Get CP&DR
  • Become a subscriber
    Get access to all CP&DR premium articles including the past article archives.
Connect with CP&DR

facebook twitter

Follow us on Facebook and Twitter

Articles by Category
Solimar Research

Viability of Los Angeles Secessions Caught in Complex Numbers Game

Oct 1, 2001
You learn in school that planning is about vision, but in the real world planning usually boils down to numbers numbers about what's going to happen in the future. But you can never really know what's going to happen in the future. The best you can do is guess. So planners and others of their ilk spend an awful lot of time guessing and then attaching numbers to the guesses, as if they're real. We guess at how many people there will be, how many jobs, how many cars pump through a given intersection, and most of all we guess at how much all this will cost and how much revenue it is going to bring in to the local governments that pay most planners' salaries. Most of the time the guessing game helps us determine whether projects are approved and, if so, what the conditions of approval will be. But once in a while, the guesses help determine whether a city exists at all. Those guesses are done by Local Agency Formation Commissions, and right now Los Angeles County LAFCO is engaged in the mother of all guessing games the fiscal analysis to determine whether the San Fernando Valley, the Harbor District, and other parts of the City of Los Angeles can survive if they secede from L.A. In particular, the LAFCO is engaged in two high-profile and controversial analyses dealing specifically with the Valley and the Harbor, both of which have strong and active secession movements that are gunning to go on the ballot next year. The Valley would encompass nearly half the city and create a new municipality bigger than Detroit, with some 1.5 million people; the Harbor secession would create a city of 161,000 people a municipality about the size of Garden Grove or Oceanside. The short answer from the LAFCO fiscal consultants is that the Valley can make it but the Harbor cannot. The Valley sends a little more than $1 billion a year to City Hall in revenue and gets back just less than $1 billion in services meaning the Valley turns a "profit" of nearly $70 million. The Harbor, however, is almost the opposite. The Harbor sends about $123 million per year in revenue to City Hall and gets about $159 million in services a $36 million annual loss. Under the state's LAFCO laws, a tricky balance would have to be struck between the new cities and the old one. The new cities must be fiscally viable that is, they have to be able to pay their bills yet the deal has to maintain "revenue neutrality" between the new cities and the old one. And because the Valley would turn a profit, there is an assumption in the process that the Valley would have to buy its freedom from Los Angeles with a $68 million annual "mitigation payment." Because the Harbor did not even meet the threshold for fiscal viability, nobody is talking about mitigating anything to make the new city work. Characteristic of intergovernmental wars, both the Valley and the Harbor fiscal studies got hammered almost immediately. But and here's a big surprise the hammering only came from those with something to lose. Harbor cityhood proponents who did not get what they want commissioned their own study, taking issue with many of the assumptions in the LAFCO study. And the City of Los Angeles facing an apparent $70 million hole in its budget filed comments that stretched over 700 pages twice the length of the actual LAFCO report. The reason the Valley is profitable at least according to LAFCO's scenario is exactly the reason the Valley secession advocates have always suspected: The Valley provides a disproportionate amount of the funding for the City of Los Angeles, considering the services it gets in return. For example, according to the LAFCO consultants, the Valley kicks in 36% of L.A.'s property tax (about $200 million), and confirming all those rumors about Valley girls almost half of the sales tax (about $162 million). But LAFCO estimates that the Valley only gets about one-quarter of the police force (3,400 staff, most of them police officers). The Harbor, meanwhile, comes out on the short end partly for the same reason. The Harbor would need 3.3% of the city's police force (447 staff members), but would have to make do with only 2.5% of the sales tax ($8 million a year), though it would get a more or less proportional 3.67% of the property tax ($20 million). If the Harbor were in the Valley's situation where sales tax receipts, as a percentage of L.A. city total, were almost double the police costs the new city's deficit would be less than $20 million a year, rather than the forecast $36 million. Divvying up the city's considerable assets is even trickier. The City of Los Angeles is one of the largest business enterprises in California and, in many ways, one of the most successful. It owns a water and power system, several airports, and one of the largest ports in the United States. All turn a profit, or least provide services to residents at favorable rates. Not surprisingly, cityhood proponents want to take advantage of these favorable financial circumstances in their projections and secession opponents do not. So, for example, the LAFCO study assumed that the new Valley city would take control of Van Nuys Airport, which loses $4 million a year, but would not obtain a pro-rated portion of LAX, as secession proponents suggest, because that would require city approval. Similarly, Harbor cityhood advocates complained that the LAFCO study assumed that the new city would bear all the service costs of the Port without obtaining any of its considerable revenue. All these assumptions could easily fly out the window. Indeed, one of the most powerful documents thrown into the public arena in the secession debate so far is a lengthy memo by the L.A. City Attorney's office filed just before James Hahn left that post to become mayor identifying a long list of legal issues associated with Valley secession. These include, to name just a few: * Special taxes, including the utility tax, might be subject to Proposition 218 voter approval if they are taken over by the Valley city. * LAFCO cannot set water and sewer rates and similar charges that would be required to cut a deal between the new city and the old one. * The transfer of Van Nuys Airport requires approval of the Federal Aviation Administration, which may or may not be forthcoming. The City Attorney issues alone could turn the entire fiscal analysis around. So, too, could a different assessment of what these new cities would be like. L.A. County Sheriff Joe Baca has indicated that he could save the Harbor city $15 million a year if it would contract with the Sheriff's Office for police services rather hire the LAPD to provide the same service it now provides. Baca is trolling for customers his primary source of revenue, the county, is not very reliable but his point is good. If you are 3% of the City of L.A., and you are seceding because you do not like being such a tiny part of such a big city, why would you set up a police department that is essentially the same as the current one, only smaller? What's remarkable about this statistical battle is the fact that even though the analyses are long, the math is simple. It's just addition and subtraction and multiplication and division. The calculus, if you will, comes not in the numbers but in the political assumptions that underlie them, which is why "dueling accountants" can be such a frustrating game in planning. Valley City Harbor City FY 2003-04 FY 2003-04 Revenue General Fund $900,971,183 $102,212,519 Special Purpose Fund $157,267,464 $21,566,318 Total Revenue $1,058,238,647 $123,778,837 Expenditures Direct Municipal Services $921,349,645 $146,817,665 City of LA Contracted Services $56,183,291 $8,269,759 IT Transition Costs $3,600,000 $2,400,000 Additional Personnel $3,050,136 $1,724,912 Total Direct Expenditures $984,183,072 $159,212,336 Surplus or (Deficit) $74,055,575 $(35,433,499)