City of Avalon MSR (August 14, 2024)

Municipal Service Review (MSR) and Sphere of Influence (SOI) Update City of Avalon August 14, 2024 This Municipal Service Review and Sphere of Influence Update was conducted for City of Avalon (City). The Commission adopted this MSR and Sphere of Influence Update on August 14, 2024. Chapter One: LAFCO Background Municipal Boundaries The State of California possesses the exclusive power to regulate boundary changes. Cities and special districts do not have the authority to change their own boundaries without State (or, by extension, LAFCO) approval. The California Constitution (Article XI, Section 2.a) requires the Legislature to “prescribe [a] uniform procedure for city formation and provide for city powers.” The Legislature also has the authority to create, dissolve, or change the governing jurisdiction of special districts because they receive their powers only through State statutes. The Legislature has created a “uniform process” for boundary changes for cities and special districts in the Cortese Knox-Hertzberg Local Government Reorganization Act of 2000 (California Government Code Section 56000 et seq, or “Act”). The Act delegates the Legislature’s boundary powers over cities and special districts to Local Agency Formation Commissions (LAFCOs) established in each county in the State. The Act is the primary law that governs LAFCOs and sets forth the powers and duties of LAFCOs. In addition to the Act, LAFCOs must comply with the following State laws: • California Revenue and Taxation Code Sections 93 and 99. LAFCO considers the revenue and taxation implications of proposals and initiates the property tax negotiation process amongst agencies affected by the proposal. • California Environmental Quality Act (CEQA) (California Public Resources Code Section 21000 et seq) and the related CEQA Guidelines (Title 14, California Code or Regulations Section 15000 et seq). Applications before LAFCO are typically considered to be “projects” under CEQA. • Ralph M. Brown Act (California Government Code Section 54950 et seq). Commonly known as the State’s “open meeting law,” the Brown Act ensures that the public has adequate opportunity to participate in the LAFCO process. City of Avalon MSR and SOI Update Page 2 of 28 • Political Reform Act (California Government Code Section 81000 et seq). Commissioners, some LAFCO staff, and legal counsel are subject to the Political Reform Act, which requires the filing of annual reports of economic interests. What are LAFCO’s? LAFCOs are public agencies with county-wide jurisdiction for the county in which they are located. LAFCOs oversee changes to local government boundaries involving the formation and expansion of cities and special districts. In creating LAFCOs, the Legislature established four (4) priorities: one, encourage orderly growth and development; two, promote the logical formation and determination of local agency boundaries; three, discourage urban sprawl; and four, preserve open space and prime agricultural lands. Created by the State but with local (not State) appointees, each of the 58 counties in the State of California has a LAFCO. Each LAFCO operates independently of other LAFCOs, and each LAFCO has authority within its corresponding county. While a LAFCO may obtain county services (i.e., legal counsel, employee benefits, payroll processing), LAFCO’s are not County agencies. Local Agency Formation Commission for the County of Los Angeles (“LA LAFCO”) LA LAFCO regulates the boundaries of all eighty-eight (88) incorporated cities within the County of Los Angeles. LAFCO regulates most special district boundaries, including, but not limited to: • California water districts • Cemetery districts • Community service districts (“CSDs”) • County service areas (“CSAs”) • County waterworks districts • Fire protection districts • Hospital and health care districts • Irrigation districts • Library districts • Municipal utility districts • Municipal water districts • Reclamation districts • Recreation and parks districts • Resource conservation districts • Sanitation districts • Water replenishment districts LAFCO does not regulate boundaries for the following public agencies: • Air pollution control districts • Bridge, highway, and thoroughfare districts City of Avalon MSR and SOI Update Page 3 of 28 • Community college districts • Community facility districts (aka “Mello-Roos” districts) • Improvement districts • Mutual water companies • Private water companies • Redevelopment agencies • School districts • Special assessment districts LAFCO does not regulate the boundaries of counties. State law specifically prohibits LAFCOs from imposing terms and conditions which “directly regulate land use, property development, or subdivision requirements.” In considering applications, however, State law requires that LAFCO take into account existing and proposed land uses, as well as General Plan and zoning designations, when rendering its decisions. The Local Agency Formation Commission for the County of Los Angeles (LA LAFCO, the Commission, or LAFCO) is composed of nine voting members: • Two (2) members of the Los Angeles County Board of Supervisors (appointed by the Los Angeles County Board of Supervisors); • One (1) member of the Los Angeles City Council (appointed by the Los Angeles City Council President); • Two (2) members of city councils who represent the other 87 cities in the county other than the City of Los Angeles (elected by the City Selection Committee); • Two (2) members who represent independent special districts (elected by the Independent Special Districts Selection Committee); • One (1) member who represents the San Fernando Valley (appointed by the Los Angeles County Board of Supervisors); and • One (1) member who represents the general public (elected by the other 8 members). LAFCO also has six (6) alternate members, one (1) for each of the six (6) categories above. The Commission holds its “regular meetings” at 9:00 a.m. on the second Wednesday of each month. The Commission periodically schedules “special meetings” on a date other than the second Wednesday of the month. Commission meetings are held in-person in Room 381B of the Kenneth Hahn Hall of Administration, located at 500 West Temple Street in downtown Los Angeles. Commission meetings are also accessible remotely, which allows for public testimony (audio) for stakeholders with access to a computer or telephone, as allowed and consistent with and virtually consistent with applicable law. Public notice, including the Commission agenda, is posted at the Commission meeting room and on LAFCO’s website (www.lalafco.org). City of Avalon MSR and SOI Update Page 4 of 28 The Commission appoints an Executive Officer, and the Executive Officer appoints the Deputy Executive Officer and other employees. A small staff reports to the Executive Officer and Deputy Executive Officer. LAFCO’s office is located at 80 South Lake (Suite 870) in the City of Pasadena. The office is open to the public Monday through Thursday from 9:00 a.m. to 5:00 p.m. The office is closed on Fridays. What are LAFCO’s responsibilities? LAFCO oversees changes to local government boundaries involving the formation and expansion of cities and special