For Isleton (and other small California cities), disincorporation is the answer
The small Sacramento Delta city of Isleton has been making news for all the wrong reasons this summer. It is facing a financial crisis and talk of bankruptcy is in the air. But a better option is to cease being a city at all by disincorporating.
As the accompanying population chart suggests, Isleton has seen better days.
At its incorporation in 1923 and for a while thereafter, the City had thriving Japanese and Chinese communities. Detention of Japanese Americans during World War II effectively ended Isleton’s Japanese community. The Chinese community disappeared over a longer time frame, with a major event being the state-mandated closure of gambling halls run by a Chinese association in the 1950s.
With a recent population of 764, numerous vacant storefronts, and depressed property values, it appears that Isleton no longer has the capacity to support a city government capable of providing meaningful services.
Isleton’s FY 2025-2026 general fund budget is less than $1.7 million. Of that, about a quarter goes to paying contractors to serve part time as a city manager, a finance director, an auditor, and an attorney. Another 10% is devoted to debt service. More money goes to keeping the lights on in the City Hall building, maintaining computer equipment, and covering other costs that do not yield public services (it is understandable that a city has to spend on overhead, but with such a small budget, overhead expenses can become a big share of total spending).
The city has also suffered in recent years from mismanagement as documented in a June 2025 Sacramento Civil Grand Jury report. Isleton is three years behind releasing audited financial statements: while it should have issued audited financials for FY 2023-2024, its latest available statements are for FY 2020-2021. Worse, the Council even fell years behind adopting annual budgets.
As the Sacramento Bee recently reported, the city’s current budget was built based on “staff knowledge” and anticipations due to a “lack of adequate record keeping.” My California Policy Center colleague Mark Moses told the Bee: “That’s a very dangerous strategy. If you don’t even have the advantage of noting last year’s financial results or last year’s budget vs. the actual to see how good a job you did, it’s hard to do a good job.”
Further, Isleton has accumulated a large debt load, recently estimated at $4.7 million, or more than $6000 per resident. Among the city’s debts is a $500,000 loan to a private lender, Red Tower Capital, which carries a 12% annual interest rate and on which Isleton defaulted last year. A forbearance agreement with Red Tower is scheduled to end in November when it could repossess all the collateral Isleton pledged in the loan agreement, including City Hall and the Fire Department building. Last week, Sacramento County declined to refinance this loan and to provide Isleton with additional liquidity given its own financial constraints and the risk of default.
Isleton’s current problems are not unprecedented as evidenced by previous Civil Grand Jury reports dating back to 1994. According to a 2009 Los Angeles Times article, mismanagement and bad economic conditions put Isleton on the doorstep of bankruptcy 20 years ago.
But municipal bankruptcy, which takes years and requires millions in legal fees, is not a reasonable option for a city the size of Isleton. Instead, Isleton should pursue disincorporation, which sounds a lot worse than it is.
Just because a city or town disincorporates does not mean that it ceases to exist. Although there is no longer a discrete municipal government, residents and businesses can still receive municipal services from the overlying county or from special districts. Isleton’s police services are already provided by the County service and the local fire district backs up the City’s skeletally staffed fire department.
Just ten miles up the Sacramento River from Isleton is Walnut Grove, an unincorporated town with a 2020 Census population of 1452—almost double that of Isleton. Further, Sacramento County has much larger unincorporated communities including Arden-Arcade and Carmichael with populations of 94,659 and 79,793 respectively.
All this means that Sacramento County government has experience serving suburban and urban communities without the need to cooperate with a city government.
Disincorporation is rare in California, but not unprecedented. The state has seen seventeen city dissolutions over its 175-year history with the most recent dating to the early 1970s. An especially relevant case is that of Cabazon in Riverside County, which disincorporated in 1972. At the time it had a population of 598 but has since grown to over 2629, showing that a city need not shrink just because its municipal government disappears.
Now that Isleton’s city government lacks the capability to provide meaningful public services and runs the risk of digging residents into a deeper financial hole, the time to disincorporate is now. Residents should overcome any sentimental attachment to their 102-year-old government and recognize that perpetuating its existence comes with more dangers than benefits.
Marc Joffe is a Visiting Fellow at California Policy Center and President of the Contra Costa Taxpayers Association.
