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Home My WebLink About04/07/1992, C-14 - APPROPRIATION LIMIT FOR FISCAL YEARS 1990-91 AND 1991-92 MEETING DATE: city of san pais OBlspo - t-7- 9z i COUNCIL AGENDA REPORT ITEM NUM .-/ FROM: William C. Statler, Director of Finance p'_ Prepared by: Carolyn Dominguez, Accounting Manager SUBJECT: APPROPRIATION LIMIT FOR FISCAL YEARS 1990-91 and 1991-92 CAO RECOMMENDATION Adopt a resolution establishing the Appropriation Limit for fiscal years 1990-91 and 1991-92. DISCUSSION Overview Under the Gann Spending-Limitation Initiative adopted in June of 1979 (and subsequently modified by Proposition 111 in June of 1990), the City is required to adopt an Appropriation Limit. For 1991-92, it is projected that appropriations subject to limitation will be $7.1 million less than the calculated limit of $22.0 million. Background On June 27, 1989 the Council adopted the Appropriation Limits for fiscal years 1978-79 through 1989-90 in accordance with the Gann Spending-Limitation Initiative (Article XIlIB of the State Constitution). In June of 1990 the voters approved Proposition 111 which changed the formula used to compute the appropriation limit. Previously, the "Limit" was based upon the 1978-79 proceeds of taxes adjusted annually for changes in population, cost of living, and any service responsibility transfers between local government agencies. Proposition 111 established new cost of living factors and new population factors for use by local governments effective when. computing the 1990-91 Limit. Additionally, qualified capital outlays in excess of $100,000 with an expected life in excess of ten years and related debt service requirements beginning in 1990-91 are excluded from the Limit. The law calls for the adoption of the Limit by resolution. Additionally, Proposition 111 requires a recorded vote of the Council regarding the annual adjustment factors selected for each year. Key Concepts The Gann Spending-Limitation Initiative provides for the limitation of state and local government appropriations. As discussed in the following summary of the major provisions of the Gann Initiative and Proposition 111 modifications, the Gann Initiative is actually a limitation on tax revenues rather than a direct limitation on appropriations: ■ 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. Beginning with the 1990-91 Appropriations Limit, the annual adjustment factors for cost of living are based on changes in �� 1 �,►H��►i�uIIIIIII�II i��U city of San IWS o81Sp0 WiS COUNCIL AGENDA REPORT California personal per capita income or the growth in the non-residential assessed valuation due to new construction within the City; and population changes are based on increases within the City or the County. ■ 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 FY 1978-79, debt service on qualified capital outlays 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 the proceeds of taxes are subject to limitation. ■ For the purpose of identifying proceeds from taxes under the Gann Initiative, state subventions which are unrestricted as to their use (such as motor vehicle and in-lieu revenues) are considered to be tax sources. Gas Tax and Transportation Development Act (TDA) revenues are identified as non-tax sources as their use is restricted by the State. ■ 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 Appropriation Limit was required. Proposition 111 now provides a one-year carryover feature for excess revenues: 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 Appropriation Limit continues to be valid for a period not to exceed four years. ■ Proposition 111 now requires that the annual calculation be reviewed as part of the annual financial audit. Previously, the Gann Initiative was self-executing, requiring no formal review. ■ 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 Appropriation Limit, not actual expenditures or appropriations, may have to be returned. Adjustment Factors The annual adjustment factor options for the Appropriations Limit calculation must be selected by a recorded vote of the City Council and include the following: Cost of Living. Local governments may annually choose either the change in California per capita personal income or the percentage change in the jurisdictions' assessed valuation which is attributable to nonresidential new construction. Prior to Proposition 111 the inflation factor used was the lesser of U.S. Consumer Price Index or California per capita personal income. °1"��N►��ilp�pn�u��dlll city of San L_.,s OBISpo iIM,mms COUNCIL AGENDA REPORT Population. Cities may annually choose either the City population growth or the County population growth. Previously only the City growth factor was allowed. Figures for population and per capita income changes are provided by the State Department of Finance, Population Research Unit. The data necessary to calculate the increase in the non-residential assessed valuation is not currently available. If this data becomes available, the Limit can be recalculated and