Potential Revenue Enhancement Options — Goleta City Council, March 31, 2022

Agenda Item A.1

WORKSHOP
Meeting Date: March 31, 2022

TO: Mayor and Councilmembers

FROM: Michelle Greene, City Manager

CONTACT: Luke Rioux, Finance Director

SUBJECT: Potential Revenue Enhancement Options

RECOMMENDATION:

A. Discuss options for creating and generating new revenue for the City and provide direction to staff on which option(s) to pursue;

B. Discuss options for updating the Cannabis tax rates for the City and provide direction to staff on which option(s) to pursue.

BACKGROUND:

On December 10, 2020, the City Council held a workshop and received a presentation from staff on its long-range financial forecast over a twenty-year period, which included various revenue and expenditure scenarios, information on revenue enhancement options and funding strategies to address unfunded priorities and projects. At the workshop, recommendations on revenue options were presented for both for the near term and the long term. The near-term recommendations included staff to evaluate existing cannabis business tax rates with its cannabis consultants, HdL. The long-term recommendations included staff continuing evaluation other types of general fund tax measure options, including Transaction Use Tax (TUT), Utility Users Tax (UUT), Parcel Tax, Transient Occupancy Tax (TOT) increase, Business License Tax and Real Property Transfer Tax.

DISCUSSION:

Staff consulted with its tax consultants HdL and their cannabis and ECONSolutions divisions on providing additional analysis on these tax revenues. HdL has completed its fiscal analysis on both cannabis tax and the tax revenue enhancement options to help inform discussion and consideration of potential ballot measures. The tax revenue enhancement analysis is provided in full as Attachment 1 and the cannabis tax analysis is provided as Attachment 2.

Revenue Enhancement Options – Summary

Staff has worked with its tax consultants to further refine revenue generation estimates, including consultant analysis on reviewing the nature of the tax, the process to implement, 1 the potential estimates, and evaluating the pros and cons of each. The full report is provided as Attachment 1. The following table summarizes the estimated annual revenues by tax type followed by a brief summary of each type provided by HdL:

Table 1: Tax Revenue Measure Estimates
Revenue Measure
Options
Annual Revenue
Projection Tax Rate Factor
Transaction and Use Tax $2.2M - $2.4M For every 0.25% increase.

Utility User Tax $4.7M Assumes 6% across all utilities
Parcel Tax $960,000 Assumes $100 per parcel
Transient Occupancy Tax $920,000 For each 1% increase
Business License Tax $2.2M - $3.3M
Gross receipts model or
Classification based rates
Real Property Transfer Tax $300,000 For every $0.55 cents

Transaction Use Tax (TUT)
From experiences of other cities, a TUT (also referred to as a sales tax) has one of the higher feasibilities of voter approval as compared to other tax options. Some of the reasons are that almost half of the revenue collected will come from non -residents making purchases within the City and the fact that many surrounding communities already impose a similar tax at a higher rate than the City of Goleta’s current rate . The potential revenue generated is on the higher side of other options between $2.3 million to $9.3 million depending on the percent of the TUT. The cost of administration is less than some of the options because the TUT is collected by the State and remitte d to the City. To place a measure on the ballot requires supermajority City Council approval (4 out of 5 for the City of Goleta). Once on the ballot, the measure must have a two -thirds voter approval for special purpose funding or a simple majority (50% pl us 1) for general purpose funding to pass.

Utility User Tax (UUT)
A UUT like th e 6% UUT of the City of Santa Barbara could generate approximately $4.7 million to the City. The payers of a UUT are exclusively residents and businesses within the City. The feasibility of passage of a UUT measure is less than other tax forms because of this fact. Businesses may pass on the cost they pay in a UUT in higher prices. The cost to administer a UUT may be higher in auditing collections from utilities depending on t he number of utilities and variations in rates. To place a measure on the ballot requires City Council approval with a two-thirds vote for general purpose funding or a simple majority for special purpose funding. Voter approval of a majority (50% plus 1) i s required for general purpose funding and two-thirds for special purpose funding.

Parcel Tax
Based upon the revenue projections a parcel tax can generate between $960,000 to $4.8 million in revenue. However, this revenue can only be used for the specific purpose for which the tax is levied. Like a UUT, the tax is borne by the property owners within the city.

The feasibility of passing of a ballot measure is less than other tax forms because of this fact and the ability to demonstrate the need for the revenue for the specific purpose of the tax. The cost of administration is less than other tax options because the collection is the 2 responsibility of the County. To place a measure on the ballot requires City Council approval with a two -thirds vote. Voter app roval also requires a two -thirds vote regardless of the use of the funds.

Transient Occupancy Tax (TOT)
The feasibility of voter approval of a TOT increase is greater than other tax options because the payers of the tax are for the most part non-residents. However, the revenue projections are limited. The current TOT in Goleta is 12%, which is the statewide average. It is estimated that each 1% increase can generate an additional $960,000. There is a point where an increase beyond the average of surroundi ng communities may have a negative impact in guests choosing to stay in the city. There is no additional cost to administer an increase in TOT since the City already administers TOT remittance. To place a measure on the ballot requires City Council approva l with a majority vote. Voter approval also requires a majority vote.

Business License Tax
The feasibility of voter approval of a business license tax may be slightly less than a TUT.

This revenue option has the highest cost of administration because it would require the city to set up the structure and collect the tax either in-house or using a third party. To place a measure on the ballot requires the City Council approval with a two -thirds vote regardless of whether the funds will be used for general purpose funding or special purpose funding.

Voter approval also requires a two-thirds vote regardless of the use of the funds.

Documentary Transfer Tax and Real Property Transfer Tax This is the least feasible revenue option. It would require the City to become a charter city to be eligible to consider this option. The cost, time and politics to consider becoming a charter city are economically infeasible based upon the potential revenue projections.

Next Steps for a Tax Revenue Measure

Based on Council direction, staff will return with draft ballot measure language for Council’s consideration. Below is a sample timeline, including steps that staff will take if Council decides to move forward with a ballot measure.

Next Steps - Project Timeline
2022 Tax Revenue Measure

Dates Description
April – May 2022 Staff to return with draft ballot measure language for Council’s consideration
April-November 2022 Conduct a public outreach and education effort on the financial need and potential uses of a funds related to a proposed tax measure; including drafting a priority spending plan
3 April – June 2022 If pursuing a TUT (add-on sales tax), contract with California Department of Tax and Fee Administration (CDTFA) . Cities are required to contract with the CDTFA for administration of the ordinance imposing the tax. There are two contracts. One is for setting up the tax; the second is for ongoing
administration.

April – May 2022 Follow-up Tracking Survey conducted.

May 17, 2022 City Council considers draft ordinance approving tax ballot measure language for the November 8, 2022 Election.

June 7, 2022 (latest
date this item can be
considered is June 21,
2022)
City Council adopts: 1) Resolution approving the Council - sponsored ballot measure to be submitted to the voters; 2) Resolution calling and giving Notice of Election and whether rebuttal arguments will be permitted, and if so, adoption of Resolution providing for the filing of rebuttal arguments for City measures submitted at Municipal Elections; and 3)
Resolution directing the City Attorney to prepare an impartial analysis of the measure to be placed on the November 8, 2022 General Election
July 2022 Deadline to submit documentation to County Clerk of the Board of Supervisors
November 8, 2022 Election Day

Cannabis Tax Analysis Summary

The cannabis tax analysis included a review that found the City’s current tax rates are competitive with other nearby jurisdictions and with common rates seen across the state.

It considered impacts to business attraction, retention and success, including to the City’s revenues. The analysis reports how retail cannabis sales may be influenced by tourism and visitor traffic, along with the impact of UCSB. HdL also provided six recommendations which are summarized below:

Recommendation 1
HdL recommends that the City work within the existing limitations of Measure Z when making any desired changes to its current cannabis tax rates.

Recommendation 2
HdL recommends that the City consider applying its cannabis taxes evenly to both adult - use and medicinal cannabis businesses and sales.

Recommendation 3
HdL recommends that the City retain the existing gross receipts -based tax on cannabis cultivation and continue to set the rate at 4.0%.

4 Figure 1 – Tax Range Recommendation:

Recommendation 5
HdL recommends that the City exercise caution and discretion in applying increases to the tax rates for any existing businesses. As an alternative, the City may wish to consider a tiered tax rate for high -earning businesses when revenues exceed a certain amount. An example of this is seen in Figure 2.

Figure 2- Example of Incremental Tax Rate Model

Recommendation 6
HdL recommends that the City consider extending the allowable hours of operation for cannabis retailers to 10:00 p.m., rather than the current 8:00 p.m. Extending these hours could allow the City’s retailers to recapture sales (and related sales tax revenue) that are likely being lost to retailers in the City of Santa Barbara during these hours.

Next Steps and Staff Recommendation on Cannabis Tax Updates Cannabis tax revenues is a new revenue stream to the City and is highly volatile. There is lots of uncertainty on the stability and consistency of what this revenue stream can generate and staff is still learning its impacts as other new businesses begin operating within city limits and nearby city limits. At this time, staff recommends City Council making a change 5 only to the retail rate for the medicinal category to be set at the current retail for adult use at 5% and to work towards implementing recommendation 6, which is extending the hours of operation from 8:00pm to 10:00pm to be consistent with retailers in the City of Santa Barbara. Staff recommends that other potential rate changes be put on hold until additional information and another full fiscal year has been experienced to review further.

Should Council support staff’s current recommendation, staff will return with a separate staff report and resolution to enact the tax rate change for medicinal and an ordinance update for the hours of operation for Council approval. Given current staff capacity and other work priorities, this work effort will be programmed for the upcoming FY 22/23 work program and will target August 2022 for implementation.

Finance Committee Review

The Finance Committee met to review the cannabis tax analysis on October 11, 2021, and the tax revenue enhancement analysis on Mach 24, 2022.

FISCAL IMPACTS:

There are no fiscal impacts associated with this report, as the information provided is for informational purposes and feedback from Council of which revenue options to pursue.

Further action taken based on the information provided may result in future fiscal impacts and will be provided in a later report.

ALTERNATIVES:

Council may direct staff to provide further analysis on certain tax measures or explore more in detail the tax measures discussed. Council may also direct staff to not move forward with a ballot measure, directing staff to table the effort or continue to consider it for a future year.

Reviewed By: Approved By:

___________________ _________________
Kristine Schmidt Michelle Greene
Assistant City Manager City Manager

ATTACHMENTS:

1. Draft Revenue Enhancement Opportunities Analysis for the City of Goleta

2. Draft Fiscal Analysis of the Commercial Cannabis Industry for the City of Goleta

3. Long Range Financial Forecast, Revenue and Funding Options Workshop

4. PowerPoint Presentations

6 ATTACHMENT 1:

Draft Revenue Enhancement Opportunities Analysis for the City of Goleta

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CITY OF GOLETA REVENUE ENHANCEMENT

OPPORTUNITIES REPORT

BACKGROUND
The City of Goleta is exploring potentia l revenue enhancement opportunities to raise additional general fund tax revenue. The City retained the services of HdL Companies to prepare a report evaluating various revenue enhancement opportunities.

Hinderliter de Llamas Associates (HdL) is a 37-year-old consulting firm with corporate offices in Brea California, along with offices in Pleasanton and Fresno, as well as offices in Texas, Colorado and Georgia. HdL is a hi ghly respected consulting firm working in sales tax, property tax, tax &
fee administration, revenue analysis, economic development and cannabis management. HdL ECONSolutions was formed by HdL in 2014 to provide a variety of economic development products, se rvices and special projects in further serving local governments. HdL ECONSo lutions has done work for 145 local governments in California and pr esently is working for 30 California cities and several private sector developers on a variety of economic development related services.

SUMMARY
The report identifies six potential revenue enhancement opportunities:
 Transaction Use Tax (TUT)
 Utility Users Tax (UUT)
 Parcel Tax
 Transient Occupancy Tax (TOT)
 Business License Tax
 Document Transfer Tax
The report evaluates each of these revenue opportunities by describing:
 The nature of the tax
 The process to implement the tax and feasibility of implementation  The potential revenue estimates
 The pros and cons of eac h including – Regressivene ss comparison, potential impacts on the residents and business within the community DRAFT
Attachment 1
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The report does not make a recommendation of preference of one revenue source over another. However, it clearly outlines t he above-described evaluation of each possible opportunity.

TRANSACTION USE TAX
Description
A Transaction and Use Tax (TUT) is an additiona l sales tax levy on top of the Bradley- Burns Local Sales and Use Tax imposed by individual cities. The TUT would apply to all purchases of goods and services that are appl icable to existing sales and use taxes. A city does not have the ability to make exemptions as to what goods and services are exempt from the TUT. The TUT would be applicable to all goods and services subject to the statewide sales and use tax. Items that are exempt from TUT include certain food products for human consumption (many groceries), sales to the U.S. Government, sales of prescription medicine and certain medical devices, and sales of items paid for with food stamps. The sales and use tax currently applied in the City of Goleta is 7.75%, which is the lowest sales and use tax within Santa Barbara County and shared with Buellton and Solvang. The City can impose a TUT in increments up to the state cap amount of 9.25%.

For example, if the City were to approve a 1% TUT, the sales tax rate in the city would be

8.75%, which would be 0.50% below the state cap.

Implementation Process

Enactment of a TUT requires a ballot initiative approved by the residents of the City. To place a measure on the ballot requires supermajority City Council approval (4 out of 5 for the City of Goleta). Once on the ballot, t he measure must have, a two-thirds voter approval for special purpose funding or a simple majority (50% plus 1) for general purpose funding to pass.

Currently there are 120 cities in the state that have approved a TUT. The Cities in Santa Barbara County that have TUT’s include the following:
- Buellton (7.75% sales tax rate)
- Carpinteria (9% sales tax rate)
- Goleta (7.75% sales tax rate)
- Guadalupe (8.75% sales tax rate)
- Lompoc (8.75%)
- Santa Barbara (8.75% sales tax rate)
- Santa Maria (8.75% sales tax rate)

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In the November 2020 election there were 71 jurisdictions that had TUT initiatives on the ballot with 84% of them bei ng approved by voters including a 1% sales tax increase in the City of Lompoc which passed with a 69.37% voter approval.

A TUT would be implem ented no sooner than 110 days afte r the election date. For a November ballot measure, it will be implemented on April 1 of the following year, unless a later date is stated in the measure. For financial purposes, an April 1 start date means cash flow will start in June. With a normal 60-day accrual period, the City can expect 1 quarter worth of revenue for that fiscal year - wi th the first full fiscal year impact not felt until the following year. A sample implementation timeline is provided below:
 November 2022 - successful ballot measure
 April 2023 - first cash flow
 FY 22-23 - one quarter fiscal impact
 FY 23-24 - first full year fiscal impact

Pros and Cons
Pros
Based upon 2019 revenue estimates, 42.4% of the 1%% Bradley Burns Sales tax is estimated to be paid by non-residents of Goleta. This indicates that 42% of a new TUT tax would be paid by non-residents as well. This demonstrates that a TUT tax would be borne by both residents and non-residents in a roughly equal manner.

As shown above, many of Goleta’s nearby cities have a variation of a TUT, so adoption of a similar TUT would not put the City in an economic disadvantage.

Cons
Sales taxes are regressive by nature. Taxes on general goods and services consume a greater proportion of a lower/moderate income family’s income.

Potential Revenue Estimate
In previous reports, City staff and HdL prepared estimates of potential revenue that could be generated from a TUT. The estimates are based upon historic actual sales tax revenue received by the city. Table 1 summarizes the estimated TUT revenues at various levels of additional sales tax rates.

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Table 1: Estimated TUT Revenues (as of August 2021)
Rate 0.25% TUT
Estimate

0.5% TUT
Estimate

0.75% TUT
Estimate

1.0% TUT
Estimate
TUT Estimated
Revenue
(Rounded)
$2,300,000 $4,600,000 $6,900,000 $9,300,000
Range (+/-)
5%
)
$2.2M- $2.4M $4.4M - $4.8M $6.6M - $7.2M $8.8M - $9.8M Combined City
Tax Rate

8.00% 8.25% 8.5% 8.75%

In rounded numbers the estimate of new rev enue generated from a TUT is $2.3 million per 0.25% increase.

