City Report Says Valley Secession Is Not Viable

Opening a new front in the war over municipal divorce, city officials Friday contended in a report that secession would risk serious financial damage to both a new San Fernando Valley city and the rest of Los Angeles.

The city’s first formal study of secession was a setback for Valley cityhood proponents, who want the issue on the November 2002 ballot.

The 925-page analysis also raised significant legal issues about the authority of any Valley city to collect tax revenues and share in water and power service at existing rates.

“Certain issues appear to be sufficiently problematic as to jeopardize the viability of the plan as written,” concluded City Atty. and Mayor-elect James Hahn in the report.

The report asked the Local Agency Formation Commission to completely redo its earlier study, which concluded a Valley city would be economically robust and would produce a tax surplus almost immediately.

“There are questions that need to be resolved. The viability of Valley cityhood is being questioned,” said Councilwoman Cindy Miscikowski, who heads a council panel overseeing secession.

Mayor Richard Riordan said the city’s report provides a more accurate view of the pitfalls of secession than the LAFCO study.

“It would have significant negative impacts,” said mayoral spokesman Peter Hidalgo. “The mayor continues to oppose secession.”

The city response was called a “declaration of war” by Richard Close, chairman of the secession group Valley VOTE, who said it would take five years to answer all of the questions and complete the various analyses demanded by the city.

“It’s clear from this report that the city is trying to find any way to keep the issue off the ballot next year,” Close said. “This report is not an impartial evaluation. This is an attempt to sidetrack the matter.”

Close said LAFCO has discretion to consider the city’s response, but also has the duty to render its own findings as it drafts a final fiscal study that will be the basis of its decision on whether a Valley city is viable without harm to the remainder of Los Angeles.

Among the key elements of the city report:

* LAFCO’s initial financial study and a plan submitted by Valley VOTE used a fundamentally flawed method of dividing assets.

* The LAFCO study and secession proposal failed to provide adequate fiscal protection for the new city and remainder of Los Angeles, underestimated costs for the new city and contained many errors of fact.

* There is a “material risk” that, because of Proposition 218, the new Valley city can’t receive its share of some tax revenues without allowing voters to separately approve the levies, which would require a two-thirds vote in some cases.

* LAFCO cannot force Los Angeles to continue providing some services, at least not during a transition of up to three years as envisioned by the Valley secessionists’ plan.

* The Valley municipality would not be entitled to a share of water rights. Los Angeles, not LAFCO, has sole power to set water and power rates and Los Angeles could not be forced to reorganize its Department of Water and Power to share control with the Valley, according to the report.

“Clearly, the city is not going to split the DWP with the Valley,” Riordan said.

Riordan criticized LAFCO’s decision to round upward any partial numbers when determining how many city employees to award the new Valley city. That practice cost the remaining city of Los Angeles 147 positions, the city alleged.

LAFCO Executive Director Larry Calemine declined to comment on the city’s charges that his agency’s financial study is filled with inaccuracies and contradictions and needs to be revised.

“[The city report] will be considered just like the applicant’s proposal is being considered,” Calemine said.

Close said Valley VOTE’s attorneys will review the contention that Proposition 218 may require a separate vote to approve taxes shifted from one municipality to another.

He said the Valley is entitled to a share of water rights, should receive water and electricity at the same rates charged the rest of Los Angeles, and could share control over the Department of Water and Power with the city of Los Angeles by reorganizing it into a new regional government entity.

Those issues could end up in court.

The question of whether the Valley is entitled to receive water and power at the same rate charged the rest of L.A. is a key one, both politically and practically, if secessionists want to convince Valley voters to break away from Los Angeles.

“It’s probably one of the biggest questions that needs to be answered,” said Miscikowski.

The city study will be reviewed by the City Council. It must be submitted to LAFCO by July 2.

In response, LAFCO might revise its financial estimates, which predicted the new Valley city would enjoy a $20-million surplus even after paying $68 million to the remainder of Los Angeles to make the city financially whole for lost Valley tax revenue.

While the city report did not offer alternative estimates, it stated that LAFCO apparently underestimated some costs in a way that “raises serious questions” regarding the financial viability of the proposed Valley city.

For instance, Los Angeles officials noted that LAFCO provides for a $5.7-million reserve fund in a $1.05-billion budget for the Valley city. That represents 0.54% of the budget, compared to the city of Los Angeles’ reserve of 3.3% for next year. To be comparable, the new Valley city would have to budget $34.6 million for reserve, much more than the proposed surplus would allow.

The city report from William Fujioka, director of the city Office of Administrative and Research Services, also stated that LAFCO underestimated transition costs, noting Valley VOTE’s proposal to extend the transition from eight months to three years would mean more expenses.

State law requires that before cityhood can be placed on the ballot, LAFCO must find that the breakup is revenue-neutral--that it causes no financial harm to the part of Los Angeles left behind.

The city report stated that the way assets and personnel are divided by LAFCO does not add up to a revenue-neutral situation, because it doesn’t take into account the actual workload of the remaining city.

For instance, a portion of staff in the city clerk’s office would be transferred to the Valley, leaving a smaller staff that would still have to serve a 15-member City Council. That, the city contended, would result in a loss of services.