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Appendix A

Scope and Methodology

The Joint Legislative Audit Committee (Audit Committee) directed the California State Auditor to examine the district. As part of this examination, it asked us to evaluate whether other entities are capable of providing the district’s services, determine whether having other entities take over the district’s services would jeopardize public safety and public access, and assess the district’s financial condition. Table A.1 lists the objectives that the Audit Committee approved and the methods we used to address them.

Table A.1
Audit Objectives and the Methods Used to Address Them

AUDIT OBJECTIVE		METHOD
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed relevant laws and other documents applicable to the formation, reorganization, dissolution, and governance of special districts. Reviewed relevant laws and other criteria applicable to voting and voter eligibility. Reviewed relevant laws and other criteria applicable to employer and employee relationships. Reviewed the fire agreement and other documents applicable to reimbursements paying agencies made to local fire agencies for strike team assignments.
2	To the extent possible, determine the number of residents, landowners, and Forest Service permit holders in the district.	Reviewed data obtained from the El Dorado County Assessor’s Office to determine the number of parcels, landowners, and Forest Service permit holders within the district. Reviewed voter registration information for the district obtained from the El Dorado County Elections Department to determine the number of registered voters within the district. Analyzed maps of the Fallen Leaf Lake area, registered voter information obtained from the El Dorado County Elections Department, property ownership data obtained from the El Dorado County Assessor’s Office, and driver’s license and vehicle registration data obtained from the Department of Motor Vehicles to estimate the number of residents within the district.
3	For fiscal years 2015–16 through 2017–18, review the district’s financial reports and assess its financial condition and ongoing financial viability.	Analyzed the district’s audited financial information and assessed trends in the district’s expenditures, revenues, and fund balances for fiscal years 2015–16, 2016–17, and 2017–18 to determine the district’s financial stability. Reviewed and analyzed district documents to determine if the district overbilled for personnel hours related to the fire agreement. Review the district’s revenue and expenditure information from its audit financial reports and budget documents to determine whether the district could sustain itself if it received appropriate strike team reimbursement amounts.
4	Determine whether the dissolution or reorganization of the district into a different entity would jeopardize public access to Fallen Leaf Lake or public safety at Fallen Leaf Lake and the surrounding area.	Reviewed relevant documents and interviewed staff to identify services the district currently provides. Reviewed deed documents pertaining to the property to determine requirements for public access to Fallen Leaf Lake, including whether and how those requirements would continue to apply in the event that the district dissolved or the land changed ownership. Reviewed relevant documents and interviewed individuals to determine the ability of other entities to take over fire protection duties within the district. Reviewed relevant documents and interviewed individuals to assess the public safety risks of the governance options we identified, if applicable, including the potential for increased response times for fire and medical incidents. Reviewed relevant documents and interviewed individuals to identify public or private entities that could provide the fire protection and recreation services that the district currently provides.
5	Identify and assess alternative governmental or nongovernmental entities, if any, that are capable of providing services similar to those that the district currently provides.
6	Review and assess any other issues that are significant to the audit.	Reviewed the district board’s meeting minutes, the board of supervisors’ meeting minutes, and other relevant documents to determine the number of contested and uncontested district elections and the extent of district board vacancies since 2010. Identified four existing special districts that have a small number of residents or that have experienced recurring vacancies on their boards of directors. For each district, we determined how they either addressed or plan to address their small electorate size or board member vacancies. Interviewed the district’s fire chief and reviewed district documents concerning the resident recruit firefighters to evaluate their employment status.

Source: Analysis of Audit Committee’s audit request number 2018-133, and information and documentation identified in the column titled Method.

Assessment of Data Reliability

In performing this audit, we relied on electronic data files that we obtained from El Dorado County, the Secretary of State’s Office, and the Department of Motor Vehicles. The U.S. Government Accountability Office, whose standards we are statutorily obligated to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information we use to support our findings, conclusions, or recommendations. Table A.2 describes the analyses we conducted using data from the information systems we used, our methods for testing them, and the results of our assessments.

