EL DORADO LAFCO by xumiaomaio


									                                                                                                                    Agenda Item # 5
                                                                                                                      Attachment H
                                                                                                                         Page 1 of 9

                         EL DORADO LAFCO
                                      550 Main Street Suite E  Placerville, CA 95667
                                       Phone: (530) 295-2707  Fax: (530) 295-1208
                                           lafco@edlafco.us  www.edlafco.us

August 25, 2010

Honorable Suzanne N. Kingsbury, Presiding Judge
El Dorado County Superior Court
1354 Johnson Boulevard
South Lake Tahoe, CA 96150

Dear Judge Kingsbury,
The El Dorado Local Agency Formation Commission has received the recent Grand
Jury Report on Municipal Incorporation Processes and the Allocation of Costs, Grand
Jury Case No. GJ-09-035. On behalf of this Commission, I thank you for the
opportunity to comment.
El Dorado LAFCO has carefully considered the report, the methodology, its findings and
each of the recommendations submitted by the Grand Jury. After much deliberation,
this Commission respectfully declines to adopt either of the two recommendations in the
Grand Jury’s report, and finds that LAFCO’s fee schedule allocates incorporation costs
in a manner that is both fair and in conformance with applicable law. In accordance with
Penal Code §933 and 933.05, our specific responses are as follows:
The population of El Dorado County grew from 123,900 in 1990 to 156,300 in 2000.
That was an increase of over 20 percent in ten years. El Dorado County had an
estimated population in 2010 of over 180,000. Various population projections estimate
the County population will exceed 218,000 by 2015.
          El Dorado LAFCO agrees with the finding.
The County has only two cities, South Lake Tahoe and Placerville. Placerville, which as
of the 2000 Census had a population of 9,610, became a city in 1854 and became the
county seat in 1857. As of the 2000 Census, South Lake Tahoe had a population of
23,609, and became a city in 1965. The County had only one city for over 155 years,
and has had just two cities over the last 45 years.
S:\LAFCO Commission Meetings\2010\8-10 August 25\Item 5 Staff Memo Attachment H (Kingsbury Ltr--DRAFT).doc
                                         Public Member: Don Mette  Alternate Public Member: Norm Rowett
                                   City Members: Jerry Birdwell, Carl Hagen  Alternate City Member: Mark Acuna
                           County Members: Ron Briggs, James R. Sweeney  Alternate County Member: Ray Nutting
                  Special District Members: Ken Humphreys, Harry J. Norris  Alternate Special District Member: Michael Cooper
                                         José C. Henríquez, Executive Officer  Erica Sanchez, Policy Analyst
                                  Denise Tebaldi, Interim Commission Clerk  Andrew Morris, Commission Counsel
                                                                         Agenda Item # 5
                                                                           Attachment H
                                                                              Page 2 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 2 of 9

       El Dorado LAFCO agrees that this finding is factually accurate. However, El
       Dorado LAFCO disagrees with any implication in this finding that there are an
       insufficient number of cities in El Dorado County or that an inordinate amount of
       time has passed since the last incorporation. In this agency’s view, there is no
       “magic number” of cities a county of a certain size is required to have or should
       have. In California alone, there are counties with smaller populations than El
       Dorado County that have more than two cities. Conversely, there are counties
       with similar demographics as El Dorado County with a smaller number of cities.
       The decision of when and whether to incorporate is a local decision best left to
       the residents to determine.
There are various population centers in El Dorado County beyond the cities of
Placerville and South Lake Tahoe, and the community of El Dorado Hills. The Cameron
Park/Shingle Springs area is estimated to have a population approaching 20,000. The
Georgetown Divide (412 square miles) had an estimated population of approximately
13,400 as of the 2000 Census. The Pollock Pines community population is estimated at
approximately 5,000.
       El Dorado LAFCO agrees with the finding.
There are communities in El Dorado County of a reasonable size and population
currently governed by a Community Services District (CSD). A CSD is the closest form
of government to a municipal corporation. A CSD is less powerful than a municipal
corporation because it provides a relatively limited range of services and has fewer
revenue sources. The larger communities of El Dorado Hills and Cameron Park have a
local CSD.
       El Dorado LAFCO agrees that the communities of El Dorado Hills and Cameron
       Park receive public services from CSDs, that CSDs have fewer revenue sources
       than cities and that CSDs cannot exercise one specific power wielded by cities,
       that of land use control. However, El Dorado LAFCO disagrees with any
       implication that residents of the county who are served by CSDs are being
       shortchanged in the delivery of public services. Government Code §61100
       empowers CSDs with the ability to provide a wide variety of services to a
       community, including police and fire protection, road maintenance, provision of
       parks and recreation services and facilities, and furnishing all utility services. In
       fact, the Legislature and State Controller’s Office treat CSDs as “junior cities.” As
       previously mentioned, the only power a city can exercise that a CSD cannot is
       land use. Regarding finances, the Grand Jury is correct that although CSDs can
       collect property taxes, issue bonds, collect user fees and charges, and enact
       special taxes with 2/3 voter approval, cities can use other revenue-raising
       measures, such as transient occupancy taxes, utility user taxes, and general
       taxes enacted with majority voter approval.
                                                                        Agenda Item # 5
                                                                          Attachment H
                                                                             Page 3 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 3 of 9

