1. Purpose of Report

The purpose of this supplemental report to the Local Agency Formation Commission for Los Angeles County (LAFCO) is to provide an evaluation of the impact of the following factors, which were not addressed in the San Fernando Valley Proposal for Special Reorganization Comprehensive Fiscal Analysis (CFA):

· The Valley City levies a documentary transfer tax of $.55 per $1,000 as opposed to the current City of Los Angeles tax of $4.50 per $1,000.

· The boundary of the Valley City excludes portions of the Cahuenga Pass, which was originally included in the applicant's proposal.

· The Valley City does not reimburse the City of Los Angeles for "general overhead costs" during the transition period.

· An 18-month transition period occurs whereby the City of Los Angeles continues to furnish all services for the new city that were furnished prior to the incorporation.

· The effective date of the new city is January 1, 2003, instead of December 16, 2002.

In addition, this report evaluates a budget analysis (a "Transition Plan") that has been submitted to LAFCO by the San Fernando Valley applicant.

Findings of the Report

The CFA prepared for the San Fernando Valley proposal made the finding that a new Valley City could maintain reasonable reserves during its first three years of incorporation, and that the City of Los Angeles would not be "revenue neutral" as a result of the incorporation. This report supplements the CFA with the following findings regarding the fiscal impact of the San Fernando Valley special reorganization:

· If the Valley City levied a $.55 per $1,000 documentary transfer tax, it would need to reduce its expenditures by as much as $35.0 million annually.

· The required $35.0 million of expenditure reductions would represent 3.3% of the projected budget for the Valley City, and appears achievable.

· In order to reduce its expenditures, the Valley City would likely need to reduce the cost of purchased services from the City, which could be accomplished through a City hiring freeze or a deferral of contingent items.

· Although the required expenditure reductions could be accomplished, this could negatively impact services provided in the Valley.

· The exclusion of the Cahuenga Pass area from the boundaries of the new city would reduce its revenues by $7.1 million but would reduce costs by only $2.6 million.

· If the new city did not reimburse the City of Los Angeles for certain "general overhead costs," the new city's payment for the net cost of services would decrease by $6.2 million during the transition period.

· A change in the effective date of the new city to January 1, 2003 would have no substantive fiscal impact on the new city or the City of Los Angeles.

· The Transition Plan budget submitted by the Valley includes annual savings of $74.9 million; however, these savings are not described or result from not paying a portion of the City's cost of providing service.

· Although the Transition Plan does not identify any tangible cost savings, it is possible for the new city to reduce its expenditures in a manner similar to current efforts by the City to offset its revenue shortfalls.

Financial Viability of the Valley City

A Valley City budget for fiscal year 2002-03 through 2005-06 is projected below, based on the following changes to the CFA:

1. The new city would collect $30.9 million less in documentary transfer tax revenue.

2. The new city would lose $4.5 million in general fund and special purpose funds revenue (net of savings in the cost of services) by excluding the Cahuenga Pass from its boundary.

3. The mitigation payment to the City of Los Angeles would decrease by $4.5 million (to $61.3 million) as a result of excluding the Cahuenga Pass.

4. The Valley City would not reimburse the City of Los Angeles for general overhead costs during the 18-month transition period.

5. The City of Los Angeles would achieve $35.0 million in cost/service reductions (for service provided under contract) after an 18-month transition period.

6. The new city would reimburse the City of Los Angeles, over a five- year period, $40.2 million in the net cost of service provided during the transition period.

The budget projection shows that the new city's revenues would annually exceed expenditures, and result in the accumulation of a $10.8 million balance by the end of fiscal year 2005-06.

