Four New California Cities Might Dissolve

Editor’s Note: Correction Below

MARCH 13, 2012

By WAYNE LUSVARDI

Newspapers across the United States have told of the financial plight of three cities in northern California facing possible bankruptcy: Stockton, Hercules and Lincoln.

However, many may not be aware that four newly formed cities in Southern California may be facing disincorporation due to the California Legislature denying them property taxes in lieu of Vehicle License Fees that all other cities in the state receive.  These four cities are: Jurupa Valley, Eastvale, Wildomar, and Menifee.

They have a combined population of about 257,500 people, which would be similar in size to the city of Stockton.  Stockton is the largest city in California facing bankruptcy.

No city officials in any of the four Southern California cities are willing to say whether the actions of the Democratic-controlled Legislature create an appearance of partisan policy in denying taxes to only new cities in the Republican Inland Empire of Southern California.  Steve Harding, city manager for Jurupa Valley, said these four cities need bipartisan support to correct the legislature’s oversight about how this policy adversely affects newly incorporated cities.  According to CityData.com, three of these four cities voted a split ticket in the 2008 U.S. presidential election.

Cities With No Pension Spike or Debt Going Insolvent

Newer incorporated California cities such as Eastvale, Jurupa, Menifee and Wildomar have no substantial debt or pension obligations, as do older cities suffering from budgetary insolvency.  That is because the newer cities were incorporated from 2008 to 2010.  So bankruptcy is not an option because there is nothing financially to restructure.  Folding these cities back into Riverside County may be the only viable option.  But that would take a vote of the residents of each city.

Jurupa Valley, Eastvale, Wildomar and Menifee experienced a population boom from 2003 to 2008 due to the Housing Bubble. These four cities have lost from 17 to 46 percent of their operating budget when Vehicle License Fees were diverted to fund prison realignment in 2011.  The loss of these fees was not backfilled with property taxes, as happens in all other cities in California.

Typical salary and benefit costs for most city budgets are in the 70 to 80 percent range of the total budget. Thus, Jurupa Valley — which lost 46 percent of its budget — and Eastvale — which lost 38 percent — are the most susceptible of the four cities to becoming financially insolvent.  Insolvency is when expenditures exceed revenues.

Percent of Vehicle License Fees of City Budgets

Northern California

Southern California

City

Stockton

Hercules

Lincoln


Jurupa Valley

Eastvale

Wildomar

Menifee

VLF   Percent

11%

9%

1%

46%

38%

22%

16%

Budget   Deficit

$20 to $38 mil.

$1 million

$2
million

$6.8 mil.

$5
million

$1.8
million

$3.4 million

Percent   Home Value Decline

Down
65%

Down
62%

Down
50%

Down
51%

Down 45%

Down 53%

Down
49%

Pop-   ulation

290,000

26,000

43,248

94,235

53,668

77,519

32,176

Political   Party

Democrat

Democrat

Republican

50/50

50/50

50/50

Republican


In 2006, AB 1602 Made Incorporation Easier

State Assembly Bill 1602 passed on Sept. 29, 2006, made it easier for unincorporated areas to become cities.   Instead of a property tax on motor vehicles as many states have, California collects an annual Vehicle License Fee — called the VLF.  It allocates the revenues, minus administration costs, to cities and counties.

The unincorporated area of Wildomar incorporated on Feb. 5, 2008. In 2008, the unincorporated areas of Menifee, Sun City and Quail City merged and became incorporated as the city of Menifee. This spurred interest by the areas of Mira Loma, Pedley, Glen Avon, Sunnyslope and Rubidoux to merge and incorporate.  The new city of Eastvale incorporated on Oct. 1, 2010. On July 1, 2011, the census place of Mira Loma became incorporated with the city of Jurupa.  Another part of Mira Loma became part of the city of Eastvale.

Questions and Answers

Steve Harding, city manager of Jurupa Valley, was interviewed and provided some helpful answers on the financial crisis facing all four cities.

Q: What is the current status of VLF in Jurupa?

Harding: Currently, the city has lost all of its estimated $6.8 million in VLF for FY 2011/12 and is scheduled to receive only $180,000 in COPS [Community Oriented Policing Services] backfill funding. Additionally, this annual loss is ongoing into future years.

Q: Why was Jurupa disproportionately hit with the highest diversion of VLFs?