districts. This includes annexations and detachments of territory to and/or from cities and special districts; incorporations of new cities; formations of new special districts; consolidations of cities or special districts; mergers of special districts with cities; and dissolutions of existing special districts. LAFCO also approves or disapproves proposals of cities and special districts to provide municipal services outside their jurisdictional boundaries. An important tool used in implementing the Act is the adoption of a Sphere of Influence (SOI) for a jurisdiction. An SOI is defined by Government Code Section 56425 as “…a plan for the probable physical boundary and service area of a local agency.” An SOI represents an area adjacent to a city or special district where a jurisdiction might be reasonably expected to provide services over the next twenty (20) years. The SOI is generally the territory within which a city or special district is expected to annex. LAFCO determines an initial SOI for each city and special district in the County. The Commission is also empowered to amend and update SOIs. All jurisdictional changes, such as incorporations, annexations, and detachments, must be consistent with the affected agency’s Sphere of Influence, with limited exceptions. Municipal Service Reviews State law also mandates that LAFCO prepares Municipal Service Reviews (MSRs). An MSR is a comprehensive analysis of the municipal services, including an evaluation of existing and future service conditions, provided in a particular region, city, or special district. Related to the preparation of MSRs, and pursuant to State Law, LAFCOs must review and update SOIs “every five years, as necessary.” The Commission adopted MSRs for all cities and special districts in the County prior to the January 1, 2008 deadline (Round One). In preparing MSRs, LAFCOs are required to make seven (7) determinations pursuant to section Government Code § 56430: • Growth and population projections for the affected area; • The location and characteristics of any disadvantaged unincorporated communities (DUCs) within or contiguous to a city or district’s SOI; • Present and planned capacity of public facilities, adequacy of public services, and infrastructure needs or deficiencies; City of Avalon MSR and SOI Update Page 5 of 28 • Financial ability of agencies to provide services; • Status of, and opportunities for, shared facilities; • Accountability for community service needs, including governmental structure and operational efficiencies; and • Any other matter related to effective or efficient service delivery. During Round 1 of LAFCO’s Municipal Service Reviews, the Commission adopted an MSR and SOI Update for the City of Avalon when it adopted the Santa Catalina Island Municipal Service Review and Sphere of Influence Update (which included the City of Avalon MSR and SOI Update) on May 12, 2004.1 On November 14, 2012, the Commission reconfirmed the City of Avalon SOI. (Continued on Page 6) City of Avalon MSR and SOI Update Page 6 of 28 Chapter Two City of Avalon Background: The City of Avalon (City) is the only incorporated city on Santa Catalina Island. The City was incorporated on June 26, 1913. Territory within the City of Avalon comprises 2.88 square miles.2 The remainder of Santa Catalina Island is unincorporated territory governed by the County of Los Angeles. The jurisdictional boundary of the City of Avalon includes a mixture of land uses (residences, offices, local-serving and visitor-serving retail); significant landmarks, such as the Casino Building (a former casino used for significant events), the Wrigley Memorial and Botanical Gardens, and the Catalina Island Golf Course; several marine and visitor-serving facilities both on the land side (docks, bait facility, ocean-related retail uses) and the ocean side (boat slips and moorings); and several beaches. The southeasterly portion of the City includes traditional municipal facilities like the commercial port, gasoline station, landfill, and recycling center). A map of the City of Avalon and its SOI Boundary can be found in Exhibit 1 on Page 8. Significantly—and unlike any other city in Los Angeles County—the existing SOI for the City of Avalon includes territory within the Pacific Ocean. The City is governed by a city council of four (4) members, elected at-large, each of whom serve terms of four (4) years.; as well as a mayor, who is elected at-large for a term of two (2) years.3 The City Council meets on the first and third Tuesday of every month at 5:00 p.m. in the City Hall Council Chambers.4 Meeting agendas are available on the City’s website (www.cityofavalon.com). Avalon is a major tourist destination, in which visitors arrive from Long Beach and San Pedro on a commercial boat (Catalina Express), from cruise ships, by private boats docked or moored in Avalon Harbor, and, less frequently, by helicopter. Both the local economy, as well as the City’s budget, is very tourist-dependent—during extraordinary times, like a recession or the recent COVID pandemic (Fiscal Years 2019-20 and 2020-21), the fiscal impacts on the local economy and the City’s fiscal condition were significant. In Calendar Year 2022, there were 1,094,543 individuals who visited the City of Avalon.5 As of 2022, the City of Avalon has 804 hotel rooms and 358 vacation rentals; additionally, there are 360 ship moorings in Avalon Harbor.6 As discussed in more detail in this report, the City of Avalon has several unique service issues. Given its location on an island, Avalon does not have adjoining cities (or other governmental agencies, such as special districts) upon which it can collaborate for services, and/or secure services (mutual aid) in an emergency (the sole exception is the Consolidated Fire Protection District of Los Angeles County, which provides structural fire protection for the unincorporated portion of the island). The logistical challenges facing cities are exacerbated for Avalon because all supplies, necessities, and construction materials must be imported. Avalon is the only city in Los Angeles County with two (2) separate water systems (fresh water and seawater). The City’s isolation presents certain challenges when it comes to hiring and retaining City employees. In addition to Southern California Edison Company (SCE) providing City of Avalon MSR and SOI Update Page 7 of 28 electricity, SCE also provides water and natural gas throughout the City of Avalon. Finally, and due to extreme weather (high seas and winds), on some occasions the island is entirely cut off from travel to/from the mainland. (Continued on Page 8) City of Avalon MSR and SOI Update Page 8 of 28 Exhibit 1 City of Avalon Existing Jurisdictional and SOI Boundary City of Avalon MSR and SOI Update Page 9 of 28 Municipal Service Review Determinations Government Code Section 56430 requires LAFCO to “conduct a service review of the municipal services” and to “prepare a written statement of its determinations” relative to several factors. This section addresses these factors and includes the recommended determinations. 