VALLEY CITY PROJECTED BUDGET FISCAL YEAR 2002-03 THROUGH 2005-06 (Unadjusted for Inflation)
	2002-03*	2003-04	2004-05	2005-06
Revenue:
General Fund	437,939,589	875,879,179	875,879,179	875,879,179
Special Purpose Funds	81,833,908	163,667,816	163,667,816	163,667,816
	___________	___________	___________	___________
Total Revenue:	519,773,497	1,039,546,994	1,039,546,994	1,039,546,994

Expenditures:
Valley City Personnel	1,690,307	3,674,040	3,674,040	3,674,040
Valley City Non-Departmental Costs	706,324	919,083	919,083	919,083
City of Los Angeles Purchased Services	484,507,657	969,015,314	995,795,803	995,795,803
Less: General Overhead Costs	(2,062,507)	(4,125,013)	-	-
Less: Service Reductions	-	-	(35,000,000)	(35,000,000)
City of Los Angeles Administrative Costs	1,991,592	1,991,592	1,991,592	1,991,592
City of Los Angeles Redistricting Costs	1,000,000	-	-	-
City of Los Angeles Election Costs	200,000	-	-	-
Mitigation Payment	30,651,847	61,303,693	61,303,693	61,303,693
Repayment of Transition Period Services**	-	-	9,407,039	9,407,039
	___________	___________	___________	___________
Total Expenditures	518,685,219	1,032,778,709	1,038,091,250	1,038,091,250

Revenue Less Expenditures	1,088,278	6,768,285	1,455,744	1,455,744

Available Balance	1,088,278	7,856,563	9,312,308	10,768,052

* January 1, 2003 effective date for new city. ** Repayment of $40.2 million over 5 years, assuming a 5.5% interest rate.

The computation of the "net cost of services" as defined under the Government Code is provided in the table below.[1] For the purposes of this report, the net cost of services is reduced by vehicle license fee and sales tax revenue that would be paid directly to the new city.

VALLEY CITY NET COST OF SERVICES (Transition Period)
	2002-03	2003-04	Total
Total Cost of Service	$ 497,897,902	$ 995,795,803	$1,493,693,705
Less: Overhead Costs	(2,062,507)	(4,125,013)	(6,187,520)
Mitigation Payment	30,651,847	61,303,693	91,955,540
	___________	___________	___________
Adjusted Total Cost of Service	$ 526,487,242	$1,052,974,483	$1,579,461,725

Special Purpose Funds	(80,557,408)	(161,114,816)	(241,672,223)
Licenses, Permits, Fees & Fines	(44,723,265)	(89,446,531)	(134,169,796)
	___________	___________	___________
Total Special Purpose and LPFF	$ (125,280,673)	$ (250,561,346)	$ (375,842,019)

Total Net Cost [1]	$ 401,206,569	$ 802,413,137	$1,203,619,706

General Purpose Revenues (excl. LPFF)	403,269,075	806,538,150	1,209,807,225
Less: Documentary Transfer Tax Loss	(15,452,751)	(30,905,502)	(46,358,253)
Less: Vehicle License Fee	(35,674,392)	(71,348,785)	(107,023,177)
Less: Sales Tax	(75,997,810)	(151,995,619)	(227,993,429)
	___________	___________	___________
Retained General Purpose Revenues	$ 276,144,122	$ 552,288,244	$ 828,432,366

Net Cost of Services [2]	$ 125,062,447	$ 250,124,893	$ 375,187,340

Adjusted Net Cost of Services [3]	$ 13,390,244	$ 26,780,489	$ 40,170,733


Notes: [1] - As defined in Government Code Section 56842(c)(2). [2] - "Total Net Cost" less "Retained General Purpose Revenues." [3] - Includes vehicle license fee and sales tax revenue allocated directly to new city.

Revenue Neutrality

The CFA estimated that the difference between the current revenue and expenditures that would accrue to the new city would be approximately $65.8 million. The estimated current revenue and expenditures that would accrue to the new city would change if the Cahuenga Pass area is excluded from the proposed Valley City. The table below shows that the amount of current revenue that would accrue to the new city would decrease by $7.1 million and current expenditures would decrease by $2.6 million, which reduces the mitigation payment from $65.8 million to $61.3 million.

