BILL ANALYSIS                                                                                                                                                                                                    

                                                                       AB 851

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          851 (Mayes)

          As Amended  May 7, 2015

          Majority vote

          |Committee       |Votes |Ayes                 |Noes                 |
          |                |      |                     |                     |
          |                |      |                     |                     |
          |Local           |9-0   |Maienschein,         |                     |
          |Government      |      |Gonzalez, Alejo,     |                     |
          |                |      |Chiu, Cooley,        |                     |
          |                |      |Gordon, Holden,      |                     |
          |                |      |Linder, Waldron      |                     |
          |                |      |                     |                     |
          |Appropriations  |17-0  |Gomez, Bigelow,      |                     |
          |                |      |Bloom, Bonta,        |                     |
          |                |      |Calderon, Chang,     |                     |
          |                |      |Daly, Eggman,        |                     |
          |                |      |Gallagher, Eduardo   |                     |
          |                |      |Garcia, Holden,      |                     |
          |                |      |Jones, Quirk,        |                     |
          |                |      |Rendon, Wagner,      |                     |
          |                |      |Weber, Wood          |                     |
          |                |      |                     |                     |
          |                |      |                     |                     |


                                                                       AB 851

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          SUMMARY:  Makes changes to the city disincorporation process in  
          the Cortese-Knox Hertzberg Act.  Specifically, this bill:  

          1)Declares that it is the intent of the Legislature that any  
            proposal that includes the disincorporation of a city results in  
            a determination that the debt or contractual obligation and  
            responsibilities of the city being disincorporated shall be the  
            responsibility of that same territory for repayment.  Requires  
            the city to provide a written statement to the local agency  
            formation commission (LAFCO) prior to filing a proposal to  
            initiate disincorporation proceedings that determines and  
            certifies all of the following:

             a)   The indebtedness of the city;

             b)   The amount of money in the city's treasury;

             c)   The amount of any tax levy or other obligation due the  
               city that is unpaid or has not been collected; and, 

             d)   The amount of current and future liabilities, both  
               internal debt owed to other special or restricted funds or  
               enterprise funds within the agency and external debt owed to  
               other public agencies, outside lenders, or contractual  
               obligations.  Liabilities may include, but not be limited to,  
               contracts, retirement obligations, and unfunded pension  

          2)Requires the city to provide a written statement identifying the  
            successor agency to the city's former redevelopment agency, if  


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          3) Specifies information that must be included in a plan for  
            services with a proposal for a disincorporation or  
            reorganization that includes a disincorporation, as follows:

             a)   An enumeration and description of the services currently  
               provided by the city proposed for disincorporation and an  
               identification of the entity or entities proposed to assume  
               responsibility for the services following the completion of  

             b)   An enumeration and description of each service proposed to  
               be discontinued, the current financing of the service or  
               services, and any method of financing proposed by the  

             c)   A delineation of any existing financing of services  
               currently provided to include, but may not be limited to,  
               bonds, assessments, community facility district governance,  
               general taxes, special taxes, other charges, and joint powers  
               authorities or agreements;

             d)   An indication of any current bankruptcy proceeding  
               including, but may not be limited to, status and exit plan;

             e)   An indication of any current order relating to services  
               provided by the city proposed for disincorporation by any  
               agency, department, office or other division of the state,  
               including, but may not be limited to, a cease and desist  
               order or water prohibition order;

             f)   A written statement from each affected local agency,  
               identified pursuant to a),  that they received a copy of the  
               plan for services; and,


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             g)   Any other information the executive officer may deem  
               necessary to fully consider the disincorporation proposal.  

          4)Adds disincorporation to a provision in existing law for  
            incorporation that requires notification from an executive  
            officer to affected local agencies and requires local agencies  
            to provide data to the executive officer in order to process a  
            proposal in a timely manner.  

          5)Requires the executive officer to prepare a comprehensive fiscal  
            analysis for a disincorporation proposal.  Requires the fiscal  
            analysis to become part of the executive officer's report  
            prepared pursuant to existing law.  Requires data used for the  
            analysis to be from the most recent fiscal year (FY), as  

          6)Requires the fiscal analysis to review and document each of the  

             a)   The direct and indirect costs incurred by the city  
               proposed for disincorporation for providing public services  
               and facilities during the three FYs immediately preceding the  
               submittal of the proposal for disincorporation;

             b)   The sources of funding, if any, available to the entities  
               proposed to assume the obligation of the city being  
               disincorporated and the related costs in the provision of  
               existing services;

             c)   Requires the executive officer, when determining costs to  
               include all direct and indirect costs of any public services  


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               proposed to be transferred to state agencies for delivery;  

             d)   Any other information and analysis needed to allow the  
               LAFCO to make certain determinations prior to a city  
               disincorporation, as required by this bill.  

