Though it seems like a typical neighborly exchange, the two women should be awarded badges of honor for not assaulting each other.

Steele and Gruetzner are on opposing sides of a years-long debate over whether their homes in an unincorporated Santa Clara County "pocket" should be annexed to the town of Los Gatos.

The issue of whether to annex the county homes into the town will be decided Aug. 31 when the 74 registered voters who live in them cast ballots for a special election.

But for residents of Blossom Hill Manor No. 11, which consists of 10 homes on Lilac Lane and 21 on Oleander Drive, the annexation issue will not likely disappear when the ballots are tabulated.

As with any vote, someone is going to be unhappy with the results. Annexation backers will be disappointed if the special ballot measure fails. They want the protection of the Los Gatos­Monte Sereno Police Department, the ability to participate in town government and the oversight of town planning and building personnel.

Opponents, however, will be disappointed if their homes are annexed. They say the county sheriff provides adequate police protection, the town's remodel-size limits and permit costs are restrictive and property values would suffer if the homes are annexed.

Gruetzner, an Oleander Drive resident, initiated the annexation process after discovering she could not serve on the town's arts commission.

"It's not just being on the arts council," she said. "We can't vote in town elections, yet anything the council decides on, we have to abide by."

Gruetzner gathered the support of neighbors in five nearby homes and prepared to apply for annexation. When other neighbors heard about the effort, they asked to be included. She obtained 41 signatures on a petition to incorporate the neighborhood, and 15 families paid the necessary fees to begin the process.

There was enough opposition from other neighbors, however, to require a vote on the matter. Steele and other homeowners began campaigning against the annexation, fearing that becoming part of Los Gatos would mean more restrictions. One of her bigger concerns is the 2,600-square-foot size limit on remodeled homes.

"The town of Los Gatos limits people in how big of a house they can build in the Manor," Steele said. "Not that I support the monster homes that are going up, but 2,600 square feet is pretty modest."

Steele remodeled her previously 1,200-square-foot home to 2,800 square feet several years ago. She said homes at that size and even a bit larger are reasonable—and often necessary—for expanding families. She paid county permit fees, which are calculated based solely on project valuations. She said the town's fees, which also include per-unit charges for electrical, mechanical and plumbing devices, are often not known until the project is complete and can add up to "prohibitive" totals.

Lisa McAdams, who lives on Lilac, said she is glad the town places size limitations on remodels and that neighbors are involved in the planning process. She cited a recent case where a family won an appeal of a planning commission decision that was originally turned down.

"To me, it tells me that the planning commission is willing to work with people if they present their case in a give-and-take manner," she said. "I get the sense that the planning commission would work with people and be willing to work things out. But to the people who oppose annexation, that's their whole argument against it."

She said the process and restrictions are necessary to prevent further "monster homes" such as a large two-story rebuild on Lavender Way that she and other residents call "the apartment complex."

Plenty of others in Blossom Hill Manor—a nearly 50-year-old development between Blossom Hill and Los Gatos­Almaden roads just east of Los Gatos Boulevard—and other unincorporated county areas agree with Steele's views. Annexation ballot measures in 1999 and 2000 both failed. Those efforts were initiated by the county, which started a county pocket annexation program several years ago to rid itself of small unincorporated areas surrounded by cities and towns.

"The county's governmental unit is not one that is set up to provide local municipal services," County Counsel Ann Ravel said. "It is set up to provide services for large unincorporated areas. It's very difficult and very expensive for the county to do roads and other improvements in small pocket areas."

Ravel sent a letter dated Aug. 19 to residents of Oleander and Lilac in response to some of the anti-annexation arguments. In response to the opponents' claim that the county's land use and development regulations are more lenient, she said the county's board of supervisors asked for an evaluation of whether it should amend those regulations to match up with those of surrounding cities. Though Ravel told the Los Gatos Weekly-Times that fees would remain the same, she said size restrictions could be enacted if those amendments are made.

Jim Hartigan, who owns a home on Lilac Lane where his sister and brother-in-law live, worked with Steele to put out newsletters arguing against annexation. He objected to Ravel's letter, saying it was a scare tactic to influence the results of the election.

Hartigan, who could not vote in the election since he does not live in his Lilac Lane house, said he would like his property to remain in the county because of the currently simpler, cheaper permit process.

"This is about property rights," he said. "It's about property values. It's about freedom to do what you want with your property and it's about keeping the costs down when you want to do something with your property."

For McAdams, it's about something different—being able to more actively participate in the town she feels very much a part of.

"My husband and I moved here almost six years ago because we wanted a small-town feel," she said. "It's very frustrating not to able to give back to the community."

The often-heated annexation debate may leave a few minor wounds that will need healing.

"It does feel like we've pitted neighbor against neighbor," Steele said. "The neighborhood has always been very close. Unfortunately, it's caused animosity on both sides."

Gruetzner said she has been accused of initiating the annexation for personal gain—to be able to apply for the arts commission—and has had garbage dumped on her lawn and papers thrown in her face.

"I really didn't realize this was going to be such a big deal," she said.

Hopefully, she and her neighbors will still be able to walk past one another and say "hi," whether they're officially Los Gatos residents or not.