Annexations, Spheres of Influence, County Islands, and Municipal Service Reviews

Annexation is the process in which a city incorporates a parcel or parcels that are outside of an urban service area and its sphere of influence. Annexation has the potential to make additional land available for housing development.

The Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 (Act) sets forth the legal framework for government organization including, but not limited to, annexations, detachments, consolidations, and dissolutions. State law originally authorized Local Agency Formation Commissions (LAFCo or commission) in 1963 and each county has a LAFCo to administer and enforce this Act. In addition to considering changes in government organization, LAFCos are also required to periodically review an agency’s sphere of influence (SOI) and conduct municipal service reviews (MSRs).  

LAFCos are also tasked with discouraging urban sprawl, preserving agricultural and open space lands, and encouraging local government agencies to develop in an orderly fashion. In reviewing proposals for boundary changes, LAFCos are required to consider certain factors such as conformity between city and county plans, service levels and the need for future services to the area, as well as the social, physical, and economic effects that agency boundary changes present to the community.  

Annexations and Detachments (Reorganizations). LAFCos regulate, through approval and denial, boundary changes proposed by public agencies or individuals.  Reorganizations involving inhabited territories (12+ registered voters) include additional considerations and requirements.  In general, LAFCo review includes:  1) an analysis of an agency’s ability and capacity to provide public services and public facilities (e.g., infrastructure) to serve the area; 2) minimizing loss of agricultural and open space lands; 3) avoiding creation or seeking incorporation of county islands; 4) determining if a disadvantaged unincorporated community (DUC) needs to be addressed; and 5) addressing the related economic effects of reorganization.

Spheres of Influence (SOI).  LAFCos are responsible for conducting a review of an agency’s sphere of influence (SOI) every five years.   The California Association of LAFCos defines “sphere of influence” as plans for the probable physical boundaries and service area of a local agency, as determined by a commission. The commission must consider and prepare a written statement of its determinations which are summarized as follows: 1) present and planned land uses in the area, including agricultural and open-space lands; 2)  the present and probable need for public facilities and services in the area; 3) the agency’s capacity for adequate public facilities and services; 4) any social or economic communities of interest in the area, if the commission determines that they are relevant to the agency; and 5) the present and probable need for sewers, municipal and industrial water, or structural fire protection for any disadvantaged unincorporated community within the existing sphere of influence from a city or special district that provides those public facilities or services.

Municipal Service Review (MSR).  Prior to, or in conjunction with an agency’s SOI update, LAFCo is also required to conduct a municipal service review (MSR) for each agency.  A MSR is a comprehensive review of an agency’s ability to provide service(s) to persons and businesses within its boundaries.  The commission must prepare written statements of its determinations with respect to each of the following factors: 1) area growth and population projections; 2) the location and characteristics of any disadvantaged unincorporated communities within or contiguous to the SOI; 3) present and planned public facilities capacity and public services adequacy, including infrastructure needs or deficiencies; 4) financial ability of agency to provide services; 5) Status of, and opportunities for, shared facilities; 6) community service needs accountability, including governmental structure and operational efficiencies; and 7) any other matter related to effective or efficient service delivery, as required by commission policy.

County Islands.  An overview of San Joaquin Valley city boundaries indicates that county islands are more prevalent in larger- to medium-sized cities, particularly in those that incorporated prior to the formation of LAFCo in 1963.  Most of the islands that remain today appear to contain agricultural and/or rural residential uses.  Larger islands typically comprise single-family residential subdivisions developed under county requirements that have been surrounded or substantially surrounded by cities as they have grown.  Many islands, particularly those developed long ago, typically lack urban infrastructure (e.g., community water service, sanitary sewer service, piped storm drainage), and many lack municipal amenities such as sidewalks, curbs/gutters, streetlights, and underground utilities.  Instead, these areas may be served by individual or small community wells, septic systems, and open/roadside storm drainage. In more recently developed areas, islands may contain County-and/or a Community Service District (CSD)-supported infrastructure and/or amenities. 

As cities surround or approach these areas, providing county services can become more challenging or inefficient, considering city services are typically more proximate and/or county services are consolidated or focused to serve larger unincorporated communities. Many county islands also exhibit characteristics of a disadvantaged unincorporated community (discussed in the following section). 

Relevance to housing in the San Joaquin Valley:  For many cities, annexation appears to be an important tool in meeting regional housing need allocations. In smaller- and medium-sized communities, there appears to be a preference towards lower-scale and lower-density development patterns which, if continued, requires more land area and potentially more annexation. Medium- to large-sized cities may need to annex county islands and disadvantaged unincorporated communities should they continue to annex more land but also have more potential for infill and higher-intensity developments.

Inadequate Infrastructure. In the San Joaquin Valley, many of the unincorporated areas are rural communities that have aging infrastructure and housing stock. A city may be reluctant to annex a community because the tax share may not cover the costs to provide services to the proposed properties. 

