Drives Toward Cityhood Slowed by Revenue Law

Years before its bankruptcy debacle, Orange County officials were eager to stop the financial bleeding caused by the incorporation of five South County communities between 1988 and 1991.

Looking to stem the flow of tax revenues that new cities take with them, county officials successfully pushed for passage of a 1992 state Senate bill that now requires communities aspiring to cityhood to share tax dollars with county government.

That law is making cityhood efforts more difficult. Only one city in California has incorporated since the legislation took effect, compared to 22 incorporations in the previous five years. And that sole newly incorporated city, Citrus Heights in Sacramento County, is buckling under a $5.6-million annual payment that will be funneled to county coffers for 25 years.

Still, incorporation drives are underway, even in the county that first tried to halt them. At least four Orange County communities are working to incorporate, including Foothill Ranch, Rancho Santa Margarita, Leisure World and Aliso Viejo.

The people running these efforts are confident they will eventually succeed. But they acknowledge that the law isn’t helping.

Indeed, the California League of Cities and other observers say the deck is now stacked heavily against any community desiring cityhood.

“It was already hard to qualify for incorporation, and this law raised the bar even higher,” said Dwight Stenbakken, legislative director for the League of Cities.

“I think this law is a bad thing,” Stenbakken said. “The citizens in these unincorporated places are being denied what many other citizens enjoy--the right to self-determination.”

The local agency formation commissions, county agencies that decide cityhood issues, can’t approve an incorporation unless there’s a revenue-sharing agreement.

Since the law passed in 1992, revenue negotiations have been completed only by Citrus Heights. When its first tax installment came due this year, city officials went to Sacramento County asking for a reduction in their payment, which amounts to about 25% of the city budget.

Former Orange County Administrative Officer Ernie Schneider said the law is justified. Schneider said losing all tax revenue from incorporations means that there isn’t enough money to pay for countywide services such as courts and health programs.

“At the time [1992], this was a problem for all the counties in the state,” he said. “All we were looking for was recovery of our costs.”

Even though she helped push through the revenue neutrality bill, former state Sen. Marian Bergeson wonders if the legislation went too far.

“At the time the bill was introduced, counties were being eviscerated” by incorporations, said Bergeson, who is now Gov. Pete Wilson’s secretary of child development and education. “But this might be one of those cases when a bill can turn around and bite you.”