Council approves city attorney's revenue-neutrality letter to LAFCO over objections

The Los Angeles City Council on June 6 approved sending a legal opinion from the City Attorney's Office to the county counsel and LAFCO's counsel stating that the revenue-neutrality requirement applies to special reorganizations and secessions. The motion passed 10-4.

City Attorney Fred Merkin told the council the letter explains the legal basis for applying a revenue-neutrality standard under the Cortese-Knox Local Government Reorganization Act of 1985 and its later amendments. Merkin said the statute and legislative history indicate that incorporations and special reorganizations should not cause financial harm to the jurisdiction left behind: "We believe that the law provides that revenue neutrality requires that any proposal to be approved by LAFCO is not to cause the city of Los Angeles financial harm if there is to be a detachment," he said.

Supporters, including Councilmember Sekowsky, argued that sending the opinion to county counsel and LAFCO counsel would clarify the legal standard early in a process that could culminate in applications and litigation. "I think it's much wiser to put this out there now while we're discussing the issue before we really start the data collection," Sekowsky said.

Opponents called the letter unsolicited and premature. Councilmember Wax (and others) argued that LAFCO has its own staff and counsel and that the commission has explicit statutory flexibility to approve reorganizations if the fiscal effect is adequately mitigated. Councilmember Deaton said the letter could be viewed as trying to predetermine LAFCO's discretion and urged letting the commission and the courts resolve unsettled questions.

Several council members noted the issue has substantial legal uncertainty and that courts eventually may interpret revenue neutrality. Councilmember Bernsen, a LAFCO commissioner, said he sought the opinion because there was no clear, shared understanding of the term. Other speakers urged that the city make its position known early.

On a roll call, the council approved the majority report and authorized the city attorney to transmit the letter to county counsel for distribution to LAFCO counsel; the final vote was 10 in favor and 4 opposed.

Why it matters: Revenue neutrality is central to any secession or special reorganization process because it addresses whether the remaining city would suffer a net fiscal loss if a portion detaches and incorporates. The city attorney's opinion asserts a legal standard the city will present to LAFCO counsel as the process moves forward.

Next steps: The city attorney's office will send the opinion to the county counsel and LAFCO counsel, which may solicit responsive briefs from applicants and interested parties. Any ultimate interpretation may depend on LAFCO's determinations and judicial review.