Cityhood May Hold Surprises for Goleta

Government: As other new cities have found, revenue projections are a guessing game and it's tough to plan for what lies ahead.

By John Johnson

Los Angeles Times

November 11 2001

Congratulations, Goleta! You did it. You created a brand new city. Welcome to California's proud brotherhood of 477 municipalities, from the sands of Imperial to Tulelake at the Oregon border.

Now, get ready for the roller coaster ride of your life.

All those optimistic financial projections? Forget them. The thrill of home rule? Be prepared to run your city out of an abandoned 7-Eleven or the back of your car. The most important person in your new town? No, it's not the mayor, the city manager or even the police chief. It's likely to be the banker down the street, whom you may have to beg for a line of credit to get through the first chaotic months.

"People don't realize, with a new city, you start with nothing," said William Talley, who has served as a "midwife" in the birth of four cities.

Talley is the city manager of Rancho Santa Margarita in Orange County, a bedroom community of 47,000 that incorporated last year. Revenue projections for his city were so far off that he had to plead poverty with the county to renegotiate the city's debts. In one town where he worked, he was reduced to using his wife's credit cards to pay bills until the money started arriving in city coffers.

His advice to Goleta? Don't spend money you don't have.

This sort of doom and gloom doesn't seem to concern the new city leaders in Goleta, a Santa Barbara County community of 30,000 that voted Tuesday to incorporate. For one thing, city leaders are still on a high from their unexpectedly lopsided victory. Three previous attempts at cityhood failed, yet this time the margin of victory was of almost landslide proportions--58% to 42%.

"Many backs were slapped" at the victory celebration, said Jonny Wallis, a member of the City Council also elected Tuesday. "Many hugs were given."

Now the new council is eagerly getting down to work, even though Goleta won't officially be cut loose from the county's apron strings until February. On Wednesday night, the new leaders met with representatives from the League of California Cities and began a crash course in city-building.

"They said it's important to get a city manager on board," Wallis said. On Thursday, a committee was out scouting office space for a temporary city hall.

As for whether the advisors warned that they would be facing dramatic challenges, "They didn't need to tell us that. We were all aware," she said.

Cityhood Campaigns Slow Considerably

Maybe so. Then again, those who have gone before are of the opinion that there is no way to be prepared for all the land mines ahead. Other cities' experiences also might provide a sobering lesson for leaders in the San Fernando Valley as they push ahead with plans to break away from Los Angeles. Going it on your own can get lonely.

League of Cities figures show that Goleta is the fourth city to incorporate in the new century, joining Aliso Viejo and Rancho Santa Margarita in Orange County, and Elk Grove, south of Sacramento.

City-building in California has slowed considerably since the boom years of the 1950s and '60s, when 101 cities were born.

In the '90s, only 17 were incorporated. One reason, Talley said, is that "each year they make it tougher."

In the old days, a new city could happily watch its coffers fill like a bowl under a winning slot machine as soon as it broke away from a county. Revenue neutrality laws forcing cities to reimburse counties for lost taxes changed all that. Payments to counties can annually amount to millions of dollars.

This year, Gov. Gray Davis is talking about grabbing vehicle license fees from cities to balance the state budget. While all cities will suffer, that would hurt the newest cities most because they have not had time to build reserves.

Rancho Santa Margarita relies on the $3.5 million a year it receives in fees. "Where is the sense of fairness?" Talley asked.

Another problem is the unreliability of forecasts for revenues and expenses.

Michael Oliver, the city manager in Oakley, a bedroom community of 26,000 in Contra Costa County that incorporated in July 1999, said this is the second city he's guided through the birth process. He has seen two fiscal forecasts. Both were wrong.

"Generally, they understate the costs of salaries and benefits" for employees, he said. Oliver went to the local bank and obtained a $50,000 line of credit to pay the bills early on.

He also was lucky enough to land a federal law enforcement grant that covers the cost of his 18-officer contract police force for three years. After that, the city will have to pay its own way. At the moment, Oliver is not sure how it will do it.

Tight Budgets Pose Challenge

Oakley's City Hall is in a 90-year-old schoolhouse. To keep expenses low, most new cities contract out everything from legal services to public works and police services. Oakley has only 30 employees.

Aliso Viejo can top that, said Helen Wilson, the administrative assistant in the city manager's office.

She is one of just four employees in the city of about 40,000. It is one of several south Orange County cities to break away in recent years, fueled in part by fears of overcrowding.

"The challenge is living on a tight budget to begin with," she said. "We pay as we go."

Talley's policy is to warn contractors to expect not to be paid for 90 to 120 days. After starting four cities, he knows there is no way to plan for everything. But the fiscal projection for Rancho Santa Margarita, he said, was so far off that he had to renegotiate payments to the county from $2.4 million a year to $1 million.

"I had to go hat in hand and say we will not be able to pay," he said. The county was understanding and allowed the city to change the payment schedule.

Not all surprises are bad. Take Elk Grove, a new city of about 80,000 about eight miles south of Sacramento. The fiscal forecast for the city said services initially would cost $5.5 million, said Michael Leary, the 41-year-old mayor. Instead, they came in at $9 million.

Luckily, a big new auto mall opened in 1999. Sales have been good and the city quickly made up the shortfall, Leary said. "We were pretty flush after the first year," he said.

Things are going so well that Elk Grove already has built a $4.3-million city hall, a welcome relief from the cramped quarters of a former 7-Eleven where workers settled first. The city had enough money to give $125,000 to keep the libraries open longer.

It hasn't been all good news, however. Elk Grove already has gone through one city manager.

Even with the unexpected problems, Talley and Oliver said there are substantial payoffs you don't get in an established city, where interest groups are dug in and little can be done.

"It's wonderful to work with a community that's new, fresh and enthusiastic," Oliver said.

Goleta's new citizens fit the mold. The cityhood movement was driven by a desire to control their own affairs. Residents worried that pro-growth attitudes in northern Santa Barbara County could force a change of policy on the county Board of Supervisors and unleash a development frenzy.

Wallis and other advocates spent three years studying other cities and how they handled problems. "I believe we're aware of most of our challenges," she said.

They took care of short-term financial needs by taking out a $100,000 loan from Santa Barbara County to cover the costs of setting up shop.

The fiscal health of the new city was a major issue in the cityhood campaign. Supporters said the city would be financially healthy, buoyed by the town's high-tech sector, as well as the newly opened Bacara Resort & Spa.

Pessimists said the projections were too optimistic. Wallis is aware that other new cities had problems predicting revenues. That's why city analysts purposely overestimated expenses "to give us a cushion." She said those analysts are trustworthy.

"The same firm," she said, "did Rancho Santa Margarita."