This report was posted on LAFCO's Website in on nearly unusable PDF files see
http://lalafco.co.la.ca.us/Draft%20CFA%20SFV.pdf
We have started to convert them to usable internet files (HTML) So the public
can read the files in preparation to the public hearings
Prepared by Public Financial Management, Inc.
3. City of Los Angeles Response
Summary and Analysis of City Response
Revenue Neutrality
Fiscal Viability
Division of the City of Los Angeles Debt
Employee Relations Issues
Information Technology
Apportionment of Non-Debt Liabilities
Apportionment of Assets
Contracting for Service with the City of Los Angeles
Regional or Joint Governance
Compliance with Accounting and Auditing Standards
Cash Flow
Response to LAFCO Revenue Analysis
Conclusions and Recommendations
3. City of Los Angeles Response
The City of Los Angeles has devoted
substantial resources to respond to the
conclusions in the IFA and the Final Proposal. The City has responded in two
primary documents, a report by the City Attorney dated June 15, 2001
addressing legal issues, and a report by the Department of Administrative and
Research Services (OARS) office dated June 13, 2001 addressing
implementation issues.
The OARS report raises the following issues regarding the IFA and Final
Proposal:
§ 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 in the IFA;
§ 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; and
§ Contains numerous assumptions which will propagate negative fiscal, legal and operational impacts on the new Valley city and the remaining City of Los Angeles.
Of the findings made by the City, of particular importance to the preparation of a draft CFA are the assertions that the special reorganization would not berevenue neutral, or would not result in the fiscal viability of the proposed new city, which are contrary to the preliminary conclusions in the IFA. to index
Each of the City's substantive
findings are restated and evaluated in the
sections that follow. to index
The City has asserted that the apportionment of City
staff contained in the IFA
would result in a negative service level impact for the remaining City of Los
Angeles. The negative impact would be caused from an excessive apportionment of City staff to the new city, leaving the City with a shortage of
personnel that must be made-up through additional hiring. The excessive
apportionment purportedly occurs because:
§ Certain functions within the City are not divisible and would not result
in a reduction in workload upon a transfer of service responsibility to the new
city.
§ The number of personnel transferred to new city is based on
percentages that are "rounded up" to the nearest integer.
The City estimates that rounding up results in the over allocation of 147 positions to the new city that should remain with the City of Los Angeles.
The City argues that, in the event of a Valley special reorganization, the number of transferring staff and other resources assumed in the IFA would leave the City incapable of providing services at current levels in the remaining City of Los Angeles. This would, according to the City, force either a reduction in service levels or additional hiring, neither of which is revenue neutral. In making this argument, the City's premise is that a Valley special reorganization would reduce only slightly, and for some City functions not at all, the workload to provide services to the remaining citizens of Los Angeles.
Certainly if the Valley becomes a new city – taking with it more than 1.3 million people that make up over 35% of the City's current population the remaining workload confronting City departments would decrease significantly across the range of municipal operations. [8] Empirical evidence that compares a city's population and the number of city staff demonstrates that a positive correlation exists between the two. That is, smaller cities have less city staff.
If the City is to make a convincing argument that certain service needs would not be reduced in the event the City's citizenry were to decrease, it would need to show how its "units of output" (i. e., the work it produces) would remain unchanged in the event the Valley incorporates. Because the City has not provided such data, it is difficult to substantiate the argument that the City's workload would not decrease.
Nevertheless, this draft CFA does not contain the assumption that any City employees would transfer to the new city during its first three years of incorporation, as the City would provide services on behalf of the Valley. Therefore, it is not expected that the special reorganization, as described in this report, would require the City to hire additional staff to replace those transferred to the Valley. to index
The City has questioned the financial viability of a proposed new Valley City because the new city may incur "start-up" and "transition" costs, which were not considered in the IFA, and would not have a sufficient amount of reserves.
