For Backers of Cityhood, First the Good News

The director of a county planning agency recommended Thursday that North Tustin voters be allowed to form the county’s 32nd city, but only if they also agree to pay for it with a tax of about $300 per household.

If the Local Agency Formation Commission accepts the recommendation at its meeting Wednesday, North Tustin voters would be asked to approve an incorporation measure and an 11% utility tax simultaneously in November, which would apparently be the first such action in the state.

A statewide survey by the LAFCO staff found no other cities whose incorporation depended on the approval of a new tax, LAFCO Executive Director James J. Colangelo said.

Without the tax, experts said, the city--which would include the upscale residential communities of Cowan Heights and Lemon Heights--would go bankrupt, because it would have just one source of sales tax revenue: a single restaurant.

LAFCO’s staff also recommended Thursday that the panel deny a competing request by Tustin’s municipal government to annex three sections of the proposed new city. Tustin’s proposed annexation would include more than 6,000 of North Tustin’s 27,000 residents.

Tustin requested the annexations shortly after the North Tustin incorporation petition was filed. Tustin later spent $25,000 to have the state controller’s office analyze a financial feasibility report that had been commissioned by cityhood advocates.

The North Tustin backers’ report said a utility users tax of 3% would be needed, beginning in the new city’s ninth year.

The controller’s report disagreed with the report of the cityhood advocates, concluding that the tax would need to be about 7% and would begin in the first year.

LAFCO is recommending that the even higher tax be assessed in the new city’s first year to build up North Tustin financial reserves.

In his recommendations to the commission, Colangelo said commissioners should deny the North Tustin cityhood proposal if they believe that a new city should support itself on existing revenues.

However, Colangelo wrote, his staff “does not recommend that your commission attempt to determine at what amount the proposed utility tax becomes excessive. Rather, we advise that you allow the voters of North Tustin to decide what price they are willing to pay for cityhood.”

Although they disagree that a tax of 11% would be needed, cityhood proponents said they are pleased with the recommendation.

“All we’ve asked for is an opportunity to put the facts before the public and ask for a vote,” said Marvin Rawitch, co-chairman of Citizens for More Local Control. “We want the control right here where we live, just like other people have.”

Cityhood foes said they would rather not see any vote on incorporation.

“If the commission votes to put this on the ballot, they will be paving the way for major new taxes and an unstable future in North Tustin, despite the dubious precedent-setting nature of this proposal,” said Phyllis Spivey, a vocal incorporation foe.

“LAFCO’s responsibility is to approve financially feasible new cities,” she said, “not to leave the voters at the mercy of politically ambitious individuals.”

Tustin City Manager William A. Huston said he thinks that there are still significant legal questions to be addressed by LAFCO, including whether the incorporation can be tied to a non-binding tax.

Although the ballot issue would list the new tax as a condition of incorporation, it would be a new city council’s responsibility to implement it, and cityhood foes point to that as a major problem.

Marshall Krupp, a member of North Tustin Citizens Against Incorporation, said the group plans a lawsuit if LAFCO approves a document stating that incorporation would not significantly affect the community, a standard procedure for incorporation. The group would also challenge the tax’s legality, Krupp said.

“If the utility tax is found to be unconstitutional after a city is formed, it would place the city in a very bad financial position,” Krupp said.

Cityhood proponents contend, however, that the tax is legal.

The issue of incorporation has bitterly divided the 9-square-mile community for years. On the one hand is a group of residents who say they want the geographical and political self-determination that would come with cityhood. They have fought what they call a “piecemeal” approach to incorporation by Tustin.

On the other hand are those who prefer to remain unincorporated or join with neighboring Tustin and Orange, saying the North Tustin community would not make a viable city.

The two sides have repeatedly sparred at public meetings and have accused each other of lying to gain support.

If LAFCO approves an incorporation vote, the issue would most likely be placed on the Nov. 3 ballot, Colangelo said.

“It would probably be the most important issue, next to the presidency,” he said.