CALAFCo Conference 2006 “Creating & Restoring Sustainable Public Agencies” Moderator Josh Susman City Member, Nevada LAFCo & CALAFCo Board of Directors Panel Peter Kampa General Manager, Twain Harte Community Services District Walter Kieser Managing Principal, Economic and Planning Systems SR Jones Executive Officer, Nevada LAFCo

Introduction  Californians are served by over 3,400 Special Districts and over 475 Cities  Half the state’s LAFCos reported over 600 Districts serving populations of fewer than 10,000  All face fiscal and organizational challenges

Challenges  Eroding and inflexible revenue base  Statutory restrictions on revenue (Prop. 218)  Increasing costs and service demands  Increasing State and Federal regulatory requirements These challenges effect all agencies, but small agencies have fewer resources to meet them

Panel Objectives We hope to accomplish in this afternoon’s discussion:  Identify and Discuss Issues Related to Size  Suggest Criteria to Determine Adequate Size  Suggest Standards to Avoid Creating Unsustainable Districts  Suggest Options for Service Provision

LAFCo’s Mission  Avoid Duplication of Service Providers  Alternatively, Expand or Modify Existing Agencies When Possible  Determine fiscal feasibility  Promote efficient, economical services  Promote Accountable Governance

Is Small Beautiful? Small agencies are often especially responsive to their citizens, but often face size- related constraints in these areas:  Funding  Infrastructure  Management  Governance

Obstacles  Inability to raise funding commensurate with service responsibilities and obligations  Inability to comply with Brown Act, Public Records Act, and other reporting requirements  Inability to meet State and federal regulations (e.g. Clean Water Act, etc.)  Inability to maintain continuity of management and elected representation  Inability to maintain infrastructure

Survey Data Informal August 2006 Survey of CALAFCo Members  28 LAFCos Responded – approximately half  These LAFCos reported 607 Districts with Populations of Less than 10,000  178 with less than 500  212 with populations of 500 – 2000  217 with populations of

Survey Data LAFCo Staff Reported Challenges in Four Broad Categories:  Funding  Infrastructure  Management  Governance

Funding Restrictions Revenue Sources are restricted due to a variety of circumstances:  Statutory restrictions (e.g. Prop 218)  Lack of political support for raising fees and taxes  Lack of State and federal grant programs (enjoyed in the past) Small agencies often lack personnel that could help them expand their revenue sources through grants or loans, or to raise assessments or taxes.

Consequences of Funding Restrictions Restrictions on Funding Limit the Agency’s Ability to:  Fund Operations and Maintenance  Provide for Personnel  Finance Administrative Costs

Infrastructure Fiscal Constraints Result in Deferred or Under-funded Capital Programs:  Deferred Maintenance  Deteriorating Facilities and Equipment  Inadequate or non-existent Capital Replacement Funds  Inability to finance upgrades to meet more rigorous state and federal regulations

Management  Insufficient or non-existent staffing  Inability to comply with reporting requirements  Annual or bi-annual audits  Brown Act, Public Records Act  State Filings, Local and Public Requests for information

Governance  Difficulty Filling Board Member Seats  Inability to provide adequate training  Potential conflicts of interest  Small pool of potential elected officials

Indicators … What constitutes a small agency? …  Municipal Incorporation  500 Voter Minimum  Statutory Fiscal Tests  Independent Special District  Dependent Special District

Size Matters Determining When Size is a Factor  Different based on district type <500 in cemetery, RCD, lighting district may work (no/small staff) <500 risky with Water/sewer districts –requires infrastructure, management and operation staff <500 CSD works (barely) –With multiple services, staff, broad revenue base <500 Fire district costly –Equipment and station alone =$250 + per YR  Household income a factor Retirement VS. Working family

Administrative Costs - Example Assumptions:  Reclamation district with no state or federal permits  Serving 200 to 500 properties  No agency staff, all contract  One phone line, one computer and printer  Minimal leased office space  2000 annual copies and 5 mailings to customers  Contract $40 per hour for 700 hours annually (grant writing and administration, prepare policies and contracts for Board decisions)  3 hours per month clerical work to prepare meeting minutes and mailings

Baseline Costs $49,110 per year Per-capita Annual Share of the Burden:  10,000 Households = $4.91  5,000 Households = $9.82  2,000 Households = $24.56  500 Households = $98.22

Problem Indicators Financial Indicators Are reserves depleted? Is the depletion planned? Are reserves being used to fund operations? Has the district borrowed money to meet operating expenses? Is the district unable to finance projects that are critical to its mission? Are audits not being completed? Did the district receive an unfavorable audit and management letter?

Indicators Pending Actions Against Agency Has the district been the subject of ongoing regulatory body investigations which have resulted in consistent findings of mismanagement? Has the district experienced votes of no confidence from other entities, or citizens? Are there pending legal actions

Indicators Organizational Indicators Is the district unable to fund staff critical to delivery of its services? Does the district have unusually high employee turnover? Are there multiple HR related lawsuits? Does the district provide the services and programs it set out to provide? Are claims or litigation increasing? Is the district unable to fill seats on its Board of Directors?

Action Options  LAFCos have authority to manage size-related deficiencies of local agencies.  This authority differs between existing and prospective agencies.  Thoughtful intervention and actions can avoid documented problems of small agencies.

Action Options For Existing Agencies with problems:  Use the MSR & SOI process to identify problems and options  Provide technical Assistance or facilitate inter-agency cooperation  Encourage functional or actual consolidation  Initiate Dissolution and reassignment of functions

Action Options For organizing new agencies:  Guide prospective applicants towards appropriate service & governance solution(s)  Follow statutory standards and procedures for determining fiscal feasibility  Expand your LAFCo’s policy regarding formations --  Consider operational & governance as well as fiscal standards  Establish minimum size standards for various agency types