San Martin incorporation proponents suffered another blow Wednesday afternoon when a land apportionment agency sided with county supervisors in finding that the small town of 6,000 people won't be self-sustaining and would drain county coffers.
The county would lose almost $70,000 per year, according to figures drawn up between county staff and San Martin proponents through a negotiation. According to the fiscal analysis accepted by the Santa Clara County Local Agency Formation Commission Wednesday, that figure is reduced from the previous $872,000 per year figure because a LAFCO attorney sided with San Martin Neighborhood Alliance, the group pushing for incorporation for the past seven years, in finding that restricted road fund money could be transferred to the county's nonrestricted general fund.
LAFCO's own guidelines stipulate that restricted and nonrestricted funds can't mingle, but an attorney found that state law isn't clear about the two funds and so LAFCO determined they could transfer county road fund money generated from San Martin roads to the county general fund.
Deputy County Executive Sylvia Gallegos said the county maintains that according to state law, nonrestricted and restricted funds can't mingle. But even if they could, Gallegos said San Martin still wouldn't have enough money because they would still be responsible for making up the $70,000 per year the county would no longer get from the area through taxes.
Since 2001, residents of the small town San Martin, located between Gilroy and Morgan Hill with a population of approximately 6,500 residents, have been wanting to incorporate and declare their independence from the county.
Incorporation proponents have held car shows, spaghetti suppers and most recently a trailer tent raffle to raise money to pay costs associated with the incorporation.
In early April, Santa Clara County Board of Supervisors voted 4-1 against San Martin's incorporation citing concerns over the county's already beleaguered budget saying letting the city go would drain county coffers to the tune of $872,000 a year in general fund moneys which include property, real estate and hotel taxes that San Martinos will no longer have to pay if they incorporate.
San Martin cityhood proponents countered they would actually give the county a windfall of $750,000 through county road funds. The county threatened to sue LAFCO if the incorporation was approved without San Martin making up the lost revenue.
San Martin Neighborhood Alliance members like President Sylvia Hamilton said she was pleased that LAFCO's attorney agreed with the alliance's attorney that the county could use road funds to offset the loss in county general fund revenue, but that she was disappointed in Gallegos' statement at the meeting that the county wouldn't be interested in a renegotiation - which would be necessary to balance the county budget and the new city's budget - unless San Martin mitigated its financial effect on Santa Clara County.
In other words, county staff still wants San Martin to make up for the money it would take from the county.
LAFCO commissioners accepted the figures by a 3-2 vote, with Santa Clara County Supervisor Blanca Alvarado and Susan Vicklund-Wilson dissenting. Chairman Pete Constant, Santa Clara County Supervisor Don Gage and John Howe voted in favor of accepting the financial analysis.
Alvarado said she was one of the main supporters of incorporation when it was first brought to the county board, but now she's not convinced that incorporation is a good idea.
"Every time I look at this, I become more convinced that it would be irresponsible to vote for incorporation," Alvarado said. "Today it seems highly unlikely that San Martin would be fiscally able to conduct business."
Still, LAFCO commissioners like Gage, who represents South County, want to give the proponents a chance to explore what they want to do as a community. But Gage admitted that he didn't see how San Martin would be "solvent" in the long run. In April, Gage was the lone vote against the county's move to block the incorporation efforts. On Wednesday he sided with LAFCO staff in their finding that San Martin won't generate enough money to be a city.
"One little incident could wipe you out," Gage said. "There's the fudge factor - you have to have reserves to take care of the uncertainties."
Gage pointed out that the county has had to cut back spending by $1.2 billion in the past six years because of tough economic times, naming just one example of government finances gone wrong.
"Just look up north, ask the folks up there," Gage said, alluding to Vallejo, the city that filed bankruptcy in May.
So it's back to the drawing board for county staff and members of the tiny town who propose the incorporation -- if the county will have it.
LAFCO Executive Director Neelima Palacherla said county supervisors might decide they've got nothing else to offer San Martin, and refuse to spend staff time negotiating with them again. If that happens, Palacherla said, LAFCO could come up with the terms and conditions of incorporation on its own, if the agency found that the town could sustain itself.
Hamilton said she was disappointed to hear from Gallegos that the county wouldn't be interested in a second negotiation.
Larry Warren, a San Martin incorporation opponent, said he would rather the LAFCO commissioners did not accept the fiscal analysis, which was based on 2007 county figures. Warren said he wants LAFCO to reconfigure the numbers when the 2008 financial data comes out in August.
"Things have changed so dramatically, and inflation is a big factor in road maintenance," he said. "This has been going on for years. Why not wait a couple more months?"
The Santa Clara County Board of Supervisors won't meet during the month of July, and thus won't be able to discuss the incorporation issue until their next meeting on Aug. 12.
Natalie Everett Natalie Everett covers education and city issues for The Times. Reach her at (408) 779-4106, ext. 201, or neverett@morganhilltimes.com.
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