County Says It Can’t Afford 2 New Cities : Cityhood: Recent defections of Mission Viejo, Dana Point and Laguna Niguel have crimped the budget. Laguna Hills and El Toro incorporation plans are forced onto the back burner.

With the county already hurting financially from the recent incorporations of Mission Viejo, Dana Point and Laguna Niguel, officials said Wednesday that it cannot afford more defections, and derailed plans to create two new cities by the end of the year.

Leaders of separate drives to incorporate Laguna Hills and the communities of El Toro, Lake Forest and Portola Hills have prepared applications to the Local Agency Formation Commission in hopes of having ballot measures approved in time for the November general election.

But in a hearing Wednesday afternoon, LAFCO commissioners said that more information is needed before a decision can be made on whether the county can afford to allow the unincorporated areas to form Orange County’s 30th and 31st cities.

Orange County is currently facing a shortfall of more than $30 million for the fiscal year beginning at the end of the month. Cutbacks in state funding for county programs and increasing demand for county services have been the main reason for the fiscal problems.

But in two reports issued last week, LAFCO and the County Administrative Office said the county has lost nearly $14 million in sales tax revenues with the incorporations of Mission Viejo in March, 1988, Dana Point in January, 1989, and Laguna Niguel in December, 1989.

If Laguna Hills became a city, the county would lose about $5 million in tax revenue in the first year, according to a LAFCO staff report that recommended denial of the Laguna Hills plan.

In fact, sales tax revenue from Laguna Hills makes up about one-third of the total sales tax revenues generated by unincorporated areas, the report said. Much of that comes from the Laguna Hills Mall.

No study was made on how much the El Toro cityhood proposal would cost the county.

The incorporations of Mission Viejo, Dana Point and Laguna Niguel--the first since Irvine incorporated in 1971-- have cost the county $13.81 million in tax revenue, according to a Jan. 6 report by County Administrative Officer Earnie Schneider.

The county can no longer afford to either lose the tax revenue from the commercial sections of these communities or pay the start-up costs involved in providing the new cities with police, fire, library and other county-contracted services, said Supervisor Gaddi H. Vasquez, who is also chairman of the five-member LAFCO commission.

“Both groups would like to get to the ballot as soon as possible,” LAFCO director James J. Colangelo told LAFCO commissioners on Wednesday, “but with this county in the present financial condition, a November election is out of the question.”

The scheduled LAFCO hearing on the plan to form an 8-square-mile city in Laguna Hills was continued to Oct. 3. A hearing on the effort to create a 21-square-mile city out of El Toro, Lake Forest and Portola Hills was continued to July 11. But Colangelo said he will recommend that that hearing be continued to either Sept. 26 or Oct. 3.

In postponing the hearings, Colangelo said the county and cityhood proponents must provide more information before commissioners decide whether the proposals can go before the voters.

To that end, the Board of Supervisors on Tuesday ordered a six-month study on the practice of providing cities with contractual services. Vasquez said that under the current policies, the county is not recouping all its costs, despite charging cities millions of dollars for services that include police and fire protection.

The cityhood plans for Laguna Hills and El Toro both call for county service contracts. But Vasquez said that cityhood proponents should draft alternate reports that guarantee financial stability if the proposed cities provided their own police and fire protection.

In the long term, he said, cities pay for the services, but during the start-up phase of cityhood the county foots a large portion of the bill.

The earliest that voters could decide on either the Laguna Hills or the El Toro-Lake Forest-Portola Hills measures will be March 5, Colangelo said. Vasquez said that will be sufficient time for the cityhood proponents and the county to review their financial conditions.

Ellen Martin, head of the pro-cityhood group Citizens to Save Laguna Hills, said she was disappointed that her organization will be unable to make good on their promise of a November vote.

But, she added, she was not willing to criticize the county for the decision to stop the drive for a November vote.

“I don’t think it does any good to cry mistreatment,” Martin said. “We just have to work through it.”

Since 1988, voters in Laguna Hills have gone to the polls twice to decide on cityhood.

The first attempt to incorporate a wide area of the Saddleback Valley failed. The next year, voters in Laguna Hills narrowly defeated a plan to form their own city, largely because voters in the Leisure World retirement community opposed inclusion. The current Laguna Hills plan excludes Leisure World.

Cityhood leaders said that they would ultimately prevail in creating a city, despite the latest setback.

“We have certainly developed a lot of patience over the years,” organizer Melody P. Carruth said on Wednesday. “But given more time, we have a lot of confidence that it will be approved.”

Helen Wilson, chairwoman of Community Coalition to Incorporate El Toro, Lake Forest and Portola Hills, said she was surprised by the decision and questioned why the issue did not come up before last week.

“I can’t understand that they are looking at these numbers today,” Wilson said. “They they should have looked at the numbers some time ago.”

Vasquez said the decision to postpone the hearings was not made because of anti-cityhood sentiment on the commission.

“There’s nothing wrong with incorporation,” Vasquez said. “It’s the hard reality that the dollars are not being made available on the county level.”