          7)Prohibits a LAFCO from approving or conditionally approving any  
            proposal that includes a disincorporation, unless a LAFCO makes  
            all of the following determinations:

             a)   The proposed disincorporation is consistent with the  
               intent of this division to provide for a sustainable system  
               for the delivery of services;

             b)   The LAFCO has considered the service reviews of municipal  
               services and spheres of influence of the affected local  
               agencies, and the disincorporation will address the necessary  
               changes to those spheres of influence, if any;

             c)   The LAFCO has reviewed the comprehensive fiscal analysis,  
               as required by this bill;

             d)   The LAFCO has reviewed the executive officer's report and  
               recommendations prepared pursuant to existing law, and the  
               oral or written testimony presented at public hearing; and,

             e)   The service responsibility of the city proposed for  
               disincorporation has been assigned through the terms and  
               conditions, as authorized by existing law.  


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          8)Requires LAFCO to determine the amount of property tax revenue  
            to be exchanged by the disincorporating city and any successor  
            or affected local agency pursuant to a specified process that is  
            substantially similar to the process in existing law for  

          9)Requires LAFCO to notify the county auditor of the  
            disincorporation proposal and the services proposed to be  
            transferred, as specified.  

          10)Establishes processes for calculating a property tax exchange  
            depending on, if the disincorporation proposal transfers all of  
            the service responsibilities of the disincorporating city to the  
            affected county or a single affected agency.  

          11)Requires any action brought by a city or district to contest  
            any of the determinations of the county auditor or LAFCO in  
            regard to the amount of property tax revenue to be exchanged to  
            be commenced within three years of the effective date of the  

          12)Requires LAFCO, if the proposal to disincorporate a city  
            includes the assignment of property tax revenues to a successor,  
            to make the following determinations, as appropriate:

             a)   The increase of the appropriations limit for the  
               successor, if the successor is an existing entity; and,

             b)   The appropriations limit for a new special district  
               pursuant to the formation process in current law.  

          13)Adds city disincorporation to provisions of existing law that  


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            establish the allocation of property tax revenue in the case of  
            a jurisdictional change, including incorporation.  

          14)Makes changes to provisions of existing law that specify the  
            factors a LAFCO can condition the approval of any change of  
            organization or reorganization upon.  

          15)Provides, as of the effective date of the disincorporation, all  
            of the following plans and documents that were in effect  
            immediately prior to the date of the disincorporation to apply,  
            as follows: 

             a)   Requires the general plan of the disincorporated city to  
               constitute as the community plan of the county for the  
               territory of the disincorporated city until the county  
               updates the community plan, adopts a specific plan, or amends  
               its county general plan for the unincorporated territory; 

             b)   Requires the zoning ordinances of the disincorporated city  
               to constitute as the zoning ordinance of the county for that  
               territory of the disincorporated city and shall be so  
               identified in any community plan, specific plan, or general  
               plan amendment adopted by the county until the county updates  
               the zoning ordinances; and,

             c)   Requires any conditional use permit or legal nonconforming  
               use to remain in force pursuant to the community plan and  
               zoning ordinances.  

          16)Repeals numerous outdated code sections in current law.  

          17)Provides that, if the Commission on State Mandates determines  


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            that this bill contains costs mandated by the state,  
            reimbursement to local agencies and school districts for those  
            costs shall be made pursuant to current law governing state  
            mandated local costs.  

          EXISTING LAW:  

          1)Establishes the procedures for the organization and  
            reorganization of cities, counties, and special districts,  
            including procedures for the disincorporation of a city under  
            the Cortese-Knox-Hertzberg Act (Act).
          2)Defines "disincorporation" to mean "the dissolution,  
            extinguishment, or termination of the existence of a city and  
            the cessation of its corporate powers, except for the purpose of  
            winding up the affairs of the city."  

          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee, there are negligible state costs.  Local mandate costs  
          to LAFCOs are non-reimbursable because they charge fees for the  
          services they provide.


          1)LAFCOs and Current Law.  LAFCOs are responsible for coordinating  
            logical and timely changes in local governmental boundaries,  
            conducting special studies that review ways to reorganize,  
            simplify, and streamline governmental structures, and preparing  
            a sphere of influence for each city and special district within  
            each county.  The courts refer to LAFCOs as the Legislature's  
            "watchdog" over local boundary changes.  The Act establishes  
            procedures for local government changes of organization,  
            including city incorporations, disincorporations, annexations to  
            a city or special district, and city and special district  
            consolidations.  LAFCOs regulate boundary changes through the  


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            approval or denial of proposals by other public agencies or  
            individuals for these procedures.  

            The Act prescribes a process for disincorporation, which is  
            similar to most boundary changes that require numerous steps:   
            a) application to LAFCO, by petition or resolution, for an  
            environmental review, and property tax exchange agreement; b)  
            noticed public hearing, testimony, and approval or disapproval  
            by LAFCO in which they can impose terms and conditions; c)  
            additional public hearing for protests (if a majority of the  
            city's voters file protest, the disincorporation stops, and if  
            not, LAFCO must order an election on the proposed  
            disincorporation); d) disincorporation election among city  
            voters, which requires a majority vote approval; and, e) LAFCO  
            staff files documents to complete the disincorporation.  

