Jurupa Valley Faces Fiscal Difficulties, Possible Disincorporation

By Samantha Gallegos

Special CityNews Exclusive Report by Capitol Weekly

It’s been 40 years since this last happened — the disincorporation of a city in California. But this time the circumstances are unique. 

“We’ve done everything we possibly could, including lobbying at the state Legislature and with the governor and those efforts right up to today have been unsuccessful,” said Riverside County Foreign Trade Commissioner Tom Freeman. 

After just two years of existence, the state’s newest city, Jurupa Valley, is being forced to disincorporate because of a significant shift in tax law that occurred in 2011, the same year the city was created. 

Three other Riverside County cities – Eastvale, Menifee and Wildomar – were also caught in the funding crunch, although not as severely, because they fare better with sales tax revenue. They are expected to survive.

Jurupa Valley’s outlook, however, is not as bright, but a top aide to Gov. Brown says lawmakers and the governor will attempt to remedy the issue next year. An attempt to fix the dilemma died Sept. 13 in the Legislature.

The birth of this problem can be traced back to Gov. Brown’s plan for realignment, in which some state programs were turned over to local governments. Those included shifting some prison inmates to the counties’ custody – a transfer that was supposed to be largely a wash but which has proven costly to put into effect. 

The governor rejiggered the vehicle license fee (VLF) tax by eliminating the revenues allocated to cities and shifted those revenues instead to fund public safety realignment when he signed into law SB 89. 

But that action proved to be a ticking time bomb.

In the 2004-05 budget, lawmakers approved the "VLF-property tax swap," which replaced the VLF backfill from the state General Fund with property tax revenues that otherwise would have gone to schools through the Educational Revenue Augmentation Fund  (ERAF).

But “the VLF-property tax swap had a glaring loophole: It did not reallocate extra property tax revenues to cities that were not in existence when the state was compensating cities for the difference between the 2% and 0.65% VLF rates.  As a result, new cities — Jurupa Valley, for example — received less VLF funding than they would have if they had incorporated before the VLF-property tax swap,” said a legislative analysis. 

Sen. Richard Roth, D-Riverside, authored a bill this year, SB 56, to resolve the money shortage of Jurupa Valley, as well as Menifee, Eastvale, and Wildomar, all of which are in his district. But it was Roth’s bill that failed to make it out of the Legislature, and the rescue attempt failed. (Read our previous coverage here.)

Since no solution for the cities’ crisis was reached, Jurupa Valley city officials announced they would have to disincorporate by July 2015. Riverside County officials say the other three cities would be able to sustain.   

“There are tremendous costs for running a city and that includes police, fire, and all the other services,” Freeman said. “Next for consideration, the revenue comes from sales tax generation and also from property tax. The other three cities have more sales tax and more property tax revenue coming their way.”

Jurupa Valley is set to begin the process of disincorporation in December. It’s a long process that Riverside has gone through before. 

In 1972, citizens of Cabazon in Riverside County filed for the area to disincoporate because of turbulence in the city’s government that included resignations, recalls, and city council members being arrested. Much of the dispute stemmed from local controversy over gambling, and the city dissolved itself by local vote. The following year, the tiny town of Hornitos in the San Joaquin Valley was dissolved by the Legislature.

This time around, the possibility of disincorporation is a state-induced problem. 

“It’s pretty easy to see they have a cash flow problem, and in fact we’ve even helped them at the county [level] with delayed collecting of law enforcement payments for our sheriff’s department that’s acting as a police force,” said Freeman. 

On the final day of the Legislature’s session, Jurupa Valley received some hope.

Nancy McFadden, who is among the governor’s top advisers, sent an email to Jurupa Valley Mayor Verne Lauritzen and city councilmembers. She said the administration was in regular communication with the city’s mayor, lobbyists, Roth’s office and legislative leaders to come up with an answer to the dilemma.

“I understand that there have been some options on the table, including a loan through the county that could serve as a one-time fix so we can discuss further solutions during the next budget cycle,” McFadden said, but that option was rejected. “Senator Roth and our Administration are committed to finding a workable, long-term solutions to this issue.” 

“This is very difficult, so we’re hopeful,” said Freeman. “It certainly is dire straits for the city and the people who live there, and it’s interesting because for us it is an industrialized area. Many, many manufactures have small businesses there.” 

Jurupa Valley has seen significant job growth thanks to plants and factories manufacturing in the area, but in most cases no sales tax revenue is being generated, according to the commissioner.

“They don’t pay local sales tax,” Freeman said. “We’re grateful for the jobs, but that does not bring in sales tax revenue.”

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