Two of the most recently incorporated cities in Northern California are in adjoining
Sacramento County. The City of Elk Grove, incorporated in 2000, is the second largest
city in Sacramento County with a population of over 136,000. Rancho Cordova more
recently became a city in 2003, and has an estimated population of approximately
       El Dorado LAFCO agrees that this finding is factually accurate, although its
       relevance to El Dorado County is unclear. In addition, El Dorado LAFCO
       disagrees with any implication that after a community reaches a “magic number”
       in population it must incorporate. While the only prerequisite for incorporation is
       that a community must have 500 registered voters, population size is not the only
       thing that matters. There is the question of the long term viability of a city. The
       Legislature’s distress over the number of cities with insufficient or inadequate
       economic and revenue bases led to the rigorous analysis imposed on LAFCOs
       when evaluating incorporations.
Within the past thirteen years, neighboring Sacramento County experienced three
successful incorporations: Citrus Heights, Elk Grove, and Rancho Cordova. As of this
writing, an incorporation effort for Arden Arcade is in process.
       El Dorado LAFCO agrees with the finding.
A closer look at how costs of incorporation were shared in these incorporations clearly
demonstrates that there are various approaches that can work based on defensible
rationales. The following recent and nearby examples are from County of Sacramento
LAFCO staff:
•   The Citrus Heights incorporation was litigated to require that LAFCO had to prepare
    the Environmental Impact Report (EIR). The settlement agreement for this litigation
    resulted in a split of costs for the EIR between LAFCO and the incorporation
    committee. LAFCO prepared the required Financial Feasibility Study using their
    staff. The incorporation proponents were not required to reimburse LAFCO for its
    staff time or legal counsel.
•   The Elk Grove incorporation process differed, in that LAFCO paid for the Financial
    Feasibility Study while incorporation proponents were required to pay for the EIR.
    LAFCO was not reimbursed for its staff time or legal counsel.
•   The Rancho Cordova incorporation represented yet another method of cost sharing.
    LAFCO paid for the Financial Feasibility Study. Cityhood proponents were required
    to pay for the EIR. LAFCO was not reimbursed for its staff time or legal counsel.
•   Finally, with the current Arden Arcade incorporation effort, LAFCO has agreed to
    contribute $100,000 toward the Financial Feasibility Study, EIR, and other related
    costs. In this instance, incorporation proponents are being required to pay for
    LAFCO staff time and legal counsel. However, LAFCO agreed to waive
    reimbursements for staff time in the event that the incorporation effort was
                                                                         Agenda Item # 5
                                                                           Attachment H
                                                                              Page 4 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 4 of 9