ESTIMATED CURRENT EXPENDITURES AND REVENUES ACCRUED BY VALLEY CITY
		CFA Estimate	Cahuenga Pass	Revised Estimate
	Current Revenue	$ 1,064,150,092	$ 7,050,595	$ 1,057,099,496
	Current Expenditures	(998,376,594)	(2,580,791)	(995,795,803)
		___________		___________
	Difference	$ 65,773,497		$ 61,303,693

Additional Fiscal Impact on City

Because of the loss in documentary transfer tax revenue the new city would need to reduce the cost of City of Los Angeles services by an annual amount of $35.0 million. It may not be possible for the City to reduce costs in a sufficient amount during the transition period, and it is therefore assumed, for the purposes of this report, that the City would not be compensated for $40.2 million in the net cost of services during the transition period (January 2003 through June 2004). This could require that the City identify additional funding sources to fund this shortfall. It is further assumed that the City is reimbursed for the estimated $40.2 million in the net cost of service over a five-year period. The new city could also borrow to cover the shortfall or reduce expenditures by canceling unneeded services during the transition period.

2. Reduction in Documentary Transfer Tax

The City of Los Angeles currently levies a documentary transfer tax at a rate of $4.50 per $1,000 on taxable conveyances of real property within the City. The Office of the County Counsel has determined that the new Valley City would not be able to levy the same rate as the City, but would be restricted to a $.55 per $1,000 tax.

The imposition of a documentary transfer tax of $.55 would, based on the City's fiscal year 2000-01 budgeted amount for the tax, reduce the amount collected in the San Fernando Valley by $30.9 million. The potential loss in revenue is significant in that both the Valley and the City would be impacted by the loss in revenue. The City of Los Angeles would lose $35.2 million, as this is the amount generated in the Valley, yet the Valley would only receive $4.3 million, given that it cannot assess the existing City tax rate. This implies that any mitigation payment made to the City could not be offset by revenue in an equal amount that accrues to the new city.

Required Expenditure Reductions

The potential loss of $30.9 million in documentary transfer tax revenue would require that the new city reduce its expenditures by an offsetting amount. Any reductions may need to be made to services provided under contract with the City of Los Angeles. The budget for the new city, as estimated in the CFA, would be primarily comprised of a large payment for purchased services from the City of Los Angeles and the new city would not have the ability to reduce expenditures in other areas. As shown in the table below, purchased services would comprise 93.2% of the new city's fiscal year (2004-05) budget.

VALLEY CITY PROJECTED BUDGET IN CFA FISCAL YEAR 2004-05
Description	Projected Budget 2004-05	%
City of Los Angeles Services	$ 998,376,594	93.2%
Mitigation Payment	65,773,497	6.1%
Other	6,589,876	0.6%
	____________
Total	$ 1,070,739,968	100%

It should be noted that the applicant has prepared a budget for the new city that differs from the budget estimated in CFA; however, this budget analysis is not relied upon for the purposes of this report. See "Valley Transition Plan."

Expenditure Reductions Considered by City of Los Angeles

The City of Los Angeles is currently reviewing options to reduce its expenditures for fiscal year 2001-02, as revenues for the year are projected to be less than the amount budgeted.[2] The City's efforts to eliminate or delay budgeted expenditures may provide an indication as to the potential areas of cost reductions available to the new city.

As of November 2001, the City projects a $180 million revenue shortfall for the fiscal year, which must be offset by expenditure reductions. The City has identified a hiring freeze or a deferral of items in its "Unappropriated Balance" as possible measures to reduce budgeted expenditures.

Expenditure Reductions Through Hiring Freeze

In order to reduce expenditures for purchased services, the City of Los Angeles could agree to a hiring freeze for all services provided to the new city under contract. A hiring freeze would result in a smaller workforce over time, as personnel exiting the City workforce would not be replaced.

