NORTH TUSTIN : Report Seen as Blow to Cityhood Efforts

Supporters of a proposed new city in North Tustin suffered a setback this week when the state controller’s office issued a report predicting that residents of the newly incorporated area would have to pay a utility tax of 7% by the first year.

Earlier, a report funded by cityhood advocates had concluded that the city could pay its bills with a utility tax of about 3% implemented in the city’s ninth year.

The state report said it found errors in the initial report, prepared by Christensen & Wallace of Oceanside. The controller’s office projected that much less funding from Orange County’s recent sales tax increase--Measure M--and state sources would be available for the city.

The controller’s office prepared the report at the request of Tustin officials, who questioned some of the figures in the Christensen & Wallace report and approved an expenditure of up to $25,000 to study it.

“My reaction is that it verifies what we felt,” said Tustin City Manager William A. Huston. “It just wouldn’t be feasible for North Tustin to be a city in today’s environment unless they’re willing to tax themselves quite heavily.”

Incorporation and annexation have been topics of heated debate for years in the North Tustin area, home to about 30,000 residents.

Some who live in the area say they would prefer to become part of Tustin or Orange, while others want to create their own city.

The county’s Local Agency Formation Commission will hold a public hearing on Nov. 6 to discuss the proposed incorporation as well as several competing annexation proposals.

No decision is expected immediately, and it is likely that several more public hearings will be held, said Jim Colangelo, the commission’s executive director.

In response to the controller’s projection, Michael Bannan, a senior associate at Christensen & Wallace, said his firm disagrees with some parts of the state report, but he contended that the end result is the same.

“The bottom line in the auditor’s report is very close to ours, which is that North Tustin isn’t feasible as a city without a utility users tax,” Bannan said. He said that although the controller’s office projected that a higher tax would need to be implemented initially, the difference is not that great.

“It’s more than double, but it’s only 3 percentage points so you can call it what you will,” Bannan said. He said some of the differences resulted from his firm’s inability to obtain data that were available to the controller’s office.

Bruce Nestande, a cityhood advocate, said that the new findings do not present an adequate case against incorporation.

“A utility tax of 6.5% to 7% is not, to my mind, devastating to the incorporation efforts,” Nestande said. “It’s always been felt that the average household would probably pay somewhere in the $100 range and I think that’s probably still where it is.”

But Phyllis Spivey, an incorporation opponent, said the discrepancies raise serious questions about the credibility of Christensen & Wallace.

“What a nightmare it would have been if the voters had been pushed into voting on this issue based solely on the consultant’s information, which is what proponents were urging,” Spivey said.

The Local Agency Formation Commission must approve the incorporation. County Supervisor Gaddi H. Vasquez, who is also a LAFCO commissioner, said the discrepancies between the two reports and the reasons behind them will be considered very carefully.

“This is unique,” Vasquez said. “For as long as I’ve been on LAFCO, we’ve not had a proposal like this one.”

Although several incorporations have been approved by LAFCO and subsequently by voters in recent years, North Tustin is the first one without funds to support itself.

“Any ballot measure that would go to the voters would have to undoubtedly have bold print that indicates what the financial obligations are to the residents, should they cast an affirmative vote,” Vasquez said. “Yet the county counsel has said that the City Council would not be bound to implement the tax.”

Without the tax, officials say the largely residential area would not be able to support itself because it has only one source of sales tax revenue--a restaurant.