EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: June 20, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Tomohito Oku, Finance Director
Bo-Kyoung Kim, Financial Services Manager
SUBJECT: Establishing the Fiscal Year 2023-24 Appropriation Limit Recommendation
Adopt a Resolution establishing the FY 2023-24 Appropriation Limit of $39,354,338 Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
· Ensure Our Financial and Organizational Health
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 designed to limit the growth in appropriations of all entities of government to changes in cost of living and population. Further, in 1980, the State Legislature amended the Government Code to implement the Article XIIIB of the California Constitution. See Government Code Section 7900 et seq. Then, 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 (collectively, Gann Limit Law). Calif. Const., Art. XIIIB, Sec. 1.5. Proposition 111 changed the annual adjustment factors beginning with the FY 1990-91 Appropriation Limit.
After that point, on an annual basis, the local entity may choose between whichever is greater:
the change in per capita income or assessed valuation due to non-residential construction within the City. To determine the population factor, the entity can select the greater of population growth either within the City or the County. 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.” Thus, attention must be given to what revenues fall into that category.
Total revenues are classified either as “proceeds” or “non-proceeds” of taxes. In FY 2023-24, budgeted revenue sources total $55,997,022 (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 $21,560,809; leaving net revenue sources subject to limitation of $34,436,213 (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. See Government Code Section 7901. 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. Id. To determine the change in population, the City may choose either: a) the percentage change within the City, the 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.
The FY 2023-24 appropriation limit is determined by taking the prior year adjustment ending limit of $37,844,018 and multiplying by the per capita income factor and the County population rate factor. The appropriation limit is adjusted by the factored decrease in population in the County of San Mateo (-0.43%), and by the factored increase in per capita personal income (4.44%). The FY 2023-24 calculated appropriation limit applying such factors is $39,354,338 (See Attachment 2: Schedule 3).
The City’s calculated net revenue “subject to limitation” is $34,436,213 (noted above) is subtracted from the appropriation limit of $39,354,338 leaving a remaining appropriations capacity of $4,918,125 or 12.50%. (See Attachment 2)
In conclusion, the City’s 2023-24 budget appropriations that are subject to limitation are under the calculated appropriation limit and thus in compliance with Article XIIIB of the State Constitution.
It’s important for the Council and the public to note that the City’s Appropriations Subject to Limit are $4,918,125 or 12.50%, below the FY 2023-24 Appropriation Limit allowed by Statute which means if the City ends a fiscal year having more Appropriations Subject to Limit than its Appropriation Limit allows, the City must return the excess either by reducing taxes or fees.
Alternatively, the voters of the City may, by majority approval, increase the Appropriations Limit of the City.
Fiscal Impact
There is no immediate fiscal impact by this action.
Public Notice
Notice of this agenda item by publishing a notice of the hearing dates in “San Mateo County Times” and, also, posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s.
Environmental
The proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution
2. Attachment 2: Appropriation Limit Calculation