Under current legislation there will be no new cities in the State of California. In fact the number of cities may go down from 482 to 478 without the State rectifying an inequity caused by its own actions. In June of 2011, the Governor of the State of California (State) signed into law Senate Bill (SB) 89. In effect, this legislation shifted Motor Vehicle Licensing Fees (MVLF), a primarily locally distributed revenue source, from cities to the State. The purpose of the shift was to offset a portion of the costs associated with the realignment of public safety obligations from the State to counties. For cities that incorporated prior to 2004 and those that had not conducted an inhabited annexation prior to the same year, the financial impacts required additional belt tightening with proportionate cuts in public services. For municipalities incorporating or conducting inhabited annexations post 2004, the impacts were much more severe including major reductions to public safety and setting the stage for municipal insolvencies and even municipal dis-incorporations.
The inequity facilitated by SB 89 has its genesis in the passage of Proposition 1A in 2004. Ironically, Proposition 1A was intended to protect revenues collected by local governments (cities, counties, and special districts) from being transferred to the State for statewide use. However, the post Proposition 1A implementation formula did not take into account future incorporations nor future inhabited annexations. Per the provisions of the formula, “Pre-2004” incorporated cities receive an additional appropriation of property tax in lieu of receiving an equal amount of MVLF. Post 2004 incorporations were not included in this formula, and as such, do not receive this offset to MVLF. This omission made proposals for new cities and new inhabited annexations fiscally infeasible until the passage of Assembly Bill (AB) 1602 in 2006. This legislation, instituted to facilitate a level of fiscal parity between pre and post 2004 incorporations, provided for an enhanced amount of MVLF to newly proposed inhabited annexations and cities. For the most part, it attempted to level the playing field. It was the reliance upon the provisions of AB 1602 and the inclusion of this enhanced MVLF revenue stream that made the incorporation of the Cities of Jurupa Valley, Eastvale, Wildomar and Menifee fiscally feasible. However the passage of SB 89 changed the rules after the fact by eliminating the provisions of AB 1602 and created a path for the future insolvency of the State’s four newest cities. For the City of Jurupa Valley, without the reinstatement of at least the equivalent revenue sources included in the fiscal feasibility study approved by the Riverside County Local Agency Formation Commission (LAFCO), the City will need to file an application for dis-incorporation no later than December 2013.
Since the passage of SB 89, the four cities have diligently worked with our collective State Legislators, the Governor’s staff and the State Department of Finance to rectify this “State Induced” fiscal inequity between cities. Throughout FY 2011-12, a litany of different pieces of legislation, focusing on the restoration of the provisions of AB 1602, were proposed, modified and eventually voted upon. At the end of last year’s budget session the final iteration, AB 1098, passing in the State Senate 35-0 and in the State Assembly 57-7 was later vetoed by the Governor.
This fiscal year the four cities are back trying to obtain legislation that creates fiscal parity with the State’s other 478 cities. With the efforts of State Senators Richard Roth (D) and William Emmerson (R), SB 56 passed the Senate’s Governance Finance Committee unanimously. In that MVLF can no longer be a source of revenue, due to the passage of Proposition 30 last November, SB56 instates the same Proposition 1A property tax base formula that is enjoyed by all of the pre 2004 incorporated municipalities. SB 56 will effectuate the same distribution of property taxes to the four post 2004 cities, effectuate the same distribution of property taxes to post 2004 inhabited annexations and will provide this same revenue distribution to future incorporations and annexations. The clearly discriminatory effects of SB 89 will be eliminated and equal fiscal treatment of all municipalities will be enacted with the passage of, and signing into law SB 56. As with last year’s effort, it would appear that the Legislature recognizes the existing inequity. Invariably, SB 56 should get to the Governor’s desk.
What SB 56 addresses is parity; not just parity in the sense of fiscal equity but in the sense of equal access and input to ones’ own government. This is a statewide public policy issue that goes beyond just the State’s four newest cities. Does the effect of Proposition 1A and SB 89 portend the reversion of cities back to unincorporated islands requiring urban services that cannot be provided by a county? By letting the existing fiscal provisions stand, there will be no new incorporations or inhabited annexations due to fiscal infeasibility. Growth and urbanization will continue while limiting the means to provide the public services required of a burgeoning population. Existing disadvantaged unincorporated communities will continue while the disincorporation of cities, like the City of Jurupa Valley, with 76% percent of its K-12 school population qualifying for the free lunch program, will add to the roster of the disadvantaged. These populations deserve the same level of public services and access to elected representatives afforded to those residing within the boundaries of the 478 municipalities that incorporated before 2004. Passage of SB 56 ensures each and every Californian residing within a current or future city receives an equal distribution of locally generated revenues. It also facilitates the opportunity for greater access to the business of government. No such commitment to future cities exists without it.
Stephen G. Harding
City of Jurupa Valley
Master of Public Policy & Administration Program
Master of Public Administration Program
University of La Verne