 18 OPR Incorporation Guidelines Appendices APPENDIX F SAMPLE CITY COUNCIL MEETING AGENDA GOLETA CITY COUNCIL Special Meeting - Friday, February 1, 2002 – 5:30 PM Goleta Community Center AGENDA • Agendas are posted on the City’s internet web site: www.GoletaCity.com • A complete packet of information containing staff reports and exhibits relating to each item on the agenda is available for public review prior to each City Council meeting at the City Hall (Address) • Agendas may be picked up at the City Hall located at (address) for no charge or to request information regarding being placed on the annual subscription list please contact the City Clerk. A. SWEARING IN CEREMONY FOR CITY COUNCIL MEMBERS – COUNTY CLERK B. OPENING MATTERS 1. Call to Order 2. Pledge of Allegiance to the flag 3. Roll Call 4. Individual Council Member Comments C. PUBLIC COMMENTS At this time the public is permitted to address the City Council on non-agendized items only. COMMENTS SHOULD NOT EXCEED THREE (3) MINUTES. In accordance with State Law no City Council action or discussion may take place on any item not appearing on the posted agenda. The Council may respond to statements made or questions asked, and may direct staff to report back at a future meeting regarding the matter. Members of the public may contact the City Clerk’s Office related to the proper procedure to place an item on a future City Council agenda. The exceptions under which the City Council MAY discuss and/or take action on items not appearing on the posted agenda are contained in Government Code Section 54954.2 (b) (1) (2) (3). October 2003 19 OPR Incorporation Guidelines Appendices D. DISCUSSION/ACTION ITEMS 1. Waive the reading and adopt urgency ordinance providing for all County ordinances to remain in effect for 120 days. Note: This ordinance adopts the Santa Barbara County Code as the ordinances within the City for 120 days. Adoption is required by Government Code §56376. 2. Adopt resolution designating (name) as the Mayor and (name) as the Mayor Pro Tem effective immediately, and (name) as Mayor beginning on January 1, 2003. Note: The Council will: (a) adopt resolution establishing the procedure for selecting the mayor and mayor pro tempore and their responsibilities and (b) by motion select the Mayor and Mayor Pro Tempore for the initial city council. 3. Adopt resolution designating the place and time for regular City Council meetings. Note: This resolution will designate the place and time of regular Council meetings as required by Government Code 54954(a). The regular meetings will be held on the (week, day of week) of each month at (time and place of meeting). 4. Adopt resolution establishing procedures for conduct of Council meetings. Note: This resolution establishes procedures for the conduct of Council meetings. 5. Waive the reading and adopt urgency ordinance creating and establishing a City Manager form of government and the position of City Manager, to be effective immediately. Note: This ordinance establishes a City Manager form of government for the City. It is effective immediately and requires a 4/5th vote 6. Adopt resolution appointing (name) as City Manager and approving agreement for interim City Manager services Note: This resolution appoints (name) as the Interim City Manager and includes terms of appointment including compensation. 7. Adopt resolution appointing (name) as City Attorney and approving an agreement for legal services with (name of firm). Note: This resolution appoints (name) as the City Attorney and approves an agreement for legal services including compensation. 8. Waive reading and introduce ordinance imposing a Sales and Use Tax to be administered by the State Board of Equalization and providing penalties for violations; adopt resolution approving agreement for State administration of local Sales and Use Taxes and adopt a resolution authorizing and examination of Sales and Use Tax records. Note: The Council will take three actions that establish but do not increase sales and use tax rates within the City. First, waive the reading and introduce ordinance to adopt a sales and use tax within the City consistent with the Bradley-Burns Act. The ordinance will be continued to the (date) Council meeting for second reading and adoption. October 2003 20 OPR Incorporation Guidelines Appendices Second, approve an agreement with the State Board of Equalization for collection of the tax. Third, adopt a resolution authorizing the State Board of Equalization to examine records. 9. Waive reading and adopt an urgency ordinance to continue the existing Transit Occupancy Tax. Note: The ordinance continues the County’s transient occupancy tax (hotel tax) in effect at the current County rate. The ordinance will become effective immediately and requires a 4/5th vote. 10. Waive reading and adopt urgency ordinance to continue the existing business license tax. Note: The ordinance continues the County’s business license tax in effect at the current County rate. The ordinance will become effective immediately and requires a 4/5th vote. 11. Waive reading and adopt urgency ordinance to continue the existing documentary transfer tax. Note: The ordinance continues the County’s documentary (real property) transfer tax in effect at the current County rate. The ordinance will become effective immediately and requires a 4/5th vote. 12. Adopt resolution setting the Provisional Appropriations Limit for Fiscal Year 2001-02. Note: The California Constitution Article XIIIB and Government Code §7900 et seq. require the City to adopt an “appropriations limit.” LAFCO Resolution 99-20 establishes an provisional appropriations limit pursuant to Government Code §56842.6 as $24,100,000. This resolution will formally adopt that amount as the City’s appropriations limit until subsequent voter approval. 13. Adopt resolution selecting (name of bank) as the City’s bank and providing for authorized signatures on warrants and checks. Note: This resolution will designate the (name) Bank, (name) branch as the city’s bank. It will also designate the City Manager (and/or Finance Director or City Clerk) and Mayor as the officials authorized to sign warrants and checks over $2,500, with the City Manager authorized to sign checks for less than $2,500. 