1. Growth and Population Projections The population of the City of Avalon was 3,460 persons in 2020, according to the Bureau of the Census (United States Department of Commerce).7 The Southern California Association of Governments (SCAG) reports a slightly higher number residents in 2020, indicating a population of 4,000 residents.8 Given a review of other data sources, communications with City officials, and staff analysis, this MSR presumes that the Census population for 2020 is more accurate. In terms of population projections, SCAG projects a population in 2040 is 4,700. Using SCAG’s base population of 4,000 in 2020, this projection represents a growth rate of eight percent (8%) for the 2020-2035 period, or 1.2% per year, compounded.9 Future population increases in the City of Avalon are subject to several constraints—the limited size of the City of Avalon, the dearth of available raw land for development of additional housing, the limited redevelopment potential of existing properties to increase the housing supply, and the difficulty of providing additional resources (particularly water and other utilities) for new residents. Given these issues, staff believes that the SCAG population projections may be ambitious, if not overstated. Future development within the City includes workforce housing and additional development at Hamilton Cove, both of which are in the planning stages.10 Determinations: • According to SCAG, the population within the boundaries of the City is expected to grow at a rate of eight percent (8%) between now and 2035. • Actual population growth may be less than the SCAG projections, given various constraints. • Future population growth in the City of Avalon is expected to be negligible, and it is unlikely to have a significant effect on the City’s ability to provide municipal services. 2. Location and Characteristics of Disadvantaged Unincorporated Communities Pursuant to the State’s passage of Senate Bill 244, and as of January 1, 2012, LAFCOs are required to make determinations regarding Disadvantaged Unincorporated Communities (DUCs) for an Update of an SOI. The law defines a DUC as a community with an annual median household income that is less than eighty percent (80%) of the statewide annual median household income. The law also requires that LAFCOs consider “the location and characteristics of any disadvantaged communities within or contiguous to the sphere of influence” when preparing an MSR. City of Avalon MSR and SOI Update Page 10 of 28 The intent of SB 244 is to protect against the potential for cities and special districts to engage in a pattern of “selective” annexations which may lead to the establishment “service islands” in which disadvantaged residents receive inferior structural fire protection, municipal water, and sanitary sewage disposal and treatment services compared to adjoining areas within a city or district’s boundary. There are no DUCs in the unincorporated territory adjacent to the City of Avalon.11 Determinations: • There are no DUCs in the unincorporated territory adjacent to the City of Avalon. There is, therefore, no impact upon the delivery of structural fire protection, municipal water, and sanitary sewage disposal and treatment services to DUCs. 3. Present and Planned Capacity of Public Facilities; Adequacy of Public Services; Infrastructure Needs or Deficiencies. The current workforce in the City of Avalon includes the following public employees: Permanent Full-Time: 59 Regular Part-Time: 11 Seasonal Part-Time: 16 Reserve Firefighters: 1812 The City of Avalon provides most municipal services, with certain services provided under contract by other public agencies or other public service providers (i.e., public utilities and private companies). Animal Control and Code Enforcement: The City of Avalon’s code enforcement officers provide animal control services. According to City staff: “These officers respond to and investigate animal code violations, manage the rabies/vaccine programs, and maintain temporary City kennels. They also work with the Catalina Island Humane Society for adoption and foster services, the local veterinary for rabies/vaccinations, and the Santa Catalina Island Conservancy for sick or injured Catalina Island Foxes.”13 In theory, the Los Angeles County Department of Animal Care & Control could provide animal care and control services to the City of Avalon. Based upon conversations with City staff, it appears that there exists no pressing need for enhanced animal control services. Separately, and given its isolation, it is likely to be cost prohibitive for the County to provide these services to the City of Avalon. Code personnel conduct education/outreach efforts, issue parking citations, notice of violations, stop work orders, and administrative citations. Building, Planning, and Land Use: The City of Avalon Planning & Building Department provides building, planning, and land use services in the City of Avalon. Although the departmental staffing is relatively small (it includes a building official and an administrative assistant), this is somewhat understandable, given the relatively small geographic size of a city City of Avalon MSR and SOI Update Page 11 of 28 which is nearly entirely built out.14 Even fully staffed, outside contracting services would still be necessary in order to keep up with current and advanced planning obligations. For this reason, and because the City has struggled to hire and retain planning staff, in 2023 the City hired Sagecrest Planning and Environmental, a private consulting firm, to handle planning services, and the City recently extended the contact for an additional fiscal year (through June of 2025).15 Electricity: The Southern California Edison Company (SCE) provides electrical service in the City of Avalon. SCE is an investor-owned utility (IOU) under the jurisdiction of the State of California Public Utility Commission (CPUC). SCE provides electrical service throughout its large service territory in Southern California. Emergency Medical/Paramedic: The Consolidated Fire Protection District of Los Angeles County (CFPD) provides emergency medical/paramedic services (which includes advance life support services), under contract to the City of Avalon. The CFPD is well-positioned to provide these services to the City of Avalon, given that the CFPD provides fire and emergency medical/paramedic services for the remainder of Santa Catalina Island, all of which is County unincorporated territory. The CFPD also provides lifeguard services (Baywatch) in the waters surrounding the island.16 With respect to short-term and long-term healthcare needs, Catalina Island Health operates Avalon Municipal Hospital, the only hospital on Santa Catalina Island, which is a twelve-bed facility in the City of Avalon. The hospital “serves the medical needs of Santa Catalina’s 4,000 residents as well as the more than one million visitors who travel to Catalina Island.”17 The existing hospital is currently facing financial issues, with the hospital’s CEO’s noting that the hospital is running on a $4 million annual deficit.18 Recently, L.A. Care (a health insurer serving low-income Southern Californians) awarded Catalina Island Health a $2 million grant to keep the hospital open.19 The grant alleviates, but does not permanently address, the hospital’s financial challenges; most importantly, and like