The City has provided data on the number of personnel entering and exiting its workforce over the 9-month period beginning July 2000 through March 2001. The City's data show that, during this 9-month period, 2,040 (6.4%) of the City's 31,714 filled positions in July 2000 were either terminated (voluntary or involuntary) or retired. Annualizing the data, it is projected that the percentage of employees that would leave the City's workforce over a 12-month period, or the annual attrition rate, would be 7.8%.

The table below shows the estimated annual attrition rates for the 10 largest City departments.

CITY OF LOS ANGELES ANNUALIZED ATTRITION RATES JULY 2000 - MARCH 2001
Department	Terminations/ Retirements	Annualized Attrition Rate
Police	1076	8.8%
Fire	141	4.2%
Sanitation	97	4.4%
Recreation & Parks	105	6.1%
General Services	124	7.5%
Transportation	163	11.2%
Street Services	224	17.8%
Library	100	10.2%
Engineering	69	7.3%
City Attorney	43	4.9%

Source: City of Los Angeles, "Employee Level Report."

A hiring freeze would allow the City to reduce the cost of its purchased services in a sufficient amount to offset a $30.9 million loss in documentary transfer tax revenue. If the attrition rate observed in fiscal year 2000-01 were to continue over time, the City could expect to lose about 2,500 employees per year through normal attrition.

The expenditure reductions that would result through attrition is difficult to estimate, given it is not known at this time which types of positions are most likely to exit the City's workforce. One measure of the potential cost savings of a hiring freeze can be estimated using the salary and fringe benefits expenditures in the City's budget. As shown in the table below, during fiscal year 2000-01, the City budgeted $2.4 billion for salary and fringe benefits for an estimated 31,714 positions. If City could reduce its salary and fringe benefits costs in proportion to the number of positions, a reduction of 460 positions through attrition could reduce expenditures by $35 million annually.

CITY OF LOS ANGELES ESTIMATED SALARY AND FRINGE BENEFIT COST PER FILLED POSITION
Description	2000-01 Budget
Salaries	$ 1,954,830,285
Pension *	209,351,408
Human Resources Benefits	260,801,031
	___________
Total Salary and Fringe Benefits	$ 2,424,982,724

Filled Positions (July 2000) **	31,714

Salary and Fringe Benefit Cost Per Filled Position	$ 76,464

Position Reduction	(460)

Potential Expenditure Reduction	$ (35,173,490)

Notes: * Includes "Appropriations to City Employees' Retirement Fund," "Appropriations to Fire & Police Pension Fund," and "2000 Tax and Revenue Anticipation Notes" line items from the City's fiscal year 2000-01 budget. ** Source: City of Los Angeles, "Employee Level Report."

Based on the historic attrition rates for the City, it may be possible to reduce the annual cost of providing service to the Valley by the requisite $35.0 million. However, the cost reductions would not occur immediately and, in the absence of any other cost reductions, the new city would not be able to fully reimburse the City for its cost of providing service during the transition period. In this case, the City may need to be reimbursed for this "net cost of services" over an extended period of time. This report assumes the City would be reimbursed over a 5-year period.

The City is expected to release its expenditure reduction plans shortly, and the City's estimate of the impact of a hiring freeze can be evaluated by LAFCO at that time.

Deferral of Unappropriated Balance

The City has also contemplated a reduction or deferral of expenditures in its "Unappropriated Balance" budget as an expenditure reduction measure. Funds budgeted in the Unappropriated Balance are for identified, but contingent items that may occur over the year, and that are not included in the budget of a particular City department. Examples of the contingent items include police and fire contract negotiations and the City's Rampart response. The City budgeted $73.2 million for its Unappropriated Balance during fiscal year 2000-01.

As part of any future contracted services provided on behalf of the new city, the City of Los Angeles may have the flexibility to defer certain contingent items without significantly impacting the level of service provided to the Valley. This would reduce the cost of the new city's purchased services and not impact the mitigation payment. This cost reduction could work to offset the expected loss in documentary transfer tax revenue.

