This report was posted on LA City's Website in on nearly unusable PDF files see http://www.lacity.org/oars/lafco/6-2001/ for an index of the PDF files. We have started to convert them to usable internet files (HTML)
Issues Relating To The Proposed San Fernando Valley Special Reorganization/Secession Area
On March 28, 2001, the Local Agency Formation Commission (LAFCO) released its Initial Fiscal Analysis (IFA) on the San Fernando Valley Proposal for Special Reorganization (secession). The IFA is a preliminary assessment, done by a LAFCO consultant, describing how City resources would be divided between a new Valley city and the remaining City of Los Angeles. In response to the IFA, the Valley secession applicants resubmitted their Reorganization Proposal (ARP) for the proposed new city (May 14, 2001). The Valley ARP incorporates the entire IFA by reference. LAFCO has given the City of Los Angeles until July 2, 2001 to respond to the combined documents.
We have always been and continue to be committed to the equal service and protection of ALL the City's residents, business owners and taxpayers, regardless of what part of the City in which they live. We have reviewed the combined documents and identified issues which we believe LAFCO must address in order to adequately protect the RE City (both in the secession area and the remainder of the City of Los Angeles). These issues are contained in a series of Attachments to this report.
This Office is committed to providing the most professional, objective staff support to implement the will of the people of Los Angeles and to serve and to protect them as we do so. Understanding that, we believe that, should the will of the people be that they desire to divide up and separately incorporate, it must be done in a manner which absolutely minimizes and/or eliminates negative impacts. It is the responsibility and mandate of LAFCO to ensure that objective is met.
The focus of this report is not to criticize LAFCO nor the Valley Applicants, but rather to provide a factual and objective analysis to use in this difficult, complex and important task. Failure by LAFCO to minimize negative impacts on Los Angeles will have consequences that will potentially resound throughout Los Angeles for a significant number of years, perhaps decades.
Summary Findings Associated with LAFCO's Initial Fiscal Analysis of the Valley Secession Area and the Valley Applicants' Reorganization Proposal
We have found that the LAFCO IFA and Valley Applicants' ARP combine to create a Special Reorganization Proposal which:
Does not provide adequate fiscal protection for both the new Valley city and the remainder of the City of Los Angeles;
Is not currently Revenue Neutral;
Raises serious questions regarding the apparent preliminary finding of Fiscal Viability by LAFCO;
Contains numerous contradictions which must be worked out by LAFCO;
Contains factual errors;
Focuses on calculating current service levels to the Valley instead of savings accrued by the City of Los Angeles as a result of departure of the Valley (two clearly different calculations);
Contains numerous assumptions which will propagate negative fiscal, legal and operational impacts on the new Valley city and the remaining City of Los Angeles. •OARS believes that LAFCO should resolve all employee issues prior to making revenue neutrality and fiscal viability findings.
In conducting its work, the State Code requires LAFCO to make two significant findings as a method of protecting both those who are those who are staying behind and those who choose to leave (if they do). The first determination is commonly referred to as Revenue Neutrality Revenue Neutrality is required to ensure that those who are staying behind suffer no negative fiscal impact. The second determination is commonly referred to as Fiscal Viability. Fiscal Viability is required to ensure that those who are choosing to leave can reasonably be expected to be limited in any potential fiscal harm they may suffer. Though more attention has been paid to Revenue Neutrality, Fiscal Viability appears to be the more difficult determination to make accurately. Revenue Neutrality should be calculated first and then Fiscal Viability should be calculated. So far, LAFCO has appeared to address viability of the new Valley city but has not accurately finished addressing Revenue Neutrality.
Under Revenue Neutrality, if there is a negative impact to the transferring agency, LAFCO must mitigate the impact. LAFCO should calculate what is truly saved by the transferring agency (in this case the City of Los Angeles) by the departure of the Special Reorganization Area (in this case the Valley) and compare it to the revenue lost. If the revenue lost is greater than the amount saved by the transferring agency, the difference becomes a payment to the transferring agency to mitigate a negative fiscal impact. If the revenue lost is less than the amount saved by the transferring agency, the proposal is almost automatically Revenue Neutral.