several other hospitals in Los Angeles County, Catalina Island Health must bring the hospital into compliance with earthquake safety codes by 2020.20 Fire and Emergency Services: The City of Avalon Fire Department provides fire and emergency medical services in the City of Avalon. The Fire Department is the largest departmental expenditure in the City of Avalon’s budget. The department consists of eleven (11) full-time personnel and thirty (30) reserve firefighters, all of whom are full-time residents of the City of Avalon. The City’s fire station is staffed by a three-member engine company, which provides basic life support and emergency medical services.21 LAFCO’s 2004 MSR noted that “the primary facility challenges relate to inadequate water flow in certain areas,” and recommended that the City consider installing additional fire hydrants to improve water flow in the city’s hydrant system.22 In response, City staff notes that four (4) fire hydrants have been added since 2004, bringing the total to “83 saltwater hydrants and 74 fresh water hydrants.”23 The City of Avalon has mutual aid with CFPD, and the ability to call upon other public agencies through the California Mutual Aid System.24 Flood Control/Stormwater Management: The City of Avalon Public Works Department provides flood control/stormwater management services in the City of Avalon. City of Avalon MSR and SOI Update Page 12 of 28 Harbor: The City of Avalon Harbor Department provides 24/7 coverage of the waters designated in the State Lands Grants of 1943, 1949, 1963, 1978, 1979, 1984, 1996, and 2014. These waters include a variety of infrastructure, including: moorings in Hamilton Cove, Descanso Bay, and Avalon Bay; the Green Pleasure Pier; Avalon Harbor Fuel Dock; Tuna Club; Catalina Island Yacht Club; Casino Point Dive Park (State Marine Conservation Area); Lovers Cove (State Marine Protected Area); Public Beaches; Floats; and Cabrillo Mole Ferry Terminal. The terminal is the primary landing for visitors and residents alike via the Catalina Express and Catalina Flyer; and Cruise Ship Tenders. The Harbor Department is responsible for the maintenance of infrastructure in the marine areas; waterside permits; mooring purchases, leases, and nightly rentals; as well as public safety services including education, enforcement, emergency planning, storm preparation, fire response, and emergency medical services. The City of Avalon currently has a major $20 million capital improvement project to revitalize the Cabrillo Mole Ferry Terminal with construction set to begin in 2025.25 The Harbor Department is supported by the Harbor Fund, which is a designated proprietary fund (as opposed to other city operations, which are financed by the City’s general fund). As noted in the City of Avalon FY 2023-2024 Budget, and relative to the Harbor Fund: “[R]ecurring revenues exceed expenditures in the Harbor Fund, with reserves utilized to fund significant capital outlays deferred in prior year budgets. The Harbor Fund does not currently have reserves at the targeted level, with significant capital outlays utilizing its existing reserves. The Harbor Fund will require several years of strong revenues exceeding budget estimates or new revenue sources to be identified in order to restore reserves to target levels.”26 Other than a downturn in revenues during the COVD-19 pandemic, and starting in FY 2020-21, the significant revenues sources in the Harbor Fund (cross-channel wharfage, nightly moorings, and cruise ship wharfage) have increased moderately over the last three (3) years.27 Law Enforcement: The Los Angeles County Sheriff’s Department (LASD) provides law enforcement services, under contract to the City of Avalon. The contract with LASD is the second largest departmental expenditure in the City of Avalon’s budget (after the Fire Department). The LASD is well-positioned to provide these services to the City of Avalon, given that the LASD provides law enforcement services to the remainder of Santa Catalina Island, all of which is County unincorporated territory. According to City representatives, there has been significant turnover amongst LASD staff assigned to the City of Avalon; unfortunately, given the nature of the assignment, this problem is likely to persist as an ongoing challenge. Library: The Los Angeles County Library District provides library services in the City of Avalon. The Los Angeles County Board of Supervisors established the district in 1912 under the County Free Library Act. Managed by the Los Angeles County Library Department, the district currently serves all County unincorporated territory as well as forty-nine (49) incorporated cities, including the City of Avalon. The branch library, located at 215 Sumner Avenue in the City of Avalon, is open Tuesdays through Saturdays; and it offers a range of typical library services.28 Mosquito and Vector Control Abatement: At LAFCO’s request, City staff reviewed City Council minutes and “found very few mention of mosquitoes.”29 Based upon conversations with City staff, it appears that there exists no pressing need for enhanced vector control services. City of Avalon MSR and SOI Update Page 13 of 28 In theory, one of the two nearest existing mosquito and vector control districts (the Greater Los Angeles County Vector Control District or the Los Angeles County West Vector Control District) could provide vector control services to the City of Avalon. Given the City’s isolation, it is likely to be cost prohibitive for either district to provide these services to the City of Avalon. Natural Gas: The Southern California Edison Company (SCE) provides natural gas in the City of Avalon. Within SCE’s wide service territory, Avalon is the only community to which it provides natural gas. Parks: The City of Avalon Community Services Department provides parks and recreation services in the City of Avalon. The department provides adult, youth, and senior citizen programs; manages community events and the City’s Meals-on-Wheels program; and oversees rental of city facilities (City Hall complex, six community parks, a multipurpose athletic field in Avalon Canyon, a multipurpose indoor-outdoor space (Tremont Hall), and the Wrigley Stage).30 Road Maintenance (City-Owned Rights-of-Way): According to City representatives, “[t]he City of Avalon has roughly 17.5 miles of paved roads. The City of Avalon Public Works Department maintains eleven (11) miles of city-owned rights-of-way, and the Santa Catalina Island Company maintains six and one half (6.5) miles of SCIC-owned rights-of-way.31 The ownership and maintenance of these streets and alleyways is not readily apparent to the public who use them. Solid Waste: Originally hired by the City under contract in 2013, Avalon Environmental Services (AES), a private contractor, provides solid waste services; the most recent amendment extends the contract through 2028. AES collects and transports trash and manages the City- owned Pebbly Beach Landfill.32 Vehicles: Vehicles and autoettes are heavily regulated within the City of Avalon and require City registration, in addition to those required by the DMV. The California Vehicle Code 175 uniquely outlines the term “autoette” (which was recently amended in 2023) specially