UTILITY USER TAX
Description
A Utility User Tax (UUT) may be imposed by a city on the consumption of utility services, including (but not limited to) electricity, gas, water, sewer, telephone (including cell phone and long distance), sanitation and cable television. There currently is an issue of whether streaming services can be taxe d under a city’s UUT. Involvi ng streaming services is a grey area since they are evaluated on a city-by-city basis. Thus, each city may determine whether a tax should be applied. Assembly Bill 252 of 2017 proposed that streaming services constitute an entertainment service and, therefore, should be a state matter and not subject to local utility taxes. However, it did not pass Until this is resolved by the judicial or legislative process, most cities have deferred imposing UUT on these services.

The rate of the tax and the use of its revenues are determined by the city. The rate of tax may also vary by the utilities being taxed. For example, a city may choose to tax some types of utilities at a 6% rate and others at 4% or not at all. The city may also choose to tax only residential or only commercial custom ers for each type of utility. The tax is collected by the utility as part of its regular billing cycle and then remitted to the city. Most city UUT levies are general taxes. Over 150 cities in California levy utility user taxes.

UUT rates vary from one to 11 percent. The average rate is 4-5 percent.

For those cities with utility user taxes, it provides an average of 15 percent of a general fund revenue and often as much as 22 percent of their general fund revenue. Typically, UUT’s are for a specified period of time.

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Currently there are three communities in the County of Sant Barbara that impose a UUT - the City of Santa Barbara, Isla Vista Co mmunity Services District and the City of Guadalupe.

Implementation Process
Implementation of a UUT requires a ballot initiative approved by the residents of the city.

To place a measure on the ballot requires City Council approval with a two-thirds vote for general purpose funding or a simple majority for special purpose funding. Voter approval of a majority (50% plus 1) is requir ed for general purpose funding and two-thirds for special purpose funding. Depending on the s pecifics of how a tax measure is proposed it may require “sunset” of the tax.

Most cities with UUTs adopted the tax prior to 1986 by vote of their City Council. After 1986, any increase or extension or new UUT levy requires voter approval as described above. Most city UUT levies in California are general taxes.

From June 2002 through November 2020 there were 97 measures to increase or adopt a new UUT. Eleven were special taxes designated for a specific purpose. Among the 86 general taxes, 12 were accompanied by advisory measures.

Currently in California all but two UUTs ar e general purpose funding. In the November 2020 election there were 11 jurisdictions that had UUT measures on the ballot with 54% of them being approved by voters.

As described previously, there are many variations as to who can be taxed, such as residents and/or commercial customers, which types of utilities it applies to and at what rate for each. If the City were to pursue consideration of a UUT, a separate analysis should be conducted. Issues to be analyzed incl ude who should be taxed, which utilities it should apply to and at what rates.

Collection of the revenue is the responsibilit y of the various utilities and remitted to the city on a regular schedule based upon negotiations with the utilities. Any time there is reliance on an outside agency responsible for collection and remittance there are greater chances of errors. This can be further complicated if there are many variations to the UUT rates. Many cities with UUT’s utilize a third-party company to help manage and audit UUT remittance.

Pros and Cons
Pros
Depending on the percent of the tax, UUTs can generate a significant amount of revenue that can be used for general purposes. On average, the UUT provides 15 percent of general revenue in the cities that levy it and can be as high as 30%.

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Traditionally, UUTs are a dependable and a cons istent revenue stream. They increase gradually over time as the cost of the utility they tax increases.

Cons
The tax is considered somewhat regressive in that the most common utilities taxed include electricity, gas and water. The utility rates users pay are based upon consumption.

Therefore, the more you use the higher your bill. Utility consumption is typically dependent on the size of the user’s home or property. Therefore, property ow ners or tenants with lower incomes pay a disproportionate percentage of their income on utilities and the UUT.

As mentioned in the pros section, historically the revenue stream is fairly consistent.

However, with current and future changes in the availability of some utilities such as water and energy, UUT revenue may become more of a volatile revenue with great fluctuations.

The tax is on the utility cons umption of residents and businesses in the city. Businesses may also choose to pass on the cost of the UUT to their customers in the form of higher prices.

Potential Revenue Estimate
Estimating potential revenue c an be a bit complex. It depends on the percentage of the tax and the utilities that the City chooses to impose the tax on. This varies from city to city. In addition, revenues collected by many utilities are proprietary information, so it is difficult to know exactly the amount of rev enue collected by certain utilities. The most common way to estimate potential revenue is to look at one or more cities that currently impose the tax, determine their actual revenue, and extrapolate it for the City of Goleta’s population. City staff and HdL chose to use t he City of Santa Bar bara as a comparison as shown in Table 2 below. The City of Santa Barbara’s UUT is 6% applied on all utilities.

The estimate is based upon their actual re venue collected and adjusted on a per capita basis. It is estimated that a UUT, using these parameters could generate approximately $4.7 million annually for Goleta.

Table 2: Santa Barbara UUT vs Estimated Goleta UUT
2015 2016 2017 2018 2019 Avg
City of SB -
UUT $13,810,308 $14,337,731 $14,014,216 $14,149,218 $13,888,280 $14,039,951 SB Population 90,401 90,922 91,443 91,325 91,376 91,093.4 SB Per Capita 153 158 153 155 152 154
Goleta
Population 30,541 30,671 30,847 30,790 30,975 30,764.8
Goleta
Estimate $4,665,663 $4,836,591 $4,727,497 $4,770, 374 $4,707,904 $4,741,686 DRAFT
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For comparison, the Isla Vista Community Services District imposes an 8% UUT on gas, water, electricity, sewer, and garbage disposal services. The total revenue collected in FY 20/21 was $1.03 million. The City of Guadalupe imposes a 5% rate on telephone, electricity, gas and water and generates $409,000 annually

PARCEL TAX
Description
A parcel tax is a tax on a par cel of property within a city. The tax must be imposed for a specific purpose. The revenue collected may only be used for that specific purpose. For example, library services, landscape maintenance or a broader category of public safety.

It is paid by the property owner of the individual property. Th is is a flat fee tax on each parcel and not based upon the value of the parcel, unlike property taxes. The amount of the flat fee is set by the city and can vary depending upon the type of use of the property, for example, single-family residence, multi-fami ly, commercial or vac ant property. It can also be the same rate for all parcels regardl ess of land use. The city can also exempt certain classifications of properties. In the November 2020 election there were 30 jurisdictions that had a parcel tax measure on the ballot with 46% being approved by voters.

The City of Goleta currently imposes a Library Services parcel tax. This tax was inherited from the County when the City incorporat ed. The parcel tax was approved by County voters on June 5, 1990. A good reference to t he various categories is in Tabe 2 below that illustrates the City of Goleta’s existing library services parcel tax. The flat fee can also be the same regardless of the size of the parcel or be based upon the number rooms for residential parcels or the overall square footage of the parcel. The fee is typically a fixed fee but may include an annual adjustment based upon an indicator such as CPI. The City of Goleta currently imposes a parcel tax fo r funding library services which increases according to the CPI.

Implementation Process
Implementation of a parcel tax requires a ballot initiative approved by the residents of the city. To place a measure on the ballot requir es City Council approval with a two-thirds vote. Voter approval also requires a two-thirds vote regardless of the use of the funds.

As described previously in the report, and much like a UUT, there are many variations as to what parcels would be taxed and at what ra tes and the purpose of the tax. If the City were to pursue consideration of a parcel tax, a separate analysis on defining the purpose and the taxing structure and to provide more refined revenue estimates for each option would be required.

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Potential Revenue Estimate
The City can set the tax rate based upon a fixed amount for various categories of property use. To illustrate the revenue projection the report established a fixed amount for all use categories using several tax rates from $100 per parcel up to $500 per parcel using $100 increments. These projections are illustrative only to give a sense of the magnitude of the revenue potential.

As the charts indicate a parcel tax of $100 per parcel, regardless of land use, could generate approximately $960,440 annual ly. That amount incr eases proportionally with each $100 increment as described below. The range of projections based upon the $100 flat amount is between $960,440 - $4,802,000. As a comparison Table 3 provides the existing Library Parcel Tax.

Table 3: Library Parcel Tax
Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Benefit
Factor
Residential
Single Family $ 25.20 5,734 $ 144,497 1.0 Condominium $ 25.20 2,567 $ 64,688 1.0 Duplex/Triplex $ 50.32 173 $ 8,705 2.0 Apartments $ 151.03 193 $ 29,149 6.0 Commercial
Heavy $ 113.22 17 $ 1,925 4.5 Light $ 113.22 388 $ 43,929 4.5 Industrial $ 113.22 228 $ 25,814 4.5 Churches/Misc $ 50.32 25 $ 1,258 2.0 Farm/Vacant $ 12.57 279 $ 3,507 0.5 Exempt $ - 498 $ - 0.0 TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 323,473

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Table 4: Parcel Tax Projection 1
Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Residential
Single Family $ 100.00 5,734 $ 573,400 Condominium $ 100.00 2,567 $ 256,700 Duplex/Triplex $ 100.00 173 $ 17,300 Apartments $ 100.00 193 $ 19,300 Commercial
Heavy $ 100.00 17 $ 1,700 Light $ 100.00 388 $ 38,800 Industrial $ 100.00 228 $ 22,800 Churches/Misc $ 100.00 25 $ 2,500 Farm/Vacant $ 100.00 279 $ 27,900 Exempt $ - 498 $ - TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 960,400 Table 5: Parcel Tax Projection 2
Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Residential
Single Family $ 200.00 5,734 $ 1,146,800 Condominium $ 200.00 2,567 $ 513,400 Duplex/Triplex $ 200.00 173 $ 34,600 Apartments $ 200.00 193 $ 38,600 Commercial
Heavy $ 200.00 17 $ 3,400 Light $ 200.00 388 $ 77,600 Industrial $ 200.00 228 $ 45,600 Churches/Misc $ 200.00 25 $ 5,000 Farm/Vacant $ 200.00 279 $ 55,800 Exempt $ - 498 $ - TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 1,920,800

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Table 6: Parcel Tax Projection 3
Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Residential
Single Family $ 300.00 5,734 $ 1,720,200 Condominium $ 300.00 2,567 $ 770,100 Duplex/Triplex $ 300.00 173 $ 51,900 Apartments $ 300.00 193 $ 57,900 Commercial
Heavy $ 300.00 17 $ 5,100 Light $ 300.00 388 $ 116,400 Industrial $ 300.00 228 $ 68,400 Churches/Misc $ 300.00 25 $ 7,500 Farm/Vacant $ 300.00 279 $ 83,700 Exempt $ - 498 $ - TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 2,881,200

Table 7: Parcel Tax Projection 4
Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Residential
Single Family $ 400.00 5,734 $ 2,293,600 Condominium $ 400.00 2,567 $ 1,026,800 Duplex/Triplex $ 400.00 173 $ 69,200 Apartments $ 400.00 193 $ 77,200 Commercial
Heavy $ 400.00 17 $ 6,800 Light $ 400.00 388 $ 155,200 Industrial $ 400.00 228 $ 91,200 Churches/Misc $ 400.00 25 $ 10,000 Farm/Vacant $ 400.00 279 $ 111,600 Exempt $ - 498 $ - TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 3,841,600

Table 8: Parcel Tax Projection 5
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Land Use
FY 21/22
Proposed
Rate
Number of
Parcels
FY 21/22
Projected
Revenue
Residential
Single Family $ 500.00 5,734 $ 2,867,000 Condominium $ 500.00 2,567 $ 1,283,500 Duplex/Triplex $ 500.00 173 $ 86,500 Apartments $ 500.00 193 $ 96,500 Commercial
Heavy $ 500.00 17 $ 8,500 Light $ 500.00 388 $ 194,000 Industrial $ 500.00 228 $ 114,000 Churches/Misc $ 500.00 25 $ 12,500 Farm/Vacant $ 500.00 279 $ 139,500 Exempt $ - 498 $ - TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 4,802,000

Pros and Cons
Pros
Parcel taxes are a steady stream of inco me because they are based upon a fixed fee.

They are not subject to the volatility of land values.

Parcel taxes are less regressive than sales or value-based taxes since they are a fixed amount.

Cons
Residents and landowners of the city pay parce l taxes. Non-residents or visitors of the city are not subject to this type of tax.

Though parcel taxes are less regressive than sales taxes, they still impact lower/moderate income individuals disproportionately

TRANSIENT OCCUPANCY TAX
Description
Transient Occupancy Tax (TOT) is a tax le vied on persons staying 30 days or less in hotels, motels and similar lodging within a city. The amount of the tax is an add on percentage on the cost of the room rental. The tax is collected by the hotel and remitted to the City.

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Currently the City of Goleta has a TOT rate of 12%. When the City incorporated it had a 10% TOT. The voters approved an increase of the amount to 12% in November 2012.

The measure passed with a 72.22% affirmative vote.

Implementation Process
Implementation of an increas e in the existing 12% TOT requires approval of a ballot initiative by the residents of Goleta. To place a measure on the ballot requires City Council approval with a majority vote. Voter approval also requires a majority vote. The measure would be for a specific rate. There cannot be an escalation factor built into the approval, either for specific future increases at a fixed amount or with consumer price indices.

The existing TOT for the City of Goleta is for general services. Any increase in the tax would also be for general services. In the November 2020 election, there were 18 jurisdictions that had TOT measures on the ballot with 78% approved by voters.

Potential Revenue Estimate
The City’s current TOT rate is 12%. The report estimates additional revenue based upon a 1% increase in the rate up to 17%. Table 9 below estimates the additional revenue in 1% increments. The City’s TOT revenue has declined over the past few years due to the COVID-19 Pandemic. The estimates are based upon the actual revenue the City received in the last full year prior to the pandemic, rounded to $11,000,000 annually. In summary each 1% increase in the TOT could generate approxim ately $920,000 in additional revenue.

Table 9: TOT Rate Increase - Revenue Estimates using $11,000,000 as Base Year

TOT Revenues TOT Rate
Additional New TOT Revenue
with Rate Increase
$ 11,000,000 12% $ 0
$ 11,916,667 13% $ 916,667
$ 12,833,333 14% $ 1,833,333
$ 13,750,000 15% $ 13,750,000
$ 14,666,667 16% $ 14,666,667
$ 15,583,333 17% $ 15,583,333

Conversion Calculation: $11,000,000 x 0.12 Gross Revenue: $91,666,667

Pros and Cons
Pros
Transient Occupancy Taxes are paid by guests who stay at hotels within the city, typically, not city residents. Therefore, residents are not paying the tax.

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Most cities in California impose some form of a TOT.

Most hotel customers do not evaluate the percent of a TOT from one city to another when making their decision on where to stay, unless there is a group event.

Cons
The tax may be seen as regressive in that it is a fixed percentage of the room rate. Lower income individuals pay a higher percent of their income on hotel costs.

Though most customers may not compare the TOT percent from one city to the next, the City should consider parity with surrounding ci tes. The City’s current rate of 12% was increased in 2012 from 10%. The statewide av erage rate is 12%. The highest statewide rate is 15%. The average rate within the C ounty of Santa Barbara is 12%. There is a balance to be weighed maintaining parity with neighboring, and hotel competing communities, not to over tax where the tax ra te may be a determining factor as to which hotel to choose.

TOT is a very volatile revenue source. For the City of Goleta, it has been one of the City’s largest General Fund Revenue sources. However, as demonstrated with the COVID-19 Pandemic, this source of revenue is volatile and contingent on hotel stays and the health of the economy.

BUSINESS LICENSE TAX
Description
Most cities impose a business license tax on businesses that operate within the physical boundaries of the city. There are various methodologies on how the tax is calculated. The presumption of a business license tax is to tax business for the services provided by the city to support its business community i.e., public safety, infrastructure impacts, etc.

The City of Goleta does not currently impose a Business License Tax. The City imposes a Business License fee, which is a nominal amount intended to recover the cost of administering a business license only.

Implementation Process
Implementation of a business license tax requires a ballot initiative approved by the residents of the city. To place a measure on the ballot requires the City Council approval with a two-thirds vote regardless of whet her the funds will be used for general purpose funding or special purpose funding. Voter appr oval also requires a two-thirds vote regardless of the use of the funds. In the November 2020 election, there were seven jurisdictions that had business license measures on the ballot with 87% approved by voters.

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Potential Revenue Estimates
There are several different models that cities use for business licenses taxes. Some are based on flat fees, based upon the number of employees or gross revenue obtained by the business. A city can impose differing ta x rates based upon the classification of business. However, the more variations of tax rates make the administration and collection of the tax more complicated and thus more costly.

Presently, HdL’s business license division administers business license programs for 136 cities in California. The recommended structure for a newly implemented business license is based upon the gross receipts model. This model is the least regressive approach because it is based upon the revenue increases of the bus iness and not other factors such as employees or a flat fee. The report projects revenues based upon a gross receipts model.