Service Impacts

The service impact of a reduction in the number of City staff serving the Valley would depend on the specific departments affected. However, if as many as 460 positions are lost through attrition, this could have a negative impact on service levels in the San Fernando Valley.

3. Impact of Boundary Change

A portion of an area known as the Cahuenga Pass is included in the San Fernando Valley application for special reorganization. This area is also included within the proposed boundaries of an active Hollywood proposal for special reorganization. This section evaluates the fiscal impact of excluding this area from the boundaries of the Valley City.

Reduction in Allocated Costs

The CFA was prepared using the assumption that the Valley City would receive virtually all services from the City of Los Angeles. The City's cost of providing services to the Valley was estimated using a variety of factors, including the relationship of the new city's boundaries to existing City of Los Angeles service territories, as well as the population of the new city. In the event the Cahuenga Pass is removed from the boundaries of the new city, the estimated costs of providing City service to that area would be subtracted from the new city's budget.

Currently, the Cahuenga Pass area is served primarily by City personnel and facilities located in the San Fernando Valley. For example, the area receives police service from the North Hollywood station, location at 11640 Burbank Boulevard, and fire service from Station 76 at 3111 Cahuenga Boulevard. Although Station 76 primarily serves the area, in general, the Cahuenga Pass does not have dedicated service territories, but shares municipal service with areas to the north that are within the San Fernando Valley.

Estimated Cost of Purchased Service

Because dedicated City staff do not serve the Cahuenga Pass, the cost of providing service to this area must be estimated using service data or demographic data such as population. At the time of this report, service data for the Cahuenga Pass is not available from the City of Los Angeles; however, the population in the area is available through the Census 2000. The Cahuenga Pass has a population of the 3,498, which represents .26% of the population within the proposed boundaries of the Valley City. One measure of the City's cost of providing service to the Cahuenga Pass would be the relative percentage of population. Based on the total cost of purchased services estimated in the CFA, the cost of providing service to the Cahuenga Pass would be $2.6 million (.26% x $998,376,594).

Reduction in Revenues

The removal of the Cahuenga Pass from the boundaries of the Valley City would eliminate $7.1 million in municipal revenues that would otherwise accrue to the new city. The table below identifies the amount attributable to the Cahuenga Pass for the City's five largest sources of general fund revenue. A complete listing of the City revenue attributable to the Cahuenga Pass area is included in Appendix I of this report.

	GENERAL FUND REVENUE ATTRIBUTABLE TO CAHUENGA PASS (FISCAL YEAR 2000-01 BUDGET)
		Revenue Item	%	Amount
		Property Tax	0.30%	$ 1,678,062
		Utility Users Tax	0.21%	958,995
		Business Tax	0.23%	739,873
		Sales Tax	0.69%	2,330,082
		State Motor Vehicle License Fees	0.09%	188,759

Source: City of Los Angeles, County of Los Angeles

The revenue data indicates that the Cahuenga Pass area generates municipal revenues in an amount disproportional to its population. One causal factor for the disproportional amount of revenue generated in the area is the relative property values. The assessed value, as of fiscal year 2000-01, within the Cahuenga Pass area was $18.65 per square foot, compared to $11.35 for the San Fernando Valley as a whole.[3]

Impact on Mitigation Payment

It is estimated the Valley City would lose more revenue than the reduction in costs as a result of the Cahuenga Pass boundary change. In relation to the analysis of "revenue neutrality" provided in the CFA, the amount of current revenue that would accrue to the Valley City would decrease by $7.1 million, which is greater than the estimated $2.6 million loss in current expenditures. This implies that the mitigation payment to the City of Los Angeles would decrease by approximately $4.5 million to $61.3 million.