designating vehicles under 130” in length. The most common vehicular mode of transportation is a golf cart, falling under the “autoette” definition. Households are limited to (1) autoette, with a full-size vehicle waiting list of 20+ years. The City’s transit system is currently point-to-point through a contract with Circuit, awarded in April 2024.33 Water (Fresh Water): SCE provides fresh water in the City of Avalon; the SCE system also serves certain portions of unincorporated territory on Santa Catalina Island. Within SCE’s wide service territory, Avalon is the only community to which it provides water. As noted by City staff: “Since the last MSR in 2004, serious drought conditions in Avalon and Catalina Island required businesses and residents to significantly decrease water usage. The island is unique in the fact it is self-contained when it comes to water collection, usage, and conservation. Due to the extreme amount of rain received in 2022-23, the primary reservoir is at capacity and Avalon is no longer considered to be in a drought.”34 Separately, and as LAFCO noted in the 2004 MSR, “[t]he typical Avalon resident lives in an apartment rather than a detached home. Landscaped lawns are rare in Avalon, where native shrubbery, potted plants, and apartment living are much more common.”35 City of Avalon MSR and SOI Update Page 14 of 28 Given limited water sources, as well as the City’s isolation, water conservation will remain an ongoing challenge for the indefinite future. Further, and as noted in the 2022 City of Avalon Housing Element, water availability continues to present a significant constraint to development within the City that the City has no control over.36 Water (Salt Water): The City of Avalon Public Works Department maintains the salt water distribution system in the City of Avalon. This system, which provides water for flushing toilets within the city, reduces public consumption of scarce fresh water resources. Wastewater: PERC Water Corporation, a private contractor, provides wastewater treatment services, under contract to the City of Avalon.37 Determinations: • There are many challenges inherent to providing municipal service in Avalon: the city’s isolation from other municipalities (limiting the number of potential service providers); a population which consists of both year-round residents and vacation/weekend homeowners; and the service demands associated with sudden population increases associated with cruise ship visitors. • The City of Avalon provides most municipal services, with certain services provided under contract by other public agencies or other public service providers (i.e., public utilities and private companies). • Although the current public facilities and infrastructure of the City are adequate, the nature of the City of Avalon dictates that there will continue to be on-going service and fiscal challenges associated with providing various public services. 4. Financial Ability of Agency to Provide Services Reserves: The City of Avalon’s adopted policy states that “[t]he City of Avalon will strive to maintain an unrestricted fund balance equal to no less than six (6) months of regular General Fund operating expenditure budget.”38 [emphasis in original] According to the Proposed Fiscal Year 2023-2024 Budget, and given that the total General Fund operating expenditures are $11,733,269; six months of General Fund operating expenditures would be 5,866,634; and the reserves (General Fund unrestricted fund balance) are $11,737,891.39 This level of reserves significantly exceeds the level of reserves required by adopted City policy (in essence, reserves are twice the level required by City policy). State Auditor: On an annual basis, the State of California Auditor’s Office (State Auditor) analyzes the fiscal health of all four hundred thirty one (431) cities in California. The evaluation reviews ten (10) specific financial indicators: general fund reserves, debt burden, liquidity, pension funding, pension costs, future pension costs, revenue trends, pension obligations, Other Post-Employment Benefits (OPEB) obligations, and OPEB funding. The Auditor also evaluates all cities for overall risk. Cities are ranked on each City of Avalon MSR and SOI Update Page 15 of 28 of these indicators, with one (1) being the highest risk and four hundred thirty-one (431) being the lowest risk. It is important to note that the most recent State Auditor’s determinations for the City of Avalon are based upon Fiscal Year 2020-21; in that regard, the findings represent the state of the City’s finances from more than three (3) years ago. Using the most recent data available at the time (Fiscal Year 2020-21), the State Auditor determined that the City of Avalon the City is at a “Moderate Risk” for future pension costs; the City is at “High Risk” for revenue trends and OPEB funding; and the City is at “Low Risk” for the other seven (7) indicators. The State Auditor further determined that the City of Avalon is ranked 299 of all 431 cities in the State, which is considered as a “Low Risk.”40 The Auditor’s determinations for “revenue trends” metric is not surprising, given two factors: one, the City of Avalon is highly dependent on tourist revenue; and two, and more than any other city in Los Angeles County, Avalon was impacted by decreasing City revenues due to travel and assembly restrictions imposed during the COVID-19 pandemic. The revenue impacts of COVID-19 are well documented, both in recent City financial reporting documents (audits, budgets, and other financial reports), as noted in several places throughout this MSR. Although tourism-dependent revenues have not increased to pre-pandemic levels, these revenue sources have stabilized, and the overall trend is in a positive (upward) projection. Additionally, while the State Auditor’s determinations are as of Fiscal Year 2020-21 (ending on June 30,2021), the analyses in this MSR reflect a review of more current financial documents through the end of Fiscal Year 2022-23 (ending on June 30, 2023), and are therefore more current. While the State Auditor does not elaborate on its findings, the Auditor’s determinations of “High Risk” for “OPEB funding” is most likely due to the fact that the City has funded 3.5% of its overall obligations ($286,426 funded for a net OPEB liability of $7,956,970).41 Ideally, and based upon input from LAFCO’s auditor and accountant, the ideal funding status would be somewhere between 75% and 85% of the net OPEB liability. There are, however, two positive developments identified in the most recent independent review of Avalon’s OPEB funding status: one, the overall net OPEB liability decreased from Fiscal Year 2021-22 to Fiscal Year 2022-23 (by approximately $1.8 million); and two, based upon a review of the Net OPEB liability for the past five years, the Net OPEB liability has stabilized to levels documented for Fiscal Years 2017-2018, 2018-2019, and FY 2019- 2020, suggesting that the increase in Fiscal Years 2020-21 and 2021-22 are outliers.42 The OPEB funding issue nevertheless remains a challenge, one that City staff should address going forward. City representatives are aware of the issue, and they have communicated to LAFCO that they are working to develop