Minutes from June 4, 2013-LAFCO

Tuesday, June 4, 2013

Open Board of Directors Meeting
 San Bernardino Community College District
114 S. Del Rosa Drive
San Bernardino, CA 92408


Present:  Dimitrios Alexiou, Deborah Barmack, Carole Beswick, Erin Brinker, Ann Bryan, Ken Coate, Bill Easley, Ray Gonzalez, Scott Hofferber, Fran Inman, Al Karnig, Ed Kilgore, Lowell King, Ed Lasak, Bev Powell, John Prentice, Susan Rice, Kristine Scott, Larry Sharp, Paul Shimoff, Phil Waller, A.J. Wilson and Ray Wolfe.

Guests:   Pam Langford, Jim Morris and Mayor Pat Morris

Announcements: 1) Congratulations were expressed to member Fran Inman who has been appointed to the Dept. of Transportation’s Freight Advisory Committee.  2) A dedication ceremony for the I-10 Westbound Widening Project will be held on Friday, June 14, 2013 at 10:00a.m. at the Caltrans Park & Ride Lot on Hampton Rd. in Yucaipa.  For more information visit www.sanbag.ca.gov/projects   

M/S/P: Minutes from May 14, 2013 & May 28, 2013

A.J. Wilson introduced Kathy Rollings-McDonald, Executive Officer, San Bernardino Local Agency Formation Commissions (LAFCO).    

LAFCO, a state created agency in 1963, was formed for every county in the state to address the development boom in California which resulted in a number of illogical and special interest incorporations of new cities and formulations of new special districts.  The goals of the commission are:

  • Encourage orderly growth
  • Promote logical & orderly service boundaries for cities& special districts
  • Discourage premature conversion of prime agricultural lands to urban uses
  • Promote efficient & effective service delivery for cities & special districts 

Very few cities have disincorporated since LAFCO’s inception, but as the economy has changed more cities are looking at the process and their options.  There are two methods for disincorporation in California-

1)      Statutory: specific to individual city, most flexible (but retains some restrictions) and subject to Legislature & Governor approval.

2)     LAFCO process: has established procedure and process, LAFCO retains significant control of process, subject to voter approval. Their outdated statute must be updated to reflect Props 13 & 218 in its discussion of taxes and assessments.  

The steps to disincorporate under LAFCO law are as follows:

  • Initiation by petition (registered voters) or resolution (any affected agency)
  • LAFCO consideration/hearing-environmental assessment, property tax transfer, notification.  LAFCO retains the right to approve, modify & approve, or deny proposed disincorporation.
  • Election (registered voters in city only).  If new taxes are required, they would be a function of election & requires a 2/3 vote for passage
  • Completion of proceedings

Successful disincorporation requires that LAFCO or the county perform a forensic audit without direct ability to be paid for the preparation.   

LAFCO may impose an almost limitless array of conditions and factors during its consideration-i.e., transfer of water rights, continuation of boards or departments, transfer of property, etc.  There will be no impairment of creditors and LAFCO may set an effective date for satisfaction of conditions of approval.  

The legal effects of disincorporation under LAFCO statutes include:

  • No impairment of contracts
  • No effect on bondholder security
  • Existing labor agreements transferred
  • Assets & operations are transferred to County or to newly created special district
  • Former tax levies maintained and transferred for implementation as authorized by statute. 

Any disincorporation may have problems with the need to cover all debts/creditors prior to discussion of continuing service obligations. There will likely be political issues with public employee unions, other vested interests and retirement obligations in addition to addressing how to pay for ongoing services and the reduction of services.     

The process of disincorporation is complex.  Based upon the fiscal stress factors which currently exist it may be impossible to consider without a bankruptcy proceeding.  Some LAFCOs are considering policies which would require it.  Additionally, disincorporation calls into question the requirement for payment of the full unfunded retirement obligation of the City.  That obligation would have to be accurately identified and a method for payment a part of the reorganization.   

Alternatives to disincorporation include contracting out services, consolidation of cities and shared service agreements.

 A Q & A period followed. 

The meeting adjourned at 8:30 a.m.