Start-up and Transition Costs
Many of the City departments have identified
additional equipment and facilities
needs, duplicative administrative requirements, and additional staffing that
would need to be funded by a new Valley City. The cost of these requirements
are not known at this time, and in the event these costs are truly unavoidable,
they would need to be considered as part of the draft CFA. However, many of
the costs identified by the City would result from the implementation of a
specific plan for dividing responsibility for services between the City and new Valley City. For example, the City has identified a potential start-up for
the Animal Services department that would require the new city to purchase
additional software (comparable to "Chameleon Software") to perform
the existing management information system function. It may be a reasonable
assumption that the new city would be required to purchase this type of
software, if it intended to duplicate the current systems and processes used by
the City on a smaller scale. However the new city could opt not to use this
software, and develop a process that is different from the City's, based on its
unique business needs. The assumed level of costs would be highly dependent on
the transition and operating plan for the new city -which does
not exist. In fact many of the additional start-up and transition costs
identified by the City in its department-by-department response would result
from a
specific plan to divide responsibility for services, for which none has been
proposed.
As discussed in section "Service Alternatives for the Valley -City Provides All Services on Purchase of Service Basis," because of the lack of a transition and operating plan from the applicant, it is assumed in the draft CFA that the new city will receive all services on a contractual basis. The reasonableness of any start-up or transition costs in the draft CFA will be based on the necessity of such a cost in order to provide the Valley City with contractual services.
Estimated Reserves for the New City
The City has implied that the level of reserves for the new city is relatively small, in comparison to the City's reserves and reserve benchmarks as developed by a municipal bond rating agency, and would not be adequate for the new city.
As a newly incorporated city, the Valley city would face financial challenges
that many existing cities do not experience. The new city must build a reserve
fund, may contract for virtually all its services, and may have a limited amount
of discretionary revenue. If the new city were to receive services from the City
of Los Angeles on a contractual basis, there may be limited flexibility to
reduce the level of service in its agreement, and, in the event of a severe
decrease in
revenue, the new city could be forced to draw from reserves or borrow until such
time as it could reduce it fixed costs. Given this limited flexibility, the
new city may attempt to incorporate a provision in its contractual services
agreement with the City to reduce service levels in the event of a revenue
shortfall.
The ability of the new city to meet its obligations under varying revenue forecasts may need to be considered by LAFCO when making its determination on the applicant's proposal. However, consideration must also be given to the fact that most newly incorporated cities face a similar initial financial condition, in that the new city does not have a large reserve and it must support contractual services from the respective county as well as a fixed mitigation payment. to index
In its response to the IFA and
Final Proposal, the City has made the finding
that the division of certain types of debt between the City and new Valley City
is not revenue neutral. The rationale being that the debt service expenditures
allocated to the Valley are underestimated, and that the impact on the City's
fiscal health and credit rating was not evaluated. In addition, the City
has stated that insufficient information was provided in the IFA to assess the
impact of the Valley special reorganization on City bondholders.
An analysis for the various categories of City debt (e. g. general obligation, lease revenue) is provided below.
General Obligation Bonds, Assessment Bonds, and Special Tax Bonds
The IFA
assumed that the City's general obligation, assessment, and special
tax bond debt service would continue to be secured by all parcels within the
current City boundaries, regardless of the location of those parcels, in the
event of a Valley special reorganization. The new Valley City would not be
liable for payment of debt service, only parcels within the new city.
The City has stated that this methodology is revenue neutral.
Judgment Obligation Bonds
The IFA allocated judgment obligation bond debt service based on the proportion of employees transferred to the new city. The City believes the debt should be divided based on the loss in General Fund revenue, as this method "would most closely approximate revenue neutrality."
The City has asserted that dividing the liability based on the ability to pay ensures that the City's debt service burden is not disproportional. That is, if the liability is divided in an amount less than the amount of lost General Fund revenue, the City's relative payment for debt service would be increased, which would negatively impact the remaining city.
The Government Code is clear in that the new city would continue to be liable
for the City's debt; however, LAFCO appears to have some latitude in
determining precisely how the liability would be divided. Nevertheless, because
any negative fiscal impact of the Valley special reorganization,
including the loss of revenue that would otherwise pay the City's debt service,
will be addressed through a mitigation payment, it does not appear that the
City would have less revenue to pay debt service. It will therefore be assumed
in the draft CFA that new city's share of judgment obligation debt service will
be based on the number of City employees (identified in a purchase of service
agreement) that serve the Valley.
General Fund Lease Obligations and Certificate of Participation
The IFA
allocated MICLA lease obligation and certificate of participation debt
service based on the location of the project which was debt financed. The City
believes the debt should be divided based on the loss in its General Fund
revenue, which "would most closely approximate revenue neutrality."