Attachment A illustrates two different gr oss receipts models and projects potential revenues for each. It also provides a comparison of revenue projects based upon these models to comparison cities.

The summary indicates that Model 1 – Si ngle Gross Receipts Rate could generate between $2.2 million – $2.7 million annual ly depending on the rate. Model 2 – Classification-Based Rates could generate $3.3 million annually.

Pros and Cons
Pros
A business license tax can generate a significant amount of revenue.

Voter approval is by the residents and not necessarily the business owners with residents more likely to approve the tax.

Cons
It can be considered a regressive tax in that the amount that businesses pay is considered a cost of doing business and therefore passed on to customer in the cost of goods and services.

A business license tax may dissuade businesse s, most likely, small business from locating or staying within the city.

DOCMENTARY TRANSFER TAX AND REAL PROPERTY TRANSFER TAX
A documentary transfer tax is a tax imposed on property owners who transfer interest in real estate, whether personal or commercial. Counties tax at a rate of $0.55 cents per $500 of the properties. The tax is collected by the County which then remits $0.275 to the city where the property transaction occurred. Currently the City of Goleta receives approximately $150,000 in documentary tax revenue.

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Implementation Process
Only charter cities can impose their own Documentary Transfer Tax. General Law cities do not have this ability. Goleta is a General Law city. To consider this tax, the city would need to become a Charter City. The process to become a Charter City is lengthy, complex and costly, far more than would be required for this revenue enhancement to be cost effective.

There are three charter cities in Santa Barbara County; Santa Barbara, Santa Maria and Solvang. None of them have a separate Documentary Transfer Tax.

The State Constitution allows charter cities to enact an enhanced amount, above that imposed by the county. To enact an additional am ount for a charter city would require City Council to approve a ballot initiative by a two-thirds vote. The initiative would need to be approved by a majority of voters.

Potential Revenue Estimate
There are only a few cities in the state that impose this type of tax, none in Santa Barbara County. Of the cities that do have an add on tax above the County $0.55 cents per $500, most are double the County rate, to $1.10 per $500. Cities that impose a separate tax receive the full amount of that revenue, howeve r, they forfeit their previous share of the County revenue. The County continues to coll ect the $0.55 per $500 tax and retains the entire amount. The City tax is in addition to the County tax.

The City of Goleta receives approximately $150,000 in documentary transfer tax revenue.

If the City were to achieve Charter City status, and voter approv al of a Documentary Transfer Tax, the City would generate appr oximately, $300,00 in net revenue for each $0.55 increase in the tax. The net revenue takes into consideration the loss of the existing $0.275 that when revert to the County.

Pros and Cons
Pros
The tax is less subject to volatility because it is based on a percentage flat fee on property transactions.

Cons
The ability to impose the tax is predicate d on the City becoming a Charter City. The process of becoming a Charter City is length y, costly and political. If this is the only motivating factor for achieving Charter City status, it may not be cost effective.

The financial projections indicate that the potential revenue projections would require a significant tax increase. The tax burden is on the property owners of the City.

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SUMMARY
Transaction Use Tax (TUT)
From experiences of other cities, a TUT has one of the higher feasibility of voter approval than other tax options. One of the reasons is that almost half of the revenue collected will come from non-residents making purchases within the city and the fact that many surrounding communities already impose a similar tax. The potential revenue generated is on the higher side of other options bet ween $2.3 million to $9.3 million depending on the percent of the TUT. The cost of administration is less than some of the options because the TUT is collected by the State and remitted to the city.

Utility User Tax (UUT)
A UUT like that of the City of Santa Barbara could generate approximately $4.7 million to the city. The payers of a UUT are residents and businesses within the City. The feasibility of passage of a UUT measure is less than other tax forms because of this fact.

Businesses may pass on the cost they pay in a UUT in higher prices. The cost to administer a UUT may be higher in auditing collections from utili ties depending on the number of utilities and variations in rates.

It is estimated that each 1% increase can generate an additional $960,000. There is a point where an increase beyond the average of surrounding communities may have a negative impact in guests choosing to stay in the city. There is no additional cost to administer an increase in TOT since the city already administers TOT remittance.

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Documentary Transfer Tax and Real Property Transfer Tax This is the least feasible revenue option. It would require the city to become a charter city to be eligible to consider this option. T he cost, time and politics to consider becoming a charter city are economically infeasible based upon the potential revenue projections.

Business License Tax
The feasibility of voter approval of a business license tax may be slightly less than a TUT.

The tax is borne by the businesses in the ci ty, who may pass on the additional cost in higher prices for goods and services. There are many variations on how the tax is structured. The models used in the report indicate potential revenue between $2.2 million and $2.7 million. This revenue option has the highest cost of administration because it would require the city to set up the structure and collect the tax either in-house or using a third party.

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24 Number of Businesses Business Tax Total
Taxable Gross (Est.)
2,414 $2.2 Billion

Business Category Type Total Count Total # of Employees Total Gross Receipts (2019) CONTRACTOR 212 1,053 $ 67,250,359.50*
GENERAL COMMERCE/RETAIL 892 17,128 $ 1,514,258,632.50*

RENTAL (COMMERCIAL &
RESIDENTIAL) 102 639 $ 17,591,309.50*
SERVICE 423 2942 $ 70,442,737.00*
PROFESSIONAL 785 6495 $ 540,388,994.00*
TOTAL 2,414 28,257 $ 2,209,932,032.50*
City of Goleta
March 16, 2022 Alternative Business License Tax Models & Revenue Comparison We have created a series of alternative business license tax revenue structures for the City. Additionally, we have conducted a preliminary revenue comparison of what these structures might yield in revenue. *We did not have current gross receipts data available. We estimated gross receipts from sales tax and reviewed prior information from the City to see if the estimate is reasonable. In a more formal review, we could work with the City to create a more precise estimate.

Attachment A
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25 Model 1: Gross Receipts Tax – Single Gross Receipts Rate Model 1 reflects the potential revenues for converting the City tax to a single-rate, gross-receipts model. This model is simple to administer—everyone is charged the same rate—but it allows the City to increase revenue.

Model 1 also lowers the annual base rate to a uniform $25, to mirror annual base rates of neighboring cities more closely.

Table 1: Model 1—Potential Tax Structure
Tax Basis Tax Rate
Base Rate $25 Flat Rate (first $25,000 Gross
Receipts)
Gross Receipts Tax
+ $1 per thousand dollars of Gross
Receipts
(0.001 x Gross Receipts)

Table 2: Model 1 – Rough Estimates from a simple gross receipts structure Number of
Accts
Taxable Gross
Receipts
Base Rate @ $25
per Account
Tax Amount
$1/ thousand
-Over $25,000-
Tax Amount
$1.25 / thousand
-Over $25,000-
2,414 $2.2 billion $60,350 $2,2149,582 $2,686,978
TOTAL $2,209,932 $2,747,328

The "single rate" method of taxing on gross receipts provides an even distribution of the effective tax rate because all businesses subject to the tax will pay the same rate. Under this method, no cap is put in place, and therefore most of the revenues are received from the highest-grossing businesses.

DRAFT
26 Model 2: Gross Receipts Tax – Classification-Based Rates Model 2, as indicated below, would create different rates for different business classifications. The City may, for example, choose to implement a rate for the retail/wholesale/miscellaneous business activities at a base rate of

0.002, recognizing the higher costs of goods sold and lower profit margins for these types of business as well as their contribution to other City revenues such as sales tax. Conversely, the City could consider implementing a higher rate for professionals due to the nature of their business model. This model affords the most flexibility for increasing revenues while accommodating certain business categories. Model 3 utilizes the same base rate as the previous model to resemble the base rate of neighboring cities.

Table 3: Basic tax structure for classification-based gross receipts Categories Base Rate Gross Receipts Tax Rate

CONTRACTOR
$25 Flat Rate per
Business (first $25,000
in Gross)

0.002 X Gross
GENERAL COMMERCE/RETAIL 0.001 X Gross

RENTAL (COMMERCIAL &
RESIDENTIAL) 0.003 X Gross
SERVICE 0.001 X Gross
PROFESSIONAL 0.003 X Gross

Table 4: Estimated revenue from classification-based gross receipts Business Type Number
of Accts
Est. Taxable Gross
Receipts
Base Rate
$25 per
business
Total Est. Annual
Gross
Receipts Tax
CONTRACTOR 212 $ 67,250,359.50 $ 5,300 $ 123,902

GENERAL

COMMERCE/RETAIL
892 $ 1,514,258,632.50 $ 22,300 $ 1,491,959

RENTAL (COMMERCIAL &

RESIDENTIAL)
102 $ 17,591,309.50

$ 2,550 $ 45,124

SERVICE 423 $ 70,442,737.00

$ 10,575 $ 59,868

PROFESSIONAL 785 $ 540,388,994.00

$ 19,625 $ 1,562,292

2,414 $2.2 billion $60,350 $ 3,283,144

TOTAL $ 3,343,494

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27 Comparison Cities Revenue Summary Table (Using FY 18-19 data)

Table 7: Comparison Data Using Model 2 Table 6: Comparison Data Using Model 1 Table 5: Current Tax Revenue DRAFT
28 ATTACHMENT 2:

Draft Fiscal Analysis of the Commercial Cannabis Industry for the City of Goleta

29 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 1 of 31 Delivering Revenue, Insight
and Efficiency to Local Government
Fiscal Analysis of the
Commercial Cannabis Industry
Prepared for
the
City of Goleta
October 6, 2021
Attachment 2
30 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 2 of 31

Table of Contents

I. Summary and Recommendations Page 3
II. Introduction Page 6
III. The Cannabis Industry in the Santa Barbara Region Page 7 IV. Common Cannabis Tax Rates Page 9
V. Cannabis Retailers Page 11
VI. Cannabis Manufacturers Page 15
VII. Cannabis Distributors Page 17
VIII. Cannabis Cultivation Page 19
IX. Testing Laboratories Page 22
X. Appendix Page 23
a. Legal and Regulatory Background for California Page 24 b. State Tax Considerations Page 27
c. General Economic Impacts Page 29
d. References Page 31

31 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 3 of 31

I. Summary and Recommendations
Based upon our analysis as provided in this report, HdL offers the following recommendations to the City.

Recommendation 1
HdL recommends that the City work within the existing limitations of Measure Z when making any desired changes to its current cannabis tax rates. Measure Z was approved with support of 81.95% of the City’s voters, which is the third-highest approval percentage for any local cannabis tax measure in California since 20161. We do not note any fundamental flaws in Measure Z that would require “fixing” through a subsequent ballot measure. While many jurisdictions prefer the administrative simplicity of a cultivation tax based on square footage, this is merely a preference. In Section VII we discuss means for converting square footage tax rates to comparable gross receipts rates.

Recommendation 2
HdL recommends that the City consider applying its cannabis taxes evenly to both adult-use and medicinal cannabis businesses and sales. While we understand and appreciate the compassionate reasons for wanting to lower or eliminate taxes on medicinal use cannabis, we note that this is not common either among nearby jurisdictions or statewide. Most cannabis businesses statewide are licensed to deal in both adult-use and medicinal products, meaning that they will be reporting wholesale or retail transactions in both categories. Assuring accurate reporting and remittance of these separate rates can be administratively difficult for both the business and the City.

However, while Measure Z clearly allows the City to adjust rates up to 10% of gross receipts on both adult- use and medicinal cannabis operations, the initial rate of 0.0% for medicinal cannabis was included in the text of Measure Z (though not in the ballot question itself). We recognize that this decision is clearly a matter of discretion for the City Council to decide.

Recommendation 3
HdL recommends that the City retain the existing gross receipts-based tax on cannabis cultivation and continue to set the rate at 4.0%. Though this rate is higher than the square-footage equivalent rates we commonly recommend, it is consistent with the rate set by Santa Barbara County, which has one of the largest and most established cannabis cultivation sectors in the state. Clearly, this rate has been shown to be acceptable to cannabis cultivators in the region. We believe cannabis cultivators in Goleta are likely more influenced by the local industry in the surrounding county than by other cultivators elsewhere in the state. Should the City wish to reduce this rate, HdL would recommend that the rate be set between

1.75% and 2.50%, which would be roughly equivalent to our commonly recommended rates of $7.00 to $10.00 per square foot of canopy.

1 The highest level of voter approval we are aware of was for the City of Blythe’s Measure D in June 2018, which passed with 84.07% of the vote. The second highest was the City of Coachella’s Measure II in 2016, which passed with 81.97%.
32 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 4 of 31

Recommendation 4
HdL recommends that any desired adjustments to the City’s current tax rates for cannabis business types other than cultivation stay within the minimum and maximum ranges described in Figure 1, below. While the City’s current rates for nurseries and retailers both fall within our recommended ranges, both manufacturing and distribution are below our recommended initial rates. Increasing the rates for both of these business types up to HdL’s recommended initial rate could potentially generate additional revenue for the City.

HdL makes no recommendation regarding the rate for cannabis testing laboratories. HdL’s recommended rates for testing laboratories are provided for those jurisdictions which wish to impose a tax on such businesses. However, we recognize that these testing laboratories perform a quasi-regulatory function, do not in any way profit off the value of the product and are prohibited from sharing ownership with any other type of cannabis business. Seen through this lens, the City’s current rate of 0.0% seems appropriate.

Figure 1:

The City provided HdL with data showing that licensed cannabis businesses in Goleta collectively generated $2,083,160 in cannabis tax revenue in fiscal year 20/21. Applying the recommended rates shown above to the gross receipts reported to the City would have generated an additional $1,698,112 in cannabis tax revenue for the City, for a total of $3,781,272. HdL is not able to provide a more detailed breakdown of these revenues by business type as such information may allow the reader to infer the revenues derived from individual businesses2.

2 Disclosure of confidential business earnings and tax information is prohibited under Revenue and Taxation Code Section 7056.

Business Type HdL Std.

Initial Rate
HdL Std.

Maximum Rate
Current
City Rate
Recommendation
Cultivation $7 per SF or

1.75% GR
$10 per SF or

2.5% GR

4.0% GR No Change
Nurseries $1 per SF or

1.0% GR
$2 per SF or

2.0% GR

1.0% GR No Change
Manufacturing 2.5% GR 4.0% GR 2.0% GR 2.5%
Distribution 2.0% GR 3.0% GR 1.0% GR 2.0%
Retail, Adult Use 4.0% GR 6.0% GR 5.0% GR No Change
Retail, Medicinal 4.0% GR 6.0% GR 0.0% GR 5.0%
Testing 1.0% GR 2.5% GR 0.0% GR No Recommendation
SF = Square Feet
GR = Gross Receipts
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Recommendation 5
HdL recommends that the City exercise caution and discretion in applying increases to the tax rates for any existing businesses. While HdL’s recommended rates are common and lower than most nearby jurisdictions, we caution that our standard recommended rates assume they are being applied as initial rates, rather than being retroactively imposed on companies that have already developed and operated their business model based on certain assumptions about the regulatory and tax environment of their host jurisdiction. This is particularly a concern for the City’s distributors, as the increase from 1.0% to a still-low 2.0% would effectively double the tax rate on those businesses.

In addition, the City’s cannabis businesses vary significantly in size and earnings. Some businesses may also have operations in multiple jurisdictions, either nearby or around the state, and may have options for where to locate various aspects of their operations to provide the greatest benefit and the least liabilities. Increasing tax rates could potentially result in smaller businesses struggling or even failing, while larger businesses may just shift their operations elsewhere, resulting in a net decrease in cannabis tax revenues for the City.

As an alternative, the City may wish to consider a tiered tax rate for high-earning businesses when revenues exceed a certain amount. For example, the City could apply a tax rate of 2.0% for the first $25 million increment of gross receipts, 1.5% for the next increment ($25 million to $50 million), and 1.0% for any gross receipts above $50 million. Applying these tiered rates to a hypothetical business with earnings of $75 million would generate a total of $1,125,000 in revenue for the City, which is equal to an effective tax rate of $1.5%. This is $375,000 more than would be generated by a flat rate of 1.0%, and $375,000 less than would be generated by a flat rate of 2.0%. These revenues are shown below in Figure 2.

Figure 2:

Recommendation 6:

HdL recommends that the City consider extending the allowable hours of operation for cannabis retailers to 10:00 p.m., rather than the current 8:00 p.m. An analysis of sales data from retailers in other jurisdictions indicates that the hours of 8:00 p.m. to 10:00 p.m. on Fridays and Saturdays are some of the busiest hours of the week for cannabis sales. Extending these hours could allow the City’s retailers to recapture sales (and related sales tax revenue) that are likely being lost to retailers in the City of Santa Barbara during these hours.

