Supervisors to Act on 2 Cityhood Elections : Incorporation: The county will lose still more tax revenue if Laguna Hills and El Toro become cities.

The Orange County Board of Supervisors this week is expected to schedule two South County elections that could drain the county’s budget by millions of dollars each year.

But while the county budget ax is expected to swing more wildly in the coming months as revenue shortfalls worsen, the supervisors are legally and politically impotent to stop the democracy movement--the incorporation of two new cities--that officials say will create a larger financial burden on the county.

In what is considered a procedural vote that gives the board no leeway, the supervisors will probably rubber-stamp the Local Agency Formation Commission’s approval of the proposed incorporations of tax revenue-rich Laguna Hills and neighboring El Toro in rapidly growing south Orange County. The vote would set in motion cityhood elections in those areas on March 5.

If approved by voters, the new cities will strip the county of property and sales tax revenues, as well as a smattering of other fees that otherwise would go to the county. And like other recently incorporated cities, the new governments will turn around and contract with the county to provide basic services such as police, fire and animal control, and still end up with budget surpluses.

But while the cities gain, the county loses.

The net loss in revenues to the county from the two proposed incorporations is expected to total $7.8 million in the first year. The county has already suffered $10 million in yearly net revenue loss from the recent incorporations in Dana Point, Laguna Niguel and Mission Viejo, county officials estimated.

And the result, they said recently, is fewer dollars for a mushrooming budget shortfall, with citizens across Orange County being asked to pay more for fewer services that will take longer to deliver.

County budget chief Ronald S. Rubino said the new incorporations are also unfair to the older Orange County cities that are asked to pick up more of the costs to make up for the county’s revenue shortage.

Another administrator described the creation of cities, as it relates to the county budget, “a horror story within a horror story within a horror story.”

But even if the county had the legal right to block or delay the incorporation of cities, the move would be politically suicidal. Being against incorporation is like being against the destruction of the Berlin Wall. It is undemocratic, observers say.

“Should the people of Laguna Hills and El Toro be responsible for solving the budget problems of the county? Should the people who live in those communities be denied local, responsive government to solve a budget crunch?” asked Melody Carruth, a Laguna Hills resident who supports the drive for cityhood and self-government.

“The money that is generated in Laguna Hills should stay in Laguna Hills. We do not want $5 million going to pay for parks in La Habra and Fullerton,” she added.

But particularly aggravating to county officials is the inclusion of the revenue-rich Laguna Hills Mall in that area’s incorporation plans.

In a report to LAFCO, executive officer James J. Colangelo cited studies showing that sales tax revenues from the mall and other businesses in Laguna Hills make up more than one-fourth of the county’s total sales tax revenues in the unincorporated areas, even though Laguna Hills residents make up only 5% of the population. Money that was once distributed countywide will remain inside the city, the report concludes.

The two supervisors whose districts include the proposed incorporation areas, Thomas F. Riley and Gaddi H. Vasquez, actively supported the citizens’ initiative.

“I think we have to accept it,” Riley said of the trend for communities to seek cityhood. “Everybody hears the pros and cons and then you say, ‘Aye, aye, sir,’ and move forward.”

But Vasquez said that even without the incorporations, the county would still be facing the money crunch.

Although considered a well-managed county government, Orange County is not immune from the budget woes that have plagued other counties throughout the state. Because of the state’s own budgetary problems, counties have been ordered to provide more services but usually without the financing tools to raise revenues.

County budget staffers were forced to slash about $40 million from the budget last summer, and Rubino predicts that next year’s financial shortfall could total $60 million to $80 million.

With only about $460 million to pay for jails, courts, health care and other countywide services, the loss of tax revenues from new cities has a significant impact on the budget, Rubino said.

Board of Supervisors Chairman Don R. Roth, the county’s second representative on LAFCO and the only member who opposed cityhood pending a solution to the budget crisis, pointed to vociferous protests that Los Angeles County supervisors faced when they proposed cutting health services that largely impact lower income citizens.

“When we start cutting and chopping, it’s going to be real interesting here,” Roth said.

He added that the almost $8 million in lost revenues from the new incorporations would have helped meet the $10 million that will be required to staff the expansion of the Theo Lacy jail facility scheduled to open next year.

Aside from cutting services and laying off workers, the county has few fund-raising schemes available to it.

One of them, a new state law that would allow the county to charge its cities $183 for each booking at the jail, has drawn a storm of protests from the older Orange County municipalities that are facing their own budget crunches.

A hearing on the proposal--which would generate $12 million to $14 million annually--will be held Dec. 11.

Officials are also waiting for the completion of a study due next spring that should determine whether the county is charging the cities the true cost to provide the contract services, such as fire and police.

“A lot of those cities would not be feasible if they had to do their own infrastructure versus contracting with the county,” Vasquez said, pointing to capital costs, labor contract negotiations and other related functions that go beyond placing a patrol car in a suburban neighborhood.

But city officials in Mission Viejo and Dana Point are among those who believe the county is already charging too much in overhead costs. And if it pushes too far, neighboring cities may form joint ventures to form their own departments.

“They bill you for people on the payroll and county overhead that would go on whether or not you have a contract,” Dana Point City Manager William O. Talley said.

Still, the county has provided plenty of incentive for areas to form their own local governments, the officials said, by letting the cities buy the exact number of police patrols and other services that are needed.