   successful. If a City of Arden Arcade results, the new city will reimburse LAFCO for
   staff time.
       El Dorado LAFCO agrees with the finding, but would note that in August 2003,
       and again in April 2007, just prior to the receipt of the Arden Arcade incorporation
       petition, the Sacramento LAFCo Executive Officer recommended that the
       Sacramento Commission move towards a full cost recovery model. In 2003,
       Sacramento LAFCo opted to keep its partial cost recovery methodology because
       “it was consistent with how LAFCo treated Citrus Heights, Rancho Cordova and
       Elk Grove Incorporations” due to Sacramento LAFCo’s history of requiring
       residents of other communities to subsidize incorporation efforts. Despite this
       history, Sacramento LAFCo did change its cost methodology in 2007 to some
       effect as reflected in this finding.
       El Dorado LAFCO further adds that there is no similar history of such subsidies in
       El Dorado County. For at least ten years El Dorado LAFCO has had a full cost
       recovery model for incorporations, so that residents in areas not included within a
       proposed incorporation are not required to subsidize incorporation efforts with
       taxpayer dollars.
El Dorado County LAFCO has taken the position it is appropriate to require that virtually
all local incorporation costs be borne by the local incorporation committee. It charges for
all staff time and consultants involved or devoted to the incorporation effort. The local
incorporation committee for the most recent attempt at city hood for El Dorado Hills was
assessed costs by LAFCO during the period 2003-2005 that exceeded $440,000. This
represented all but incidental costs associated with the potential impacts of
incorporation, even before it was permitted to come to a vote.
       El Dorado LAFCO agrees that this finding is factually accurate. However, El
       Dorado LAFCO disagrees with any implication in this finding that the costs of the
       El Dorado Hills incorporation were unjustified. This incorporation effort ran from
       1998 to 2005, and LAFCO has records substantiating all costs incurred by the
       agency while processing this incorporation. In fact, the $440,000 amount quoted
       in this finding was a cap. El Dorado LAFCO continued to incur costs past that
       amount, but this agency absorbed those costs as part of the settlement
       agreement with the incorporation proponents. The El Dorado Hills incorporation
       costs were consistent with similar incorporation efforts elsewhere in California,
       and included substantial amounts spent on staff time, the environmental review
       and comprehensive fiscal analysis required by law in connection with
There are significant arguments against the assumption that the cost of any staff time
devoted to a local incorporation effort should solely be incurred at the expense of a local
incorporation committee. LAFCO staff would continue to incur costs even if there was
                                                                            Agenda Item # 5
                                                                              Attachment H
                                                                                 Page 5 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 5 of 9

no incorporation effort. In this respect, such costs can be viewed, at least to a certain
degree, as a cost of simply being operational.
       El Dorado LAFCO wholly disagrees with this finding. The Grand Jury’s argument
       is that LAFCO’s costs are fixed and the level of application activity has no impact
       on those costs. But not working on an application can have a severe impact
       beyond the “cost of simply being operational.” Revenues for the LAFCO budget
       come from three primary sources: Agency contributions, applicant fees, and
       carryover (money saved from one fiscal year carried over into the following fiscal
       year). To the extent that applicant fees fail to cover the full cost of processing an
       application, LAFCO would be forced to increase the contributions required by the
       County, the two cities, and the special districts of El Dorado County. This would
       result in taxpayers in areas not included within a proposed incorporation being
       forced to subsidize incorporation efforts.
       At budget time LAFCO staff forecasts the number of projects that will be
       processed in the coming fiscal year. The Commission takes that information and
       budgets staffing levels and revenues from applicant fees accordingly. So the
       LAFCO budget assumes both the resources necessary to provide a service and
       the costs of providing that service. The assumption is that those costs will be
       offset by collecting earned fees from the applicant. If LAFCO budgets for X
       dollars in applicant fees and it collects an amount that is significantly less over
       the course of the fiscal year, it results in an operational deficit. Stated in different
       words and as it applies to the question at hand: If LAFCO believes an
       incorporation is coming in the next fiscal year, it will budget for that activity in
       both staff time and fees collected and earned. If the incorporation does not
       appear, the incorporation applicants fail to fully offset the costs of their petition or
       LAFCO collects earned fees that are less than what the agency forecast, LAFCO
       would have a budget deficit because the carryover and agency contributions
       would be insufficient to cover the gap in originally estimated revenues. At that
       point, LAFCO would have to take the necessary appropriate measures to close
       the gap, including furloughs, layoffs and/or cutting operating expenses.
There is also the concept of “displacement costs” which argues that LAFCO staff time
spent on an incorporation effort could not be devoted to all other responsibilities of a
       El Dorado LAFCO agrees with this finding. Time expended by staff on one
       activity is time that cannot be devoted to another, unrelated activity.
Required studies accrue to the benefit of more than just a local incorporation group.
This type of work constitutes “the meat and potatoes” of why a LAFCO exists in the first
place. There would seem to be more at work here, a wider scope of benefit and service,
than just working for the benefit of a small group of would-be local incorporators.
                                                                         Agenda Item # 5
                                                                           Attachment H
                                                                              Page 6 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 6 of 9