Increment Range Taxable
Amount
Increment
Rate
Revenues Effective
Rate
1st Increment $0 to $25 million $25,000,000 2.00% $500,000 2nd Increment $25 million to $50 million $25,000,000 1.50% $375,000 3rd Increment $50 million and above $25,000,000 1.00% $250,000 $75,000,000 $1,125,000 1.50%
Flat Rate $75,000,000 1.00% $750,000
Flat Rate $75,000,000 2.00% $1,500,000
Incremental Tax Rate Model
Flat Rate Model
34 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 6 of 31

II. Introduction
The City of Goleta has 8 commercial cannabis businesses that are currently operating, including retailers, distributors, cultivation and microbusinesses. 3 more cannabis businesses are expected to open soon, and another 2 are in the application process.

The City has a cannabis business tax (Measure Z) that was approved by the voters in November of 2018.

Measure Z allows the City to tax commercial cannabis businesses at a rate up to 10% of their gross receipts. While Measure Z allows the City to impose the tax on both adult-use and medicinal cannabis, the initial rates as proposed by the measure imposed the tax only on adult-use cannabis businesses. The current rates as established by the City Council are the initial rates as set forth in Measure Z and are shown below in Figure 3.

Figure 3:

Cannabis Business Type Tax Rate; Adult Use Tax Rate; Medicinal Retailers: 5.0% 0.0%
Cultivators: 4.0% 0.0%
Manufacturers: 2.0% 0.0%
Distributors: 1.0% 0.0%
Nurseries: 1.0% 0.0%
Testing: 0.0% 0.0%
Cannabis microbusinesses are taxed at the highest applicable rate for the activities being conducted, unless the business is able to demonstrate how its gross receipts are apportioned among its different operations. Though Measure Z allows the City to tax both adult-use and medicinal cannabis businesses, the City has so far chosen to not apply the tax to medicinal cannabis activities.

The City is now considering revising its cannabis tax rates and structures to ensure that they are competitive with other nearby jurisdictions and with common rates seen across the state. To assist with this, the City has requested that HdL provide this fiscal analysis of the City’s cannabis industry, to include specific recommended rates and projections for how the recommended changes may affect business attraction, retention and success and, ultimately, the City’s revenues. The City is also interested in understanding how retail cannabis sales may be influenced by tourism and visitor traffic, along with the impact of UCSB.

The City has expressed that it is primarily interested in working within the parameters of Measure Z, but could be willing to consider another ballot measure if necessary for making changes that go beyond the allowances of Measure Z, should there be a compelling reason. This is primarily a consideration for cannabis cultivation, which is most commonly taxed on a square footage basis. Section VII of this analysis discusses conversion factors for determining gross receipts rates that are equivalent or comparable to common square footage rates.

35 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 7 of 31

III. The Cannabis Industry in the Santa Barbara Region
The amount of revenue that a city or county may be able to generate from a cannabis business tax depends upon the type, number and size of cannabis businesses that may choose to locate within the City. Cannabis retailers, cultivators, manufacturers, distributors and testing facilities are all interdependent upon a network of other cannabis businesses, so understanding the extent of the industry in the region provides a basis for estimating the number of businesses which may seek to locate in Goleta.

Our analysis of potential cannabis business tax revenue is based on data and assumptions about the total size of the local market. The three cannabis licensing agencies for the State of California (the Bureau of Cannabis Control, the CalCannabis Division of the California Department of Food and Agriculture, and the Manufactured Cannabis Safety Branch of the California Department of Public Health) have all been issuing temporary licenses for commercial cannabis businesses since late December of 2017. In addition, HdL has worked with a number of nearby cities and counties that are developing or implementing their own cannabis regulatory and taxation programs. This data provides a wealth of previously unavailable information about the cannabis industry around the State.

For our analyses, we typically assume that wholesale cannabis businesses such as cultivators, manufacturers and distributors would primarily interact or do business with other cannabis businesses within a one-hour radius. This would extend roughly from Santa Maria and Lompoc in the north and to Oxnard and Port Hueneme in the south. State licensing data as of March 11th, 2021 shows that there are 31 distributors, 18 manufacturers, 1 testing laboratory and 56 retailers within this immediate area, along with 75 cultivators and 4 microbusinesses. These numbers are shown below in Figure 4.

Figure 4:

The 75 cultivation businesses hold a combined total of 1,382 separate licenses. We note that all of the cannabis business permits in the City of Oxnard are still in process. In addition, both the City of Ventura and the County of Ventura are in the process of permitting cannabis businesses, and the cities of Solvang and Guadalupe have been considering the development and implementation of cannabis regulatory programs. Lastly, we note that agency data sometimes shows licenses as being located in cities when they are actually in the surrounding unincorporated area. We have attempted to correct the data here.

City/County Cultivation*
/Nursery
Distributor Manufacturer Retailer** Microbusiness Testing Laboratory
Total
Lompoc 12 8 6 14 0 1 41
Goleta 2 3 1 5 3 0 14
Santa Barbara 0 3 2 6 0 0 11
Santa Barbara County 61 13 0 0 0 0 74
Ojai 0 1 1 3 0 0 5
Port Hueneme 0 0 0 12 1 0 13
Oxnard*** 0 3 8 16 0 0 27
Total 75 31 18 56 4 1 185
*Number of businesses. Some individual cultivation business hold over 100 separate licenses. **Includes retailing microbusinesses.
***Permits in process.

Active Licenses in Nearby Communities
36 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 8 of 31

This data shows that there is a robust cannabis industry in the Santa Barbara/Ventura County region that extends well beyond Santa Barbara’s cultivation sector. With an estimated total population of 1.3 million people, we believe the region could support perhaps 65 to 85 cannabis retailers upon maturity, which suggests there is still room for growth in this regional market.

Statewide, the number of cannabis distributors is typically around one-quarter of the overall number of cannabis businesses. With a total of 183 licensed cannabis businesses in the Santa Barbara/Ventura County region, this would suggest around 46 distributors, which is significantly more than the current 30.

This suggests that there is room for substantially more cannabis distributors than currently exist in the region.

The Santa Barbara/Ventura County region already has one of the most robust cannabis industry clusters in the state, but we anticipate that the number of cannabis businesses in the region will continue to increase. The number of jurisdictions in California that allow for legal cannabis sales continues to grow, which increases the size of the market that is available to licensed cannabis producers. Around 70% of California cities and counties still prohibit legal sales of cannabis, which indicates that there is a lot of room for market expansion in coming years. In addition, we have noted numerous signs that large-scale cannabis operators are positioning themselves for anticipated nationwide legalization.

As more and more cities allow legal cannabis businesses, we would expect the decisions as to where these businesses choose to locate will be increasingly driven by the same market-based factors that influence such decisions for other types of businesses, including access to markets and consumers, available and appropriate industrial or commercial space, competitive lease rates, a ready talent pool, and a network of supporting businesses and industries. Differences in regulations and taxes (within reason) will cease to be the overarching consideration and will be weighed in combination with these other factors.

37 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 9 of 31

IV. Common Cannabis Tax Rates

Cannabis tax rates have been settling and stabilizing around the State since the beginning of 2018. Many cities instituted cannabis taxes prior to the implementation of statewide regulations, with a wide range of tax structures and rates as high as $30 per square foot (for cultivation) or 18% of gross receipts. Some of these “early adopter” cities have since reduced their rates to be more competitive with common rates that are now emerging around the State.

The State of California applies two separate taxes to cannabis: a cultivation tax of $9.65 per ounce of dried flower ($2.87 per ounce of dried leaf or trim) and an excise tax of 15% on the purchase of cannabis and cannabis products. These two separate State taxes can add up to 26% to consumer cannabis prices, even before any local taxes are contemplated. This leaves very little room for local jurisdictions to work within if they wish to remain under the total cumulative tax rate of 30%. This is an important benchmark to allow the local industry to compete against the illicit market and against other regulated cannabis businesses from around the State (see Attachment C; State Tax Considerations).

The City’s maximum cannabis tax rates were set by Measure Z in 2018, which allows rates of up to 10% of gross receipts. The City Council has set the current rates ranging from a high of 5.0% for retailers, to just

1.0% for nurseries. The City currently does not impose a tax on cannabis testing laboratories.

HdL has worked with numerous local agencies around the State to develop cannabis tax measures for the ballot. The initial range of tax rates we recommend for cannabis businesses other than cultivation commonly runs from 2% of gross receipts for distributors, to 2.5% for manufacturers, and up to 4% for retailers. These rates may be adjusted up to a maximum of 3%, 4% and 6%, respectively. HdL’s commonly recommended rates are shown in Figure 5, below, along with the City’s current rates.

Figure 5
The City’s current rates for manufacturing, distribution and testing are all slightly below the range we commonly recommend. We note this only as a point of information and not as a recommended change.

Our recommended range includes an initial rate but not a minimum rate. Setting rates below the recommended initial rate is merely the City’s prerogative, choosing a lower tax burden for the business over some amount of potential revenue. Exceeding the maximum recommended rate would be a concern, as it impacts the ability of those businesses to compete in both regionally and in the statewide market.

Cannabis Business Type HdL Initial Rate HdL Maximum Rate Current City Rate Cultivation (indoors) $7 per square foot $10 per square foot 4.0% of gross receipts Nurseries $1 per square foot $2 per square foot 1.0% of gross receipts Manufacturing 2.5% of gross receipts 4% of gross receipts 2.0% of gross receipts Distribution 2% of gross receipts 3% of gross receipts 1.0% of gross receipts Retail 4% of gross receipts 6% of gross receipts 5.0% of gross receipts Testing 1% of gross receipts 2.5% of gross receipts 0.0% of gross receipts 38 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 10 of 31

The City’s rates for cultivation are defined as a percentage of gross receipts. While this is not at all uncommon, HdL’s recommended rates for cultivation are based on the square footage of canopy area. To compare a tax rate based on gross receipts with one based on square footage requires that we make certain assumptions regarding cultivation methods, yield, price, and the number of harvest cycles per year. Assuming indoor cultivation with 4 cycles per year, yielding 1 pound of flower for every 10 square feet and a wholesale price of $1,000 per pound, the City’s tax rate of 4.0% of gross receipts would be roughly equivalent to a rate of $16 per square foot, which is substantially higher than the maximum rate of $10 per square foot that we commonly recommended.

However any or all of these assumptions can vary greatly. A lower wholesale price of just $600 per pound would reduce the equivalent tax rate to $9.60 per square foot, and limiting production to just 3 harvest cycles per year would reduce this even further, to just $7.20 per square foot. These conversions are discussed in more detail in Section 6; Cultivation.

Figure 6:

We also compared the City’s rates with those found in other nearby jurisdictions, as shown in Figure 6, above. The City’s 5.0% rate for cannabis retailers is consistent with the average among these jurisdictions, while the rates for other business types are at or below the low end of the range. As discussed above, the

4.0% rate for cultivation is higher than the equivalent square-footage rate seen in Port Hueneme and Oxnard3. However, it is the same rate as in unincorporated Santa Barbara County, which has the second- highest number of cultivation licenses in California (after only Humboldt County). Clearly, a rate of 4.0% has shown itself to be acceptable to large-scale cultivators in the region.

3 Oxnard also requires an additional 1.0% community benefits fee and a one-time payment of between $25,000 and $75,000.
39 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 11 of 31

V. Cannabis Retailers
The Santa Barbara coastal plain is currently served by 11 cannabis retailers, with 5 located in Goleta and 6 located in the City of Santa Barbara as shown in Figure 7. These retailers serve an estimated population of 197,000 people including the communities of Isla Vista, Montecito and
Carpinteria, which works out to one retailer for roughly every 18,000 people.

HdL generally assumes a standard market concentration of one retailer per every 18,000 to 20,000 people.

Data from the Bureau of Cannabis Control shows 1,242 licensed retailers and retailing microbusinesses around the state, which works out to one retailer for roughly every 32,000 people based on the state’s overall population. However, these retailers are not evenly distributed around the state. Some 70% of California cities do not allow legal cannabis sales, so these licensed retailers are concentrated in just 30% of cities.
24 of California’s 58 counties have licensed cannabis retailers. These counties are home to 22.5 million of California’s 39.5 million residents. 141 of California’s 482 cities have licensed retailers, with a combined population of 15.5 million, but many of these cities are in counties with licensed retailers, so we can roughly consider those residents as already being “served”. Those cities that are in otherwise “unserved” counties have a total population of 5.5 million. Combined, we estimate that 28 million of California’s 39.5 million residents live in counties or cities with some access to licensed cannabis, equal to 70% of the state’s population. Assuming these 28 million residents are served by the state’s 1,242 licensed retailers yields an average of roughly 22,500 people per retailer.

However, this population-based model does not account for tourists and visitors. Comparing confidential sales tax information for cannabis retailers in other coastal counties shows a stark difference in the gross receipts being generated at these locations, with coastal retailers averaging $4 million per year while retailers in rural inland areas of the same county were generating less than half that amount. When we adjusted the average gross receipts of those cannabis retailers on a per-capita basis, we found that sales among retailers in these coastal areas were more than eight-times higher per-capita than those in nearby inland communities.

Along with its coastal location, the City of Goleta also benefits from its proximity to the University of California at Santa Barbara (UCSB). The University has a total undergraduate enrollment of 26,000 students, of which 39% live in housing owned, operated or affiliated with UCSB, which may be either on or off campus. Of these, some 9,000 students live in on-campus dorms. The remaining 61% of students live off campus i, with a high concentration of students living in Isla Vista (population 27,690. ii This population of largely college-age persons likely increases the market for cannabis in Goleta.

24.7% of Goleta’s population falls within the ages of 20 and 34 years oldiii, which is just slightly higher than Santa Barbara County as a whole, at 24.3%. Both are higher than California as a whole, for which 22.0% of the population falls into this age rangeiv. By contrast, 57.4% of Isla Vista’s population falls into this age demographic. When we combine the populations of Goleta and Isla Vista, the percentage of the population that falls into the 20 to 34 year-old demographic is 38%; significantly higher than percentage Figure 7:

40 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 12 of 31

for either California or Santa Barbara as a whole. This generally tracks with the age demographic most likely to use cannabis (young adults ages 18 through 29v)4.

We note that residents of Isla Vista and students living on-campus at UCSB would have to drive through Goleta to reach the City of Santa Barbara. This greatly increases the likelihood that this population would purchase cannabis from retailers in neighboring Goleta rather than the City of Santa Barbara. In addition, retailers in Goleta would easily reach residents in the unincorporated area between Goleta and Santa Barbara, with an additional population estimated at 25,000.vi Though the entire Santa Barbara coastal plain has a population of 197,000, we estimate that around 92,000 of these residents would be primarily served by retailers in Goleta. While there is certainly some market overlap with the City of Santa Barbara, we believe that the amount of sales leakage and sales capture between retailers in the two cities is likely to be fairly even, as both cities are well-served.

The age demographics for tourists and visitors also seem to generally align with potential cannabis consumers with the single highest age demographic being adults ages 20 through 34. A study conducted for the Goleta Chamber of Commerce by Destination Analysts found that there are 1.5 million visitors to Goleta annually.vii Of these, 560,000 stayed overnight with an average (mean) length of stay of 1.9 days, for a total of 2.3 million visitor days. This is equivalent to an additional 6,310 year-round residents.

Visitors to Goleta collectively spent over $200 million,viii with average spending of $346 per day. The two largest visitor spending categories were restaurants and dining, followed by hotels and lodging. Beyond these and other necessities such as transportation, visitors on average spent over $120 per day on non- essentials such as entertainment, sightseeing and activities, gifts and souvenirs, wine tasting and spas.

Cannabis retailers could conceivably capture sales from visitors who may not otherwise be cannabis consumers or who are looking for a similar “lifestyle” experience while on vacation. There is still both a novelty to walking into a store to purchase cannabis and a stigma about being seen doing so. The anonymity of purchasing cannabis away from home may make cannabis users more likely to do so.

4 It is important to note here that adult-use cannabis is only available to adults ages 21 years and older. The available demographic/age group information provided for cannabis users (ages 18 through 29) and for the local population (ages 20 through 34) come from different sources that do not cleanly align with each other, nor do they cleanly align with the age prohibition for adult-use cannabis. In addition, the data for cannabis users does not distinguish between cannabis sourced from licensed retailers and cannabis sourced from the black market.

