My take on this is that a new valley city and a newly re-incorporated Hollywood (Hollywood was an independent city until the 1910s, I believe) are good for the residents of those places, but bad for the LA region.
I look at the Chicago region and see suburbs constantly competing with each other for middle and upper income housing, sales tax-rich commercial strips and business parks. I know Chicagoland is not unique in that respect. I think you'll see a new valley city push hard to compete with LA in terms of tax revenue, and that will be to the detriment of the quality of life throughout SoCal.
I do agree, however, that smaller units of government are more efficient and responsive. But residents of these areas will only relate to their particular area and how it serves them, without thinking of how it fits in the bigger picture -- the Greater Los Angeles area that stretches from Simi Valley to San Bernadino and beyond.
It's metropolitan myopia!