       El Dorado LAFCO respectfully disagrees with this finding.               In LAFCO’s
       experience, there are no instances where the studies specific to an incorporation
       have a general benefit. The CFA and environmental review are specific to the
       area proposing to incorporate. The CFA has no benefit to any other agency or
       region within the County and is outdated within two years of its creation. To the
       extent that the environmental review studies the area surrounding the project, it
       is within the context of the incorporation. Its suitability for use in other projects
       may be limited by the requirements under the California Environmental Quality
       The type of report the Grand Jury describes (e.g. a study looking at an agency’s
       capacity and capability to provide a service) is called the municipal service
       review. The MSR is a “snapshot” of how well an agency is doing. Because of
       the MSR’s ability to inform the general population of how well a service is being
       provided or how an agency is performing, the MSR is capable of generating a
       diffuse benefit. The cost of the preparation of the MSR is absorbed in the
       LAFCO budget (meaning no applicant is asked to pay for the full costs except
       under very specific circumstances) and funded by a combination of carryover and
       agency contributions.
While the potentially substantial costs of incorporation are certainly instigated by a local
community’s application and petition to incorporate, there are many relevant factors to
consider when undertaking a competent review or analysis of such an effort. California
Government Code §56668 requires various factors to be considered by LAFCO. These
factors include such issues as:
•   Population and population density; land area and land use; per capita assessed
    valuation; proximity to other populated areas; the likelihood of significant growth in
    the area, and in adjacent incorporated and unincorporated areas, during the next 10
•   The need for organized community services; the present cost and adequacy of
    governmental services and controls in the area; probable future needs for those
    services and controls; probable effect of the proposed incorporation, formation,
    annexation, or exclusion and of alternative courses of action on the cost and
    adequacy of services and controls in the area and adjacent areas.
•   The conformity of both the proposal and its anticipated effects with both the adopted
    commission policies on providing planned, orderly, efficient patterns of urban
    development, and the policies and priorities in Government Code §56377 (which
    concerns guiding development away from prime agricultural lands).
•   The ability of the newly formed or receiving entity to provide the services which are
    the subject of the application to the area, including the sufficiency of revenues for
    those services following the proposed boundary change.
                                                                         Agenda Item # 5
                                                                           Attachment H
                                                                              Page 7 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 7 of 9

The competent study of substantial factors required to be assessed accrues to the
benefit of many other agencies of government rather than just those that may be part of
a newly incorporated city. Important determinations, professionally researched and
investigated, inform not just a local community group wishing to incorporate, but all
affected agencies. These studies provide useful information about financial impacts
and how the distribution of services may be affected. This argues for a more balanced
and equitable allocation of cost burdens associated with incorporation efforts.
       El Dorado LAFCO agrees that Government Code §56668 requires various
       factors to be considered by LAFCO in connection with an incorporation, but
       wholly disagrees with the implication that the consideration of these factors has
       any benefit or utility beyond the specific context of an incorporation. These
       factors are only reviewed because the Commission needs to understand how the
       project impacts the immediate area or the affected agency as a consequence of
       the decision it must make. Because the GC §56668 factors are reviewed within
       the context of the application that is being considered, the analysis (known as the
       Executive Officer’s Report) has little benefit to anyone outside of the area where
       the project is located. If the analysis has any benefit to other agencies or to the
       remaining residents of the county, those benefits are diffused benefits at best.
       For example, a review of “the need for organized community services” in the area
       of El Dorado Hills has little benefit to a resident in Rescue and an even lesser
       benefit to a resident in Georgetown.           On the other hand, incorporation
       proponents reap a substantial direct benefit if LAFCO finds in its review of “ability
       of the newly formed or receiving entity to provide services” that a city serving the
       community would be viable. In this context, asking residents from Rescue or
       Georgetown to subsidize the cost of an El Dorado Hills incorporation would be
       truly unbalanced because they bear the cost with little or no benefit to them.