Young adults ages 18 through 20 may legally purchase medicinal cannabis with a doctor’s recommendation, but all medicinal sales combined make up less than 10% of overall cannabis sales statewide, so the portion attributable to the 18-20 age group would presumably be only a small subset of this. It is more likely that the majority of cannabis consumers in this age group are sourcing product either from the black market or are purchasing product through friends, acquaintances or other 3 rd parties who are of legal age. In the latter case, these sales would be subsumed within the data for otherwise legal adult-use sales and would be reflected in the City’s cannabis tax revenues.

For purposes of this analysis, we anticipate that the high number of students in this age range would likely increase the overall licensed cannabis sales beyond what would otherwise be attributable to adults ages 21 years and over.

However, due to the uncertainties above and to the fact that such second-hand sales are illegal, we have made no attempt to specifically quantify the portion of sales that may fall into this age group. 41 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 13 of 31

As discussed above, we have assumed that cannabis retailers in Goleta would primarily serve consumers in the City and the immediate surrounding area, including Isla Vista and the unincorporated area between Goleta and Santa Barbara. We have estimated the total population of this service area at 92,000 people.

Retailers in the City of Goleta are only allowed to be open for business until 8:00 p.m., while retailers in the City of Santa Barbara are permitted to stay open until 10:00 p.m., which likely allows them to capture sales during those hours that might otherwise go to retailers in Goleta. An analysis of sales data from retailers in nearby jurisdictions indicates that sales are generally slower after 8:00 pm on weekdays but are significantly higher during these hours on Fridays and Saturdays. This suggests that retailers in Goleta are likely experiencing additional sales leakage to retailers in the City of Santa Barbara during these hours.

Estimates of the percentage of the population that uses cannabis on a regular basis vary from around 10% to 13%ix, up to as high as 22%x. This percentage is influenced by social acceptance of cannabis within the local community. Applying these estimates to our service area population of 92,000 would yield between roughly 9,200 and 20,240 potential cannabis consumers. However, we anticipate that sales to cannabis consumers in the unincorporated area between Goleta and the City of Santa Barbara would likely be split between retailers in both jurisdictions. For purposes of our projections, we have estimated the overall leakage factor at 20% which brings our consumer base down to between 7,360 and 16,192.

Cannabis retailers typically average around 120 customers per dayxi, with an average transaction amount of $73 and an average frequency of twice a monthxii. This would suggest a range of annual gross receipts generated by cannabis retailers in Goleta of between roughly $13.8 million and $30 million. However, we anticipate that licensed retailers would still experience some leakage to black market sales, especially to consumers in the 18-to-20 year-old age range. Data derived from Weedmaps shows that there are a number of unlicensed cannabis delivery services serving Goleta and Santa Barbara, as shown below in Figure 8 (Licensed cannabis retailers and delivery services are shown in green, and unlicensed delivery services are shown in red)5.

Figure 8:

5 Unlicensed cannabis delivery services appear to be shown based on the areas they deliver to, rather than their ‘home’ location, so a single delivery service may be represented multiple times on this map. 42 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 14 of 31

To account for these unlicensed sales we have applied a leakage factor of 30% here, which reduces the anticipated gross receipts range to between roughly $9.5 million and $21 million. Lastly, we have subtracted 10% of licensed cannabis sales to account for non-taxable sales of medicinal cannabis products6. This brings the total range of taxable sales down to between $8.7 million and $19 million.

Applying the City’s current tax rate of 5.0% to this range would generate between $434,000 and $955,000 in annual cannabis tax revenue for the City. HdL commonly recommends a range of 4% to 6% for cannabis retailers. Reducing the current tax rate to 4% would generate between $347,000 and $764,000 for the City, while increasing the rate to 6% would generate between $521,000 and $1,146,000 in annual revenue.

These calculations are shown below in Figure 9.

Figure 9:

6 The State of California exempts cannabis sales to qualified patients who present a valid Medical Marijuana Identification Card (MMIC) from all regular state and local sales taxes. This exemption does not apply to voter- approved cannabis taxes or other local transaction and use taxes. However, the City of Goleta’s cannabis tax exempts all retail sales of medicinal cannabis products to qualified patients, whether the customer presents a valid MMIC at time of purchase or not.
43 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 15 of 31

VI. Cannabis Manufacturers
The manufacturing sector is still evolving and expanding, which presents significant opportunities for innovation, business development and job growth. The range of products being produced includes an ever-increasing variety of edibles such as candies, cookies, dressings, and infused (non-alcoholic) drinks.

Manufacturers may produce their own extract on site, or they may buy extract from other Type 6 or Type 7 licensees. Much like any other industry, cannabis manufacturers often depend upon other businesses to supply them with the various materials or components that go into their final product. These suppliers do not have to be located in or even near the same jurisdiction as the final manufacturer, and may be located anywhere throughout the state.

Some manufacturers may handle all steps from extraction to packaging the end product in the form of vape pens or other such devices. Others may handle only discreet steps, such as making the raw cannabis concentrate, which is then sold either directly to retailers or to a Type N manufacturer who will package it into vapor cartridges or other end consumer products. Manufacturers also produce a wide variety of tinctures, as well as topicals such as cannabis infused lotions, salves, sprays, balms, and oils.

As of March 11 th, 2021, the Manufactured Cannabis Safety Branch (MCSB) of the California Department of Public Health shows 911 cannabis manufacturing licenses statewide. Of these, 505 are for non-volatile extraction, 198 are for volatile extraction, 153 are for non-extraction manufacturing, 33 are for packaging and labeling, and 22 are for manufacturers using a shared-use facility. Those 911 licenses are owned by 864 separate businesses.
911 licenses represents a decline of 8% from the 995 active manufacturing licenses in April of 2020. While we do not have clear data to indicate the cause of this downturn, we note that neighboring Oregon showed a nearly 5% year-over-year decline in cannabis sales for May of 2021xiii. The California Department of Tax and Fee Administration (CDTFA) has similarly reported a decline in State cannabis tax revenue over the past 2 quarters, though some part of this may be due to a change in reporting and remittance deadlinesxiv. It’s also conceivable that part of this decline may be due to smaller, local businesses being unable to compete for shelf space against larger state-wide brands.

In its regulatory impact analysis, the MCSB estimated that there may ultimately be as many as 1,000 cannabis manufacturing businesses in California, employing around 4,140 people. This would indicate an average of 4 new jobs per manufacturer, though this figure likely varies significantly depending on the size and nature of each business. Despite recent declines, we believe these figures for both the potential number of cannabis manufacturing businesses and for the average number of employees to be on the low side. HdL is aware of individual manufacturers which have over 100 employees. While this may not be the norm, it demonstrates that cannabis manufacturers have the potential to far exceed the MCSB’s early predictions.

In addition, 70% of cities and counties in California continue to ban cannabis businesses outrightxv, which greatly limits the size of the market available to legal businesses. As more jurisdictions allow and permit commercial cannabis retailers, the number of cultivators, manufacturers and distributors should increase to supply this growing market.
44 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 16 of 31

HdL has reviewed pro-formas for numerous cannabis manufacturers seeking permits in counties and cities throughout California. From our review we have seen a range of gross receipts from around $1 million to well over $20 million7, with an average generally in the range of $2 million to $3 million.

The City currently has one licensed manufacturer that has been operating for one full year, which also operates as a licensed distributor. The business is licensed for both medicinal and adult-use business activities. We believe that the City of Goleta could reasonably attract additional manufacturers in the future.

We have provided three scenarios to estimate the potential revenue that could be generated from various tax rates on cannabis manufacturers. The scenarios assume 1, 2 or 3 manufacturers that have each been fully operational for more than a year, with average gross receipts of $2.5 million each. We note that these are generic projections that are not based upon the one manufacturer currently operating in the City8. These projections only consider that portion of gross receipts generated through manufacturing operations and do not consider any portion of profits that may be generated through companion operations such as distribution. Further, these projections assume that both adult-use and medicinal cannabis operations are taxed equally.

HdL commonly recommends a rate of between 2.5% and 4.0% of gross receipts for cannabis manufacturers. The City’s current tax rate for adult-use manufacturers is 2.0%, which is slightly below our recommended initial rate. A single manufacturer with average gross receipts of $2.5 million per year could generate around $50,000 in cannabis tax revenue under the City’s current rate, or between $62,500 and $100,000 at HdL’s recommended rates. 2 manufacturers could generate $100,000 in revenue under the City’s current rate, or between $125,000 and $200,000 under HdL’s recommended rates, and 3 manufacturers could generate $150,000 under the City’s current rate or between $187,500 and $300,000 under HdL’s recommended rates. These projections are shown in Figure 10, below.

Figure 10:

7 We are aware of at least one large manufacturer with claimed earnings of over $90 million per year, but this business is also a distributor and it is unclear what portion of their gross receipts comes from each of these different business activities.
8 HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses.

Type 6/7/N/P
Manufacturer
# of Licenses Avg Gross
Receipts
Total Gross
Receipts
Revenue @

2.0% Tax Rate
Revenue @

2.5% Tax Rate
Revenue @

4.0% Tax Rate
Scenario 1 1 $2,500,000 $2,500,000 $50,000 $62,500 $100,000 Scenario 2 2 $2,500,000 $5,000,000 $100,000 $125,000 $200,000 Scenario 3 3 $2,500,000 $7,500,000 $150,000 $187,500 $300,000 Cannabis Manufacturers; Current and Recommended Rates
45 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 17 of 31

VII. Cannabis Distributors
Perhaps more than any other part of the cannabis supply chain, distributors are greatly dependent upon the number and variety of other cannabis business types within their service area. Essentially, distributors need a certain “critical mass” of other cannabis businesses for them to serve. Because of this, distributors tend to be located in cities or regions which have a large base of cultivation or manufacturing, as well as a large surrounding customer base.

As a very general figure, the number of cannabis distributors statewide is roughly 1/4 of the number of all other cannabis licenses, combined, or 1 distributor for every 4 other cannabis businesses. In addition, virtually all (281 out of 287) licensed microbusinesses in California include distribution as one of their licensed activities. We can reasonably extrapolate from this to assume that a similar ratio of distributors to other businesses is necessary within any defined region.

The business model for distributors is based on a percentage markup on the price paid to their suppliers.

This markup commonly averages 20% to 30%, though this depends upon the actual services being provided. However, it is important to note that the distributor category may include a variety of services, not all of which are provided by all licensed distributors. Just 12.5% of distributors hold Type 13 licenses that allow self-distribution or transport only. A distributor which is only buying and reselling cannabis at wholesale may make as little as 10% on a transaction, while a distributor which is purchasing raw flower and packaging it as pre-rolls for retail sale may make 50% or more on such a value-added transaction.

Distributors may have annual revenues ranging from less than $1 million to well over $70 million. The vast majority of distributors are local or regional businesses that fall at the lower end of that range, with those at the high end being statewide operators which qualify as statistical outliers. While there is not yet an abundance of data to determine the average gross receipts for distributors, HdL has reviewed a number of pro-formas for distributors seeking licenses in other jurisdictions. These indicate anticipated gross receipts commonly in the range of $2 million to $3 million per year, with an average of $2.5 million.

Again, though, these are merely statistical averages.

The City currently has 3 cannabis distributors, plus 4 licensed microbusinesses that all conduct distribution as one of their business activities xvi. Confidential cannabis tax information provided by the City demonstrates a significant range both in the overall gross receipts of these businesses and in the portion of the receipts from microbusinesses that is reported as being derived from their distribution operations9.

Half of the cannabis businesses in Goleta (7 out of 14) conduct distribution as at least a part of their activities. This is far greater than the statewide ratio of one distributor for every four other cannabis businesses. However, when we look at the entire Santa Barbara region as shown in Figure 4 on Page 8, we see that there are 35 distributors out of a total of 185 cannabis businesses in the region, which is in line with this statewide ratio. Given this, we believe that Goleta and the Santa Barbara region are already well-served by cannabis distributors. While it is certainly possible that the regional market can accommodate additional distributors, they would likely have to compete by taking clients and business from established distributors, rather than by filling an existing void.

9 HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 46 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 18 of 31

In Figure 11, below, we have applied both the City’s current rate of 1.0% of gross receipts and HdL’s recommended rates of 2.0% to 3.0% to a scenario that includes 3 cannabis distributors with average receipts of $2.5 million per year. While the City has provided HdL with confidential cannabis tax data for these businesses, we shall use generic projections here to protect that confidentiality. As with our discussion of cannabis manufacturers, our projections assume that both adult-use and medicinal sales are taxed at the same rate. We have not included microbusinesses within these projections as there are too many variables and assumptions necessary to make any projections meaningful.

Applying the City’s current rate of 1.0% to these three generic distributors would generate $75,000 per year in revenue for the City. Applying HdL’s recommended initial rate of 2.0% would generate $150,000, and our maximum recommended rate of 3.0% would generate $225,000 in annual revenue for the City.

These figures are provided here only for comparison purposes when considering the setting or adjusting of cannabis tax rates.

Figure 11:

Distributors # of Licenses Avg Gross
Receipts
Total Gross
Receipts
Revenue @

1.0% Tax Rate
Revenue @

2.0% Tax Rate
Revenue @

3.0% Tax Rate
Scenario 1 3 $2,500,000 $7,500,000 $75,000 $150,000 $225,000 Cannabis Distributors; Current and Recommended Rates
47 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 19 of 31

VIII. Cultivation
The City of Goleta currently has 3 businesses that are licensed by the state to conduct cultivation activities.

One of these is licensed as a cannabis nursery, one is a microbusiness that is licensed to cultivate up to 10,000 square feet of canopy, and one is licensed as a processor, which allows it to process harvested cannabis but does not allow it to otherwise grow or cultivate cannabis.

While the state includes processing within the category of cultivation licenses, Measure Z taxes processing as a manufacturing activity. Measure Z also specifies a tax rate of 1.0% for cannabis nurseries. The only one of these businesses that would be subject to Measure Z’s cultivation tax rate of 4.0% would be the one microbusiness.

The CalCannabis Division of the California Department of Food and Agriculture has been issuing temporary cultivation licenses since January 1, 2018. As of May 5 th, CalCannabis shows 6,032 active cultivation licenses statewide, held by 2,669 distinct businesses 10 comprising 1,528 acres of cultivation which are conservatively estimated to be capable of producing over 13 million pounds of cannabis per year. A Standardized Regulatory Impact Assessment (SRIA) prepared for the California Department of Food and Agriculture (CDFA) in 2017 estimated the amount of cannabis consumed by California residents at just 2.5 million poundsxvii.

These figures suggest that the cannabis cultivation market in California has already far exceeded its saturation point. However, this has been the case since early 2018, and yet new cultivation businesses are entering the market on an almost daily basis. Statewide cannabis sales in 2020 reached $4.4 billion xviii, which suggests that every pound of cannabis cultivated in California contributes to around $340 in end value to the consumer.

Though the cultivation sector continues to grow, entry into this highly competitive marketplace can be filled with risk, and requires ample capitalization and a clear strategy to win shelf space. Given this, we believe any additional cannabis cultivation businesses seeking to locate in Goleta would likely be small indoor facilities, similar to the one existing microbusiness.

The City of Goleta has requested that HdL examine whether it may be advantageous to replace the gross receipts cultivation tax established by Measure Z with either a tax based on square footage or one based on weight. Any of these methods can be accommodated, and each can be adjusted to generate an equivalent amount of revenue. Each method also has its advantages and disadvantages. The reasons for choosing one method over another can best be summarized as a question: What is it, exactly, that the City wishes to tax?
A tax based on square footage can be seen essentially as a tax on area of impact, under the assumption that the greater the size of the operation, the higher the impact on the surrounding neighborhood and City services. A square footage tax has the advantage that the amount of annual tax liability is generally known in advance by both the City and the tax-paying business, as it is keyed to the permitted amount of cultivation area. This allows both parties to budget accordingly. Variances in the actual amount of

10 The actual number of distinct businesses is somewhat lower, as minor typos or inconsistencies in how a name is written appear as separate business names in the CalCannabis database. 48 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 20 of 31

cultivation area being planted per cycle can be accommodated through advance notification, monitoring and regular inspections or audits. The amount of tax paid does not automatically increase with inflation, making it necessary to include a mechanism to adjust the tax rate annually in accordance with the Consumer Price Index (CPI).

