RSG Solutions

October 11, 2023

By Jim Simon, Principal

For the first time in over 12 years, California may be welcoming a new city with the potential incorporation of Mountain House, a community of 28,000 residents just west of Tracy in San Joaquin County. Mountain House voters will be deciding on incorporation in March 2024 and if a majority support incorporation, Mountain House will be the 483rd incorporated city in California, following Jurupa Valley in 2011.

Incorporations are increasingly rare because of changes to state laws that affect the amount of revenues new cities (not to mention annexations) receive when incorporating. Between Proposition 13, property tax shifts to backfill the state’s financing of public education, and economic factors, many cities must rely on financing their own futures, plus growth, to make them sustainable. Indeed, many of the 482 cities in California today did not have to endure these challenges when they incorporated.

RSG prepared the Comprehensive Fiscal Analysis for incorporation of Mountain House for our client, San Joaquin LAFCO, who unanimously approved the incorporation application to advance it to the voters. The Analysis shows that incorporation is fiscally feasible largely due to three reasons:

First, the County created a Community Services District in 1996 shortly after approving a Master Plan for development of the former agricultural community. The Mountain House CSD provides many municipal services already and receives a relatively sizable portion of property taxes, more than what most new cities receive. The CSD is being reorganized as the new city and a subsidiary district, thereby retaining these property taxes after incorporation.

Second, approximately half of the total budget of the city is being financed with four existing Special Taxes that were put in place by the voters several years ago for the CSD. These special taxes fund several services that would otherwise have to be paid by the General Fund and local taxes. These taxes are critical to the success of the new city.

Third, the community has been largely developed as a residential area with virtually no commercial uses (until relatively recently). Both the timing of that residential development, and the limited amount of taxes from commercial uses (which generally can create negative impacts to existing agencies at incorporation that lead to supplemental “revenue neutrality” payments from the new city) created a unique situation that is rare in California in our experiences.

It seems to us that the Legislature does not have the political will to restore property taxes and vehicle license fee revenues to new cities that frequently made formation of new cities more common, not to mention simpler. The Mountain House circumstance is informative to how a new city can still be feasible, and perhaps less surprising when we consider how many existing cities have had to resort to revenue enhancement through special taxes to continue to provide services.