Table A.2
Methods Used to Assess Data Reliability

DATA SOURCE	PURPOSE	METHOD AND RESULT	CONCLUSION
El Dorado County Elections Department Election Interface Management System (EIMS) January 2019	To determine the number of registered voters in the district and the number of registered voters in the district who included mailing addresses outside of the South Lake Tahoe area as part of their voter registration as of January 2019.	We performed dataset verification procedures and conducted electronic testing of key data elements. We did not identify any significant issues. Because EIMS is a partially paperless system, we did not perform completeness or accuracy testing. Furthermore, we did not perform a review of the system controls over these data because of the significant resources required to conduct such an analysis. To gain some assurance of the data’s reliability, we compared key data elements from EIMS to other databases and identified no exceptions.	Undetermined reliability for the purposes of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.
El Dorado County Assessor’s Office Megabyte Property Tax System (MPTS) January 2019	To determine for the district the number of parcels, landowners, and holders of Forest Service permits.	We performed dataset verification procedures and conducted electronic testing of key data elements. We did not identify any significant issues. Because MPTS is a partially paperless system, we did not perform completeness and accuracy testing. Furthermore, we did not perform a review of the system controls over these data because of the significant resources required to conduct such an analysis. To gain some assurance of the data’s reliability, we compared certain MPTS data with another database and identified no exceptions.	Undetermined reliability for the purposes of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.
Secretary of State’s Office California Voter Registration System (VoteCal) April 2019	To confirm the number of active voters in the district and examine the registration histories of those voters.	We did not perform any assessment of these data because the supporting documentation is maintained among California’s 58 counties, making accuracy and completeness testing impractical.	Undetermined reliability for the purposes of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.
Department of Motor Vehicles (DMV) Driver’s License Database and Vehicle/Vessel Registration Database March 2019	To determine the number of individuals holding driver’s licenses, identification cards, and vehicle registrations listing an address within the district.	We performed dataset verification and electronic testing of key data elements from DMV’s dataset; we identified no exceptions. Because the dataset is partially paperless, we did not perform completeness or accuracy testing. Furthermore, we did not conduct a review of the system controls because of the significant resources required to conduct such an analysis. To gain some assurance of the data’s reliability, we compared key elements from DMV’s dataset to other databases and identified no exceptions.	Undetermined reliability for the purposes of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.

Source: Analysis of data and documents from, and interviews with, El Dorado County, the Secretary of State’s Office, and the DMV.

Appendix B

Although Other Options Could Also Address the District’s Governance Challenge, They Include Additional Risks and Hurdles

As we discuss in the Audit Results, one option to address the governance challenge the district faces in ensuring it has an adequate number of board members would be for the Legislature to expand the size of its electorate. In the absence of state action to expand the electorate, local actions could implement one of two other options—consolidating the district with another special district or dissolving the district and having different entities provide the services. Both of these options could potentially resolve the district’s governance challenge; however, given the risks and hurdles inherent in each, implementing them might not improve the district’s situation. Having other entities provide the services would mitigate the risk of the service disruptions that would occur if the district’s board lost its quorum and could no longer conduct the district’s business. However, the continued provision of services following a district consolidation or dissolution would depend on multiple stakeholder groups agreeing on the outcome. Table 2 outlines the actions these stakeholder groups would need to take.

Consolidating the district with another special district could either create a single new successor special district or result in one of the districts being designated as the successor special district. Given that the Lake Valley Fire Protection District (Lake Valley) surrounds much of the district and there are no other adjoining fire protection districts or nearby community services districts, Lake Valley is a likely candidate for consolidation with the district. However, to consolidate with Lake Valley and create a successor fire protection district, the district’s board would have to give up its authority to provide park and recreation services. State law requires that at the time of consolidation, the new successor special district must be authorized to deliver all the services previously provided by both consolidating special districts. Because state law authorizes fire protection districts to provide only services related to the protection of lives and property, the district must also be authorized to provide only those services before it can consolidate with another special district, such as Lake Valley, to form a successor fire protection district. The district could identify a different entity to provide park and recreation services if it chose to consolidate with Lake Valley. Alternatively, it could keep all of its current powers and consolidate with another special district to form a successor community services district that would provide both fire protection and park and recreation services.

Further, for any type of consolidation to occur, stakeholders would need to take a number of steps. First, a proposal would need to be submitted to the El Dorado LAFCO either by both district boards or the county board of supervisors, by a petition signed by not less than 5 percent of the voters in each district, or by the LAFCO itself if the proposal is consistent with a prior LAFCO recommendation or conclusion. The LAFCO can either disapprove or approve the proposal; if it approves the proposal, it then must hold a hearing to conduct protest proceedings. A key hurdle to a consolidation is that voters of either special district can stop the change if 50 percent or more of them protest it in writing. Additionally, if 25 percent or more of the voters or landowners in either special district protest, an election must be held, during which the voters of each district can either approve or reject the change. If fewer than 25 percent of voters or landowners protest, LAFCO can order the consolidation.

If the district gives up providing park and recreation services so that it can consolidate with another special district to form a fire protection district, the park and recreation services could continue under a different owner; however, the district’s current level of operations would not necessarily endure. Although the property’s deed covenants require that the owners of the land maintain public access to the lake, they do not require that future owners maintain or operate the store, the marina, or restroom facilities, which the district owns. However, the district’s financial reports for fiscal years 2015–16 through 2017–18 show that its park and recreation services have been financially self‑sufficient, so a successor entity may be interested in maintaining a similar level of services.