Conclusions

The Cahuenga Pass area is comprised primarily of low-density residential development located in the foothills of the Santa Monica Mountains with relatively high property values. The area also includes several commercial and retail establishments that generate a significant amount of sales and business taxes. Based on these characteristics, the exclusion of the Cahuenga Pass area from the Valley City proposed boundaries would:

· Reduce the amount of revenue that would accrue to the new city by $7.1 million, but reduce the cost of purchased service by $2.6 million.

· Reduce the assumed mitigation payment computed in the CFA from $65.8 million to $61.3 million.

It is important to note that the estimated costs of providing service to the Cahuenga Pass area are based on the population of the area. A more precise estimate of the cost of service requires service data from the City, which is not currently available. In the event the service requirements are significantly disproportional to the area's population, the conclusions of this report would change.

4. General Overhead Costs

In the computation of the estimated cost for purchased services, the CFA allocated various indirect costs of the City, including staffing cost of City Council and the Mayor's office and a portion of the cost of various City department managers. These costs are arguably "general overhead costs," and are defined as costs that may be incurred regardless of whether the service is provided to the new city. California counties are prohibited from charging general overhead costs when providing service under contract. Section 51350 of the Government Code states that:

A county shall not charge a city contracting for a particular service, either as a direct or an indirect overhead charge, any portion of those costs which are attributable to services made available to all portions of the county, as determined by resolution of the board of supervisors, or which are general overhead costs of operation of the county government. General overhead costs, for the purpose of this section, are those costs which a county would incur regardless of whether or not it provided a service under contract to a city.

If the City of Los Angeles were prohibited from allocating general overhead costs to the Valley City during the transition period, certain costs would be excluded from the cost of purchased services estimated in the CFA. This section estimates the fiscal impact of excluding the City's general overhead cost as part of the payment for services during the transition period.

City Overhead Costs

For the purposes of this report, it is assumed that the cost of the following personnel are general overhead costs, using the standard that these positions (and thus the resultant cost) would exist regardless of providing service under contract to the Valley City.

· City Councilmembers

· City Councilmembers' Chief of Staff

· Mayor

· Mayor's Chief of Staff

· Chief Legislative Analyst

· Department General Managers (including elected officials)

· One assistant position to the General Managers

To estimate the allocated cost of these positions, the allocation percentage determined in the CFA for each City department is applied to the salary and fringe benefit amount of each position. The table below shows that 103 positions and a total allocated cost of $4.1 million is related to general overhead.

CITY OF LOS ANGELES ESTIMATED GENERAL OVERHEAD COSTS FISCAL YEAR 2000-01 BUDGET
Position	Number	San Fernando Valley Allocation
City Councilmembers	15	$ 912,043
City Councilmembers' Chief of Staff	15	489,446
Mayor	1	75,586
Mayor Chief of Staff	1	52,123
Chief Legislative Analyst	1	111,803
General Managers	35	1,848,490
Assistant position to the General Manager	35	607,568
	___	_________
Total	103	$4,097,059

Fiscal Impact on City of Los Angeles

In the event the City did not recover the estimated general overhead costs, the amount it would receive for services furnished on behalf of the new city would decrease by $4.1 million on an annual basis, or a total of $6.2 million during an 18-month transition period.

5. Valley Transition Plan

The Valley applicant has submitted a budget analysis for the proposed new city entitled "Special Reorganization of the San Fernando Valley, Transition Plan" dated January 28, 2002. The Transition Plan includes an annual budget for the new city for the transition period and for one fiscal year after the transition period (the "ongoing budget").

Summary of Transition Plan

The Transition Plan budget for both the transition period and ongoing budget year is primarily comprised of two components: the cost of purchased services from the City of Los Angeles, and the costs for the new city's staff and facilities. In comparison to the CFA, the Transition Plan differs in the following areas:

· Total expenditures for the new city are $41.6 million less during the transition period, and $74.9 million less for the ongoing budget.