a long-term plan to address it. Audits: Within the City of Avalon’s adopted “Accounting and Budget Annual Reporting Policies,” the section relevant states: Each year an audit will be conducted by an independent Certified Public Accountant firm (CPA Firm). The selection of the independent CPA Firm shall be in conformance with the City’s professional services bidding procedures. Generally, the City shall request bids for audit services no less frequently than every five years. The CPA Firm shall provide the City Council with an Audit Communication letter addressing significant findings of the auditors in conjunction City of Avalon MSR and SOI Update Page 16 of 28 with their opinion on the City’s Comprehensive Annual Financial Report. These reports shall be submitted to the City Council within 60 days of receipt of the report.43 In conformance with this adopted policy, the City of Avalon retained Davis Farr, an independent auditor, to conduct its most recent audit, which is for Fiscal Year 2021-2022 (the year ending on June 30, 2022). The Independent Auditor’s Report for the City of Avalon for Fiscal Year 2022- 23 states: In our opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business activities, each major fund, and the aggregate remaining fund information of the City of Avalon as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accepted principles generally accepted in the United States of America.44 Auditors from Davis Farr reached similar conclusions in their audits of the City of Avalon for the prior two fiscal years (FY 2019-2020 and FY 2020-2021).45 Collectively, these three audits neither presented significant findings nor identified any deficiencies in the city’s financial practices and internal controls.46 Indebtedness: According to City representatives: “The City has long-term indebtedness totaling $18.28 million as Successor Agency to the Avalon Community Improvement Agency [the City’s former redevelopment agency]. The City also has other long term liabilities totaling approximately $1 million related to compensated absences, claims payable, and a capital lease.”47 The indebtedness owing to the former redevelopment agency is not extraordinary, and similar to that which has accrued to successor agencies in other cities in Los Angeles County. The remaining long-term liabilities are relatively modest and do not raise any concerns. Budget and Fiscal Policies: The City of Avalon has adopted several “guidelines for budgetary decision-making and sets standards for sound budgetary practices and fiscal performance.”48 These policies include: Accounting and annual reporting, budget process, structurally balanced budget, revenues, expenditures, General Fund reserves, Enterprise Funding working capital targets, investment policy, and investment policy for Solid Waste Postclosure and Corrective Action Trust Fund.48 These comprehensive policies ensure sound fiscal management, establish procedures for staff, promote transparency, and minimize the risks of fraud and abuse. Revenues: Amongst the County’s eight-eight (88) cities, the City of Avalon’s revenue is uniquely constrained, for two reasons: one, because the City is relatively small and largely built out, there are few opportunities to redevelop properties to increase property tax and sales tax revenues; and two, primary revenue sources are entirely tourist- dependent. With regard to the latter issue, even the smallest reduction in tourist visits will significantly reduce the City’s tax revenues. As shown in Exhibit 2, on Page 17, those revenue sources which are entirely or largely tourist-dependent (admission tax, sales tax, and transit occupancy tax) were adversely— and severely—impacted in FY 2019-20 as a result of COVID-19 pandemic travel City of Avalon MSR and SOI Update Page 17 of 28 restrictions to the City. These restrictions impeded all potential island visitors, whether arriving by air (helicopter flights or private plane) or by boat (primarily on cruise ships, but also boat-owners, who visit Avalon for several days or even weeks at a time). In more recent years, these sources have fluctuated. Exhibit 2 General Fund Revenues49 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 (Actual) (Actual) (Actual) (Actual) (Estimate) (Budget) Total General Fund (GF) Revenues: 12,134,207 9,039,157 10,840,962 15,365,103 13,629,337 12,462,217 Change (year-to-year) N/A -26% 20% 42% -11% -9% Significant GF Revenue Sources: Property Taxes 3,460,140 1,466,735 1,769,294 1,724,604 1,667,911 1,514,717 Change (year-to-year) N/A -58% 21% -3% -3% -9% Transit Occupancy Tax (Hotels) 3,904,449 3,263,477 4,302,876 6,005,947 5,281,358 4,800,000 Change (year-to-year) N/A -16% 32% 40% -12% -9% Transit Occ. Tax (Vacation Rentals) 1,488,739 1,237,150 1,717,170 2,670,443 2,512,125 2,200,000 Change (year-to-year) N/A -17% 39% 56% -6% -12% Sales Tax 911,966 839,099 892,133 1,319,099 1,354,229 1,400,000 Change (year-to-year) N/A -8% 6% 48% 3% 3% The City of Avalon’s largest revenue source is the Transit Occupancy Tax (TOT), a twelve percent (12%) tax on “gross receipts from hotels and short-term rental properties.”50 Despite some fluctuations associated with travel restrictions, the City’s TOT revenues appear to be returning to normal, pre-pandemic levels, and even starting to increase. Unlike the tourist-dependent revenue sources, the City’s property tax revenues are more stable year-to-year, and tend to fluctuate within a relatively modest range. Changes in other miscellaneous revenue sources (licenses, permits, and fees; charges for services, and intergovernmental revenues) have been relatively stable for the past several years. The City of Avalon does not collect a Utility Users Tax (UUT), which is a tax on various utilities (electricity, natural gas, telecommunications, and water).51 Separately, approximately one-third of cities in Los Angeles County do not levy a UUT (the lack of a UUT is intended to promote economic development and minimize the tax burden on residents). The County of Los Angeles City of Avalon MSR and SOI Update Page 18 of 28 collects a UUT of four-and-one-half percent (4.5%) in its unincorporated territory, which includes unincorporated territory on Santa Catalina Island. Those cities which levy a UUT range from a low of two-percent (2%) and a high of eleven-percent (11%). Given that the City collects substantial TOT and sales tax, it is not entirely surprising that Avalon does not levy a UUT. Special Taxes/Fees: The City of Avalon assesses the following special taxes and fees: • Admissions Tax: The City receives four-percent (4%) on gross receipts for ticketed tours, activities, and events. This accounts for approximately six-percent (6%) of General Fund revenues. • Cross Channel Wharfage: The City charges $3/passenger on ferry operators. • Cruise Ship Wharfage: The City charges $5/passenger on cruise ships disembarking through the harbor. • Nightly Moorings: These rates are set annually by action of the Avalon City Council. • Sales Tax: The City collects a sales tax, which accounts for approximately fifteen- percent (15%) of General Fund revenues. • Transit Occupancy Tax (TOT): The City receives a twelve-percent (12%) tax on gross receipts from hotels and short-term rental