Rancho Santa Fe? Too Poor to Become a City?

It’s no joke: Rancho Santa Fe is having money problems.

Not that owners of the horsy estates that border the rural enclave’s winding, eucalyptus-lined roads are in personal financial trouble. Hardly.

Rather, an agency evaluating Rancho Santa Fe’s ability to make it as the county’s newest city is painting a decidedly bleak picture of the town’s potential for economic self-sufficiency.

“Based on a preliminary review of the figures, it doesn’t look good,” said Michael Ott, an analyst for the Local Agency Formation Commission, which must approve incorporation bids before they appear on the ballot. “But that’s not necessarily a final conclusion. There are still lots of pieces of the puzzle we will be filling in.”

The problem, Ott said, is that million-dollar homes and impressive personal wealth simply do not mean much when it comes to bankrolling a city. Instead, a healthy lineup of businesses is needed to generate the sales tax revenue that is the key to financing local government.

According to Ott’s calculations, that’s where Rancho Santa Fe misses the boat. Although the town’s property tax income surpasses that found in many incorporated cities, the picturesque village simply lacks the fleet of businesses necessary to pump sales tax money into municipal coffers.

By Ott’s estimates, Rancho Santa Fe would have only a $40,000 surplus after its first year of operation, a figure that represents less than 3% of projected revenue for the city.

“That 3% provides a really questionable amount of funds to allow the new city to withstand any downturns in the economy,” Ott said. “Typically, we view a 15% surplus as a good cushion.”

Encinitas, which officially became a city last week, will clear a 30% surplus after its first fiscal year and another fledgling municipality, Solana Beach, is projecting a 27% surplus, Ott noted.

LAFCO’s findings aren’t going over real well here, where civic leaders are convinced that they must secede from the county and establish home rule in order to preserve the bucolic ambiance of their exclusive community. Members of a committee promoting incorporation are questioning Ott’s figures and say they have no intention of abandoning the cityhood campaign, which they hope to bring before voters next June.

“We’re not throwing in the towel yet, not by any means,” said Ed Foss, chairman of the Study Committee on Home Rule. “We’re still confident incorporation is possible and, no matter what LAFCO says, we have lots of ideas about how to make it work.”

In particular, Foss and other committee members are challenging LAFCO’s exclusion of about $100,000 in county tax revenues from Rancho Santa Fe’s projected first-year income. The funds are earmarked for flood control and park maintenance and were included in a consultant’s report that concluded that the town could afford to incorporate. That report, commissioned by the Home Rule Committee, projected a first-year surplus of $131,739.

“We don’t believe that LAFCO has the prerogative to take that money away,” said Don Frick, a committee spokesman. “It seems arbitrary, and that’s what reduced us to this 3% surplus.”

Ott, however, said that state law prohibits LAFCO from transferring that revenue to the city because the county spent nothing on flood control and park maintenance in Rancho Santa Fe last year. LAFCO’s formula for computing new cities’ revenues is based on expenditures from the previous year.

“Our hands are tied,” Ott said. “Under existing guidelines, we cannot legally transfer that county money to the new city.”

The analyst added, however, that LAFCO and Rancho Santa Fe leaders are “exploring alternatives” that may ultimately entitle the city to the money. He declined to elaborate.

Even if that $100,000 is added, however, the projected surplus after the city’s first year of operation would be 10%, still below the standard normally required by LAFCO.

Consequently, Foss said the committee is “examining other areas where we could cut back and come up with the necessary funds.”

Among ideas being tossed around are cutting the proposed staff and a greater sharing of responsibilities between the new city and the Rancho Santa Fe Assn., a homeowners’ group that already functions as a quasi-government.

“We think that, by avoiding the duplication of services and taking advantage of the association, we can make some economies,” Frick said. He and Foss suggested that the association, which collects annual fees from property owners in a 9-square-mile area, could assume some additional duties.

Ott called the suggestion “speculative” and “not the type of information we like to base our findings on,” but said LAFCO would listen “to whatever proposals they bring forward.”

The LAFCO staff’s preliminary opinions on Rancho Santa Fe were outlined in a status report to its commissioners last month. A final report and a recommendation on whether cityhood is financially feasible in the community will be presented at a hearing Dec. 3 in Rancho Santa Fe.

Before then, Ott said, certain figures--namely, the auditor’s property tax ratio for the area--will be updated. That process could “drastically alter the fiscal picture,” but still might not increase revenue enough to meet the agency’s requirements, Ott said.

If that is the case, Rancho Santa Fe leaders would be required to investigate other income sources if they wish to proceed with home rule. Ott said two possible mechanisms are special assessments and a utilities tax.

A utilities tax, a flat charge tacked onto water or sewer bills, could be initiated by the new city council. A special assessment--to cover police protection or street sweeping, for example--would require the approval of two-thirds of the voters.

Proponents of incorporation say they were spurred to take action by lax land-use standards approved by the Board of Supervisors and county plans to widen several roads through the quiet hamlet. Cityhood boosters say home rule will allow them to stop the growth nibbling at their borders and improve enforcement of traffic laws on the town’s narrow, curving roads.