EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: June 7, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Tomohito Oku, Finance Director
Bo-Kyoung Kim, Financial Services Manager
SUBJECT: Establishing the Fiscal Year 2022-23 Appropriation Limit Recommendation
Adopt a Resolution establishing the FY 2022-23 Appropriation Limit of $37,844,018.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority #2: Enhance Economic Vitality
Priority #3: Increase Organization Effectiveness and Efficiency Background
In November 1979, the voters of the State of California approved Proposition 4, commonly known as the Gann Initiative. The proposition created Article XIIIB of the State Constitution placing limits on the amount of revenue that can be spent by all entities of government.
Further, in 1990, the voters of the State of California passed Proposition 111 providing adjustment formulas more responsive to local growth issues, as well as, requirement for an annual review of the Gann Limit calculations which is performed by the City’s auditors each fiscal year. Staff determines the appropriation limit associated with each fiscal year budget.
The City Council is required to adopt a limit on appropriations subject to a formula outlined in the State Constitution Article XIIIB.
Analysis
The attached calculation of the appropriation limit follows the formula established in the California Constitution. Not all revenues are restricted by the limit; only those that are referred to as “proceeds of taxes.”
Total revenues are classified either as “proceeds” or “non-proceeds” of taxes. In FY 2022-23, budgeted revenue sources total $53,848,590 (See Attachment 2: Schedule 1 and Schedule 2).
Total revenue sources are reduced by non-proceeds of taxes and other qualifying exclusions in the amount of $27,307,101; leaving net revenue sources subject to limitation of $29,016,773 (See Attachment 2: Schedule 1).
GANN Limit law provides some choice in the factors applied to determine the limit each fiscal year. The basic determinant factors are (1) the change in the cost of living, and (2) the change in population. To determine the change in the cost of living, the City may choose from either:
a) the change in California per capita income as determined by the California Department of Finance, or b) the percentage change in local assessment tax roll from the prior year attributable to the addition of non-residential new construction as calculated by the San Mateo County Assessor’s Office. To determine the change in population the City may choose either a) the percentage change within the City or b) the percentage change within San Mateo County as determined by the California Department of Finance. For each factor, staff recommends the choice resulting in the maximum increase allowable.
Due to COVID-19, the County of San Mateo County Assessor’s Office did not provide the local factor data to compare which cost of living factor provides the best growth in the total appropriation limit. Staff estimates this factor very likely would not have been chosen given both the lack of commercial development in East Palo Alto in the past year and the spike in California per capita income.
The FY 2022-23 appropriation limit is determined by taking the prior year adjustment ending limit of $35,514,101 and multiplying by the per capita income factor and the County population rate factor. The appropriation limit is increased by the factored decrease in population in the County of San Mateo (-0.92%), and by the factored increase in per capita personal income (7.55%). The FY 2022-23 calculated appropriation limit applying such factors is $37,844,018 (See Attachment 2: Schedule 3).
The City’s calculated revenue classified as “subject to limitation” in the amount of $29,016,773 is subtracted from the appropriation limit of $37,844,018 leaving a remaining appropriations capacity of $8,827,244 or 23.33%. (See Attachment 2)
In conclusion, the City’s 2022-23 budget appropriations that are subject to limitation are under the maximum tax limitation, and thus in compliance with Article XIIIB of the State Constitution.
Fiscal Impact
The City’s appropriations subject to limitation are $8,827,244 or 23.33%, below the FY 2022- 23 Appropriation Limit allowed by Statute, there is no resulting fiscal impact.
Public Notice
Government Code Section 7910 requires the District to establish, by resolution, its appropriations limit pursuant to Article XIIIB and documentation used in the determination of the Fiscal Year 2023 appropriations limit has been available to the public for at least fifteen days prior to the date of this resolution. The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall on May 27, 2022 and making the agenda and report available at the City’s website and at the San Mateo Co. Library located at 2415 University.
The action being considered by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a “project” pursuant to 15378(b)(4) because it is a fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant impact on the environment.
Attachments
1. Resolution
2. Exhibit A to Resolution