BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 851

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          851 (Mayes)

          As Amended  August 18, 2015

          Majority vote

          |ASSEMBLY:  | 75-0 | (May 22,      |SENATE: |39-0  | (August 27,     |
          |           |      |2015)          |        |      |2015)            |
          |           |      |               |        |      |                 |
          |           |      |               |        |      |                 |

          Original Committee Reference:  L. GOV.

          SUMMARY:  Makes changes to the city disincorporation process in  
          the Cortese-Knox Hertzberg Act (Act).  

          The Senate amendments:

          1)Add to the list of information that must be included in a  
            comprehensive fiscal analysis prepared by a local agency  
            formation commission (LAFCO) executive officer in a  
            disincorporation proposal to include the direct and indirect  
            costs incurred by the city proposed for disincorporation for  
            current and proposed capital improvements, facilities, assets,  
            and infrastructure.  


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          2)Require, prior to the effective date of the disincorporation,  
            all public property of the disincorporating city under the  
            control or in the possession of any public officer or employee  
            of the city to be transferred to the possession and control of  
            the successor designated by LAFCO.  

          3)Define "indirect cost" in the Act, pursuant to the definition  
            provided in the Education Code.  

          4)Make technical and conforming changes.  

          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.  


          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 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)  


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            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 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  


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            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.  This bill brings the sections of  
            the Act into full compliance with the mandates of Propositions  
            13 [1978] and 218 [1996]."

          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].  


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            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 fiscal year 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 jury.  

          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 point.  

          6)Arguments in Opposition.  None on file.  

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


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