A: Jurupa Valley along with the three other cities that incorporated after 2004 (Eastvale, Wildomar and Menifee) do not receive property tax in Lieu of VLF that all other cities in the state receive. The four new cities were receiving this proportionate revenue in the form of VLF only on a population basis as per the 2006 AB 1602 legislation. Jurupa Valley, being the largest of the four cities, was thus hit with the largest proportionate loss. In fact, only the city of Los Angeles lost more than Jurupa Valley as a result of the SB 89 VLF diversion. But even Los Angeles, along with all the other cities in the state, retained their significant property tax in lieu of VLF apportionment.

Q:  Is Jurupa’s budget in a shortfall to be met with reserves or in a true deficit due to loss of VLF’s?

A: As a brand new city, we had anticipated ending FY 11/12 with an approximate $9.7 million surplus for reserve in the general fund, with future balanced budgets moving forward into future fiscal years. With the loss of the VLF this year, we are now projecting an approximate $2.9 million surplus for reserve. However, as this loss at present time is ongoing, and as the city transitions into its second year, there will be a significant budget shortfall that will exhaust this reserve and lead to insolvency prior to the end of FY 12/13 without very significant and draconian cuts to services.

Q: Has the county loaned Jurupa funds and how long would they continue to do so?

A: Riverside County did loan the city $1.7 million for cash flow purposes since our VLF apportionment scheduled to be received in August 2011 did not come forward. Now that the city has begun receiving sales tax and other revenues, we have repaid that loan. However, it is noted that the only reason the county was able to do that was under state law, they can make such a loan to a new city in its first fiscal year, but cannot do so after that fiscal year completes. Thus, we cannot receive any more loans from the county.

Q: Does the City have a Plan B in the event that VLFs are not restored in whole or in part?

A: The city is working on a Plan B. However, it is unlikely the city would survive very long. The city has no employees at this time and all functions are handled by consultants. The most significant expenditure is for law enforcement (contract with the county sheriff), which will comprise approximately 60 percent of the anticipated Fiscal Year 2012/2013 budget. The sheriff has advised the city on the maximum cut they could absorb in service levels and continue to service the city from an officer safety standpoint. This cut would not be sufficient to cover the gap. Additional cuts in other services are being reviewed but if all services are curtailed, and all other costs eliminated (which can’t legally be done), there will still be a significant budget gap.

Q: Would the worse case scenario for the city be bankruptcy or disincorporation, or could the city absorb a loss of nearly 50 percent of its General Fund?

A:  The city [of Jurupa Valley] cannot absorb this loss. Worst-case scenario would be disincorporation, which would have to go before the voters. Bankruptcy is not really an option because we are so small in consultant staffing, and we have no debt or pension liabilities, etc., there is really nothing to re-organize. Again, law enforcement is the largest expenditure and they cannot be cut sufficiently to make up the gap do to their officer safety requirements.

Q:  What effect, if any, did the past swap of property taxes for VLFs have on Jurupa?

A:  When the 2004 “swap” took place, cities not yet in existence (and future annexations to existing cities) were left out of the funding “swap” formula. In 2006, AB 1602 was signed into law correcting the problem. However, instead of being placed in the “property tax in Lieu of VLF scenario,” as all other cities, the legislation devised a formula to allocate that proportional amount directly out of the VLF account. Thus, all cities and all annexations to existing cities that occurred after 2004 (essentially 2006) are now treated differently than all other cities in the state.

Q:  What efforts, if any, are under way in the Legislature to restore those funds?

A:  The city of Jurupa Valley has had several discussions with various legislators and the governor’s legislative and finance staff, including direct talks with Ana Matosantos, state finance director, on this issue. Also, SB 1566 has been introduced as a bi-partisan bill that will restore the VLF funding to the post-2004 new cities and annexations, beginning in FY 12/13. The authors of the bill are Sens. Gloria Negrete Mcleod and Bill Emmerson, with Sen. Kevin De Leon as a co-author. [Negrete Mcleod and De Leon are Democrats; Emmerson is a Republican.] Additionally, there is bipartisan co-sponsorship in the Assembly. The bill is currently in the Senate Rules Committee awaiting committee assignments. It is unclear at this time if the governor will support this bill.

Q: What is the story that Jurupa needs to get out on this issue?