· The new city is not allocated a portion of the City's "General City Purposes" and "Unappropriated Balance" budgeted expenditures.

· City of Los Angeles employees are assumed to transfer to the new city during the transition period.

· The new city achieves "cost reductions" for various services after the service responsibility is transferred from the City of Los Angeles.

Analysis of Cost Savings

The Transition Plan budget is less than the budget estimated in the CFA due to two factors: 1) the Valley is not allocated the City's expenditures for General City Purposes and Unappropriated Balance budget items, and 2) the Valley City is able to achieve cost reductions after services are transferred from the City of Los Angeles. In total, these cost saving measures reduce expenditures by $74.9 million in the ongoing budget, and offset a $30.9 million loss in documentary transfer tax revenue, as well as additional expenditures of the new city that were not included in the CFA.

General City Purposes and Unappropriated Balance

The City of Los Angeles budgets an amount for "General City Purposes," which is for expenditures that are not allocated to a particular City department, and an "Unappropriated Balance," which is for contingent items that may occur over the fiscal year. In fiscal year 2000-01, the City budgeted $79.8 million for General City Purposes and $73.2 million for an Unappropriated Balance. In the CFA it was assumed that the Valley City would be allocated a portion of the City's General City Purposes and Unappropriated Balance expenditures in an amount proportional to the total number of employees that would serve the Valley City. The Transition Plan does not allocate this cost, which results in a $41.1 million reduction in the cost of purchased services.

For fiscal year 2000-01, the General City Purposes included almost 50 various expenditure items, with the largest General Fund-supported expenditures for retirement contributions ($17 million) and Medicare contributions ($16 million). These expenditures appear to be reasonable costs that would be incurred in providing service to the new city. The largest budgeted items in the Unappropriated Balance were related to police and fire contract negotiations ($35 million), Rampart response ($6 million), and the City's Tax and Permit System ($3.6 million). These expenditures, although contingent and varying from year to year, would appear to be a direct cost of providing police, fire, and revenue collection services on behalf of the new city. It is uncertain why either the General City Purposes or Unappropriated Balance costs are excluded from the Transition Plan budget, and no explanation is provided.

Cost Savings

The ongoing budget in the Transition Plan is $74.9 million less than the amount estimated in the CFA, and is the result of excluding the General City Purposes and Unappropriated Balance costs discussed above, and from $32.8 million of "cost reductions" achieved in many of the new city's various departments. The cost reductions are, in some instances, equal to 3% of the City's budget, however, the specific nature of the reductions are not identified or described in the Transition Plan. Because the nature of the cost savings is not identified, it is not possible to assess the feasibility or reasonableness of the reductions.

Analysis of Other Cities

Although the Transition Plan has not identified any tangible cost saving measures, it may be instructive to review the relative costs of comparable jurisdictions for key services (police and fire service) to assess the potential for future cost savings by the new city.

Police and Fire Service Expenditures

The police and fire service spending of seven cities in the Los Angeles and Orange County region, which are most comparable in size to the proposed Valley City, have been compiled to assess whether other cities in the same labor market are able to provide key city services at a lower cost.

The police and fire spending of the seven cities – Anaheim, Glendale, Long Beach, Riverside, San Diego, Santa Ana, and Torrance – display significant variances in the amount of spending per capita. As shown in the table below, expenditures per capita on police services vary from a high of $334 in the City of Los Angeles to $162 in Glendale. The table shows the total police budget and the police budget per capital for each of the seven cities surveyed, as well as the City of Los Angeles as a whole and the San Fernando Valley. The salary range for police officer position is also shown for each of the cities surveyed.

