Doubt Is Cast on Valley Reserves

The harbor area of Los Angeles could not survive as a separate city, and the San Fernando Valley would have to beef up its reserves to be fiscally healthy, state Controller Kathleen Connell ruled Monday.

But Connell, who was asked by Los Angeles Mayor James K. Hahn to review proposals to split the two regions from Los Angeles, rejected the city’s contention that a new Valley city would owe it nearly $300 million annually.

Secession advocates said Connell’s findings bolster their case by removing one argument against it--the contention that the breakaway area would be financially constrained because it would be obligated to continue pouring hundreds of millions of dollars into the city of Los Angeles budget.

Some secession critics have said those payments would be needed to ensure that Los Angeles would not be hurt financially by the breakup, a condition that must be met before secession can be placed on the ballot.

Connell’s study says that rather than $300 million a year, the Valley would owe Los Angeles about $61 million annually.

“It’s a major victory,” said Richard Close, president of Valley VOTE, the group leading the drive to place Valley secession on the ballot. “It removes the last potential roadblock to this going on the November ballot.”

The controller’s finding that a proposed harbor city would not be able to operate in the black could be enough to knock the proposal off the ballot--particularly because the state agency that oversees the creation of new cities has also pointed out serious flaws in the proposal.

State law prohibits such a vote unless the area that would secede is shown to be financially viable.

But votes on independence for the Valley and Hollywood look more likely after Monday’s reports.

The controller supported the analysis and methodology used by the Local Agency Formation Commission, which oversees the creation of new cities.

And that would indicate that when she analyzes the Hollywood proposal, she will again support the commission’s finding that the area would be financially healthy on its own.

The City Council is expected Wednesday to ask her to conduct a similar review of a secession proposal for Hollywood.

“The harbor is climbing a steep mountain at high altitude without an oxygen tank, but my expectation is that Hollywood will make it [to the ballot],” said county Supervisor Zev Yaroslavsky, who serves on the commission and chairs the committee working out the details of the proposed municipal splits.

Proponents of secession in the harbor, Hollywood and Valley, driven by the belief that Los Angeles is too big and impersonal, have asked that their proposals to break up the city be placed on the ballot in the fall. Critics argue that the breakup would prove unwieldy and have cited logistical, political and moral objections.

Connell wrote her report in response to Hahn’s request to analyze the soundness of a state commission’s contention that a proposed Valley city would be economically healthy, and that a harbor city would have financial problems unless it significantly reduced services or raised taxes.

In her review, the controller said that the proposed harbor city would not be able to make ends meet even if the State Lands Commission, which she chairs, grants it full control over the Port of Los Angeles.

“Even under the best-case scenario for the harbor, we don’t believe that cityhood is a viable answer,” Connell said.

Los Angeles City Councilwoman Janice Hahn, who represents the harbor area and is the mayor’s sister, said that in order to survive financially, an independent city would have to cut into the most important services, such as police and fire.

She criticized secession supporters, who say that independence will make the densely packed blue-collar and middle-class neighborhoods of San Pedro, Wilmington and Harbor City work and feel like a small town.

“Who wants Small Town U.S.A. when Small Town U.S.A. could burn down or criminals could take over?” she said.

Andrew Mardesich, co-chairman of the harbor secession effort, said that both the controller and the commission improperly analyzed their proposal as if a harbor city would be run like Los Angeles, rather than like a much smaller city.

“I would say the same thing [as Connell] based on the numbers she saw,” Mardesich said. “She never saw our alternative scenario.”

Connell said she could not directly address the question of whether the Valley would be financially viable on its own, because Hahn did not ask her to do so. Connell, who ran against Hahn for mayor of Los Angeles last year, said she believed the omission was deliberate because Hahn feared that she would rule that a Valley city could be financially healthy without Los Angeles.

Still, the controller said she was concerned that the proposed Valley city, which would have a population of 1.4 million, would have smaller reserves than most California cities of comparable size.

Although the city would have a sizable budget, its proposed reserve fund of $12 million during its third year of independence is significantly less than the $35 million that cities of comparable size generally have, she said.

Connell recommended that supporters of Valley cityhood remedy that by cutting $23 million from their proposed $1-billion budget or risk “gasping for air” if unexpected expenditures arise.

Connell also found that the commission underestimated by about $4 million the amount of money a Valley city would have to pay yearly for its share of Los Angeles’ debt.

“I would caution Valley proponents to really look with great discipline at this budget and determine where they would want to make these cutbacks,” she said in an interview Monday. “They’re going to want to walk into cityhood with the element of success, and they can only do that if they put together a budget that provides for some kind of cushion.”

Mayor Hahn said that because the report pointed out financial flaws in both proposals, it showed that people would be better off if the city stayed together. “The idea that there’s this utopia around the bend that’s going to have all this money to provide all these extra services ... is a myth,” Hahn said.

He declined to respond in detail to the report Monday.