"To me, it's a David and Goliath situation," said Sylvia Hamilton, president of the San Martin Neighborhood Alliance. "We're a little hamlet. San Martin residents are 1 percent of the county, and to have to pay $10 million just take control of their destiny, well that just doesn't seem fair."

The alliance, which represents about 6,900 residents and has an active membership of approximately 600, has been in negotiations with Santa Clara County but has not reached an agreement on how to achieve "revenue neutrality" with the incorporation. In other words, a city must not financially hurt the parent county by its formation.

The proposed town's boundaries, which are more than 10,000 acres and 16 square miles, extend from Masten Avenue on the south, to Maple Avenue on the north, to Watsonville Road on the west and to New Avenue on the east.

Because the two sides were unable to reach an agreement, the terms for reaching revenue neutrality must be imposed by the Local Agency Formation Commission, according to LAFCO Executive Director Neelima Palacherla.

"The period that they have for reaching an agreement has passed, and no agreement was reached, so now it is up to LAFCO to establish terms," she said. "I am aware of one other incorporation attempt where LAFCO had to establish the terms, and the attempt failed at the ballot. I'm not saying the terms were the reason it failed, but that is the only other incorporation I know where LAFCO has set the terms."

Negotiations broke down early this month, Hamilton said, because the county said it would suffer a shortfall of approximately $880,000 with the incorporation, but the alliance numbers showed the county would have a windfall of approximately $600,000. The difference was road maintenance funds, she said.

"They did not want to include those, calling them encumbered funds," Hamilton added.

County Supervisor Don Gage could not be reached for comment by presstime.

"Supervisor Gage would have been pleased if the revenue neutrality discussions were to continue," said Rachael Gibson, Gage's land use policy aide, "But now they've reached an impasse and the decision is up to LAFCO whether they'll continue the incorporation."

"Supervisor Gage has generally supported the incorporation but he knows the devil is in the details, and those details need to be sorted out before a decision can be made," Gibson said.

To take out an $880,000 loan, there would be interest and fees, so the little town and its residents could end up footing a $10 million bill over the next 25 years, a time frame established by county officials. That's why Hamilton hopes the community will rally and express their concerns to the commissioners during the public hearing next month.

At the April 16 meeting, she added, there will be a public hearing, and commissioners will provide LAFCO staff with a direction to take in preparing the terms. Commissioners will not vote until the May 7 meeting, and if the terms are then approved, the incorporation will be on the November ballot. Residents within the proposed boundaries will vote on the incorporation with the approved LAFCO terms.

Hamilton said the alliance hopes there will be a large turnout by the community at the April 16 meeting, which will be held at the county complex at 70 West Hedding St., San Jose.

"We're talking about getting a bus," she said. "We hope the commissioners can figure out an equitable compromise, something that's fair to both San Martin residents and to the county as a whole. That's all we want, we don't want to leave the county in the lurch, but we don't want them to do that to us either. They have known from the start how much San Martin pays in taxes, how much money they are spending on San Martin. If the county executive was going to take this path, it would have been considerate of him to let us know before we spent all this time and money."

About San Martin:

• 16 square miles

• More than 10,000 acres

• 6,900 residents

• Possible debt to county - $880,000 loan with interests and fees over a 25 year period could reach total of $10 million

• Largest revenue sources, sales tax - $839,000, property tax - $706,000, vehicle license fees - $513,000

Freelance writer Jeremiah Johnson contributed to this report.

Marilyn Dubil Marilyn Dubil covers Morgan Hill education and public safety for South Valley Newspapers. Send her an e-mail.