The City has asserted that dividing the liability based on the ability to pay ensures that the City's debt service burden is not disproportional. That is, if the liability is divided in an amount less than the amount of lost General Fund revenue, the City's relative payment for debt service would be increased, which would negatively impact the remaining city. However, if consideration were made for the mitigation payments that would be made by the Valley, the City would not experience a relative increase in its debt service requirements. It will therefore be assumed in the draft CFA that new city's share of lease obligation and certificate of participation debt service will be based on the number of City employees (identified in a purchase of service agreement) that serve the Valley.
Another issued raised by the City is that it must retain beneficial use of the
MICLA property in order that it can continue to make lease payments to
support the tax-exempt debt issued for that property. The City can sublease the
property, but the lease must remain an obligation of the City. Therefore, if
the new city were to require use of a MICLA financed property in the Valley, it
would likely need to sublease the property from the City. However, given it is
assumed in the draft CFA that the new city would not, as a condition of the
Valley special reorganization, receive any assets from the City, the use of debt
financed facilities is no longer an issue.
Collection of Debt Service from the New City
In addition to the allocation of
liability, the City has raised the concern that a
definitive process for collecting revenue from the new city should be identified
to evaluate whether bondholders would be adequately protected. The City has
stated that it should be provided a revenue source comparable to its existing
sources, and consideration must be given to the existing bond covenants.
In order to allocate the liability to the new city, it does not appear necessary to amend existing bond covenants, or replace outstanding City debt with debt of the new city. If the City's debt continues to be secured by substantially the same revenue sources, then this would likely be sufficient to protect existing bondholders.
For the City's general obligation, assessment, and special tax bonds, a tax is
levied on the property tax roll for parcels within the City. Payment is made to
the County of Los Angeles, which in turn transfers funds to the City for payment
of debt service. In the event of a Valley special reorganization, the
County could continue to collect the debt service taxes for parcels in the
Valley and could submit payment to the City. All administrative costs incurred
by the City and County would continue to be assessed proportionally to all
parcels. If parcels within the Valley were delinquent in their payment, the City
would have the same recourse as any other parcel in the City, and could, at some
point, initiate foreclosure proceedings. It is assumed that this process
for collecting general obligation, assessment, and special tax bond debt service
would be set in place as part of the terms and conditions of the Valley
incorporation.
For the City's judgment obligation and MICLA lease bonds, payment of debt
service is currently made through a General Fund appropriation. Upon a Valley
special reorganization, the City could continue to pay the entire debt service
payment, but could be paid by the new city for its respective share. Payment
from the new city could be deducted from revenues collected by the City. It is
assumed in the draft CFA that the City would continue to collect a significant
amount of municipal revenues on behalf of the new city and would pass-through
any excess revenue after making the contractual services and the mitigation
payment. Under this process of netting debt service payments from Valley
revenues, it would appear that bondholder's rights would not be substantially
impaired. It is therefore assumed that LAFCO would require the City, as part of
the terms and conditions, to reduce the pass-through of revenue to the new
city after payment of debt service. to index
The City has raised several issues regarding the protection of existing employee rights in the event of a transfer of employees to a new Valley City. Issues raised by the City include identifying the pertinent employment conditions that currently cover City employees, identifying how compliance with the existing employment conditions would be enforced, selecting employees to transfer in light of the "meet and confer" requirement, and evaluating the impact on pension and retirement benefits.
In the event of a transfer of City employees, many of the concerns raised by the City may need to be addressed by LAFCO as part of the evaluation of the Valley proposal. However, because it is assumed that no City employees would transfer to the new city during the first three years of incorporation, many of these issues do not need to be addressed as part of the draft CFA. to index
The City has determined that the IT-related costs
it would incur in attempting to
transfer service responsibility to the Valley are underestimated in the IFA, and
that the approach is not "revenue neutral." That is, the costs that
would be
incurred by both cities are underestimated in the IFA. The City's Information
Technology Agency (ITA) and its consultant believe that the costs would
exceed the amount estimated in the IFA, and could be 85% to 95% of the cost and
staffing of the current system requirements of the City.
The City's estimated IT-related costs presume that the new city would develop a "mirror image" ITA. However, many alternatives exist for the new city, and it may chose a different IT strategy from that used by the City. Given that it is assumed in the draft CFA that the City would continue to provide services to the Valley, a transfer or duplication of the City's IT infrastructure would not occur, and both cities would not require significant IT investment during the planning period of this report. Nevertheless, the City of Los Angeles may choose to modify its current applications or invest in new applications to perform certain accounting and contract administration functions on behalf of the Valley. However, it is assumed that the City could perform these functions without substantive IT investment.