Taxing cannabis cultivation by weight is essentially a tax on production. The tax is on the volume of product, rather than on the size of the operation or the profits generated. This method assumes that the volume of cannabis being produced creates a commensurate impact on the community. The State tax rate for cultivation is set by weight at $9.65 per ounce of dried flower or $2.87 per ounce of dried leaf.

Because these rates are set by weight, rather than as a percentage of price paid, the tax is the same whether the cultivator is producing commercial-grade cannabis at $500 per pound or top-grade cannabis at $2,500 per pound. Reporting and remittance for a weight-based tax can be tied to the figures being reported to the State. As with the square-footage tax, it is necessary to annually adjust the tax rate to reflect changes in the CPI.

A tax on gross receipts taxes the gross income of the business, not the actual profits. As such, a gross receipts tax is effectively a tax on conducting business, regardless of the physical size of the operation, the volume of cannabis being produced, or the profitability of the business. A gross receipts tax has the advantage of increasing or decreasing in accordance with income and automatically adjusting for inflation.

Because the cannabis industry largely operates on a cash basis, annual financial audits are highly recommended to ensure that all receipts have been properly reported and all taxes fairly remitted.

Determining an equivalent rate between a tax on square footage, gross receipts or weight can be accomplished using a few basic assumptions. In Figure 12 (next page) we have projected the amount of cannabis that can be produced from a typical 10,000 square foot indoor cultivation facility. We have assumed that the facility will achieve four harvest cycles per year, which is fairly standard (though many operators are able to achieve more).

Yield is assumed to average one pound of cannabis flower for every 10 square feet of cultivation area.

This metric is drawn from a 2010 study by the Rand Corporationxix. Though the study is fairly old for such a young industry, its findings are consistent with more recent studies. Some cultivation facilities can yield one pound for every eight square feet, and others cite yields that are much lower (more square feet per pound), but 10 square feet remains a commonly used metric which provides for conservative estimates.

Using this figure, a 10,000 square foot cultivation facility operating 4 cycles would produce around 4,000 pounds of cannabis per year.

The price per pound is conservatively assumed to be $1,000. This figure is somewhat lower than the current average for indoor-grown cannabis, but there is still great variability in the market and, over the long term we anticipate that wholesale prices for raw cannabis will continue to decline. Applying this figure, our 10,000 square foot facility would generate $4 million in gross receipts.

Having developed figures for both yield and gross receipts, we can now easily translate the equivalent tax rates between the different methods. Figure 12 shows that the current 4.0% tax rate under Measure Z is roughly equivalent to $40 per pound, or $16.00 per square foot of canopy. Reducing the gross receipts rate to 2.50% would be roughly equivalent to $25 per pound or $10 per square foot. Reducing the rate even further to 1.75% would be roughly equivalent to $17.50 per pound or $7.00 per square foot. 49 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 21 of 31

Figure 12:

HdL commonly recommends that cities set a tax rate for cultivation within the range of $7.00 per square foot to $10.00 per square foot. Should the City wish to reduce its tax rate to fit this range, it could be done without having to fundamentally change the gross receipts structure of Measure Z, which could only be accomplished through another ballot measure. The City could achieve the same effect by reducing the tax rate for cultivation to between $1.75% and $2.50% of gross receipts.

HdL recommends that the City retain the existing gross receipts-based tax on cannabis cultivation and continue to set the rate at 4.0%. Though this rate is higher than the square-footage equivalent rates we commonly recommend, it is consistent with the rate set by Santa Barbara County, which has one of the largest and most established cannabis cultivation sectors in the state. We believe cannabis cultivators in Goleta are likely more influenced by the local industry in the surrounding county than by other cultivators elsewhere in the state.

Cultivation
Type
Harvest
Cycles
/Year
Sample
Area
(sq ft)
Yield @
1 lb/10 sf
/cycle
Price per
pound
Gross Receipts Tax Rate
% Gross
Receipts
Total Annual
Tax Paid
Tax Rate
per Pound
Tax Rate
per SF
Indoor 4 10,000 4,000 $1,000 $4,000,000 4.00% $160,000 $40.00 $16.00 Indoor 4 10,000 4,000 $1,000 $4,000,000 2.50% $100,000 $25.00 $10.00 Indoor 4 10,000 4,000 $1,000 $4,000,000 1.75% $70,000 $17.50 $7.00 Cultivation Tax Rate Convertor; Gross Receipts to Square Feet 50 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 22 of 31

IX. Testing Laboratories
California law requires that all dried cannabis flower or leaf must be tested for tetrahydrocannabinol (THC) and cannabidiol (CBD) content, contaminants, impurities and other factors before it can be sold to a manufacturer, distributor, dispensary or end user. The cost of this mandated testing and the loss of product for a testing sample can add around 0.7% to the wholesale cost.

The Bureau of Cannabis Control has only issued licenses for 36 testing laboratories in all of California.

While some laboratories are located in areas with a large cannabis industry presence, most tend to be located in areas with a large customer base such as the Los Angeles basin, San Diego, Sacramento and the San Francisco Bay Area. Perhaps surprisingly, there is only one testing laboratory in all of Santa Barbara County (located in Lompoc), and none in Humboldt County or Mendocino. Essentially, most of these businesses have chosen to locate themselves downstream in the cannabis supply chain.

With one testing laboratory already in Lompoc to the north and most of the product from Santa Barbara County moving south to the Los Angeles area, we do not see a strong argument for why an additional testing laboratory would seek to locate in Goleta. However, this is not entirely unreasonable.

Testing is an independent, semi-regulatory function mandated by the State to protect consumer health and safety, and which amounts to a State-imposed cost on the product. HdL is not aware of any similar testing of agricultural products that is subject to a separate tax on top of the cost of mandated testing.

More commonly, the costs for similar services for other agricultural products may be subsidized by the USDA or other sources that are not available to cannabis farmers.

Many jurisdictions choose to not apply any tax to testing laboratories, in recognition of the semi- regulatory function they serve. For those cities that do wish to impose a tax on cannabis testing facilities, HdL recommends that the rate be limited to between 1% and 2.5%.

51 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 23 of 31

X. APPENDIX

a. Legal and Regulatory Background for California Page 23 b. State Tax Considerations Page 26
c. General Economic Impacts Page 28
d. References Page 30

52 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 24 of 31

a. Legal and Regulatory Background for California
The legal and regulatory status of cannabis in the State of California has been continually evolving ever since the passage of Proposition 215, the Compassionate Use Act of 1996 (CUA), which de-criminalized the use, possession and cultivation of cannabis for qualifying patients and their primary caregivers when such use has been recommended by a physician. The CUA did not create any regulatory program to guide implementation, nor did it provide any guidelines for local jurisdictions to establish their own regulations.

The lack of legal and regulatory certainty for medical marijuana (or cannabis) continued for nearly 20 years, until the passage of the Medical Cannabis Regulation and Safety Act (MCRSA) in October of 2015.

MCRSA created a State licensing program for commercial medical cannabis activities, while allowing counties and cities to maintain local regulatory authority. MCRSA required that the State would not issue a license without first receiving authorization by the applicable local jurisdiction.

On November 8, 2016, the voters of the State of California approved Proposition 64, the Adult Use of Marijuana Act (AUMA), which allows adults 21 years of age or older to legally grow, possess, and use marijuana for personal, non-medical “adult use” purposes, with certain restrictions. AUMA requires the State to regulate non-medical marijuana businesses and tax the growing and selling of medical and non- medical marijuana. Cities and counties may also regulate non-medical marijuana businesses by requiring them to obtain local permits or restricting where they may be located. Cities and counties may also completely ban marijuana related businesses if they so choose. However, cities and counties cannot ban transport of cannabis products through their jurisdictions, nor can they ban delivery of cannabis by licensed retailers to addresses within their jurisdiction (added later through regulations).

On June 27, 2017, the Legislature enacted SB 94, which repealed MCRSA and incorporated certain provisions of MCRSA into the licensing provisions of AUMA. These consolidated provisions are now known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). MAUCRSA revised references to “marijuana” or “medical marijuana” in existing law to instead refer to “cannabis” or “medicinal cannabis,” respectively. MAUCRSA generally imposes the same requirements on both commercial medicinal and commercial adult-use cannabis activity, with certain exceptions. MAUCRSA also made a fundamental change to the local control provisions. Under MCRSA, an applicant could not obtain a State license until they had a local permit. Under MAUCRSA, an applicant for a State license does not have to first obtain a local permit, but they cannot be in violation of any local ordinance or regulations.

The State licensing agency shall contact the local jurisdiction to see whether the applicant has a permit or is in violation of local regulations, but if the local jurisdiction does not respond within 60 days, then the applicant will be presumed to be in compliance and the State license will be issued.

MAUCRSA authorizes a person to apply for and be issued more than one license only if the licensed premises are separate and distinct. With the passage of AB 133 in 2017, a person or business may co- locate multiple license types on the same premises, allowing a cultivator to process, manufacture or distribute their own product from a single location. This includes the allowance to cultivate, manufacture, distribute or sell cannabis for both medical and adult use from a single location. Licensees of cannabis testing operations may not hold any other type of license. However, these allowances are still subject to local land use authority, so anyone seeking to operate two or more license types from a single location would be prohibited from doing so unless local regulations allow both within the same zone. 53 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 25 of 31

The table below provides a detailed overview of the license types available under MAUCRSA and state cannabis regulations:

Type Activity Description Details Licensing
Agency
Notes
1 Cultivation Outdoor; Specialty, Small Up to 5,000 sf, or 50 plants on non- contiguos plots

CDFA A, B
1A Cultivation Indoor; Specialty, Small 501 sf - 5,000 sf CDFA A, B 1B Cultivation Mixed-Light; Specialty, Small 2,501 sf - 5,000 sf CDFA A, B 1C Cultivation Outdoor/indoor/mixed; Specialty
Cottage, Small
Up to 25 plants outdoor; up to 2,500 sf
mixed light; up to 500 sf indoor

CDFA A, B
2 Cultivation Outdoor; Small 5,001 sf - 10,000 sf CDFA A, B 2A Cultivation Indoor; Small 5,001 sf - 10,000 sf CDFA A, B 2B Cultivation Mixed Light, Small 5,001 sf - 10,000 sf CDFA A, B 3 Cultivation Outdoor; Medium 10,001 sf - one acre CDFA A, B, C 3A Cultivation Indoor; Medium 10,001 sf - 22,000 sf CDFA A, B, C 3B Cultivation Mixed-Light; Medium 10,001 sf - 22,000 sf CDFA A, B, C 4 Cultivation Nursery CDFA A, B
- Cultivation Processor Conducts only trimming, drying, curing, grading and packaging of cannabis

CDFA A, B, E
5 Cultivation Outdoor; Large Greater than 22,000 sf CDFA A, B, D 5A Cultivation Indoor; Large Greater than 22,000 sf CDFA A, B, D 5B Cultivation Mixed-Light; Large Greater than 22,000 sf CDFA A, B, D 6 Manufacturer 1 Extraction; Non-volatile Allows infusion, packaging and labeling OMCS A, B 7 Manufacturer 2 Extraction; Volatile Allows infusion, packaging and labeling, plus non-volatile extraction

OMCS A, B
N Manufacturer Infusion for Edibles, Topicals No extraction allowed OMCS A, B, E P Manufacturer Packaging and Labeling No extraction allowed OMCS A, B, E S Manufacturer Shared-use manufacturer Manufacturing in a shared-use facility OMCS A, B, E 8 Testing Shall not hold any other license type BCC A
9 Retailer Non-storefront retail delivery Retail delivery without a storefront BCC A, F 10 Retailer Retail sale and delivery BCC A, B
11 Distributor BCC A, B
12 Microbusiness Cultivation, Manufacturer 1,
Distributor and Retailer
< 10,000 sf of cultivation; must meet
requirements for all license types

BCC A, B
CDFA
OMCS
BCC
A
B
C
D
E
CDFA shall limit the number of licenses allowed of this type No Type 5 licenses shall be issued before January 1, 2023 Established through rulemaking process
Bureau of Cannabis Control
California Department of Food and Agriculture
All license types except Type 8 Testing must be designated "A" (Adult Use), "M" (Medical) or "A/M" (Both) State License Types Under MAUCRSA
Calfornia Department of Public Health, Office of Manufactured Cannabis Safety All license types valid for 12 months and must be renewed annually 54 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 26 of 31

AUMA, and its successor MAUCRSA, required three state agencies, the Bureau of Cannabis Control, the California Department of Food and Agriculture, and the California Department of Public Health, to permit commercial cannabis licensees and to adopt regulations for the cannabis industry. On January 16, 2019, all three agencies announced that the state's Office of Administrative Law officially approved state regulations, which took immediate effect and replaced emergency regulations that had been in effect since 2017. The final regulations were largely similar to the emergency regulations, but somewhat controversially, Section 5416(d) of the Bureau of Cannabis Control regulations authorizes deliveries of cannabis products into any city or county in the state, even if a city or county has banned commercial deliveries.

55 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 27 of 31

b. State Tax Considerations
To determine what local tax rates might be most appropriate, they must be considered in the context of other taxes imposed by the State. Any local taxes will be in addition to those taxes applied through the Adult Use of Marijuana Act (AUMA), which imposes both a 15% excise tax on purchases of cannabis or cannabis products and a separate cultivation tax on harvested cannabis that enters the commercial market, as well as sales tax. Taxes are most commonly expressed as a percent of price or value, so some method of conversion is necessary to allow development of an appropriate cultivation tax based on square footage.

The State tax rate for
cultivation is set at $9.65
per ounce of dried flower or
$2.87 per ounce of dried
leaf. Because these rates
are set per ounce, rather
than as a percentage of
price paid, the tax is the
same whether the
cultivator is producing
commercial-grade cannabis
at $500 per pound or top-
grade cannabis at $2,500
per pound. The cultivator is
generally responsible for
payment of the tax, though
that responsibility may be
passed along to either a
manufacturer or distributor
via invoice at the time the
product is first sold or
transferred. The distributor
is responsible for collecting
the tax from the cultivator
upon entry into the
commercial market, and
remitting it to the California
Department of Tax and Fee Administration.

The cultivation tax of $9.65 per ounce of dried flower is equivalent to $154 per pound. Just 2 years ago, HdL would have assumed an average wholesale market price for dried flower of around $1,500 per pound, which would make that $154 equal to roughly 10% of value. Since then, however, prices have declined.

Competitive market forces enabled by legalization have brought the average price for indoor cannabis down to around $1,000 per pound, or even less (cannabis prices vary greatly based on product quality).

Category Amount Increase Cumulative Price
Producer Price $1,000 $1,000 $1,000
State Cultivation Tax $9.65/oz $154 $1,154
Local Tax 3.75% $38 $1,192
Batch Testing $75/lb, + 0.75% $75 $1,267
Wholesale Price w/ Taxes $1,267
Total Tax at Wholesale $267
Tax as % 26.65%
Distributor Markup 20.00% $253 $1,520
Local Tax 10.00% $152 $1,672
Total Distributor Price $1,672
Total Taxes at Distributor $418
Total Tax as % 25.03%
Retailer Markup 100.00% $1,672 $3,344
Local Tax 10.00% $334 $3,678
State Excise Tax 15.00% $502 $4,179
Total Retailer Price $4,179
Total Taxes at Retail $1,254
Total Tax as % 30.01%
CA Sales Tax (non-medical) 6.25% $261 $4,441
Local Sales Tax 2.00% $84 $4,524
Total Taxes at Retail $1,599
Total Tax as % 35.35%
Total Local Tax 13.43% $607.43
Cumulative Cannabis Taxes
56 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 28 of 31

Conversations with cannabis industry trade groups suggest that the cumulative tax rate on the end product should remain at or around 30%. Higher rates create too much price disparity between legal and illegal cannabis, making it harder for the regulated industry to compete with the illicit market. Higher local tax rates can also make a county or city less attractive to the industry, especially for manufacturers and distributors, which have greater flexibility in choosing where to locate. We believe that setting rates that adhere to this 30% rule will help keep the local cannabis industry competitive with other cultivators across California, thus encouraging the transition to a legal industry.

The above table shows how the cumulative tax rate on adult-use cannabis builds as the product moves towards market. The value of the product increases as it moves through the supply chain towards market, with manufacturers, distributors and retailers each adding their own markup. Testing laboratories do not add a direct markup to the product, but the cost of testing and the loss of a small test sample can add around $75 per pound. Any or all of these activities may be taxed.

