Incorporating County Land Too Easy : Areas Seeking Cityhood Should Be Forced to Negotiate Tax Distribution Issues

Orange County should no longer allow cities or would-be cities to grab off unincorporated areas that are lucrative sources of sales and property taxes for the county. Future moves to bring these areas under municipal control must face a stronger test.

There are already some indications of a change in that direction. Although the county previously had been neutral on incorporations, it balked when Laguna Hills and Lake Forest asked the Local Agency Formation Commission to schedule cityhood elections. Faced with severe budgetary problems, the county first asked LAFCO to deny the newest petitions then asked that areas that generated a lot of sales tax revenue be excluded. Neither city got exactly the boundaries it wanted.

The county long has complained that when areas incorporate, its revenue losses far outweigh savings, even when new municipalities assume expenses for services once provided by the county. For example, an estimated $18 million annually was lost to the county with the recent incorporations in Mission Viejo, Dana Point, Laguna Niguel, Laguna Hills and Lake Forest.

To protect the county from further losses, Rancho Santa Margarita and Leisure World--now exploring cityhood--should be forced to negotiate on issues affecting tax revenue.

The county is in a better position to bargain when existing cities want to annex county territory because, by law, all parties must agree on property tax distributions within the annexed area. Some counties, such as Fresno, have used this to force cities to share sales tax revenue as well. In Orange County, recent negotiations over Mission Viejo’s proposed annexation of Aegean Hills stalled when the county tried this same device. That was a promising sign the county is taking a new tack.

Annexations and incorporations often are timely. But the county cannot afford to stand by meekly as its tax revenues are drained away.