Under Fiscal Viability, the composition and future plans of a new city which does not yet exist must be predicted and a fiscal determination made. The amount saved by the transferring agency gets added to any amount required to start-up and run a new city (including a reasonable reserve) and is compared to available revenue. If the revenue is greater than the cost of the new city, it is Fiscally Viable. If the revenue is less than the cost of the new city, it is not Fiscally Viable, unless taxes are raised. Many incorporation efforts fail at this point.
There are many legal issues raised by the IFA, the ARP and the secession process itself. The City Attorney has indicated that they will report separately to the Mayor and Council regarding these legal issues, such as Proposition 218 requirements regarding taxes, the proposal to establish "reorganized governmental entities" over regional services and facilities, providing services by contract, rate-setting authority, water rights, and other issues.
We have found that the issues surrounding the Secession Proposal and the determination of Revenue Neutrality and Fiscal Viability are numerous and complex. The volume and complexity of our comments will reflect that. Therefore, we have attempted to present them in a format that will allow for the easiest consumption, focus and resolution. They are addressed in attachments to this report and are described as follows:
Attachments A-L: Broad, Citywide issues organized by areas. This will allow the City's elected officials, LAFCO and all stakeholders to begin to focus appropriately on these issues, and hopefully, resolve them. We have tried to focus on those aspects of the issues that will be useful for LAFCO in making Revenue Neutrality and Fiscal Viability determinations and protecting the interests of the entire City.
Attachment M: Specific issues which relate to the apportionment and division of all City operations impacted by both the IFA and the ARP. Department management have provided their comments and insight. I believe you will be impressed and find that they have done an excellent job at assessing impact and remaining professional, objective and nonpartisan in this study. We have added our comments to theirs. Again, Department management and OARS staff attempted to focus on those aspects of the issues that will be useful for LAFCO in making Revenue Neutrality and Fiscal Viability determinations and protecting the interests of the entire City.
Attachment N: Comments on implementation of Applicants' Goals.
Attachment O: Communications between LAFCO and this Office which attempt to clarify certain aspects of the IFA. This dialogue was initiated to ensure that the City had a clear understanding of LAFCO's work and intent prior to drafting comments.
Attachment P: Reports from consultants from outside the City of Los Angeles. Due to the gravity of the determinations to be made by LAFCO, we were asked by the Mayor and Council to take extra care in ensuring the quality of City of Los Angeles comments provided to LAFCO. Therefore, the Council and Mayor instructed us to hire consultants to provide an independent, objective review of the IFA and ARP. We did so and their resulting independent reports are attached. Though the City of Los Angeles paid for this work, every effort was made to not influence the outcome of these reports.
Attachment Q,R: The Valley Applicants' ARP and LAFCO's IFA. Due to the volume of the IFA (over 370 pages) and its previous wide distribution by LAFCO and OARS, it is only attached to the official copy for the Council File. All other copies contain instructions for obtaining a copy of the IFA if needed. It is hoped that this will save, some trees. We are aware that the volume, complexity and gravity of the issues we have identified in this report may lead one to assume that we oppose secession. It is not our role to take a position on this matter. Our main focus is to make sure that our elected officials, LAFCO, and other stakeholders have all the information necessary to make the important decisions facing them, because those decisions will have a significant bearing on the future fiscal condition of the City of Los Angeles and all those impacted daily by the City of Los Angeles. Whatever LAFCO decides, and whatever the voters in Los Angeles decide is their desired governance structure, we believe they should make decisions based upon the best, most accurate, most pertinent information possible, with the least negative fiscal impact. Along those lines, we will continue to provide additional comments to the City's elected officials and LAFCO throughout the Secession study process.
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