This model assumes a hypothetical case where cultivation, manufacturing, testing, distribution and retail sale all happen within the same jurisdiction and are thus all subject to that jurisdiction’s tax rates. In actuality, this is unlikely to be the case. Manufacturers may work with product purchased from anywhere in California, and may sell their product to retailers elsewhere, as well. The cumulative tax burden for any product at retail sale will almost always include a variety of tax rates from numerous jurisdictions.

57 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 29 of 31

c. General Economic Impacts
Discussion of regulating and taxing the cannabis industry can too often overshadow the larger jobs and economic development issues that typically accompany efforts to attract new industry. Word that a new business or industry is looking to bring hundreds of new jobs to a community is more commonly met with open arms and offers of tax incentives. The cannabis industry is perhaps completely unique in that the inherent jobs and economic development benefits are welcomed more grudgingly and met with the disincentive of special taxes.

As with any other industry, the cannabis industry does not exist in a vacuum. Those businesses that actually grow, process, manufacture, distribute and sell cannabis products support a wide variety of other businesses that may never touch the actual product itself. Cultivators support garden supply stores, green house manufacturers, irrigation suppliers, soil manufacturers, and a wide variety of contractors including building and construction, lighting and electrical, HVAC, permitting, and engineering. Manufacturers support many of these same businesses, plus specialized tooling and equipment manufacturers, and product suppliers for hardware, packaging, and labeling. All of these businesses support, and are supported by, a host of ancillary businesses such as bookkeepers, accountants, tax preparers, parcel services, marketing and advertising agencies, personnel services, attorneys, mechanics, facilities maintenance, security services, and others.

The economic benefits are not limited to those in the cannabis industry, itself. Cultivators bring new money into the community by selling their products into a statewide market. Their profits and the salaries they pay move into the general local economy, supporting stores, restaurants, car dealerships, contractors, home sales and other businesses. In Humboldt County, a study done in 2011 found that at least $415 million dollars in personal income was entering the local economy annually from the cannabis industry, roughly equal to one quarter of the county’s entire $1.6 billion economy.

While Humboldt is likely an outlier, research done by HdL for other clients suggests that other counties and cities see similar, if smaller, economic inputs from this industry, with some in the range of $100 million dollars or more annually. As this industry adapts to a legal paradigm, the challenge for some counties will be mitigating and minimizing the economic loss as the black market slowly fades away.

Because of the emerging nature of this industry, it is currently populated primarily (but not solely) by small, independently-owned businesses. Numerous studies have demonstrated that locally-owned, independent businesses recirculate a far higher percentage of every dollar back into the local community than large, corporately-owned businesses do. The same economic development arguments that are used to support other independent, locally-owned businesses apply to this industry, too. Host cities or counties should expect to see typical economic benefits from these new (or newly daylighted) businesses on par with other new businesses, separate from any tax revenue that may be generated.

Industry experts believe that California’s current statewide production is five to eight times higher than the State’s population consumes, a figure derived from the SRIA done for CDFA’s cannabis cultivation program. That assessment found that California’s cannabis industry produces some 13.5 million pounds of cannabis per year, which would be enough to provide over half a pound of cannabis per year for every Californian 21 and over. However, the assessment also found that California’s 4.5 million cannabis users only consume about 2.5 million pounds of cannabis per year. 58 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 30 of 31

The Bureau of Cannabis Control projects that more than half of the adult use purchases currently in the illicit market will transition to the legal market to avoid the inconvenience, stigma and risks of buying unknown product through an unlicensed seller. Essentially, the easier, cheaper and more reliable it is for consumers to access quality cannabis legally, the less reason they will have to purchase it through the illicit market. That same study projects that 60% of those currently in the legal, medical cannabis market will shift to the adult use market, for the reasons noted above. The availability of legal adult use cannabis is also anticipated to produce a small 9.4% increase in consumer demand.

Given these figures, cities and counties should expect to see some increase in retail sales as these shifts occur in the market. More significantly, the existence of legally permitted cannabis retailers will allow a far greater portion of existing cannabis sales to be captured by legal (and tax-paying) retailers.

The shift from medical to adult use sales is not expected to change the overall volume of sales, only the category into which they fall. Once the legal, adult use market is properly functioning, it is anticipated to capture about 61.5% of the overall cannabis market in California. The legal medical cannabis market is projected to decline to just 9% of the overall market. The other 29.5% is expected to remain in the illicit market.

These numbers only apply to the 2.5 million pounds of cannabis that is consumed in California, representing the potential size of the legal cannabis market. If 29.5% of the cannabis consumed in California continues to come from the illicit market, then the size of the market for legal cannabis must be adjusted downward accordingly. This would reduce the size of the legal market in California to 1.76 million pounds.

The CalCannabis Division of the California Department of Food and Agriculture has been issuing temporary cultivation licenses since January 1, 2018. As of May 5th, CalCannabis shows 6,032 active cultivation licenses statewide, held by 2,669 distinct businesses comprising 1,528 acres of cultivation which are conservatively estimated to be capable of producing over 13 million pounds of cannabis per year. A Standardized Regulatory Impact Assessment (SRIA) prepared for the California Department of Food and Agriculture (CDFA) in 2017 estimated the amount of cannabis consumed by California residents at just 2.5 million pounds.
59 HdL Companies Fiscal Analysis of the Commercial Cannabis Industry in the City of Goleta Page 31 of 31

d. References

i U.S. News and World Report “Best Colleges Ranking” https://www.usnews.com/best-colleges/university-of- california-santa-barbara-1320/student-life

ii Wikipedia “Isla Vista, California” https://en.wikipedia.org/wiki/Isla_Vista,_California

iii United States Census Bureau, “Age and Sex Demographics for Goleta, California, 2010 through 2019 ” https://data.census.gov/cedsci/table?q=goleta,%20ca&tid=ACSST5Y2019.S0101&hidePreview=false

iv Statista (January 20, 2021) “Population share of California by age group 2019” https://www.statista.com/statistics/912915/california-population-share-age-group/

v Statista (October 2020) “Share of Consumers in the United States Who Currently Use Marijuana as of July 2019, by Age Group” https://www.statista.com/statistics/737849/share-americans-age-group-smokes-marijuana/

vi Wikipedia “Goleta, California” https://en.wikipedia.org/wiki/Goleta,_California

vii Visit Goleta, “Goleta Visitor Profile 2016/2017–(September 2016 –August 2017)”

viii Visit Goleta, “Goleta Visitor Profile 2016/2017–(September 2016 –August 2017)”

ix CBS News (2018) “17 stoner states: Where's marijuana use highest?” https://www.cbsnews.com/pictures/17- stoner-states-wheres-marijuana-use-highest/9/

x Christopher Ingraham (April 20, 2017) “How many Americans regularly use pot? The number is, errr, higher than you think” Sacramento Bee http://www.sacbee.com/news/nation-world/national/article145681414.html

xi Eli McVey, et al. (2017) “Marijuana Business Factbook 2017” Marijuana Business Daily

xii Eli McVey, et al. (2017) “Marijuana Business Factbook 2017” Marijuana Business Daily

xiii Cannabis Benchmarks (June 8, 2021) “Oregon Cannabis Retail Sales Decline in May ” www.cannabisbenchmarks.com/oregon-cannabis-retail-sales-decline-in-may/

xiv Seth Kerstein (June 2, 2021) “Cannabis Tax Revenue Update, June 2, 2021 ”, Tax Notes

xv Eli McVey, et al. (2017) “Marijuana Business Factbook 2017” Marijuana Business Daily

xvi Bureau of Cannabis Control License Search database, https://aca5.accela.com/bcc/customization/bcc/cap/licenseSearch.aspx , accessed October 10, 2019

xvii Duncan McEwan, et al (January 2017) “Economic Impact Analysis of Medical Cannabis Cultivation Program Regulations” California Department of Food and Agriculture xviii Lindsey Barlett (January 2021) “Cannabis Sales In California Reach $4.4 Billion In 2020: ‘Essential’, Edibles, And The Election”, Forbes, https://www.forbes.com/sites/lindseybartlett/2021/01/29/cannabis-sales-in-california- reach-44-billion-in-2020-essential-edibles-and-the-election/?sh=469dc1b1313c

xix John P. Caulkins (2010) “Estimated Cost of Production for Legalized Cannabis”, the Rand Drug Policy Research Center
60 ATTACHMENT 3:

Long Range Financial Forecast, Revenue and Funding Options Workshop 61 Agenda Item A.1

WORKSHOP
Meeting Date: December 10, 2020
_______________________________________________________ TO: Mayor and Councilmembers
FROM: Michelle Greene, City Manager
Luke Rioux, Finance Director
SUBJECT: Long Range Financial Forecast, Revenue and Funding Options Workshop RECOMMENDATION:

A. Receive a presentation from staff on a City of Goleta Preliminary Long-Range Financial Forecast; and
B. Direct staff to pursue new revenue and debt financing options and bring them back to the City Council with a CIP Funding Plan; and
C. Authorize the transfer of funds currently set aside in reserves for CalPERS unfunded accrued liability in the amount of $170 ,000 and OPEB unfunded accrued liability in the amount of $333,500 to the City’s Section 115 Trust; and D. Direct staff to further analyze available Unassigned Fund Balance and return to the City Council with a recommendation for a CIP project funding reserve level.

BACKGROUND:

The purpose of this report is to provide the City Council a long -range financial forecast beyond the current five -year forecast included in the City’s annual budget , along with information on revenue enhancement options and funding strategies to address unfunded priorities and projects. The report also contains updated information on the City’s current unfunded liabilities as they relate to pensions and retiree health also known as other post - employment benefits (OPEB). Additionally, cost estimates not factored in the budget are provided (if available) for other unfunded priority items , such as deferred maintenance on City infrastructure or the cost of implementing master plan documents. In an effort to keep the information organized, the data has been summarized and the report is presented in three major sections listed below:
- Section 1: Long Range Financial Forecast
- Section 2: Unfunded Liabilities and Other Priorities
- Section 3: Revenue Enhancement and Financing Options to Address Ongoing Attachment 3
62 Unfunded Priorities and One-Time Infrastructure Projects

The data presented in this report is not intended to predict the future , but rather create awareness regarding financial challenges and opportunities the City could possibly face and inform the City’s financial and operational decision making to account for such possibilities.

DISCUSSION:

Section 1: Long Range Financial Forecast

Introduction

The City’s financial forecast presents estimated information based on past, current, and projected financial conditions and is meant to be used as a tool to evaluate current and future fiscal conditions and guide policy and programmatic decisions. The Government Finance Officers Association (GF OA) recommends that governments at all levels forecast major revenues and expenditures , and that these forecasts be regularly monitored and periodically updated. While there is no specific time frame recommended, the forecast should extend several years into the future and clearly state its underlying assumptions and methodology.

The City’s current five -year forecast is presented annually during the budget process and contains assumptions and projections that are used for current and future budget decisions.

This allows the City to plan accordingly for operating and capital needs. The current economic climate and future needs of the City call for longer range forecasting to further evaluate longer -term impacts , such as pension cost changes, infrastructure n eeds, and future service levels. The time frame needs to be extended to reflect these longer -term impacts to truly understand the fiscal implications and ensure a path to a solid financial foundation. In an effort to capture these estimated fiscal impacts , staff has prepared a forecast extending out 20 years.

Staff has reviewed its recent Five-Year Forecast model through FY 24/25 and made updates to extend ou t its forecast 20 years to FY 40/41. The unprecedented impact of COVID-19 has made forecasting very challenging, and financial trends are difficult to project with so much uncertainty surrounding the current economic climate, including the length of time the stay-at-home order s will cause both short -term and long -term impacts on the state and regional economy. While staff has data available on what was experienced for the months of March through June of 2020, it is unclear what the future will hold.

To keep the data in this report organized, this first section provides a brief recap of the City’s General Fund history , recent budget adoption information, the methodology and assumptions used in modeling, and a summary of the long-range financial forecasts.

History of General Fund Revenues

The following table and chart show how the City’s primary General Fund revenue sources have performed from incorporation through FY 19/20. A few notable events are listed for each fiscal year to provide additional context. The revenue categories shown are the City’s 63 three primary revenue source s: property tax ; sales tax ; and, Transient Occupancy Tax (TOT). All other revenues are consolidated. When comparing total revenues over the fiscal years, only during the Great Recession did the City experience overall decreases and most recently with the start of the COVID-19 pandemic. The Great Recession began in December 2007 and ended in June 2009, and thus extended over 18 months.

Table 1 – History of General Fund Revenues

General Fund Five-Year Forecast Recap

The COVID-19 pandemic presents new challenges since the revenues primarily impacted are two of the City’s largest revenue sources. The lasting impact is still unknown and even lifting the stay-at-home orders and reopening the economy in phases brings uncertainty, as there will continue to be ongoing fear of traveling and getting infected with COVID-19 and shifts in consumer spending online and telecommuting. Even when widespread treatment, Fiscal Year
(FY)
Property Tax
Revenue
YOY
% Chg
Sales Tax
Revenue
YOY
% Chg
TOT
Revenue
YOY
% Chg
All Other
Revenue
YOY
% Chg
Total
Revenue
YOY
% Chg Notable Events
FY 02/03 1,792,081$ 3,485,996$ 2,141,810$ 4,382,338$ 11,802,225$ SARS - 11/2002 - 7/2003 FY 03/04 2,045,480$ 14.14% 3,623,036$ 3.93% 2,142,800$ 0.05% 5,261,570$ 20.06% 13,072,886$ 10.77% FY 04/05 3,727,087$ 82.21% 3,864,388$ 6.66% 2,281,612$ 6.48% 3,969,708$ -24.55% 13,842,795$ 5.89% Vehicle License Fee - Property Tax Swap FY 05/06 4,856,895$ 30.31% 4,039,979$ 4.54% 2,636,260$ 15.54% 3,885,783$ -2.11% 15,418,917$ 11.39% Goleta postal facility shooting: 1/2006, Start of
Triple Flip
FY 06/07 4,793,775$ -1.30% 4,116,749$ 1.90% 2,538,567$ -3.71% 5,257,402$ 35.30% 16,706,493$ 8.35% FY 07/08 4,765,991$ -0.58% 4,160,113$ 1.05% 2,783,143$ 9.63% 4,287,520$ -18.45% 15,996,767$ -4.25% Great Recession 12/2007 - 6/2009, Zaca Fire
7/2007
FY 08/09 4,860,427$ 1.98% 3,353,658$ -19.39% 2,461,489$ -11.56% 5,602,297$ 30.67% 16,277,872$ 1.76% Gap Fire 7/2008, Tea Fire 11/2008, Jesuita
Fire 5/2009, 7 hotels now operating
FY 09/10 4,942,940$ 1.70% 3,310,542$ -1.29% 2,138,896$ -13.11% 4,004,651$ -28.52% 14,397,030$ -11.55% End of Great Recession FY 10/11 4,952,157$ 0.19% 3,905,548$ 17.97% 2,420,762$ 13.18% 3,348,128$ -16.39% 14,626,594$ 1.59% FY 11/12 5,215,822$ 5.32% 3,845,273$ -1.54% 4,141,635$ 71.09% 3,862,202$ 15.35% 17,064,932$ 16.67% FY 12/13 5,320,579$ 2.01% 5,776,818$ 50.23% 5,604,278$ 35.32% 4,698,890$ 21.66% 21,400,564$ 25.41% TOT RNA sharing adjusted from 40% to 0%
TOT tax rate increase from 10% to 12%
Sales Tax RNA sharing adjusted from 50% to
0%
FY 13/14 5,390,827$ 1.32% 6,812,304$ 17.92% 6,975,799$ 24.47% 4,079,384$ -13.18% 23,258,314$ 8.68% Ebola: 2014-2016, Isla Vista Shooting 5/2014,
8 hotels now operating
FY 14/15 5,517,146$ 2.34% 6,329,870$ -7.08% 7,807,860$ 11.93% 3,721,385$ -8.78% 23,376,261$ 0.51% Refugio Oil Spill: 5/2015 FY 15/16 5,999,416$ 8.74% 6,216,442$ -1.79% 8,175,381$ 4.71% 4,232,841$ 13.74% 24,624,080$ 5.34% Zika: 12/2015-9/2016, Sherpa Fire: 6/2016,
End of Triple Flip.

During the FY 20/21 Mid -Cycle Budget Adoption, the City Council received a report containing three budget scenarios, with staff’s recommendatio n to implement Scenario 2, which fell between best case and worst case. A summary of Scenario 2 through FY 24/25 is provided below along with estimated reserve balances. This scenario assumed a mild recession through end of FY 20/21 and City revenues not returning to normal levels until after FY 24/25. Total revenues from the City’s last normal year totaled a little over $30 million.

