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HomeMy WebLinkAbout06/21/2005, C6 - APPROPRIATIONS LIMIT FOR 2005-06 ti/ V council Me�s D� 6-21-05 j acenaa nepoRt ]�Nmb, C,� CITY OF SAN LUIS OIIISPO FROM: Bill Statler, Director of Finance & Information Technology � Carolyn Dominguez, Finance Manager lb SUBJECT: APPROPRIATIONS LIMIT FOR 2005-06 CAO RECOMMENDATION Adopt a resolution establishing the City's appropriations limit for 2005-06. DISCUSSION Overview Under the Gann Spending-Limitation Initiative (Article XIII B of the State Constitution) adopted as Proposition 4 in June of 1979 (and subsequently modified by Proposition 111 in June of 1990), the City is required to annually adopt a resolution setting an appropriations limit for the upcoming fiscal year. For 2005-06, we project that the City's appropriations subject to limitation will be about $29.1 million, which is $11.9 million less than the calculated limit of$41.0 million. Background and 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: 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 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 C6�/ Appropriations Limit for 2005-06 Page 2 transportation development act funds is restricted by the State, and as such, is classified as non-tax sources. 4. Under the oridinal 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 forma_1 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 include the following: 1. Cost of living. Local governments may annually choose either the 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. 2. Population. Cities may annually choose either the growth in their city's or the county's population. With the exception of assessed value changes, which would need to be provided by the County, the data needed to calculate the City's appropriation limit is provided by the State Department of Finance. The data necessary to calculate the increase in the non-residential assessed valuation is not readily available from the County; therefore, the recommended cost of living factor is California per capita income. When non-residential construction data becomes available from the County, the limit can be recalculated and retroactively adopted if different results are anticipated. 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. CG -2 Appropriations Limit for 2005-06 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 2005-06 is $41,021,300 calculated as follows: Appropriations Limit Calculabon-_ 2004-05 Appropriations Limit $38,513,100 Adjustment Factors A. Cost of Living Options 1. Percentage change in assessed value due to new non-residential construction. Not available 2. Percentage change in California per capita income 5.26% B. Population Options 1. Percentage change in City population 0.81% 2. Percentage change in County population 1.19% Compound Percentage Factor(multiplicative not additive) 6.51% 2005-06 Appropriations Limit $41,0219300 The options highlighted in bold print are the recommended adjustment factors in determining our appropriations limit for 2005-06. FISCAL IMPACT Because tax revenues have not kept pace with changes in population and cost-of-living, and because of the favorable impacts of Proposition 111 in calculating the appropriations limit and in determining appropriations subject to the limit, there is no negative fiscal impact resulting from adoption of the limit for 2005-06. The following summarizes the variance between the City's appropriations limit and our projected appropriations subject to this limit for 2005-06: Appropriations Limit $41,021,300 Estimated Appropriations Subject to Limit 29,116,200 Favorable Variance $11,905100 ATTACHMENTS 1. Resolution adopting the City's appropriations limit for 2005-06 2. City's appropriations limit history G:Budget Folders/Financial Plans/2005-07 Financial Plan/Appropriations Limit/Council Agenda Report,June 21,2005 CG -3 O Aftac 91Y ent RESOLUTION NO. (2005 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO ADOPTING THE APPROPRIATIONS LIMIT FOR 2005-06 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 2005-06 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 2005-06 as follows: Appropriations Limit: 2004-05 $38,513,100 Cost of Living Factor. Percent change in California per capita income 5.26% Population Factor: County Population Growth 1.19% Compound Percentage Factor(multiplicative not additive) 6.51% Appropriations riations Limit: 2005-06 $41,021,300 Upon motion of seconded by and on the following vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on June 21, 2005.. Mayor David F. Romero ATTEST: City Clerk APPROVED AS TO FORM: Jon han owell, City Attorney \ � Attachment t APPROPRIATIONS LIMIT HISTORY The Gann Spending Limit initiative,a State constitutional amendment adopted by the voters on June 6, 1979,restricts Appropriations Limit:1979 to 2006 appropriations from tax revenues by State and local governments. $40.000,000 Under its provisions,no local agency can appropriate proceeds of $35.000,000 taxes in excess of its "appropriations limit." Excess funds may $30,000,000 be carried over into the next year. However,any excess funds $25,000.000 remaining after the second year must be returned to taxpayers by reducing tax rates or fees;or a majority of the voters may approve $20,000,000 an override to increase the limit. $15.000,000 - $10.000,000 The following summarizes changes in the City's appropriations limit and appropriations subject to the limit since the effective date $5.000.000 of the initiative. While there are exceptions,in general,the City's s appropriations limit increases annually by compound changes in w w w W W W S N cast-of-living and population. This summary also reflects changes Fiscal Year Ending made by Proposition 111 (adopted in June 1990)in determining -Appropriations umt �Appropdations Sublec to L nt the appropriations limit as well as the appropriations subject to it. Fiscal Year Limit Base Factor Factor Limit Subject to Limit Variance, 1978-79 $8,018,200 $8,018,200 1979-80 $8,018,200 10.17% -0.34% 8,803,600 6,189,700 2,613,900 1980-81 8,803,600 12.11% 0.52% 9,921,000 5,795,500 4,125,500 1981-82 9,921,000 9.12% 1.03% 10,937.300 8,296,800 2,640,500 1982-83 10,937,300 6.79% 2.59% 11,982,500 8,247,800 3,734,700 1983-84 11,982,500 2.35% 1.42% 12,438,200 9,414,900 3,023,300 1984-85 12,438,200 4.74% 2.13% 13,305,300 10;356,500 2,948,800 1985-86 13,305,300 3.74% 2.04% 14,084,500 11,451,800 2,632,700 1986-87 14,084,500 2.30% 2.97% 14,836,300 13,081,800 1,754,500 Pre-Proposition 111 1987-88 14,836,300 3.04% 0.71% 15,395,900 14,411,700 984,200 1988-89 15,395,900 3.93% 4.10% 16,657,000 15,223,560 1,433,500 1989-90 16,657,000 4.98% 2.93% 17,998,800 16,753,800 1,245,000 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 29,116,200 11,905,100 *Appropriatiow subject to limit are estimates for these years.