The new city would require some IT investment, including desktop applications for its administrative staff, and this amount has been provided in the new city's budget. to index
Apportionment of Non-Debt Liabilities
The City has raised concerns that the transition of certain "non-debt liabilities" be addressed so that the future cash flow impact relating to the division of these liabilities can be made for the City of Los Angeles and new city. The liabilities include workers' compensation, settlement of court claims, and salary-related accruals.
The impact of the division of workers' compensation and salary-related accruals is not addressed in the draft CFA, given the assumption that no employees would transfer to the new city during the first three years of incorporation.
The division of liability for the settlement of court claims was addressed as part of the IFA, where it was assumed that the Valley would pay the City a proportion of the City's budgeted amount. It is assumed in the draft CFA that the new city would be liable for an amount equal to the proportion of City employees that work on behalf of the Valley City as part of a purchase of service agreement. to index
The IFA assumed that City assets within the
boundaries of the new city that
are necessary for the delivery of services, would be transferred to the new city
at no cost. The City has raised the concern that a "space needs"
assessment
is necessary to determine whether both cities could operate without additional
facilities. In addition, the City has stated that the IFA does not address
deferred maintenance costs and how those costs would be divided.
An analysis of space needs for both cities is not necessary as part of the draft CFA given the assumption that all services would be provided by the City during the first three years of incorporation. Because the City would continue to own its facilities, the City can rely on its existing owned and leased facilities to provide any services to the Valley. Annual capital and operating costs, including deferred maintenance costs, for City facilities are identified in this report (see section "Appendix I: Cost of Purchased Services") in order that the costs allocable to the Valley can be determined. to index
Contracting for Service with the City of Los Angeles
The City has raised the concern that LAFCO may not have the legal authority to require the City to continue to provide the service to the Valley. In addition, the City has stated that the IFA does not include all of the potential costs involved in providing contractual services to the Valley including those related to negotiating the service contracts and amendments, coordinating with unions, and billing and tracking. The City is also concerned about the allocation of liability related to service provided by contract, service priority between the two cities, the term of the contracts, and notification requirements in the event of a termination.
The issues raised by the City are heightened given the assumption in the draft CFA that the City would provide virtually all services to the Valley. Many of the City's concerns would need to be addressed in setting the terms of a purchase of service agreement. These terms are expected to be the subject of negotiation between the two cities. However, in order to prepare the draft CFA, certain assumptions must be made regarding the terms of a purchase of service agreement so that the fiscal impact of such an agreement can be evaluated. A detailed discussion of the potential terms of a purchase of service agreement and the expected additive costs to be incurred by the City is provided in section "Financial Viability of New City -Valley City Costs - Purchase of Service Agreement."
It is not, however, assumed that LAFCO would require that the City provide
contract services for the Valley. Although it is assumed the City would provide
services to the newly incorporated territory during the transition period (July
1, 2003 through June 30, 2004) as a condition of the special reorganization, the
City would not be required to provide services beyond this period. It is assumed
in this report that the two cities would initiate a purchased service
arrangement, as it is likely that the City would continue to provide municipal
services until such time as a feasible transfer of assets and personnel can be
negotiated, or an alternative service provider can begin service in the
Valley. to index
The City has stated in its response that LAFCO does not have the authority to form regional authorities as described in the applicant's Final Proposal, or any other reorganized governmental entity, as a condition of reorganization. In addition, the City has stated that the IFA does not provide sufficient analysis and/ or information to assess the financial viability of joint organizations.
The IFA did not propose or assume that any joint organization would be created as a condition of the Valley incorporation. In fact, it was found in the IFA that the creation of a joint organization prior to a Valley City special election was not feasible. It was assumed in the IFA that the City of Los Angeles would continue to own and operate the existing wastewater, water, and power systems, and the would provide service to the Valley on contract. This assumption has been used in the draft CFA. to index
Compliance with Accounting and Auditing Standards
The City has stated that the costs of accounting for the City and new city are understated in the IFA. The City has also stated that the IFA does not identify all of the accounting applications that must be modified in the event of a Valley special reorganization, does not identify a plan to modify the City's software to account for the activities of two separate cities, and does not identify the costs to purchase and/ or install a financial management system for the new city.