In addition to the hurdles to initiate and implement consolidation, this option increases the risk of higher costs to Fallen Leaf Lake landowners and permit holders and lower levels of services to the Fallen Leaf Lake community. For example, the district’s fire department currently uses many unpaid recruit firefighters, in addition to some volunteer firefighters and paid seasonal staff. As a result, the district has lower personnel costs than if it employed the same number of paid, full‑time staff. However, Lake Valley does not use volunteer firefighters, according to its fire chief. If the successor district after consolidation were to use only paid personnel and keep service levels the same, the costs for firefighting services would likely increase, which in turn could mean increases to the fire special taxes assessed to property owners in the district’s and Lake Valley’s jurisdictions. Alternatively, the successor district might be able to avoid significant increases in personnel costs either by using volunteers or by not staffing the Fallen Leaf Lake firestation to the same extent that the district does. This latter approach would likely result in a lower level of fire protection services to the district’s community, leading to slower response times than the district currently provides. If the community’s fire protection service levels decrease, it could result in the loss of fire insurance coverage, lower levels of fire insurance coverage, or higher fire insurance costs for property at Fallen Leaf Lake.

Alternatively, dissolving the district would terminate its existence. El Dorado County would then control the district’s funds and take on its powers and duties for the sole purpose of winding up its affairs, unless the LAFCO required another district to instead take that role. The requirements for dissolution are similar to those for consolidation, with key differences being that a petition to propose dissolution must be signed by not less than 10 percent of the district’s voters or landowners and that a dissolution involves stakeholders only within the district rather than within multiple special districts. Additionally, if the district board—rather than community members or the LAFCO—proposes dissolution that is consistent with a prior LAFCO study or determination, the protest provision would not apply, as Table 2 shows.

As the successor, El Dorado County would not be required to continue the services the district provides, and if neither the county nor another entity were to implement replacement services, the Fallen Leaf Lake community would likely receive diminished emergency services. The land within the district comprises areas in which the State—through CAL FIRE—is responsible for wildland fire protection and areas in which federal fire agencies are responsible for wildland fire protection. However, these entities have only limited responsibility for structure fire suppression. In that situation, the costs for fire insurance for property at Fallen Leaf Lake could increase or the ability to obtain fire insurance could decline. Fortunately, Fallen Leaf Lake is within an area that receives ambulance and emergency medical services through a joint powers authority. However, if the district were to dissolve, the remaining emergency medical services providers would be located outside of Fallen Leaf Lake, likely resulting in a slower response time than the district can currently provide.

The LAFCO has authority to require El Dorado County to continue the district’s services if it dissolves, although the LAFCO’s executive officer explained that LAFCO cannot reasonably impose such an obligation unless extensive discussions occur and the county agrees to provide the services. The county could continue the services either directly or by establishing a zone within a county service area. A county service area is a special district governed by the county board of supervisors that can provide any service that the county is authorized to provide. When the county board of supervisors determines that it is in the public interest to raise additional revenues within specific areas of a county service area or to provide such areas with different authorized services, different levels of service, or different authorized facilities, it may form one or more zones. However, implementing a zone to provide the services that the district currently provides would require several actions. These steps include the county’s requesting and the LAFCO’s authorizing fire services within the county service area that already encompasses the district’s boundaries. In addition, the county’s board of supervisors or Fallen Leaf Lake’s registered voters would need to propose the creation of a zone and identify a funding method within the county service area. Moreover, a majority of voters could stop the zone’s formation by protesting it. The voters may be averse to approving this arrangement if they prefer more localized control, as exists in the current structure under which the local district board controls the local assessment. The establishment of a zone would give the county board of supervisors some control over the local assessment.

Further, for full services to continue after the district’s dissolution, several entities would need to agree to become involved, potentially including El Dorado County, CAL FIRE, and others. If the county does assume responsibility for services after the dissolution, it would need to contract with another entity, such as a nearby fire protection district or CAL FIRE, to provide fire protection and with a vendor to provide park and recreation services. These entities may not provide the level of service that the district currently provides. Additionally, CAL FIRE uses an extensive process to evaluate whether it will enter into agreements for services, and it may decline to approve such an agreement. A failure to create a contract with a fire service provider could result in diminished protection at Fallen Leaf Lake, since the state and federal fire protection responsibilities do not include structure fires, as we previously describe.

A final option is that the district could give up its fire protection authority and then allow its territory to be annexed into a nearby fire protection district, such as Lake Valley; the district would continue and retain its park and recreation authority. The executive officer of the El Dorado LAFCO noted that with fewer responsibilities, the district could continue to fulfill its duties related to park and recreation services even with a board with vacant seats. However, this option would not resolve the governance problem because the district would likely continue to have a small electorate, so the risk of the board being unable to conduct business would remain high.