A: Primarily that this is a matter of being treated fairly and equally with all the other cities in the state. Jurupa Valley understands and is willing to absorb the proportionate loss of the other cities in the state of their VLF funding, which in our case is approximately only $300,000 annually. However, we should not lose the proportionate AB 1602 funding that we have also lost since we do not receive the property tax in lieu of VLF, as all other cities retained. Additionally, this city is made up of a large segment of economically disadvantaged communities that have already enjoyed some significant service increase over what the county was providing, and that is now threatened. Additionally, the whole purpose of SB 89 was to re-direct revenue to law enforcement. However, in our case, and the other three cities mentioned previously, this is having a reverse affect. All four cities have either cut their law enforcement service down to dangerous levels, or are contemplating that for the next fiscal year. The bottom line is that we (and the other three cities and annexations) should not be treated any differently than the other 476 cities in the state.

Correction on March 29,2012: This article originally included Milpitas among the Northern California cities seeking bankruptcy. City manager Tom Wilson told us that the city “has no intention of filing for bankruptcy.” The city council did declare a fiscal emergency. But that was to deal with a $7 million budget problem because the state dissolved the city’s redevelopment agency. The city council soon will be “rescinding the fiscal emergency.” We regret the error.

— John Seiler, Managing Editor

 

16 comments

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  1. Beelzebub
    Beelzebub 13 March, 2012, 10:50

    You are going to see more and more municipalities go belly up as the State crams down it’s irresponsible fiscal management down on the cities and counties.

    If they (1) Cut salaries and retirement benefits for public workers to what ordinary people make in the private sector, and (2) cracked down on illegal immigration and stopped spending taxpayer dollars on illegal migrants – this whole financial mess could be cleaned up in 2 years.

    But don’t expect responsible action from the governement.

    Reply this comment
  2. Keep da Peace
    Keep da Peace 13 March, 2012, 12:26

    This kills me. Counties encourage unincorporated areas to incorporate. Then, they convince them to outsource police and fire to the county services because it is cheaper. That’s just a scam to let the counties charge a premium for those services without having to actually serve the governmental needs of the populace. Wgat possesses cities to do this in the name of local control? Maybe these cities need to get a ballot measure up that would force the state to share revenue evenly. Orange County, are you listening?

    Reply this comment
  3. Beelzebub
    Beelzebub 13 March, 2012, 14:23

    Although government had a big hand in the economic meltdown that caused all this crap let’s not forget it had an accomplice.

    This is for all of you who insist “the banks did nothing wrong or illegal”.

    http://fthebanks.org/matt-taibbi-on-bank-of-america/

    Fascism = merger of government and corporate powers.

    Reply this comment
  4. Wayne Lusvardi
    Wayne Lusvardi 13 March, 2012, 15:34

    Oh, the banks did do something ethically wrong, but did they do something legally wrong when the public policy was to give away money to boost family formations so that social security, Medicare, pensions, and savings would be backstopped with the interest rates from mortgages and small business loans. But putting the rentier class into ownership housing failed because, contrary to Karl Marx, man does not live by housing, or NINJA loans, alone (paraphrasing a famous religious prophet). Marxists may believe they can produce the Communist “New Man” in a generation with new institutions but they can’t produce Bourgeouise class values, intact families, or a “work ethic” – a la Max Weber’s The Protestant Ethic and the Spirit of Capitalism. You can’t create delayed gratification, a savings ethic and a time orientation to show up at work each day on time with political entitlements – let alone create entrepreneurs needed to create new industries.

    Much of the goals of social policies are intentionally unstated. There is an unstated social contract for immigration: if you immigrate here and provide cheap labor we will give you cheap health care but your children who are born here can go to public schools, buy homes, and will not be economically discriminated. But no politician will state this social contract. Same way with the Mortgage Bubble and Bank Panic of 2008 – no politician will explicitly tell you that they were trying to pump up the numbers of family formations to correct the demographic imbalance between the generations to prop up entitlement programs and pension systems. Once again, government was trying to do something it is ill prepared to do: create a middle class with ONLY wealth transfers.

    You can’t elect better politicians and expect to get a better society. You can create laws and institutions that would incentivize what is desired — but then those laws need a civil society to make it work. But if government is about the business of eradicating a civil society – so that there are no laws or institutions between government and the naked libertarian individual with their guaranteed rights — what you have is alienation and anomie and eventually totalitarianism.

    The Medici Bank was a tool of the Pope and vice versa. Nothing much has changed or is likely to change with any separation of banking and government as along as banks are regulated. Families come here from Asia and become upwardly mobile without such social policies. De Tocqueville wrote about it in a different time and context.