A detailed plan must be in place upon the incorporation date for the new city to
account separately for the new city's revenue and expenditures. Under the
assumption that virtually all services are contracted from the City, the new
city would have a substantially less burdensome accounting requirement than the
City of Los Angeles. The new city would nevertheless need to account for its
minimal staffing and capital requirements, a large, but uniform contractual
service payment, a mitigation payment, and its municipal revenues.
to index
Accounting Standards and Financial Management
The City has expressed concern
that the "mixing" of revenues and
expenditures for the City of Los Angeles and a new Valley City would violate
accounting standards set by the Government Accounting Standards Board (GASB), as well as the standards that constitute Generally Accepted Accounting
Principles (GAAP). A possible consequence of not meeting these
standards, argues the City, is that the City's bond and credit ratings could be
negatively impacted.
Both GASB and GAAP set accounting standards with respect to "measurement focus" and the "basis of accounting." Standards on ddress what is counted in the financial statements and why; standards related to the "basis of accounting" address when and how transactions are recorded. Currently, GASB and GAAP require governmental funds (e. g., the general fund, special revenue funds) to use what is known as "Flow of Current Financial Resources" as a measurement focus and "Modified Accrual" as the basis of accounting. For proprietary/ commercial activities, GASB and GAAP requirements for measurement focus and basis of accounting are, respectively, "Flow of Economic Resources" and "Full Accrual." It does not appear that GASB or GAAP principles specifically address the issue of whether it is permissible for the revenues and expenditures of two separate municipalities to be "mixed" that is, for one of those municipalities to account for some or all of the revenues and expenditures of both of them. As long as all standards related to measurement focus and basis of accounting are maintained, the envisioned form of revenue and expenditure "mixing" does not appear to pose an inherent conflict with either GASB or GAAP.
In this light, the plan outlined in the draft CFA – that the City of Los
Angeles would continue performing the accounting functions for the new Valley
City
consistent with terms agreeable to both parties – could be implemented in two
ways. First, the City of Los Angeles could attempt to modify its basic financial
information systems (e. g., FMIS, payroll) prior to the effective date of any
Valley special reorganization. This would allow the City to contemporaneously
identify the geographic source of revenues and the geographic target of
expenditures. The other option would be for the City of Los Angeles to
distinguish its revenues and expenditures from those of the Valley
"retroactively" – that is, after it has received the revenue or made
the
expenditure. To implement such retroactive accounting procedures, the City
could, for example, estimate on a monthly or even yearly basis the amount of
revenues and expenditures for which it and the Valley were responsible, subject
to any terms negotiated between the two cities as to how such an
estimate would be made.
On balance, it appears that the "retroactive" accounting approach
outlined above is preferable. This approach would relieve the City of Los
Angeles of the
need to make major modifications to its financial information systems. Avoiding
the need for such modifications seems particularly advantageous
given that the Valley City may attempt to develop the resources to perform its
own accounting and financial functions. Once the Valley assumes these
functions, the City of Los Angeles, were it to make major modifications to its
financial and accounting systems, would be left with systems capable of
distinguishing revenues and expenditures between it and the Valley City, yet
there would be no need for systems with this capacity. to
index
The City has stated that the cash flow impact of a Valley special reorganization has not been adequately addressed, and any relevant issues should be worked-out in advance of the determination of the applicant's proposal.
Specifically, the City has concerns in the following areas:
§ The process and rules for allocating municipal revenue after the incorporation date of the new city must be identified, given the complexity involved in collecting and distributing revenues.
§ The payment method for reimbursement of contractual services that has been proposed by the applicant is not fair, and the City should be paid monthly.
§ A process for the repayment of loans from the City's reserve and special purpose funds should be identified.
§ The impact of "cashing out" City employees that transfer to the Valley must be evaluated.
The relevance of the revenue issues raised by the City is dependent on the assumed process for allocating revenues among the cities. If the City is assumed to provide all municipal services on behalf of the new city, including revenue collection and accounting, the City could retain all revenues attributable to the Valley as payment of contractual services and the mitigation payment. Alternatively, the City could periodically transfer an estimated amount to the Valley, and reconcile the estimate at year-end.
