Revised LAFCO Cost Estimates
concerning the Valley Secession

2-24-99 new page

County of Los Angeles Chief Administrative Office
713 Kenneth Hahn Hall Of Administration - Los Angeles. California 90012 (213) 974-1101

To: Larry J. Calemine Executive Officer Local Agency Formation Commission

From: Wayne Bannister, Manager Urban Research February 23, 1999

Secession Study Cost Estimates

Secession Study Cost Estimates

When we presented our scoping study to the Local Agency Formation Commission on January 27, 1999, you asked that we provide you with study cost estimates under four different secession scenarios. This letter is a response to your request.

Our original cost estimate for the basic research phase of the study was $2.1 to $3.0 million. This estimate was premised on a number of assumptions discussed in the introductory section of the scoping study report. In general, we assumed that the Commission would hire qualified, disinterested professionals to do the analytic work. In addition, we assumed that the study would place the minimum possible burden on the City in providing necessary data and knowledge. Finally, we were asked to provide cost estimates under the assumption that all potential secession areas would be studied simultaneously.

You asked us to provide the fixed costs and the specific area costs under the following four secession scenarios:

1) San Fernando Valley as the first and only secession area
2) Harbor City as the first and only secession area
3) San Fernando Valley, Harbor City and Eagle Rock as three simultaneous secession areas
4) San Fernando Valley as the first secession area, and West Los Angeles as the second secession area one year later than the San Fernando Valley.

In general, three-quarters of the study costs are fixed costs, meaning that the costs are not related to the number or size of the secession areas. For example, legal research associated with the study is a fixed cost. It would be required regardless of which or how many areas must be studied.

Some of the study costs are variable costs, meaning that the costs vary with the size or nature of the secession areas. Variable costs may vary with the number, nature or size of secession areas. For example, the cost implications of employee divisions on the City's pension funds must be analyzed for each secession area. This pension cost analysis must be done for each secession area under study, and costs no more for a larger secession area. Other variable costs depend on the nature or location of a secession area. For example, the Harbor-related municipal fees would only be analyzed in the case of a Harbor City secession. The third type of variable cost depends on the size of the secession areas. For example, the cost of analyzing new city expenditures on new structures would be higher for a larger secession area like the San Fernando Valley than for a smaller area like Eagle Rock.

Additionally, there are replication costs which would be borne if secession studies were done sequentially rather than simultaneously. The replication costs would be lower if the same team of analysts were to replicate the first study than if a new team were used. Even if the Commission retains ownership of databases and working papers developed during a first study, a subsequent study would face costs of analyzing more recent datasets. For example, revenue forecasting must be completely redone in a second study occurring a, year or more after the first study. In this example, half of the work (and cost) is duplicated, however, more commonly the cost might be only one-fifth of the original cost of the initial study.

Using these concepts, we allocated the study costs in the basic phase for each secession scenario. The results are presented in the accompanying table.

The first scenario assumes that only the San Fernando Valley would qualify and be studied. Under this scenario, the costs would be $1.8 to $2.6 million in the basic research phase. This represents a reduction of $300,000 to $400,000 compared with the original cost estimates. This estimate assumes that the San Fernando Valley will be concerned with maintaining some control over the airport and harbor. The redevelopment-related cost reduction assumes that the approach to studying the redevelopment agency projects would not require full study of projects outside the secession area. Additional reductions are made due to certain variable costs associated with studying revenues, expenditures, and pension divisions.

The second scenario assumes that only Harbor City would qualify and be studied. Under this scenario, the costs would be $1.8 to $2.6 million in the basic research phase.

In the third scenario, we assume that all three areas were analyzed simultaneously by the same team of analysts. In order to minimize study costs under the third scenario, it would be necessary that the study analysts are aware of the multiple areas at the beginning of the study. This is necessary so that the work would be structured to minimize additional costs associated with additional secession areas. Under this scenario, the costs would be $2.0 to $2.8 million.

In the fourth scenario, we assume that one year after the San Fernando Valley secession is announced, another study commences for the West Los Angeles area. The additional cost of studying this area is caused primarily by a legal requirement that the analysis be based on the most recent annual data. In addition to the need to collect and analyze more recent data, the costs would rise due to other replication costs. Overall, it would cost an additional $600,000 to $1,200,000 to complete an unanticipated study more than one year after the first study.

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