Disincorporation

This is the only article I've seen on disincorporation, it's so rare that no one knows of the consequences.  -Lionel Emde

BUDGET ISSUES COULD BRING DEATH OF CITY

Author(s): Julia Scott, julia.scott@bayareanewsgroup.com    Date: August 28, 2010  Section: Local

Between budget losses and payments to settle a lawsuit, Half Moon Bay's financial situation has become so dire that if a local sales tax measure doesn't pass in November, officials say they may have to disincorporate the 51-year-old town. 

City leaders have raised that possibility for a few weeks now as they try to persuade voters to pass Measure K, a one-cent sales tax increase that would help the city balance its budget with an extra infusion of $1.4 million a year for the next seven years. 

Dissolving Half Moon Bay -- handing the city's budget, operations and services to San Mateo County -- would be an absolute last resort, but the city may not have many other options left, City Councilman John Muller said. "The council has done everything in its power to keep the city whole," Muller said. "If it doesn't pass, we could seriously not be in business much longer."

 At first glance, disincorporation could save taxpayers some money: no more city administration to support. Police services would be contracted out, and the county would cover planning, building and public works projects from its offices in Redwood City.

 On the other hand, county officials said there is a chance that locals would end up paying more than they do now for fewer services. City Manager Michael Dolder concedes disincorporation is one of the options on the table. The City Council already cut $900,000 from the current budget -- including half the city's employees -- and imposed furloughs on those who remain. Some of the cuts were needed to pay for the Beachwood lawsuit settlement, a $15 million burden the city will shoulder in bond payments for the next 20 years.

Despite those efforts, the city will finish the current fiscal year with a deficit of more than $500,000. And tourist dollars, the city's economic mainstay, aren't likely to increase anytime soon.

"We're digging ourselves into a hole, and the hole keeps getting deeper regardless of whether the sales tax comes in," Dolder warned.

 Too much to lose

Across the state, cities are struggling to provide the services residents have come to expect with fewer revenues and staff. People are looking for a way out, according to Bill Chiat, executive director of the California Association of Local Agency Formation Commissions. "There certainly have been cities in this economic climate that have inquired about disincorporation," Chiat said. "But once people who talk about it actually find out what happens in disincorporation, they generally don't want to pursue that path."

Dolder ticks off the drawbacks of disincorporation: a county-controlled police department, sporadic road maintenance, no City Council to which to complain; and no recreation department to offer yoga classes or soccer workshops. "The majority of residents in San Mateo County choose to be in a city because they get better service," Dolder said. "If the county provided better service, more people would choose to be in the county."

Ironically, Half Moon Bay chose to incorporate in 1959 in large part because residents wanted a local police force and local control of street maintenance. Muller was born in Half Moon Bay. For him, disincorporation would be more than a question of losing face -- it would be a loss of identity. "Do you have pride in the city? Do you want keep it as Half Moon Bay? Do you want to have local control over your government?" he asked. "Over the hill, nobody knows you." Debt would remain 

Disincorporation is so rare in California that it's almost without precedent. The last city to do it, Cabazon in Riverside County, had fewer than 2,000 residents and no functional government to speak of when it voted to give up cityhood. The process is so complicated that county officials said they don't know what kinds of services the Board of Supervisors would choose to provide or how much they would cost. Although the law lays out a clear procedure for disincorporation, including public meetings and a final majority vote by residents, it's unclear how it could work from a practical standpoint, said Martha Poyatos, executive director of the San Mateo County Local Agency Formation Commission. "We're in uncharted territory," she said. 

One thing is certain: disincorporation is not a bailout. The county would lay claim to revenues from Half Moon Bay's property tax, sales tax, hotel tax and others, but not its liabilities. Today's Half Moon Bay residents would be required to assume the debt burden of Beachwood bond payments, which would likely be added as a lien on their properties, according to Assistant County Controller Bob Adler. The county currently takes in 21.7 percent of all property taxes that don't go to the state. The county cannot unilaterally raise taxes to make up for a loss. So service cutbacks are a possibility, said Adler. "The costs don't go away just because the cities go away," he said. "You still need to provide the services. You still have the same problems out there." 

 The rural city of Isleton, in the Sacramento-San Joaquin Delta, toyed with disincorporation in 2008 when faced with a budget deficit of $1.12 million (the city only has a $1.35 million budget). In the end, officials decided to sell bonds to pay off its debts. Now it is struggling to make bond payments. 

"I've cut everything I can cut, and we're right up against the wall," Isleton City Manager Bruce Pope said. "We're not (facing disincorporation) now, but we could go there at any time."

Submitted by Lionel Emde