Because the new city is estimated to owe the City more than the amount of Valley revenues collected on its behalf, it is assumed in this report that the City would collect all Valley revenues that are not paid directly to the new city, and would retain all amounts for payment of City-provided contractual services and a mitigation payment. This process would ensure that the City is immediately paid for its services, and would reduce the costs that would result from the continual transfer of funds between the two cities.
The assumption that the City would continue to provide services on a contractual basis also addresses the City's concerns over the cost of "cashing out" employees, which would not need to be addressed until the two parties reach a mutually agreeable transfer of City employees. to index
Response to LAFCO Revenue Analysis
The City has made a finding that the IFA contains "erroneous methodologies" in the apportionment of revenues to geographical region. Specifically, the City has found that the following methodologies should be used:
§ Gas Franchise income should be distributed based on Gas Tax Revenues.
§ Documentary Transfer Tax revenues should be distributed based on property value and property sales data.
§ Grant receipts should not be distributed geographically.
§ High Rise Inspection Fee revenues should be distributed based on building square footage.
§ Older American Act and HOPWA grants would not accrue to the new city.
§ Street Lighting Maintenance Fund revenues should be split based on data provided to LAFCO on February 14, 200l.
Analysis of each of the City's recommendations is provided in the sections that follow.
Gas Franchise Income
To estimate the geographic distribution of gas franchise income in the City, the IFA used the geographic distribution of cable franchise income as a proxy. The City has stated that the methodology is inaccurate because the gas franchise is a function of both the miles of main within the City and the amount of natural gas sales, and bears no relation to cable facilities.
The City has two distinct categories of "gas-oil" pipeline franchise fees. A franchise fee collected on the single franchise agreement between the City and the Southern California Gas Company, and the franchise fees collected on roughly 36 other existing franchise agreements with numerous firms with pipelines in the City that convey oil and other substances.
Under the City's single franchise agreement with Southern California Gas Company, the franchise payment the City receives from the Gas Company is 2% of the value of gross sales of gas within the City. This franchise agreement with the Gas Company produced approximately $13.8 million in revenues infiscal year 2000-01.
The franchise fee revenues related to the approximately 36 franchise agreements between the City and various firms with pipelines in the City are based on the physical components of the pipeline and associated conveyance system. In general, the fee paid to the City consists of a base rate per lineal foot of pipeline within the franchised area, and often this base rate increases as the diameter of the pipe becomes larger. According to City budget documents, the combined revenues from all the franchise agreements in this category were less than $1.8 million.
In the IFA, cable franchise income was used as a proxy measure to estimate gas franchise revenues, in lieu of an estimate from the City or actual data. As discussed in section "Financial Viability of New City -Valley City Revenue," actual gas users' tax information has been obtained from the Gas Company, and this revenue is used to estimate the allocation of gas franchise income in the draft CFA.
Documentary Transfer Tax
The IFA used population to estimate the distribution of the documentary transfer tax revenue in the City. This proxy measure was used because no data regarding the location of property sales within the City were available for the IFA. The City has stated in their response that population is an inaccurate method to estimate Documentary Transfer Tax revenues.
The City was unable to estimate the geographic distribution of the tax, as usable data were not available from the County. The County provides data in microform for the entire county, and no separate data for the City or data in electronic form were available.
Data on actual real estate transactions is currently being compiled by LAFCO and may be available to estimate the distribution of documentation transfer tax, instead of population, as part of the final CFA. In the interim, relative population in the Valley is used as an estimate of documentary transfer tax revenue attributable to the Valley.
Licenses, Permits, Fees and Fines -Grant Funded Related Costs
In the IFA, the
Grant Funded Related Costs revenue item was allocated to the
San Fernando Valley based on the total number of employees transferred to the
new city. These revenues are related to various entitlement grants received
by the City, including CDBG, HOME, and HOPWA. In the absence of data from the
City's Revenue Analysis, employees were used as a proxy measure
to the actual amount of work that City forces performed. This City has
stated in its response that these revenues should be distributed based on the
geographic distribution of the entitlement grant.
The City's proposed methodology is sound, but requires additional data from the City. Such data has been requested by LAFCO, but has not yet been provided by the City. Until the data is available, it is assumed that Grant Funded Related Costs are allocated based on the total number of employees that serve the Valley under the purchase of service agreement.