    Politicians need the banks – look at Kamela Harris and Barack Obama and their phony symbolic foreclosure bailout before a national election. You would think we were living in Oligarchic Russia or maybe Mussolini’s social-corporatist state. Good luck with prosecuting bankers.

    Reply this comment
  5. Beelzebub
    Beelzebub 13 March, 2012, 18:54

    “Oh, the banks did do something ethically wrong, but did they do something legally wrong when the public policy was to give away money to boost family formations so that social security, Medicare, pensions, and savings would be backstopped with the interest rates from mortgages and small business loans”

    Yes, Wayne. They did do something legally wrong. In 2010 Richard Bowden, the former Chief Underwriting Officer for Citigroup testified under sworn oath before Congress that: 1) Bowden knew that the subprime mortgages that Citi collateralized and sold to investors were rated AAA only because Citi bought that rating from the rating agencies; 2) Bowden knew that the mortgages did not meet Citi’s underwriting standards (60% defective in 2006 and 80% defective in 2007); 3) Bowden knew that Citi represented and warranted to the investors who bought the trash securities that they met Citi’s underwriting standards; 4) Bowden warned Citi’s CEO Robert Rubin of these policy violations and requested an internal investigation. The warnings were ignored.

    And what about the 100’s of billions of illicit proceeds that the TBTF banks
    KNOWINGLY laundered for the international drug cartels? You think that’s a crime, Wayne??

    “Same way with the Mortgage Bubble and Bank Panic of 2008 – no politician will explicitly tell you that they were trying to pump up the numbers of family formations to correct the demographic imbalance between the generations to prop up entitlement programs and pension systems”

    hah. That’s laughable. The mortgage bubble had nothing to do with social demographics. The whole purpose was to enrich the sugar daddy oligarchs with fraud generated wealth and taxpayer dollars. And it worked. Since the meltdown happened the oligarchs have become measurably wealthier while the middle class suffered financially.

    “The Medici Bank was a tool of the Pope and vice versa. Nothing much has changed or is likely to change with any separation of banking and government as along as banks are regulated”

    One of the prime reasons the meltdown happened was due to LACK OF REGULATION. The government was asleep at the wheel and allowed the oligarch banksters to have their way with Main St. To claim that we need less regulation is absurd on it’s face.

    I concur that the government was a prime factor in the financial collapse. But with all the evidence that exists turning a blind eye to the illegal misdeeds of the investments banks is disingenuous.

    It took both the government and the Wall Street bankers working in full cooperation to pull off the biggest financial heist the world has ever known.

    Reply this comment
  6. SkippingDog
    SkippingDog 14 March, 2012, 00:02

    One of the first things GAS did upon entering office was to cut the VLF because it was politically popular. I’ll bet the people in these Riverside communities voted for and supported his actions.

    Sometimes people should get what they want – good and hard (with apology to Mencken).

    Reply this comment
  7. Wayne Lusvardi
    Wayne Lusvardi 14 March, 2012, 11:46

    Why did the banks pick the most conservative investments – mortgages – if they were out for greed and enrichment?

    And why don’t the Attorney Generals prosecute such bankers?

    Reply this comment
  8. Beelzebub
    Beelzebub 15 March, 2012, 07:48

    “Why did the banks pick the most conservative investments – mortgages – if they were out for greed and enrichment?”

    The banksters made 100’s of billions of dollars off the mortgage scam and the collateralization of the toxic mortgage backed securities sold to unwary investors who believed at the time of purchase that the securities met sound underwriting standards. That’s not an opinion. That’s a fact. I wouldn’t exactly call that a ‘conservative’ scam by any stretch. It was the biggest ripoff in the history of the world.

    “And why don’t the Attorney Generals prosecute such bankers?”

    The AG’s are in bed with the banksters. The lion’s share of the money from the recent housing settlement is being used to plug the state budget holes – not to compensate the victims who were defrauded by the banksters. It’s free money for the states. So the deal was to take the money while giving all the banksters immunity from criminal prosecution. The banksters broke the laws and are only subject to miniscule fines (compared to profits made off the scam) which is considered the cost of doing busiiness. Besides, those costs will be passed onto the consumer in form of higher interest rates and fees.