POLICE SERVICES EXPENDITURES FISCAL YEAR 2001-02
			Police Officer Salary Range
City	Total Police Budget	Per Capita Police Budget	Step 1	Step 5
Long Beach	$139,061,068	$301	$4,107	$5,086
Torrance	$40,456,134	$293	$3,919	$4,629
Anaheim	$73,711,384	$225	$4,172	$5,591
Riverside	$54,956,074	$215	$4,023	$4,890
San Diego	$260,985,256	$213	$4,091	$4,943
Santa Ana	$80,609,900	$213	$4,448	$6,489
Glendale	$31,518,300	$162	$4,359	$5,399

Los Angeles *	$1,234,632,341	$334
San Fernando Valley *	$340,078,098	$251

* As of fiscal year 2000-01.

The police expenditure data indicates that per capita police expenditures by the City of Los Angeles are relatively high when compared to the other cities in this analysis, but that spending in the San Fernando Valley is close to the average for the other cities. The lower level of spending in the Valley is consistent with the findings of the CFA, which showed that police expenditures in the Valley were disproportional to population. The relative level of police spending in the Valley implies that the new city's costs would be consistent with the spending of jurisdictions in the same labor market, and that cost saving initiatives may be limited.

With respect to fire services, the survey has found that Torrance spends the most per capita ($187), with the low figure being $86 in Santa Ana. The table below shows the total fire budget and budget per capita for each of the seven cities surveyed, the City of Los Angeles, and the San Fernando Valley. The table also shows the salary range of a firefighter position for each of the seven cities.

FIRE SERVICES EXPENDITURES FISCAL YEAR 2001-02
			Firefighter Salary Range
City	Total Fire Budget	Per Capita Fire Budget	Step 1	Step 5
Torrance	$25,735,022	$187	$3,165	$3,843
Long Beach	$60,274,965	$131	$3,839	$4,755
Anaheim	$38,060,508	$116	$3,474	$5,132
Glendale	$21,323,531	$109	$4,170	$5,173
Riverside	$25,030,631	$98	$3,629	$4,411
San Diego	$106,705,020	$87	$3,748	$4,524
Santa Ana	$32,539,040	$86	$3,082	$4,858

Los Angeles *	$449,204,365	$122
San Fernando Valley *	$143,356,241	$106

* As of fiscal year 2000-01.

The data show that fire service spending by the City of Los Angeles is comparable to neighboring cities, but that spending in the San Fernando Valley is relatively lower than spending in the rest of the City. In fact, fire service expenditures in the Valley are below the average cost for the other cities in the survey. This implies that fire costs in the Valley are not excessively high and that any initiatives to achieve cost savings may be limited.

Conclusions

The evaluation of the Transition Plan submitted by the Valley applicant has made the following findings:

· The Transition Plan budget does not fully reimburse the City for the estimated direct and indirect cost of providing services during the transition period.

· The Transition Plan assumes an additional $32.8 million of cost savings would occur in the first year after the transition period, but does not describe the specific measures that would be undertaken to save costs.

The budget presented in the Transition Plan is $74.9 million less than the budget estimated in the CFA, and is a result of a reduction in the cost of services purchased from the City, and from cost savings generated by the new city. The Transition Plan has assumed that $41.1 million of the City's budgeted costs would not be paid by the new city, although these costs appear directly related to the provision of service in the Valley. No discussion in provided as to why these costs would not be paid by the new city.

In addition, the Transition Plan assumes that the new city will save an additional $32.8 million through cost savings after the transition period. No specific cost savings measures are identified, and no discussion is provided regarding the steps that would be undertaken to implement the savings. Because of the lack of information, it is difficult to assess the feasibility of the cost saving measures.

[2] City of Los Angeles City Administrative Officer, "September 2001 Financial Status Report", November 28, 2001.

[3] The total assessed values within the initial boundary of the Valley City and within the Cahuenga Pass area were $70,817,023,900 and $614,335,537, respectively, (excluding amounts allocated to the Community Redevelopment Agency) as of fiscal year 2000-01. The estimated square footage for the entire Valley City is 6,236,809,983, and 32,943,905 for the Cahuenga Pass area. Source: County of Los Angeles.

CFA

Cahuenga

Revised