Licenses, Permits, Fees and Fines -Fire Department -High-Rise Inspection Fee
The City charges a fee for the inspection of high-rise buildings with six or
more floors or buildings higher than 75 feet. The fee is calculated as .0084
cents per
building square foot and .0042 cents per square foot of parking area. The IFA
used the proportion of "office buildings" in the Valley as a proxy
measure in
lieu of actual data from the City. The City has stated that the actual amount
collected in the Valley should be used instead of the number of office
buildings,
given the fee is computed on building square footage and not the number of
buildings.
The City's proposed methodology is sound, but requires data from the City on the actual amount of fee revenue collected in the Valley. Such data has been requested by LAFCO, but has not yet been provided by the City. Until the data is available, it is assumed that the allocation of High-Rise Inspection Fee revenue is based on the proportion of office buildings in the Valley.
Older Americans Act Fund
The IFA allocates Older American Act funds based on a
City Funding Formula
involving the demographic make-up of various areas within the City. The City has
stated that, upon the incorporation of a Valley City, these funds would
accrue to the County of Los Angeles.
The County of Los Angeles does receive Older American Act funds on behalf of many cities within the County, and provides funding for eligible projects within those cities. The County agency charged with the administration of Older American Act (OAA) funds has been contacted regarding the proposed special reorganization, and has indicated that the County would receive OAA funding and would expend these fund in the San Fernando Valley. It is therefore assumed in the draft CFA that the new city would not receive any OAA funding, and would also not reimburse the City of Los Angeles for any costs associated with the administration or programming of OAA funds in the Valley.
Street Lighting Maintenance Assessment Fund
To estimate the geographic
distribution of Street Lighting Maintenance
Assessment revenues, the IFA used the location of Street Lighting offices as a
proxy measure. Although the City has provided the actual amount of
assessment revenue collected for fiscal year 2000-01, by assessor parcel number
and by "City_ BPP," the accounts were not geo-located and
apportioned to the Valley City as part of the IFA.
The data provided by the City is currently being geo-located by LAFCO, and an estimate of the number of accounts within the boundaries of the Valley City is expected as part of the final CFA.
Housing Opportunities for Persons with AIDS (HOPWA)
The City has made the finding that a new Valley City would not receive an allocation of HOPWA funds, as these funds are distributed only to the largest city in a county.
It will be assumed in the draft CFA that the new city would not receive HOPWA funds. However, it must be noted that these funds were budgeted at only$267,150 for fiscal year 2000-01.
Disaster Assistance Trust Fund
The City has stated that the revenue from the
Disaster Assistance Trust Fund
represents the reimbursement of expenditures from previous years, and would not
be received by the Valley City. This amount is shown as a negative
amount in the City's fiscal year 2000-01 Budget.
For the purposes of the draft CFA, this budget item is not allocated to the
Valley.
Affordable Housing Trust Fund
The City has stated that the Affordable Housing Trust Fund is missing from the Special Purpose Funds list, and that additional information is needed to determine whether this fund is property accounted.
The Affordable Housing Trust Fund was not apportioned to the Valley City as part of the IFA, because the receipts from this fund are not included in the City's Budget. This fund is apparently supported from a General Fund appropriation and "off-budget" revenues, and neither the receipts nor the appropriations for this fund are identified in the City's budget. to index
Conclusions and Recommendations
In its response to the Final Proposal,
the City has made the finding that the
Valley special reorganization would not be revenue neutral, and that the new
city would not be fiscally viable. Upon review of the City's findings and in
light
of the assumed method of providing service to the Valley, the draft CFA has made
the following determinations:
§ The City found that the Valley incorporation would not be revenue neutral because the City's workload would not decrease in proportion to the number of City employees transferred. However, because a transfer of City employees is not assumed to occur as part of a Valley special reorganization, the City would not lose employees to the new city.
§ The City questioned the IFA's finding that the Valley would be fiscally
viable given that many potential "start-up" costs were not identified
in the IFA. However, many of the costs identified by the City resulted from a specific plan to divide or duplicate the City's existing assets.
Because City assets would not need to be divided if the City provides
service on behalf of the new city, the potential start-up costs would not be
incurred.
8 The exceptions, of course, are those City operations related to providing services that the City would continue providing to a new Valley City. This includes, for example, services provided by the Department of Water and Power and the wastewater portions of the Bureau of Sanitation.
To index
To LAFCO CFA main index
ValleyVote LAFCO Documents page