El Toro, Laguna Hills Bids for Cityhood Gain : Incorporation: Supervisor Don R. Roth warns other LAFCO members that two new cities could work a financial hardship on the county, but a March 5 election is reaffirmed.

Warning that $40 million in state budget cuts already have Orange County “on a collision course” with financial disaster, Supervisor Don R. Roth made a dramatic plea Wednesday to block formation of two new South County cities, saying it would bleed another $10 million from county coffers.

Despite Roth’s warnings of county government layoffs and further cutbacks in public health care in the next fiscal year, his fellow members of the Local Agency Formation Commission rejected his appeal.

By a vote of 3 to 1, commissioners refused to reconsider an earlier decision to let South County residents vote March 5 on whether to form the cities of El Toro and Laguna Hills.

Earlier in the day, the commission dealt an equally decisive blow to Laguna Beach officials, who had hoped to stall development of 26 luxury homes on the historic Smithcliffs property just outside the city limits.

The commission agreed to let the property owner get sewer service from the Irvine Ranch Water District. Laguna Beach officials had hoped to force the property owners, the Brinderson Real Estate Group, to get service from the city, because it would open them to a more stringent development-approval process.

Development officials said they expect to begin construction at Smithcliffs within the next six months.

The commission’s refusal to stall the El Toro and Laguna Hills incorporation efforts means that the Board of Supervisors will now be asked to place the measures on the ballot in March. The supervisors are expected to consider the issue on Nov. 28.

“This $10 million compounded with the $40-million reduction from the state means a whopping $50-million loss and shortfall to the county’s operation this coming year,” Roth said, referring to the fiscal year that begins next July.

Roth warned that the loss is likely to result in further cutbacks to medical and mental health care for the poor--already slashed in half this year--plus “considerable layoffs” of county personnel, and reductions in funds for desperately needed new jails.

In addition, Roth warned that the county might no longer be able to maintain a contingency fund for emergencies. He said the current fund, holding about $16 million, is essential if Orange County government is to keep a good credit rating and borrow money at favorable interest rates.

“I am very, very concerned,” Roth told the three other commission members--Newport Beach Councilwoman Evelyn R. Hart, La Habra Councilman James H. Flora and Vernon S. Evans, who serves as an alternate representative of the public. “I just talked to the chairman of the (supervisors’) board of San Diego County last week and their situation is they have a zero, zero contingency fund. . . . We’re headed in that same direction right now.”

As LAFCO members began discussing several minor technical changes to the cityhood referendum proposals, Roth stepped in and tried to persuade them to launch a full rehearing on the merits of the incorporations. Because two members of the commission were absent, Roth suggested they reschedule a public hearing for December.

But the three other commissioners declined to accept a further delay.

When the commission agreed in early October to place the question of cityhood before voters, it was by a 4-0 margin. Roth abstained, citing his concerns about the financial impact on the county budget.

The vote Wednesday came after Allan Songstad, a representative of the Laguna Hills committee for cityhood, argued against a rehearing.

“We obviously would vehemently oppose any full reconsideration of what we think was a well thought-out commission decision,” Songstad told the commission. “A decision was made and we feel the process should be allowed to go forward.”

If residents of the El Toro and Laguna Hills areas elect to incorporate, their property taxes and a smattering of other fees would stop flowing to the county as of Dec. 20, 1991. That is the date that the new cities would officially incorporate and begin collecting those taxes and fees, which currently amount to about $10 million a year.

El Toro, with a population of 58,000 in an area between Irvine and Mission Viejo, and Laguna Hills, with 23,000 residents living west of Mission Viejo and north of Laguna Niguel, would become the county’s 30th and 31st cities.

Melody Carruth, a Laguna Hills resident who supports the drive for cityhood, argued that stopping the movement now would be “blowing the whistle in the middle of the process.” Carruth said Laguna Hills began its cityhood drive more than three years ago, along with numerous other communities that have already become cities.

“We feel our money should be spent in our community,” Carruth said. “We would like to have a local government that is responsive to the people that live here.”

Times staff writer George Frank contributed to this story.