            Upon the effective date of a disincorporation, the county board  
            of supervisors is responsible for winding up the affairs of the  
            former city.  Residents of the former city no longer have any  
            rights or duties as inhabitants or voters of a city.  Prior to  
            the effective date, public officers must turn over public  
            property to the county board of supervisors, and the city  
            council must turn over all city funds, as certified by the LAFCO  
            or the county, to the county treasurer.  The county tax  
            collector may collect any levied but uncollected taxes owed to  
            the disincorporated city, and the county may collect or sue for  
            all debts owed the city.  Other territories within the county  
            are not responsible and may not be taxed for the debts or  
            liabilities of the former city.   

           2)Bill Summary.  This bill makes several changes to the statutes  
            that govern the city disincorporation process.  In addition to  
            repealing several outdated code sections, this bill builds upon  
            provisions in existing law for incorporations which require  
            information about services and finances to be provided with the  
            proposal.  For example, current law requires an applicant to  


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            submit a plan for providing services with a proposal.  This bill  
            specifies what must be included in that plan for services in the  
            case of a disincorporation, or a reorganization that includes a  
            disincorporation, to provide LAFCOs with additional information  
            about the provision of services.  This bill also requires the  
            executive officer of a LAFCO to prepare a comprehensive fiscal  
            analysis as part of the report current law requires them to  
            provide to LAFCO in recommendation of approving or disapproving  
            a proposed change of organization or reorganization.   Current  
            law requires a fiscal analysis to be done for incorporations;  
            this bill mirrors those provisions in existing law and would  
            provide LAFCO, successors, and the public with more information  
            about the financial status and impact of a city  
            disincorporation. Also, similar to provisions in current law for  
            incorporations, this bill establishes a process for the exchange  
            of property tax revenue for disincorporations.  Under this bill,  
            LAFCOs must make specified determinations before approving or  
            conditionally approving a disincorporation proposal.  

            This bill does not make any changes to the existing  
            disincorporation process related to public involvement,  
            including public notice, hearing, protest, and election  

            This bill is sponsored by the California Association of Local  
            Agency Formation Commissions.  

          3)Author's Statement.  According to the author, "The statutes  
            addressing disincorporation have not been updated since the  
            inception of LAFCOs in 1963.  Under existing law, the intended  
            procedure for dispensing with debt and unfunded liabilities is  
            not in compliance with Propositions 13 [1978] and 218 [1996].   
            This could result in the county at large being responsible for  
            the debts and unfunded liabilities of a city that has  
            disincorporated.  This bill brings the sections of the Act into  
            full compliance with the mandates of Propositions 13 and 218."


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          4)Disincorporation in California.  Seventeen cities have  
            disincorporated in California's history, including the Cities of  
            Long Beach (1896), Pismo Beach (1940), and Stanton (1924), each  
            of which later reincorporated.  The Legislature disincorporated  
            several cities by statute, including the following cities:   
            Columbia (1870), Dutch Flat (1866), Felton (1917), and Hornitos  
            (1973).  Hornitos and Cabazon are the only two cities that have  
            disincorporated since the creation of LAFCOs in 1963.  The City  
            of Cabazon, located in Riverside County, was disincorporated in  
            1973, and went through the process contained in LAFCO law.  The  
            Town of Hornitos, located in Mariposa County, was  
            disincorporated by statute in 1972 ([AB 2374] Chappie, Chapter  
            650, Statutes of 1972).  

            More recent discussions surrounding the issue of  
            disincorporation are in reference to several cities in  
            California impacted by the redirection of Vehicle License Fee  
            (VLF) revenues away from newly incorporated cities and  
            annexations.  The realignment shift in 2011 disproportionally  
            endangered the fiscal viability of cities that rely on VLF  
            revenues and after several failed legislative attempts to remedy  
            this issue, cities like Jurupa Valley have continued to discuss  
            possible disincorporation.  

            News reports on the possible disincorporation of the City of  
            Adelanto in San Bernardino County have persisted despite  
            assurances by city officials that the city has the budget for  
            one more FY and that they continue to look into long range  
            revenue generating and saving opportunities.  Most recently, a  
            Santa Barbara grand jury released a report earlier this month  
            calling for the City of Guadalupe to disincorporate due to  
            fiscal mismanagement, a declining tax base, and increasing debt  
            obligations.  The Guadalupe City Council has not taken any steps  
            to suggest they will follow the recommendation of the grand  


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          5)Arguments in Support.  Supporters argue that this bill is not  
            intended to promote the use of the disincorporation process, nor  
            is intended to encourage cities to consider this as an option to  
            relieve their fiscal emergencies.  The ultimate success or  
            failure of a proposal for disincorporation remains with the  
            registered voters of the city proposed to be disincorporated.   
            This bill just clarifies the required process to get to that  

          6)Arguments in Opposition.  None on file.  

          Analysis Prepared by:                                               
                          Misa Lennox / L. GOV. / (916) 319-3958  FN: