HomeMy WebLinkAbout06-17-2014 C9 Appropriations LImit for 2014-15City of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number
FROM: Wayne Padilla, Interim Director of Finance & Information Technology
Prepared By: Vilma Warner, Finance Operations Manager
SUBJECT: APPROPRIATIONS LIMIT FOR 2014-15
RECOMMENDATION
Adopt a resolution establishing the City’s appropriations limit for 2014-15.
DISCUSSION
Overview
The Appropriations Limit imposed by Propositions 4 (also known as the Gann Spending-
Limitation Initiative or the Gann Initiative) and 111 create a restriction on the amount of revenue
which can be appropriated in any fiscal year. The Limit is based on actual appropriations during
the 1978-79 fiscal year and is increased each year using the growth of population and inflation as
measured by the California Department of Finance. Not all revenues are restricted by the Limit,
only those which are referred to as “proceeds of taxes.”
In addition, proceeds of taxes are allowed to be spent on several types of appropriations which
do not count against the Limit. The law allows a city to appropriate funds for certain expenses
that are deemed to be exempt from the Limit. Among these exempt expenditures are “qualified
capital outlays,” voter approved debt service, court orders and federal mandates. Qualified
capital outlay represents an expenditure for an asset, which may include land having a useful life
of 10 or more years and a cost of at least $100,000.
Annually, the City is required to adopt a resolution setting an appropriations limit for the
upcoming fiscal year. For 2014-15, staff projects that the City’s appropriations limit will be
$59.1 million, while the appropriations subject to the limit total $36.6 million.
Key Concepts
As discussed above, the Gann Spending-Limitation Initiative provides for the limitation of state
and local government appropriations. It is important to note that the Gann Initiative is actually a
limitation on tax revenues rather than a direct limitation on appropriations. Below is a summary
of the major provisions of the Gann Initiative and Proposition 111 modifications:
1. Appropriations subject to limitation may not exceed appropriations made in 1978-79, except
as adjusted for increases in the cost of living, population and service responsibility transfers.
2. Appropriations financed through service fees (to the degree that they do not exceed the cost
of performing the service), grant programs, fines and forfeitures, and other specified “non-
tax” sources are not subject to the appropriations limit. Additionally, appropriations for
long-term indebtedness incurred prior to 1978-79, debt service on qualified capital outlays
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Appropriations Limit for 2014-15 Page 2
beginning in 1990-91, qualified capital outlays in excess of $100,000 and increased costs as a
result of federally-mandated programs, are also excluded from the limit. Essentially, with the
exception of major capital-related expenditures, all appropriations funded through tax
revenues are subject to limitation.
3. For the purpose of identifying “proceeds from taxes” under the Gann Initiative, state
subventions that are unrestricted as to their use (such as motor vehicle in-lieu revenues) are
considered to be tax sources. On the other hand, the use of subventions like gas tax and
transportation development act funds is restricted by the State and, as such, is classified as
non-tax sources.
4. Under the original Gann Initiative, all proceeds from taxes received in excess of the
appropriations limit were required to be returned through refunds or revisions in tax rates and
fee schedules within the next two fiscal years; or voter approval to increase the
appropriations limit was required. Proposition 111 provides a one-year carryover feature to
determine excess revenues under which refunds can be avoided if in the subsequent year the
City is below the limit by the amount of the prior year excess. Any voter-approved increase
to the appropriations limit cannot exceed four years.
5. Originally, the Gann Initiative was self-executing, requiring no formal review; however,
Proposition 111 requires that the annual calculation be reviewed as part of the annual
financial audit.
6. Major concepts in implementing the Gann Initiative as modified by Proposition 111 include:
appropriations funded through tax sources are subject to the limit, not actual expenditures;
and any excess of actual tax revenues over the appropriations limit, not actual expenditures
or appropriations, are subject to refund.
Adjustment Factors
The annual adjustment factors for changes in population and cost of living for the appropriations
limit calculation must be selected by a recorded vote of the Council and includes the following:
1. Population. Based on data provided annually by the State Department of Finance, cities may
annually choose either the growth in their city’s or the county’s population.
For this year’s calculation, the County’s population growth factor (which exceeded the City's
factor) is the recommended adjustment factor as discussed below.
Cost of living. Local governments may annually choose either the percentage change in
California per capita personal income or the percentage change in their jurisdiction's assessed
valuation that is attributable to non-residential new construction depending on which one
provides the greatest increase to the appropriation limit. Because the annual change in the
California per capita personal income was negative (-.23%), staff obtained and used the value for
the increase in non-residential assessed valuation due to new construction which is 8.69 %.
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Appropriations Limit for 2014-15 Page 3
Calculation Summary
A summary of the City’s appropriations limit history is provided in Attachment 2. As reflected
in that summary, the City’s limit for 2014-15 is $59,112,600 calculated as follows:
Appropriations Limit Calculation
2013-14 Appropriations Limit $54,337,500
Adjustment Factors
A. Cost of Living Options
1. Percentage change in assessed value in the preceding year due to
new non-residential construction.
8.69%
2. Percentage change in California per capita income (not used) -.23%
B. Population Options
1. Percentage change in City population (not used) -0.26%
2. Percentage change in County population 0.09%
Compound Percentage Factor (multiplicative not additive) 1.0878%
2014-15 Appropriations Limit $59,112,600
The options highlighted in bold italics above are the recommended adjustment factors in
determining the City’s appropriations limit for 2014-15
FISCAL IMPACT
Under Article XIII B to the California Constitution as amended, the City is required to adopt the
Appropriation Limit each year. As a result of the appropriations subject to the Limit being well
below the calculated Limit for 2014-15 as shown below, no adjustments are required to be made
to the proposed expenditures contained within the Preliminary Financial Plan.
The following summarizes the variance between the City’s appropriations limit and the projected
appropriations subject to this limit for 2014-15:
2014-15 Estimate
Appropriations Limit $59,112,600
Estimated Appropriations Subject to Limit 36,642,900
Favorable Variance $22,469,700
ATTACHMENTS
1. Resolution adopting the City’s appropriations limit for 2014-15
2. Appropriations Limit History 2014-15
T:\Council Agenda Reports\2014\2014-06-17\Adoption of Appropriation Limit (Padilla)\Appropriation Limit Council Agenda Report - June 17 2014.docx
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Attachment 1
RESOLUTION NO. (2014 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ADOPTING THE APPROPRIATIONS LIMIT FOR 2014-15
WHEREAS, the voters approved the Gann Spending-Limitation Initiative on November 6,
1979 and Proposition 111 on June 5, 1990, which establish and define annual appropriation limits
on state and local government agencies; and
WHEREAS, regulations require that the governing body of each local agency establish its
appropriations limit and annual adjustment factors by resolution; and
WHEREAS, the required calculations to determine the City’s appropriations limit and
estimated appropriations subject to limitation for 2014-15 have been performed by the Department
of Finance & Information Technology and are available for public review.
NOW, THEREFORE, BE IT RESOLVED that the Council of the City of San Luis Obispo
hereby adopts the City’s appropriations limit and annual adjustment factors for 2014-15 as follows:
Appropriations Limit: 2013-14 $54,337,500
Increase in Non-Residential Assessed Valuation Due to New Construction 8.69%
Population Factor: County Population Growth 0.09%
Compound Percentage Factor (multiplicative not additive) 1.087%
Appropriations Limit: 2014-15 $59,112,600
Upon motion of _______________________, seconded by _______________________,
and on the following vote:
AYES:
NOES:
ABSENT:
the foregoing resolution was adopted on June 17, 2014.
____________________________________
Mayor Jan H. Marx
ATTEST:
____________________________________
Anthony J. Mejia, City Clerk
APPROVED AS TO FORM:
____________________________________
J. Christine Dietrick, City Attorney
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Attachment 2
APPROPRIATIONS LIMIT HISTORY
The Gann Spending Limit Initiative , a State
constitutional amendment adopted by the
voters on June 6, 1979, restricts appropriations
from tax revenues by State and local governments.
