HomeMy WebLinkAbout06-20-2017 Item 12 Appropriations Limit for 2017-18 Meeting Date: 6/20/2017
FROM: Xenia Bradford, Interim Director of Finance
Prepared By: Rico Pardo, Accounting Manager/Controller
SUBJECT: APPROPRIATIONS LIMIT FOR 2017-18
RECOMMENDATION
Adopt a resolution establishing the City’s appropriations limit for 2017-18.
DISCUSSION
Overview
The Appropriations Limit imposed by Propositions 4 (also known as the Gann Spending-
Limitation Initiative or the Gann Initiative, “Limit”) 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 base year (1986-87 or the first full year of operation), and increase each year using
specified growth factors. 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 2017-18, staff projects that the City’s appropriations limit will be
$72.6 million, while the appropriations subject to the limit total $50.0 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 Limit 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 1986-87, 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 1986-87, debt service on qualified capital outlays
beginning in 1990-91, qualified capital outlays in excess of $100,000 and increased costs as a
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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.
Estimated Appropriations Subject to Limit
The estimated appropriations subject to limit is based on calculation of proceeds from taxes,
including interest, less qualified exclusions to yield the estimate. Proceeds of taxes are primarily
comprised of the City’s proceeds on sales tax, local revenue measure, transient occupancy tax,
utility users tax, and property tax. Interest is also applied to those tax proceeds. Exclusions are
comprised of qualified capital outlay and qualified debt service. 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. Qualified debt service is voter approved debt service. The
City’s qualified capital outlay consists of general purpose CIP and improvement projects funded
by local revenue measure while qualified debt consists of the City’s long term bonds and leases.
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The calculation appears as follows:
Estimated Appropriations Subject to Limit
Proceeds from taxes 56,141,501
Interest earnings 141,647
Total proceeds from taxes and interest $56,283,148
Qualified capital outlay 3,002,000
Qualified debt service 3,244,757
Less: Exclusions 6,246,757
Estimated Appropriations Subject to Limit $50,036,391
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 0.92% population growth factor (which exceeded
the City's factor) is the recommended adjustment factor as discussed below.
2. 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. For the 2017-18 calculation, use of
the annual change in non-residential assessed valuation of 8.20% resulted in a higher
appropriation limit value than was obtained using the per capita personal income annual
change.
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Calculation Summary
A summary of the City’s appropriations limit history is provided in Attachment B. As reflected
in that summary, the City’s limit for 2017-18 is $72,562,034 calculated as follows:
Appropriations Limit Calculation
2016-17 Appropriations Limit $66,451,524
Adjustment Factors
A. Cost of Living Option
Percentage change in assessed value in the preceding year due to
new non-residential construction [% + 100/100]
1.0820
B. Population Option
Percentage change in County population [% + 100/100] x 1.0092
Compound Percentage Factor (multiplicative not additive) [A x B] 1.092%
Total Adjustment [PY Appropriations Limit x Compound % Factor] $6,110,510
2017-18 Appropriations Limit = [2016-2017 Limit x Compound % Factor] $72,562,034
ENVIRONMENTAL REVIEW
The recommended actions are not a project as defined under the California Environmental
Quality Act.
CONCURRENCES
The Limit calculation is based on the requirements of the California Constitution and
implementing statutes.
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 li mit being well
below the calculated Limit for 2017-18 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 2017-18:
2017-18 Value
Appropriations Limit $72,562,034
Estimated Appropriations Subject to Limit $50,036,391
Favorable Variance $22,525,643
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ALTERNATIVES
The City must adopt a Limit for each Fiscal Year and the formula for calculating the Limit is
determined by law.
Attachments:
a - Appropriations Limit Resolution 2017-18
b - Appropriations Limit History
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R _____
RESOLUTION NO. (2017 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, ADOPTING THE APPROPRIATIONS LIMIT FOR
2017-18
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 2017-18, 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 2017-18 as follows:
Appropriations Limit Calculation
2016-17 Appropriations Limit $66,451,524
Adjustment Factors
A. Cost of Living Option
Percentage change in assessed value in the preceding year due to
new non-residential construction [% + 100/100]
1.0820
B. Population Option
Percentage change in County population [% + 100/100] x 1.0092
Compound Percentage Factor (multiplicative not additive) [A x B] 1.092%
Total Adjustment [PY Appropriations Limit x Compound % Factor] $6,110,510
2017-18 Appropriations Limit = [2016-2017 Limit x Compound % Factor] $72,562,034
Upon motion of ___________________________, seconded by ___________________,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
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Resolution No. (2017 Series) Page 2
R _____
The foregoing resolution was adopted this 20th day of June 2017.