1. It is recommended that LAFCO reconsider its present governing philosophy and
   policy regarding cost sharing among the major stakeholders in an incorporation
   process. A more balanced approach is recommended that recognizes required
   studies benefit many groups and governmental entities and are not the exclusive
   domain of local incorporation groups.
   El Dorado LAFCO will not implement this recommendation because it is not
   warranted or reasonable based on the following:
   •   The Grand Jury’s methodology of comparing El Dorado LAFCO’s practices with
       those of Sacramento LAFCo is invalid because the two agencies have separate
       fiscal practices and political traditions that have nothing to do with one another.
       In addition, the statewide trend among other LAFCOs, including Sacramento
                                                                        Agenda Item # 5
                                                                          Attachment H
                                                                             Page 8 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 8 of 9

       LAFCo, is to move toward a full cost recovery model for incorporations, similar to
       the philosophy in El Dorado LAFCO’s fee schedule.
   •   Based on its findings, the Grand Jury considers the costs of incorporation
       “unbalanced” because the incorporation proponents, as the applicants, bear the
       full cost of processing the incorporation. However, this requirement that an
       applicant is responsible for all LAFCO costs is the same across all other El
       Dorado LAFCO actions. El Dorado LAFCO disagrees that constitutes an
       imbalance, and instead believes that requiring applicants who compel LAFCO to
       incur expenses to bear those costs is the essence of fairness.
   •   The fee schedule, in requiring full cost recovery for all applications, places the
       burden of cost where it fits best: upon the party that stands to reap the most
       direct benefits. El Dorado LAFCO contends that an imbalance in the fee
       schedule would be introduced if LAFCO would require full cost recovery for some
       petitions but not for others.
   •   Further, under the Grand Jury’s proposal, incorporation proponents would only
       pay an indeterminate portion of the LAFCO costs. Unaddressed in the study is
       the legitimate question of who pays the balance between the actual LAFCO costs
       and what the incorporation proponents would pay. If not the incorporation
       proponents, then either LAFCO absorbs the cost (which is then passed on to the
       funding agencies) or other LAFCO fees are raised to cover the deficit. In either
       case, the Grand Jury’s proposal would require local taxpayers who are
       unaffected by a proposed incorporation to subsidize the cost of an incorporation
       effort. Having one action being partially subsidized by another action or entity
       would truly constitute an imbalance.
2. LAFCO, especially in light of revenue neutrality requirements in State law, should
   consider the possibility of greater retroactive cost sharing in the event that required
   studies demonstrate that a local community would indeed be financially feasible or
   succeed in incorporating.
   El Dorado LAFCO will not implement this recommendation because it is not
   warranted or reasonable based on the following:
   •   The Grand Jury failed to delineate in a logical manner how revenue neutrality
       factors into this discussion. Specifically, the Grand Jury did not explain, and
       LAFCO does not understand, how the process of ensuring that the county is not
       adversely impacted fiscally by the creation of a new city justifies subsidizing the
       cost of processing incorporations at LAFCO.
   •   There is no basis to conclude that Executive Officer Reports specific to a project
       benefit anyone beyond the applicant itself, the affected agency(ies) and residents
                                                                         Agenda Item # 5
                                                                           Attachment H
                                                                              Page 9 of 9

Letter to Judge Kingsbury relating to
    Grand Jury Case No. GJ-09-035
August 25, 2010
Page 9 of 9

       of the immediate area. If there is any benefit to outside parties, the benefit would
       not rise to the level to justify a subsidy.
   •   The LAFCO fee schedule does not need to be realigned away from a full cost
       recovery methodology for all cases as the Grand Jury recommends. If the
       incorporation proponents run out of money there are two legislative remedies:
       Either asking the State for a loan or, if the Commission finds that it is in the
       public’s interest, LAFCO has the discretion to reduce or waive a fee. Both
       options can be found in Government Code §56383.
Based on these facts, this Commission finds that its current fee schedule is both
balanced, equitable to all parties and is fairly implemented. Consequently, LAFCO
respectfully declines to implement any of the Grand Jury’s recommendations.
We thank the Grand Jury for its time and attention to this matter.


Ken Humphreys

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