Cities have been established in California since before California became a state. For most California cities, the formation of their municipality happened because local people wanted to assert control over the everyday doings in their community. While the notion of local control remains the primary reason for any new city to be formed, the state has more recvently insisted on an analysis of financial feasibility as a necessary step towards local control. That's clearly reasonable; no one wants a new city to venture into a bleak financial future. Doing a financial feasibility analysis is one thing, though. Who does it is another.

The LAFCO Law puts LAFCO in the driver's seat for doing a financial feasibility study. That seems OK until you understand a county LAFCO normally has neither the expertise nor the resources to perform such a study and will have to contract out to get it done. Now let's assume a county LAFCO has experience at contracting out - a shaky assumption, but let's go with it. LAFCO does not have funds to perform a financial feasibility study, so they make the cityhood proponents hire the contractor. Aye, there's the rub. The people who pay for the contractor - typically a citizens' group that raises money with bake sales and car washes - don't get to structure the contract or its schedule, cannot tell the contractor what to do or not do, and are not allowed to influence the outcome in any way. Who gets to do that? LAFCO, the people who have to rely on a contractor. Fine, except in many cases the local LAFCO is composed of people that represent entities oposed to incorporation.

Problems can happen if people who are biased against the establishment of a new municipality get to oversee the performance of a contractor who essentially produces a spreadsheet that calculaters revenues and expenses. When Arden Arcade pursued cityhood in 2008-2010, the feasibility analysis wound up overestimating the costs and underestimating the revenues. Whether that was cheating or smartly erring on the side of an abundance of caution is beside the point. What mattered was that the local LAFCO said the new city "might" be feasible. "Might" was an anti-cityhood trigger word, particularly given that the years used for baseline data corresponded with the bottom of the "Great Recession".  Conditions then were perfect for starting something new. They were at rock bottom and had nowhere to go but up. As the saying goes, "Buy low, sell high." Voters, on the other hand, heard the word "might" and then filled in the "no" bubble on the cityhood ballot. Of course, time has proven that LAFCO was dead wrong. The years after the Great Recession produced extraordinary economic gains and were remarkable boom times for automotive sales, something Arden Arcade has in spades.

Unfortunately, that was not the only recent example of financial feasibility mischief by a LAFCO. A few years after the Arden Arcade ballot measure went down in flames, the residents of Olympic Valley in Placer County took a flyer at municipal incorporation. Their initial financial feasibility analysis was very favorable. At the time Placer County was, shall we say, "intrigued" by a proposal from the out-of-state owners of the Squaw Valley (now Palisades Tahoe) Ski Resort to build a lot of new condominiums in the Squaw Valley parking lot along with an indoor water park. Locals across the North Tahoe region were solidly opposed to the condos and water park, so the project proponents siezed on the situation and convinced the Media and the public that Olympic Valley incorporation was just a ruse to stop the condos. That wasn't true. The land use decision to build the condos had already been made (it was later stopped by a court decision unrelated to the incorporation issue). But the bruhaha played into Placer County LAFCO's hands. Their contractor's financial feasibility analysis said the city would be in the red within 10 years. The cityhood proponents then implemented a little-known clause in the LAFCO law and appealed the findings to the State Controller, pointing to 20-some errors in LAFCO's analysis. The Controller responded that almost every one of the 20-some points were indeed incorrect, saying the proposed city would be in the black after 10 years. Placer LAFCO then told the cityhood proponents that LAFCO did not know what to do with the Controller's information. The proponents, suspecting they might not live long enough for the case to wind its way through the court system, gave up and folded. Placer LAFCO had won. The shame, of course, is that LAFCO should not be picking winners and losers, it should be making factual decisions. And the facts were clearly on the side of the Olympic Valley cityhood people.

Our coalition believes in accurate knowledge. We are not entirely convinced that the 57 LAFCOs of Caalifornia have expertise at financial feasibility analysis, though we DO have faith in the Controller of the State of California. Our state's economy is the fifth largest in the world; the Office of the State Controller miust be doing something right. Further, we think LAFCOs should stop using financial feasibility studies as a device to thwart a new incorporation by: 1) requiring citizen proponents to pay for a contractor to do the CFA, 2) denying citizen proponents the ability to manage the contractor’s use of funds, and then 3) characterizing positive results as negatives.

State law allows proponents to appeal an incorporation financial feasibility analysis to the State Controller. Rather than LAFCOs contracting out this analysis, and to ensure a more consistent approach, this work should be assigned directly to the State Controller. Revise the LAFCO process so the State Controller will do the CFA.

Note: Since the Legislature and the Governor are inclined to be wary about any use of state funds for something like this, the Controller would not have to keep money on hand for this purpose or even to hire a staff. The funds could be provided by cityhood proponents and the Controller's Office - which has contracting expertise - could hire and oversee a contractor for this work, with the paying proponents sharing in the oversight. Existing state law allows cityhood proponents to pay the Controller for this purpose.