14. Adopt resolution authorizing investment of City monies in the Local Agency Investment Fund. Note: This resolution authorizes the City to invest monies in the State’s Local Agency Investment Fund. The City Manager and the Finance Director are authorized to deposit or withdraw monies. 15. Adopt resolution authorizing a petty cash fund. Note: This resolution establishes a petty cash fund of $250 for minor expenses for the daily operations of the City. October 2003 21 OPR Incorporation Guidelines Appendices 16. Adopt resolution approving a budget for fiscal year 2001-02. Note: This resolution will adopt a budget for the City for Fiscal Year 2001-2002 based on the City Manager’s recommendation. 17. Adopt resolution consenting to cancellation of uncollected taxes, penalties and costs based on the consent of the County legal advisor. Note: This resolution authorizes the City Council to consent to canceling uncollected taxes, penalties and costs on behalf of the City. 18. Waive the reading and adopt urgency ordinance establishing a Special Gas Tax Street Improvement Fund. Note: This ordinance establishes a special fund into which all gas tax revenues will be deposited. The ordinance will become effective immediately and requires a 4/5th vote. 19. Adopt a resolution adopting the County General Plan on an interim basis as the City’s General Plan. Note: This resolution will adopt the County General Plan and Goleta Valley Community Plan as the general plan for the City, to be effective until the City adopts its own general plan. 20. Adopt resolution adopting County zoning atlas on interim basis. Note: This resolution will adopt Santa Barbara County’s zoning atlas (map) in effect on February 1, 2002 as the zoning map of the City. 21. Adopt resolution authorizing Count officials to enforce laws in City during transition year. Note: The County is required to continue to provide all services in the City that it provided prior to incorporation through June 30, 2002. This resolution will authorize County employees performing services within the City to enforce any laws within the City while the County is providing such services. 22. Adopt resolution requiring bonds for City employees. Note: This resolution will establish the amount of the official bonds for designated city employees. 23. Waive the reading and adopt urgency ordinance continuing County fees, charges and rates in effect. Note: This ordinance will continue County fees, charges and rates in effect as the City’s fees, charges and rates for programs and services. The ordinance will become effective immediately and requires a 4/5th vote. It does not apply to development impact fees. 24. Adopt resolution establishing cost recovery program for land use applications. October 2003 22 OPR Incorporation Guidelines Appendices Note: This resolution will require applicants for land use approvals to pay the cost of processing such applications, including all staff time, overhead and the City’s actual out-of-pocket costs for legal and other services required to review and process applications. 25. Waive reading and introduce ordinance providing for reimbursement of City Council member expenses. Note: This ordinance will provide a policy for members of the Council to be reimbursed for actual reasonable and necessary expenses incurred in performing their duties, as authorized by Government Code §36514.5. It will require a second reading and adoption at the February (date) Council meeting. 26. Adopt resolution providing for posting of ordinances. Note: This resolution will allow the City to provide notice of proposed actions when notice is legally required by posting in three (3) public places. 27. Waive reading and introduce ordinance establishing a local claims procedure and authorizing the City Manager to reject or settle claims. Note: This ordinance will require that claims be presented to the City before filing a law suit for those types of claims that are exempt from the California Tort Claims Act. The ordinance would also authorize the City Manager to reject or settle claims less than $2,500, all as authorized by Government Code §935 and 935.4. It will require a second reading and adopt at the February (date) Council meeting. 28. Adopt resolution adopting CEQA guidelines. Note: This resolution will adopt the State CEQA Guidelines as the City’s CEQA Guidelines pending adoption of other local guidelines. 29. Adopt resolution requesting Federal Tax Identification Number and directing filing of information with Secretary of State. Note: This resolution will authorize the City Manager to (a) file with the California Secretary of State information pursuant to Government Code §53051 and (b) file with the Federal Government to obtain a Federal taxpayer identification number for the City as required. 30. Adopt resolution of intent to adopt Conflict Of Interest Code and invite public comments. Note: A 60-day public comment period is required prior to adopting a conflict of interest code for the City. This resolution will provide notice of the intent for the County to adopt the conflict of interest code. 31. Adopt resolution consenting to enforcement by County health officer of all health laws within the City. Note: This resolution will consent to the enforcement by the County Health Officer of all laws related to public health, as authorized by Health & Safety Code §101375. October 2003 23 OPR Incorporation Guidelines Appendices 32. Adopt a resolution regarding insurance. Note: This resolution will authorize the City Manager to obtain insurance for the City. 33. Waive reading and introduce ordinance declaring the need for a redevelopment agency to function in the community. Note: This ordinance will declare the need for a redevelopment agency in the City and declare the Council to be the Goleta Redevelopment Agency, consistent with the provisions of LAFCO Resolution 99-20. 34. Consideration of ordinance providing for City Council member salaries Note: Consideration will be given to adopting an ordinance to would provide salaries for members of the City Council. E. REPORTS TO COUNCIL F. CLOSING COMMENTS G. ADJOURN Note: The public is invited to an open house at (location) at 4:30 p.m. to celebrate the successful incorporation of the City of Goleta. October 2003 24 OPR Incorporation Guidelines Appendices APPENDIX G TYPICAL SOURCES AND USES OF MUNICIPAL FUNDING REVENUES EXPENSES October 2003 25 secidneppA senilediuG noitaroprocnI RPO ."ytilauQ_tseB"_ot_retnirp_tes_,egap_siht_fo_ypocdrah_reraelc_a_roF 62 3002 rebotcO