____________________________________
Mayor Heidi Harmon
ATTEST:
____________________________________
Carrie Gallagher
City Clerk
APPROVED AS TO FORM:
_____________________________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City
of San Luis Obispo, California, this 20th day of June 2017.
____________________________________
Carrie Gallagher
City Clerk
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BUDGET REFERENCE MATERIALS
APPROPRIATIONS LIMIT HISTORY
The Gann Spending Limit Initiative , a Stateconstitutional 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 changesmade by Proposition 111 (adopted in June 1990) in determining the appropriations limit as well as the appropriations subject to it.Appropriations AppropriationsLimit Subject to LimitPost-Proposition 1111987-88 14,836,300 3.47%2.93%15,800,900 14,411,700 1,389,2001988-89 15,800,900 4.66%4.10%17,215,200 15,223,500 1,991,7001989-90 17,215,200 5.19%3.92%18,818,600 16,691,800 2,126,8001990-91 18,818,600 4.21%4.59%20,511,000 15,005,400 5,505,6001991-92 20,511,000 4.14%3.04%22,009,500 14,911,100 7,098,4001992-93 22,009,500 -0.64%1.00%22,087,300 18,094,900 3,992,4001993-94 22,087,300 2.72%1.86%23,110,100 15,215,000 7,895,1001994-95 23,110,100 0.71%1.40%23,600,000 16,778,400 6,821,6001995-96 23,600,000 4.72%1.60%25,109,300 15,530,800 9,578,5001996-97 25,109,300 4.67%2.31%26,889,000 16,825,500 10,063,5001997-98 26,889,000 4.67%2.06%28,724,500 17,513,200 11,211,3001998-99 28,724,500 4.15%2.70%29,671,300 17,291,800 12,379,5001999-00 29,671,300 4.53%2.28%31,717,100 18,030,500 13,686,6002000-01 31,717,100 4.91%2.46%34,093,000 18,802,000 15,291,0002001-02 34,093,000 0.33%1.80%34,821,200 23,227,900 11,593,3002002-03 34,821,200 0.33%1.80%35,565,000 23,018,400 12,546,6002003-04 35,565,000 2.31%1.32%36,866,700 23,072,400 13,794,3002004-05 36,866,700 3.28%1.15%38,513,100 27,670,400 10,842,7002005-06 38,513,100 5.26%1.19%41,021,300 32,371,900 8,649,4002006-07 41,021,300 3.96%0.73%42,957,100 30,757,100 12,200,0002007-08 42,957,100 4.42%0.96%45,286,400 36,582,900 8,703,5002008-09 45,286,400 4.29%1.12%47,758,200 36,795,300 10,962,9002009-10 47,758,200 0.62%1.01%48,540,600 27,159,400 21,381,2002010-11 48,540,600 -2.54%0.87%47,719,200 32,058,100 15,661,1002011-12 47,719,200 2.51%0.83%49,323,000 34,229,700 15,093,3002012-13 49,323,000 3.77%0.47%51,423,500 44,178,300 7,245,2002013-14*51,423,500 5.12%0.52%54,337,500 40,104,100 14,233,4002014-15*54,337,500 8.69%0.09%59,112,600 36,642,900 22,469,7002015-16*59,112,600 4.97%0.78%62,534,500 46,067,700 16,466,8002016-17*62,534,500 5.63%0.60%66,451,500 49,397,200 17,054,3002017-18*66,451,500 8.20%0.92%72,562,034 50,036,391 22,525,643(*) The cost of living factor is based on the increase in non-residential assessed values
VarianceFiscal Year Limit Base
Cost-of-Living Factor Population Factor
$0$8$15$23$30$38$45$53$60$68$75$83
20082009201020112012201320142015201620172018MillionsFiscal Year Ending
Appropriations Limit: 2007-08 to 2017-18
Appropriations Limit Appropriations Subject to Limit
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