retroactively adopted if it results in a more favorable Limit. For both fiscal periods calculated, the County's population growth factor exceeded the City's factor. These new factors are applied to the established fiscal year 1986-87 appropriations limit and are adjusted annually to determine the 1990-91 and 1991-92 Appropriations Limit as follows: Cost of Population Calculated Fiscal Living Growth Appropriation Year Method Rate Method Rate Limit Base Year: 1986-87 $14,836,316 1987-88 CPI 3.04 City .71 Calif 3.47 County 2.93 15,800,924 1988-89 CPI 3.93 County 3.83 Calif 4.66 City 410 17,215,275 1989-90 CPI 4.98 City 2.93 Calif 5.19 County 3.92 18,818,610 1990-91 Non-res. N/A City 2.76 Callf 4.21 County 4.59 20,511,013 1991-92 Non-res. N/A City 231 Calif 4.14 County 3.04 22,009,518 The options highlighted in bold print are the recommended adjustment factors in adopting the Appropriations Limit for 1990-91 and 1991-92. FISCAL IMPACT When the Appropriations Limit was last adopted by the Council, concerns were expressed at that time regarding the potential for the City to exceed our Limit by 1991-92. In response to this concern the Council adopted the Appropriations Limit policies provided on page B-10 of the 1991-93 Financial Plan. Two factors have significantly reduced this potential: tax revenues have not kept pace with changes in population and cost-of-living; and the favorable impacts of Proposition 111 in calculating the Appropriations Limit and determining appropriations subject to the Limit. The following is a summary of the variances between the City's Appropriations Limit and our appropriations subject to this Limit for 1990-91 and 1991-92: ��►n►�H��IIIIIII�pn ��Il city of San 1".9 OBISpo COUNCIL AGENDA REPORT 1990-91 1991-92 Actual Estimated Appropriations Limit $20,511,000 $22,009,500 Appropriations Subject to Limit 15.005.400 14.911.000 Favorable Variance $ 5,505,600 $ 7,098,500 ATTACHMENTS Resolution adopting the Appropriation Limit for 1990-91 and 1991-92 A_ Appropriations Limit History RESOLUTION NO. (1992 Series) A RESOLUTION OF COUNCIL OF THE CITY OF SAN LUIS OBISPO ADOPTING THE APPROPRIATION L ffT AND SELECTING THE ADJUSTMENT FACTORS FOR FISCAL YEARS 1990-1991 AND 1991-1992 WHEREAS, the voters approved the Gann Spending-Limitation Initiative on November 6, 1979 adding Article XIII B to the Constitution of the State of California and Proposition 111 on June 5, 1990, which established and defined annual appropriation Emits on State and local government entities: and, WHEREAS, regulations provide for the establishment by resolution by the governing body of each local jurisdiction of its appropriations limit and the annual adjustment factors; and, WHEREAS, the required computations to determine the Appropriations Limit for FY 1990-91 and FY 1991-92 have been performed by the Department of Finance and are on file with the Office of the City Clerk, and available for public review; NOW, THEREFORE, BE IT RESOLVED, the City Council of the City of San Luis Obispo does hereby adopt the following appropriation limits and annual adjustment factors for Fiscal Years 1990-91 and 1991-92: 1990-91 1991-9 2 Appropriation Limit $209511,013 $22,009,518 Cost of Living Factor California Per Capita Income 4.21 4.14 Population Factor County Population Growth 4.59 3.04 C-��S Resolution No. (1992 Series) Page 2 Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted this day of 1992. Ron Dunin, Mayor ATTEST: City Clerk APPROVED AS TO FORM 4f��&=V---- tto ey APPROVED AS TO CONTENT City A trative Officer Director of Finance City of San Luis Obispo APPROPRIATION LIMIT HISTORY AttachmentA Limit Inflation Population Appropriation Appropriations Fiscal Year Base Factor Factor Limit Subject to Limit VARIANCE 1978-79 $8,018,152 1979-80 $8,018,152 1.1017 0.9966 8,803,564 $6,189,680 $2613,884 1980-81 8,803,564 1.1211 1.0052 9,920,998 5,795,468 4,125,5.30 1981-82 91920,998 1.0912 1.0103 10,937,298 8,296,846 2,640,452 1982-83 10,937,298 1.0679 1.0259 11,982,451 8,247,797 3,734,654 1983-84 11,982,451 1.0235 1.0142 12,438,188 9,414,875 3,023,313 1984-85 12,438,188 1.0474 1.0213 13,305,250 10,356,484 2,948,766 1985-86 13,305,250 1.0374 1.0204 14,084,445 11,451,837 Z63Z608 1986-87 14,084,445 1.0230 1.0297 14,836,316 13,081,774 1,754,542 Pre-Prop 111 1987-88 14,836,316 1.0304 1.0071 15,395,880 14,411,701 984,179 1988-89 15,395,880 1.0393 1.0410 16,656,977 15,223,479 .1,433,498 1989-90 16,656,977 1.0498 1.0293 17,998,848 16,753,800 1,245,048 Post-Prop 111 1987-88 14,836,316 1.0347 1.0293 15,800,924 14,411,701 1,389,227 1988-89 15,800,924 1.0466 1.0410 17,215,275 15,223,479 1,991,796 1989-90 17,215,275 1.0519 . 1.0392 18,818,610 16,691,715 2126,895 1990-91 18,818,610 1.0421 1.0459 20,511,013 15,005,409 5,505,604 1991-92 20,511,013 1.0414 1.0304 22,009,518 14,911,057 7,098,461 The revised annual adjustment factors are applied to the 1986-87 Limit and each year in between in order to calculate the 1990-91 and 1991-92 limits. The Limits for the year; 1986-87 through 1989-90 as originally adopted are not affected a:\approhis