In 2018, the San Joaquin LAFCo Executive Officer issued a statement addressing the lack of adequate infrastructure in the San Joaquin unincorporated islands and stating that LAFCo has the power to form policies to encourage cities to annex unincorporated islands in order to further its mission to promote orderly growth and development of cities. Although LAFCo cannot initiate annexation, it can create policies to help streamline the process for the annexation of disadvantaged areas.

Serving disadvantaged communities. Annexation can provide services to disadvantaged communities that are outside of an urban service area. Newly annexed properties are regulated and developed with consistent plans, policies, and standards. They can also tap into city resources and funds that can help with improvements for infrastructure and housing.

Annexation can lead to sprawl. Annexation of largely undeveloped land can have the unintended consequence of promoting urban sprawl and fragmented land use patterns. When a city expands onto the undeveloped land beyond its current boundaries, it may result in economic, environmental, health, and climate consequences. Multiple studies show that low-density sprawl burdens local governments with higher economic costs in the long run compared to infill development. It can lead to housing development far from existing infrastructure, jobs, transit, and other amenities. Low-density sprawl development uses more water and results in increased VMT compared to higher-density infill development. It can also lead to development in wildland urban interface areas prone to climate hazards, such as wildfires. 

Costs and procedural challenges. The process of annexation includes the costs of city staff, legal counsel, and various studies. Generally, the first step of the annexation process is for the city council to pass a resolution for the annexation application to be filed with LAFCo. 

The next step is for the city and county to determine a property tax exchange. This step is one of the most challenging steps in the annexation process as the county government and the annexing city must negotiate the property tax agreement. When a city annexes a territory, the county will transfer a share of its property tax entitlement to that city to account for the service responsibility being transferred. In Kern County for example, property taxes will generally be shared in the ratio of 80 percent county and 20 percent city. However, other ratios are also possible such as Escalon and Ripon whose sharing ratio is 63.4 percent county and 36.6 percent city. 

In order for the annexation proposal to be approved, all parties must agree. However, it may be difficult for the involved parties to come to an agreement on the tax share as the annexation may not be financially beneficial in the long run for either of the parties. Many municipalities are reluctant to annex unincorporated communities because the cost of infrastructure improvements may exceed the amount the community can pay through property taxes. 

Relevant State Law

Assembly Bill No. 2838 (AB 2838) (2000). Local agency formation commissions. Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 encourages orderly growth and development which are essential to the social, fiscal, and economic well-being of the state. 

Government Code Section 99. Jurisdictional Changes and Negotiated Transfers. LAFCo is to initiate property tax negotiation process among all the agencies affected by the annexation proposal.

Government Code Section 56301. Local Agency Formation Commission.

Government Code Section 56430. Spheres of Influence, municipal service reviews must be provided in the county or other appropriate area designated by the Local Agency Formation Commission. 

Senate Bill No. 244 (SB 244)(2011). Disadvantaged unincorporated communities, requires annexations of greater than 10 acres to be reviewed in regard to the presence of any contiguous disadvantaged unincorporated communities, and includes specific requirements and restrictions when applicable. Early consultation with LAFCo and the city is strongly recommended to identify the presence of disadvantaged unincorporated communities to establish the application process and ensure the timely processing of annexation applications.

Survey Results

Over 50 percent of survey respondents identified annexation as a moderate to extreme housing production constraint.  Respondents ranked the following factors as limiting annexation:

Infrastructure 43.75 %

Political/Public Concerns 37.50 %

Urban Growth Boundary 34.38 %

Loss of Prime Ag Land 12.50 %

Lack Tax Sharing Agreement 9.38 %

No Areas to Expand 9.38 %

Additionally, respondents identified a lack of interest, entitlement requirements, and voter initiatives as limiting factors. 

Stakeholder Interviews

Stakeholders identified several interrelated factors that make annexation challenging.  Areas proposed for annexation typically lack infrastructure, necessitating extensions or improvements to existing facilities; the costs of which have a direct correlation to housing affordability.  Additionally, evaluating annexation requests can be complex and time consuming (see Staffing Capacity discussion).  


Kern County. A Citizen’s Guide to Annexation by Cities. Kern County provides general information regarding annexation processes.

LAFCo. San Joaquin Unincorporated Islands Executive Officer’s Report. In 2018, the Executive Officer of the San Joaquin LAFCO issued a report discussing the unincorporated Islands in the county.

OPR. LAFCos, General Plans, and City Annexations. This report goes over the general background and process of annexations.

Lindsay Eileen Keyes. Strategic Considerations for City Annexations in California. This study looks into history of annexations in California and discusses the impacts and outcomes of annexations.

California Associations of Local Agency Formation Commissions (CALAFCO). The Good, the Bad and the Confusing: Current Protest Requirements under the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000. This memorandum discusses the procedures of the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000. 

San Joaquin County. Municipal service reviews of SJC LAFCo. This website provides a database of Municipal Service reviews of cities in San Joaquin County. 


CALAFCO. OC LAFCo Unincorporated Island Program. This provides background and information regarding a program initiated to annex unincorporated islands throughout Orange County.

Sonoma County and City of Santa Rosa. Pre-Annexation Agreement. This is an example of a pre-annexation cost-share agreement.