    Here is proof of the illegal acts of deceptive practices and fraud thoughout every stage of the mortgage process – from origination through foreclosure. The actual settlement between the AG and the TBTF banksters. Scroll through PP. 21-46, Wayne. And these are ONLY the crimes that the banksters have acknowledged!

    http://www.scribd.com/doc/85355086/AG-Settlement-Complaint

    Reply this comment
  9. Rex The Wonder Dog!
    Rex The Wonder Dog! 15 March, 2012, 14:47

    Beelz, that Matt Tiabbi piece was awesome. I liekd the last paragraph;

    “But one thing that everyone on this spectrum of beliefs can agree upon is that our system doesn’t work when corrupt companies, companies that should fail in the free market, are kept alive by the government. When we allow that, what we get is a system that is neither capitalism nor socialist, but somewhere more miserably in between – a bureaucratic state in which profit is not tied to performance, but political power.”

    Reply this comment
  10. Beelzebub
    Beelzebub 15 March, 2012, 23:16

    “a bureaucratic state in which profit is not tied to performance, but political power.”

    That’s just another way to say ‘fascism’, rex. When corporate powers and government powers merge.

    Reply this comment
  11. Beelzebub
    Beelzebub 17 March, 2012, 15:29

    Hey Wayne, where’d ya go?

    No response to that settlement agreement with the Too Big To Fails linked above?

    Reply this comment
  12. Robert Wilson
    Robert Wilson 19 March, 2012, 08:39

    All of California is the victim of corrupt democrap politicians who have come from the east and the invasion of criminal welfare freeloading illegal Mexicans from the south. California used to be called “The Golden State” . But it has become a third world state due to corrupt politicians like Barbara Boxer and Jerry “Moonbeam” Brown and the illegals who are bankrupting the state with all the free goodies they get from the scumbags buying their votes. If you don’t believe this, just come visit So. Cal. and see for yourself what the illegals have done to once beautiful communities. And they just keep voting the democraps back in office so their gravy train doesn’t stop.

    Reply this comment
  13. califnan
    califnan 11 June, 2012, 08:29

    My property taxes w supplementals (schools, sewer, etc) are nearly twice what they should be. $8,200 yearly on a $430,000 home.

    Is becoming a city a financial plus or a minus for an Eastvale resident? Can my property taxes become even higher with cityhood?

    Reply this comment
  14. NoWinSituation
    NoWinSituation 11 June, 2012, 10:26

    Everybody’s broke. The federal, state, county, and city governments as well as the taxpayers. Can your property taxes go higher with cityhood? Absolutely. Lucky for you new cities can’t raise property taxes within the first 3 years of incorporation. If they could they would most likely be looking for a property tax increase right now rather than having to face disincorporation. Some people want the “image” of being a city at any cost. They will gladly pay those higher taxes to save that image. Will you and your neighbors?

    But keep in mind the counties are broke too. If or when these cities disincorporate, the county will be crying about how they need to raise property taxes to support all the “added burden” of getting these cities back. So you can’t win.

    The bottom line is that all levels of government are spending more than we can afford. Rather than cutting expenditures and entitlements these tax-addicted bodies and union-owned lawmakers keep taking more and more of the shrinking pool of taxpayers’ money to fund outrageous pension benefits for government workers, plus education, welfare and subsidized medical “benefits” and prison costs for illegals who send what they earn without taxes here to their families in other countries rather than helping to bear any of the burden of what they cost taxpayers. Unless or until those gaping holes in this sinking ship are plugged, California will continue to fall to the bottom of the sea in education, business competitiveness, and long-term financial viability.

    Reply this comment
  15. califnan
    califnan 11 June, 2012, 18:17

    You’ve got it NWS, and particularly your last paragraph. I remember when orig property taxes took care of the whole burden.

    Now with the squandering: payroll/benefits/pensions (unionized), more hiring, etc etc – it’s ridiculous.

    Cut government, if it’s the last thing we do.

    I believe it was a select group who put the Eastvale city thing through, to have more control of the schools, etc. Most residents don’t even know what’s going on. That’s how things like this happen. Also I’ve heard anyone living in the area for more than ten years, do not have the unreasonable tax burden.

    If an Eastvale city council member lived in the area for decades, they probably wouldn’t be affected by spending and tax increases.

    Reply this comment
  16. Sawbuck Steve
    Sawbuck Steve 18 July, 2013, 16:16

    BWAHAHAHA! The unions knew just what they wanted! I hope they get what they wanted. And get it good and hard! Wheee! Let the games begin!!!

    Reply this comment

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