properties. This accounts for over half of all General Fund revenues.52 Expenditures: As shown in Exhibit 3 on Page 19, Avalon’s largest general fund expenditures are committed to public safety: the largest allocation is to the City-run fire department, followed by its contract with the Los Angeles County Sheriff’s Department (LASD) for law enforcement services. Similar to what occurred with the City’s revenues, expenditures were significantly reduced during the COVID-19 pandemic restrictions (FY 2019-20 and FY 2020-21). As the overall fiscal environment has improved, total expenditures have grown at modest, reasonable rate. (Continued on Page 19) City of Avalon MSR and SOI Update Page 19 of 28 Exhibit 3 General Fund Expenditures53 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 (Actual) (Actual) (Actual) (Actual) (Estimate) (Budget) Law Enforcement 1,846,886 1,532,210 1,535,558 1,648,399 1,893,413 2,151,482 Change (year-to-year) N/A -17% 0% 7% 15% 14% Fire Department 3,076,615 3,015,153 2,789,332 2,760,970 2,889,489 3,447,973 Change (year-to-year) N/A -2% -7% -1% 5% 19% $ Public Works 1,824,637 1,359,872 867,849 970,512 1,181,045 1,474,280 Change (year-to-year) N/A -25% -36% 12% 22% 25% Planning 745,181 815,810 526,733 756,167 1,002,001 912,823 Change (year-to-year) N/A 9% -35% 44% 33% -9% $ $ Community Services 1,037,121 1,010,322 1,186,468 816,297 1,100,706 1,345,413 Change (year-to-year) N/A -3% 17% -31% 110% -10% Chamber Marketing 1,199,000 1,025,722 1,291,095 1,908,806 1,714,566 1,540,000 Change (year-to-year) N/A -14% 26% 48% -10% -10% Other 395,283 425,816 567,245 580,471 783,344 861,299 Change (year-to-year) N/A 8% 33% 2% 35% 10% Total: 10,124,723 9,184,904 8,764,280 9,441,623 10,564,566 11,733,270 Change (year-to-year) N/A -9% -5% 8% 12% 11% Determinations: • The City of Avalon’s reserves are fifty-percent (50%) of the General Fund unrestricted fund balance, consistent with adopted City policy. The City should make every effort to achieve this levels of reserves—and, if possible, to exceed it—going forward. City of Avalon MSR and SOI Update Page 20 of 28 • City of Avalon staff should continue efforts to reduce its OPEB liabilities in the short term, and they should also develop a long-term comprehensive plan to set aside funding to a level that is seventy-five percent (75%)of its overall obligations. • The City should develop a long-term plan to restore reserves to the targeted level in the Harbor Fund. 5. Status of, and Opportunities for, Shared Facilities The City provides many municipal services directly; other than those utilities (electricity, natural gas, and water) provided by independent third parties; as well as law enforcement (Los Angeles County Sheriff), library services (Los Angeles County Libraries Department), and ocean lifeguard services (Consolidated Fire Protection District of Los Angeles County). Given the City‘s isolation, additional opportunities for shared facilities are likely to be cost prohibitive. As noted previously, the City of Avalon participates in mutual aid agreements with other public agencies. Determinations: • City representatives indicated that they are satisfied with the service provided by the Los Angeles County Sheriff’s Department, the Los Angeles County Libraries Department, and the Los Angeles County Fire Department. • There are no apparent additional opportunities to share facilities with other agencies. 6. Accountability for Community Service Needs The City of Avalon is governed by a city council of four (4) members and one (1) mayor. Individuals may attend the bi-monthly City Council meetings in person. Council meetings can also be viewed on the local cable channel (Catalina Broadband Solutions), YouTube, and Facebook. Meeting agenda packages, which include agendas and all staff reports and attachments, are available on the City’s website (www.cityofavalon.com). The “Agendas Center” section of the City’s website includes agenda packages as well as videos of previous Council Meetings. The city is active on several social media platforms, such as Facebook, Instagram, and YouTube. The City’s website, which includes substantial information about City departments, documents, and resources; budgets, independent audits, and other financial documents; City staff contact information; and other useful information. Determinations: • The City complies with all legal requirements governing public meetings, notices, and records. • Important City documents (audits, budgets, and staff reports) are readily available on the City’s website. • City Council meetings are accessible in person, and replays are available on the local cable channel. City of Avalon MSR and SOI Update Page 21 of 28 • City representatives maintain an active social media presence. 7. Other Matters Determination: • The City’s Housing Element was certified by the State of California Housing and Community Development Department (HCD) in 2022.54 (Continued on Page 22) City of Avalon MSR and SOI Update Page 22 of 28 Sphere of Influence Update In reviewing and updating the City of Avalon Sphere of Influence, LAFCO is required to adopt written determinations relative to several factors specified in Government Code § 56425: 1. Present and planned land uses in the area including agricultural and open-space lands Determinations: • The jurisdictional boundary of the City of Avalon includes a mixture of land uses (residences, offices, local-serving and visitor-serving retail); significant landmarks, such as the Casino Building (a former casino used for significant events), the Wrigley Memorial and Botanical Gardens, and the Catalina Island Golf Course; several marine and visitor-serving facilities both on the land side (docks, bait facility, ocean-related retail uses) and the ocean side (boat slips and moorings); and several beaches. The southeasterly portion of the City includes traditional municipal facilities like the commercial port, gasoline station, landfill, and recycling center). • Future development within the City includes workforce housing and additional development at Hamilton Cove, both of which are in the planning stages. 2. Present and probable need for public facilities and services in the area: Determinations: • The resident population of approximately 3,500 persons, and the more than 1 million annual visitors, require public services on an ongoing basis • The need for public facilities will continue indefinitely 3. Present capacity of public facilities and adequacy of public service that the agency provides or is authorized to provide Determinations: • There are many challenges inherent to providing municipal service in Avalon: the city’s isolation from other municipalities (limiting the number of potential service providers); a population which consists of both year-round residents and vacation/weekend homeowners; and the service demands associated with sudden population increases associated with cruise ship visitors. • The City of Avalon provides most municipal services, with certain services provided under contract by other public agencies or other public service providers (i.e., public utilities and private companies). • Although the current public facilities and infrastructure of the City are adequate, the nature of the City of Avalon dictates that there will continue to be on-going service and fiscal challenges associated with providing various public services. City of Avalon MSR and SOI Update Page 23 of 28 4. Existence of any social or economic communities of interest in the area Determination: • Existing communities of interest include year-round residents and short-term visitors. 