Under its provisions, no local agency can
appropriate proceeds of taxes in excess of its
"appropriations limit." Excess funds may be
carried over into the next year. However, any
excess funds remaining after the second year
must be returned to taxpayers by reducing tax
rates or fees; a majority of the voters may
approve an override to increase the limit.
The following summarizes changes in the City's
appropriations limit and appropriations subject
to the limit since the effective date of the initiative.
While there are exceptions, in general, the City's
appropriations limit increases annually by
compound changes in cost-of-living and
population. This summary also reflects changes
made by Proposition 111 (adopted in June 1990)
in determining the appropriations limit as well as
the appropriations subject to it.
Cost-of-Living Population Appropriations Appropriations
Fiscal Year Limit Base Factor Factor Limit Subject to Limit Variance
Post-Proposition 111
1987-88 14,836,300 3.47%2.93%15,800,900 14,411,700 1,389,200
1988-89 15,800,900 4.66%4.10%17,215,200 15,223,500 1,991,700
1989-90 17,215,200 5.19%3.92%18,818,600 16,691,800 2,126,800
1990-91 18,818,600 4.21%4.59%20,511,000 15,005,400 5,505,600
1991-92 20,511,000 4.14%3.04%22,009,500 14,911,100 7,098,400
1992-93 22,009,500 -0.64%1.00%22,087,300 18,094,900 3,992,400
1993-94 22,087,300 2.72%1.86%23,110,100 15,215,000 7,895,100
1994-95 23,110,100 0.71%1.40%23,600,000 16,778,400 6,821,600
1995-96 23,600,000 4.72%1.60%25,109,300 15,530,800 9,578,500
1996-97 25,109,300 4.67%2.31%26,889,000 16,825,500 10,063,500
1997-98 26,889,000 4.67%2.06%28,724,500 17,513,200 11,211,300
1998-99 28,724,500 4.15%2.70%29,671,300 17,291,800 12,379,500
1999-00 29,671,300 4.53%2.28%31,717,100 18,030,500 13,686,600
2000-01 31,717,100 4.91%2.46%34,093,000 18,802,000 15,291,000
2001-02 34,093,000 0.33%1.80%34,821,200 23,227,900 11,593,300
2002-03 34,821,200 0.33%1.80%35,565,000 23,018,400 12,546,600
2003-04 35,565,000 2.31%1.32%36,866,700 23,072,400 13,794,300
2004-05 36,866,700 3.28%1.15%38,513,100 27,670,400 10,842,700
2005-06 38,513,100 5.26%1.19%41,021,300 32,371,900 8,649,400
2006-07 41,021,300 3.96%0.73%42,957,100 30,757,100 12,200,000
2007-08 42,957,100 4.42%0.96%45,286,400 36,582,900 8,703,500
2008-09 45,286,400 4.29%1.12%47,758,200 36,795,300 10,962,900
2009-10 47,758,200 0.62%1.01%48,540,600 27,159,400 21,381,200
2010-11 48,540,600 -2.54%0.87%47,719,200 32,058,100 15,661,100
2011-12 47,719,200 2.51%0.83%49,323,000 34,229,700 15,093,300
2012-13 49,323,000 3.77%0.47%51,423,500 44,178,300 7,245,200
2013-14*51,423,500 5.12%0.52%54,337,500 40,104,100 14,233,400
2014-15*(1)54,337,500 8.69%0.09%59,112,600 36,642,900 22,469,700
* Appropriations subject to limit are estimates for these years.
(1) The cost of living factor is based on the increase in non-residential assessed values
$0
$7,500,000
$15,000,000
$22,500,000
$30,000,000
$37,500,000
$45,000,000
$52,500,000
$60,000,000
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19
9
4
19
9
7
20
0
0
20
0
3
20
0
6
20
0
9
20
1
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20
1
5
Fiscal Year Ending
Appropriations Limit: 1988 to 2015
Appropriations Limit Appropriations Subject to Limit
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