5. For cities or special districts that provide public facilities or services related to sewers, municipal and industrial water, or structural fire protection, the present and probable need for those public facilities and services of any disadvantaged unincorporated communities with the existing sphere of Influence. Determinations: • There are no DUCs in the unincorporated territory adjacent to the City of Avalon. There is, therefore, no impact upon the delivery of structural fire protection, municipal water, and sanitary sewage disposal and treatment services to DUCs. (Continued on Page 24) City of Avalon MSR and SOI Update Page 24 of 28 City of Avalon SOI Recommendation: Staff recommends that the Commission amend the existing SOI for the City of Avalon, as shown in the map in Exhibit 4 on Page 25, based upon the following considerations: 1. On the “land” side, staff recommends that the Commission make no changes to the existing SOI boundary for the City of Avalon (last reconfirmed by the Commission in 2012). 2. On the “ocean” side, staff recommends that the Commission reduce the City’s SOI to mirror the boundary of the State of California State Lands Commission grant of 1978. This would remove the lower portion of the “ocean” side portion of the existing SOI (see Exhibit 1 on Page 8) from the City’s SOI. With respect to the proposed change (“2,” above), staff believes it is inappropriate to designate an SOI beyond the territory upon which the SLC has conferred certain rights to the City in a Tideland Boundary Grant. City of Avalon MSR and SOI Update Page 25 of 28 Exhibit 4 Proposed City of Avalon SOI Boundary Map City of Avalon MSR and SOI Update Page 26 of 28 Footnotes 1. Minutes of the Local Agency Formation Commission for Los Angeles County; May 12, 2004; Pages 2-4. 2. LAFCO GIS data, provided by LAFCO GIS Technician Taylor Morris, February 12, 2024. 3. City of Avalon Municipal Code, downloaded March 29, 2023. 4. Ibid. 5. City of Avalon LAFCO Responses, Number 11, May 9, 2023. 6. Ibid., Number 12, May 9, 2023. 7. United States Department of Commerce, Census Bureau, 2020 Census. 8. Southern California Association of Governments (SCAG) 2016-2040 RTP/SCS Final Growth Forecast by Jurisdiction. 9. Ibid. 10. City of Avalon LAFCO Responses, Number 9, May 9, 2023. 11. United States Department of Commerce, Census Bureau, 2020 Census. 2016-2020 American Community Survey (ACS), confirmed by LAFCO GIS Tech Taylor Morris, June 29, 2023. 12. City of Avalon LAFCO Responses, Number 10, May 9, 2023. 13. Telephone conversation between LAFCO Executive Officer Paul Novak and City of Avalon Assistant City Manager Jocelyn Francis, date unknown. 14. City of Avalon Website, downloaded February 12, 2024. 15. City of Avalon, Comments concerning the draft City of Avalon Municipal Service Review, April 23, 2024. 16. Los Angeles County Fire Website, downloaded February 12, 2024. 17. Catalina Island Health Website, downloaded June 17, 2024. 18. Los Angeles Times, “$2 Million grant saves Catalina’s only hospital from closure—for now," April 12, 2024. 19. Ibid 20. Ibid City of Avalon MSR and SOI Update Page 27 of 28 21. City of Avalon Website, downloaded June 17, 2024. 22. Santa Catalina Island Final Municipal Service Review; May 4, 2004; Page 37. 23. City of Avalon LAFCO Responses, Number 2, May 9, 2023. 24. City of Avalon LAFCO Responses, Number 4, May 9, 2023. 25. City of Avalon, Comments concerning the draft City of Avalon Municipal Service Review, April 23, 2024. 26. City of Avalon, Proposed Fiscal Year 2023-2024 Budget, Page 2. 27. City of Avalon, Proposed Fiscal Year 2023-2024 Budget, Page 47. 28. Los Angeles County Library Website, downloaded February 12, 2024. 29. Telephone conversation between LAFCO Executive Officer Paul Novak and City of Avalon Assistant City Manager Jocelyn Francis, date unknown. 30. City of Avalon Website, downloaded February 29, 2024. 31. City of Avalon LAFCO Responses, Number 5, May 9, 2023; and City of Avalon LAFCO Responses, March 5, 2024. 32. Telephone conversation between LAFCO Executive Officer Paul Novak and City of Avalon Assistant City Manager Jocelyn Francis, date unknown. 33. City of Avalon, Comments concerning the draft City of Avalon Municipal Service Review, April 23, 2024. 34. City of Avalon LAFCO Responses, Number 1; May 9, 2023. 35. Santa Catalina Island Final Municipal Service Review; May 4, 2004; Page 41. 36. City of Avalon, Comments concerning the draft City of Avalon Municipal Service Review, April 23, 2024. 37. Ibid. 38. City of Avalon Fiscal Year 2023-2024 Budget; Budget and Fiscal Policies, Section F., General Fund Reserves; Page 165; June 20, 2023. 39. City of Avalon Fiscal Year 2023-2024 Budget; Page 6; and Page 21, June 20, 2023. 40. State of California Auditor’s Office (State Auditor), Fiscal Health of California Cities; downloaded from the State Auditor’s Website September 5, 2023. City of Avalon MSR and SOI Update Page 28 of 28 41. City of Avalon GASB 75 Disclosures for Fiscal Year Ending June 30, 2023, Based on Roll-Forward of OPEB Valuation as of June 30, 2021, Page 4. 42. Ibid., Pages 10-11. 43. City of Avalon Fiscal Year 2023-2024 Budget; Budget and Fiscal Policies, Section A., Accounting and Annual Reporting Policies; Page 157; June 20, 2023. 44. Independent Auditor’s Report, Letter of March 3, 2023 from Davis Farr, LLP to the City Council of the City of Avalon, Page 1; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2022. 45. Independent Auditor’s Report, Letter of January 12, 2022 from Davis Farr, LLP to the City Council of the City of Avalon, Pages 1-2; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2021; and Independent Auditor’s Report, Letter of January 15, 2021 from Davis Farr, LLP to the City Council of the City of Avalon, Pages 1-2; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2020. 46. Independent Auditor’s Report, Letter of March 3, 2023 from Davis Farr, LLP to the City Council of the City of Avalon; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2022; Independent Auditor’s Report, Letter of January 12, 2022 from Davis Farr, LLP to the City Council of the City of Avalon; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2021; and Independent Auditor’s Report, Letter of January 15, 2021 from Davis Farr, LLP to the City Council of the City of Avalon; and based upon the City of Avalon, Basic Financial Statements, Year Ended June 30, 2020. 47. City of Avalon LAFCO Responses, Number 14, May 9, 2023. 48. City of Avalon Fiscal Year 2023-2024 Budget; Budget and Fiscal Policies, Pages 154 to 181; June 20, 2023. 49. Ibid., Page 24. 50. Ibid., Page 4. 51. City of Avalon LAFCO Responses, Number 13, May 9, 2023. 52. City of Avalon Fiscal Year 2023-2024 Budget, Page 24. 53. City of Avalon Fiscal Year 2023-2024 Budget, Page 6. 54. City of Avalon, Comments concerning the draft City of Avalon Municipal Service Review, April 23, 2024.