Table 2 - General Fund Five-Year Forecast (FY 20/21 Mid-Cycle Budget Adoption)

In order to balance the budget, this scenario consisted of a combination of using unassigned fund balance to help offset revenue losses and temporary cost reduction strategies (such as a temporary hiring freeze of 11 FTEs and deferring capital projects). The 11 FTE’s were then phased back in over the next two fiscal years, with 100% of the vacancies filled in FY 22/23.

What is not included in this forecast are the amounts for ongoing unfunded priority items, such as deferred maintenance costs within the City’s pavement program. The next part of this report (Forecast Scenarios below) supplements this existing five -year forecast and extends it twenty years to capture the projected impacts and revenue shortfalls the City is anticipated to face without policy changes and revenue enhancements. Staff has prepared three scenarios using the FY 20/21 current budget as their baseline and has factored other cost information into the forecasts. It is important to note for the purpose of this forecast that starting in FY 21/22 staff has phased back in the 11 vacant positions that were temporarily removed in FY 20/21 a part of the hiring freeze. These costs are factored in FY 21/22 rather than phased over two years in to show the true impacts to the City. The City operates very Scenario 2 - Recession through FY 20/21
Summary of Five Year Forecast FY 20/21
Revised
FY 21/22
Projected
FY 22/23
Projected
FY 23/24
Projected
FY 24/25
Projected
Beginning Fund Balance 19,609,178$ 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ Total Revenues 22,910,700$ 27,487,920$ 28,769,500$ 29,224,400$ 29,690,100$ Total Expenditures 26,056,950$ 27,020,022$ 28,502,560$ 29,302,561$ 30,127,765$ Net Revenue over Expenditures (3,146,250)$ 467,899$ 266,940$ (78,161)$ (437,665)$ Fund Balance Categories
Prepaids and Deposits 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ Public Facilities 830,108$ 830,108$ 830,108$ 830,108$ 830,108$ Capital Equipment 594,869$ 594,869$ 594,869$ 594,869$ 594,869$ Compensated Leave 237,123$ 237,123$ 237,123$ 237,123$ 237,123$ Risk Management 200,000$ 200,000$ 200,000$ 200,000$ 200,000$ Contingency Reserves 7,963,101$ 8,279,643$ 8,766,311$ 9,027,687$ 9,297,324$ Litigation Defense Fund 300,000$ 300,000$ 300,000$ 300,000$ 300,000$ Sustainability 292,500$ 292,500$ 292,500$ 292,500$ 292,500$ OPEB UAL 333,500$ 333,500$ 333,500$ 333,500$ 333,500$ CalPERS UAL 170,000$ 170,000$ 170,000$ 170,000$ 170,000$ CIP Project Funding -$ -$ -$ -$ -$ Encumbrances -$ -$ -$ -$ -$ Unassigned Fund Balance 5,531,726$ 5,683,083$ 5,463,355$ 5,123,818$ 4,416,516$ Ending Fund Balance 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ 16,681,940$ 65 lean and having these positions left vacant will continue to impact staff capacity and workload. It is assumed in the forecasts all positions are budgeted for and filled.

Forecast Scenarios

The following scenarios illustrate estimated trends in the City’s revenues and expenditures over the next 20 years. The FY 20/21 current budget is used as the initial base for all scenarios, and FY 18/19 actuals are used to compare when the City’s revenues return to normal levels. FY 18/19 was the last normal fiscal year prior to the COVID-19 pandemic. If one-time or cyclical revenues or expenditures could be identified, they were adjusted in the future forecasted periods. A summary of the assumptions used in each scenario is presented below.

Staff has modeled revenue and expenditure forecasts for three different possible economic scenarios, current (worst case), moderate (trending), and optimistic (best case).

Expenditures for each scenario have been updated to reflect current conditions a nd cost containment strategies ending in FY 21/22. For forecasting purposes , the additional pavement budget of $3.3 million annually needed to maintain average PCI levels of 69 has been factored into the forecast after this information was recently present ed to the City Council. The main characteristics of these scenarios are summarized below.

Scenario 1- Current Budget (Worst Case)
 Based on recommended case during budget adoption
 Revenues fully recover back to FY 18/19 levels in FY 25/26  Continued gradual conservative increases in revenues, particular with property tax, sales tax and TOT ; no new revenue sources implemented, and no policy changes made to increase existing revenue sources
 Cannabis tax reflected at very low levels from original adopted budget  Moderate inflation of 2% to 3% , but greater -than-inflation increases in employee salary and retirement
 Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included

Scenario 2 - Moderate (Current Trend – Most Likely Case)  Adjusted for current trending data, including cannabis tax  Revenues fully recover back to FY 18/19 levels by FY 22/23  More significant revenue increases, specifically in the earlier years with cannabis, sales tax, and TOT ; no new revenue sources impl emented, and no policy changes made to increase existing revenue sources
 Moderate inflation of 2% to 3%, but greater -than-inflation increases in employee salary and retirement
 Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included

Scenario 3 – Optimistic (Best Case)
 Shorter recovery period, back to normal operations in FY 21/22  Revenues fully recover back to FY 18/19 levels by FY 21/22  Cannabis tax revenues reach high estimates; no new revenue sources implemented, 66 and no policy changes made to increase existing revenue sources  Moderate inflation of 2% to 3%, but greater -than-inflation increases in employee salary and retirement
 Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included

Methodology and Assumptions

Under the best of circumstances, predicting future revenues and expenditures is especially challenging because of the wide number of economic, demographic, spending and policy variables involved. Forecasting is all about assumptions, and recent events are a reminder of what little control the City has over economic factors. While the City Council does influence salary and benefit costs through the labor negotiation process and staffing levels set through the budget process , revenues are largely controlled by other levels of government or require voter approval . However, cities can set fee levels to not exceed related costs and can approve new development during the planning process. All of these factors cannot be known with certainty in advance, but one can understand recent trends, and make reasonable assumptions about the future.

The forecast methodology analyz es historical and current trends and includes a review of growth rates and changes from the last five years. Growth rates are then adjusted based on staff’s knowledge of known one -time events , fiscal conservatism and other economic adjustments. The methodology and assumptions used in the forecast modeling are provided in detail in Attachment 1 - Revenue and Expenditure Assumptions.

Scenario 1 - Current Budget (Worst Case)

This scenario uses current FY 20/21 adopted revenue budget data from the original five - year forecast. Full recovery of revenues is anticipated by FY 25/26. Cannabis tax revenues were projected relatively low due to uncertainty and volatility. TOT revenue estimates reflect very low occupancy levels through end of December 2020 with a gradual increase beginning in January 2021, and TOT revenues not fully recovered until FY 25/26. Sales tax revenues continue to be impacted, and do not achieve full recovery until 24/25.

For expenditures, FY 21/22 assumes ending the full hiring freeze, adding back personnel related costs that were temporarily removed, reprogramming annual Goleta Entrepreneurial Magnet (GEM) funding of $50,000 and resetting the general fund portion of the pavement maintenance budget to $730,000 in FY 21/22 . An additional $3.3 million of ongoing pavement budget is also factored in. Given the additional $3.3 million General Fund contribution, a deficit is projected in all years under Scenario 1.

67 Figure 1 – Scenario 1

Average annual deficit over the next five years: ($5.0 million) Average annual deficit over the next 10 years: ($6.1 million) Average annual deficit over the next 15 years: ($7.7 million) Average annual deficit over the next 20 years: ($9.7 million)

Scenario 2 – Moderate (Current Trend – Most Likely Case)

In this scenario, General Fund revenues return to FY 18/19 levels by FY 22/23 . Revenues have been adjusted based preliminary FY 20/21 first quarter data and trending information received with sales tax, TOT and cannabis. Cannabis is now projected at $1,000,000 in FY 21/22, which is the lower end of the range of revenues currently projected. Based on the data known at this time, staff feels this is the most likely revenue scenario in the near term.

For expenditures, the forecast assumes the same as stated in Scenario 1. Given the higher revenue performance, the gap is not as large when compared to Scenario 1.

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($30)
($20)
($10)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
68 Figure 2 – Scenario 2

Average annual deficit over the next five years: ($2.6 million) Average annual deficit over the next 10 years: ($3.0 million) Average annual deficit over the next 15 years: ($3.9 million) Average annual deficit over the next 20 years: ($5.0 million)

Scenario 3 – Optimistic (Best Case)

In this scenario the General Fund experiences the fastest recovery by FY 21/22. TOT is assumed to be back to normal levels by FY 22/23 and cannabis tax revenues reach $2 million in FY 21/22 with continued growth in the near term.

For expenditures, assumptions are the same as the previous two scenarios. Even with the best-case scenario, a projected average deficit continues to exist in the long term.

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance
69 Figure 3 – Scenario 3

Average annual deficit over the next five years: ($474,000) Average annual deficit over the next 10 years: ($494,000) Average annual deficit over the next 15 years: ($903,000) Average annual deficit over the next 20 years: ($1.5 million)

Risks Related to the Forecast

The City has many other needs and demands beyond the existing programs and services levels that are programmed in the forecasts. These include the following:

COVID-19 Pandemic

The forecast does not contain future impacts related to the COVID-19 pandemic beyond the initial years. There are still many unknown impacts t hat the phased reopening will have on Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($7)
($6)
($5)
($4)
($3)
($2)
($1)
$0
$1
Millions
Net Operating Revenue (Annual Change to Fund Balance)
70 the City’s ability to return to business as usual. Unlike the Great Recession where businesses remained open, the COVID-19-realated shutdowns immediately impacted revenues associated with TOT and sales tax, our two largest contributors.

Volatile Economy and Economic Downturns

The City’s revenues are impacted by economic conditions. As seen in the Great Recession, the City’s three largest revenue sources, property, sales and TOT are tied to the broader economic trends. The three scenarios presented in the body of this report do not attempt to incorporate the impact of future downturns, as th e timing and duration of downturn s is difficult to project. Though for additional information depicting what future recessionary impacts may look like, staff prepared recessionary models similar to what was experienced during the Great Recession and provided them in Attachment 2. Also, w hile the growth projections incorporated in the forecast are conservative, the y will be re -evaluated as needed based upon future economic indicators.

State Takeaways and Borrowing

During times of economic downturns, the State of California has previously shifted, borrowed, or taken money from cities to cover its own budget shortfalls. In an effort to protect local governments, Proposition 1A was passed in 2004 to protect local revenues from being transferred to the state. However, Proposition 1A can be suspended if the Governor declares a fiscal necessity and two-thirds of the Legislature concur. The first emergency suspension of Proposition 1A was passed by the Legislature as part of the 2009 -10 budget package.

Under this provision the State borrowed 8% of the amount of property tax revenue and was required to repay the obligation plus interest by 2013. After this initial repayment, the legislature may consider only one additional borrowing within a ten -year period. While it cannot be predicted if the state will once again borrow money from local governments, it is a possibility. There has been no indication leading to any state takeaways. However, the state has taken action in regard to sales tax deferral options for local businesses that may qualify. Based on FY 19/20 data, there are no projected impacts at this time. Additional updates and information will be known in January 2021.

Unfunded Liability Pension Costs and OPEB

CalPERS pension costs continue to rise, and estimated impacts are currently factored in the forecast models. The forecasts utilize projections from the most recent CalPERS Actuarial Review Report from July 2020, for the June 30, 2019 valuation date.

OPEB retiree health care cost is adjusted annually based on known retiree amounts. Staff used FY 20/21 figures as a basis and assumed one additional retiree each year. The initial annual OPEB cost is currently projected at $21,000 , in which the City pays the Public Employees' Medical & Hospital Care Act (PEMHCA) minimum, which is currently $139 a month or $1,668 annually. Retiree health care costs are expected to grow as the City experiences more retirees. From the last OPEB valuation report, it was anticipated that the City can potentially expect 25 retirements in the next 10 years based on age.

Compensation Increases and Adjustments
71 Staff assumed no new positions in the forecast and assumed growth rates based on budgetary practices. Actual impacts or ch anges could result based on future labor negotiations or changes in staffing levels.

Deferred Maintenance

The forecast does not include deferred maintenance items except the amount specific for pavement. As more information becomes available it will be programmed into the forecast.

No Major New One-time Expenses

The forecast does not include any assumptions for unexpected one-time expenses, such as changes in legislation, unexpected events, acts of nature, or other such factors that could require the City to expend a significant amount of General Fund resources. These types of expenditures are generally supported by the City’s fund balances and reserves.

No New Personnel or Program Expansion

The forecast only assumes ending the hiring freeze and restoring back to original FTE levels.

Additionally, no new program expansions are forecasted such as with Affordable Housing, Homelessness, Creeks/Watershed or the Library, but are discussed further below in the next section of the report.

Other Special Revenue Operating Fund Deficits

While this forecas t solely focuses on the General Fund, there are other major operating funds of the City. These special revenue funds support specific services such as the Library, Streetlights, Storm Water and Solid Waste. These major operating funds are being analyzed and future forecast s will be updated when this information is available . It is highly likely operating expenditure growth will exceed the capacity of these funds and they may need additional ongoing support from a dedicated source of revenue.

Addressing the General Fund Gap

Since incorporation t he City ’s general fund revenues were limited due to the revenue neutrality agreement and will continue to face fiscal challenges beyond the pandemic and recession. The City’s largest tax revenues will continue to be extremely volatile over the next few years. Additionally, deferred maintenance of major projects and infrastructure continues to grow due to insufficient funds available, which will result in further cost increases in the future if this work continues to be delayed.

In all scenarios modeled, staff projected budget shortfalls through the forecast periods .

While there may be one-time fund balance and reserves to help bridge the short-term gap, revenue levels are not sufficient to keep up with ongoing expenditures when factoring in deferred maintenance items such as pavement. The deficits will be larger when the costs of the additional items are known and included in the models.

72 In summary, without additional revenue streams, the City’s General Fund does not have the capacity to take on the additional ongoing $3.3 million pavement budget needed , any new projects or programs , funding needed for personnel and staffing levels , investment in facilities and ongoing deferred maintenance, or to fully support one-time needs of CIP. The current forecast also indicates the City is not in position to issue debt or take on new debt without going to the voters.

The City’s current revenue sources are only able to support the status quo levels pre- COVID. While the City continues to operate with a very lean staff, there are staffing imbalances citywide. Overall expenditures will continue to outpace revenues over time.

Even in the best-case scenario, while the deficit is reduced, the City’s revenues are not enough to keep up with the growing demands of maintaining service levels and public infrastructure at the level of investment needed. It should be noted that there are many other unfunded priorities that wer e not included in the forecast yet due to timing of information available when this report was prepared. However, the inclusion of this information will only increase the deficit further.

Budget strategies to address the needs shown in the forecasts are further discussed below.

In summary, strategies can include four major components : 1) revenue enhancements ; 2) expense reductions; 3) alternate use of current funds; and, 4) alternate levels of service.

General Fund Balance and Reserves

The essence of a budget forecast is the fund balance. Budgets cannot run fund balance deficits, so the financial assumptions selected must result in a sustainable fund balance over time in order for the budget to be structurally balanced. The City’s fund balance consists of multiple reserve categories, including the unassigned fund balance, and contains other tools for managing impacts to finances and balancing the budget.

The City’s reserves (fund balance) provide options to respond to e mergencies, economic shocks, other risks and unanticipated expenditures. The City’s overall reserves consist of various categories for specific use s. The City has been successful over the years in maintaining its contingency reserve at 33% of its operating budget, but also in building its unassigned fund balance over time to address revenue fluctuations and unanticipated expenditures. It will be important to sustain adequate reserves for economic recovery, but also to hedge against other risks.

The Government Finance Officers Association (GFOA) recommends cities maintain at least a minimum of 16 percent of unrestricted fund balance, though this is intended as a baseline, and further recommends cities maintain reserves at a higher level according to local conditions and unique circumstances.

The City’s primary risk factors are revenue volatility and liquidity. Revenue volatility because the City has a strong dependency on sales tax and TOT, and liquidity with the timing of large primary revenues such as pro perty tax only being received twice a year, with the first payment in December. Additionally, given the RNA, the City does not receive its full property tax allocation resulting in higher reliance on those sources more sensitive to swings in the economy. Sales tax and TOT account ed for 60% of the City’s General Fund revenue on 73 average over the past five years . The following charts show cumulative fund balance impacts based on the unassigned fund balance.

Figure 4 – Scenario 1 Cumulative Unassigned Fund Balance

Figure 5 – Scenario 2 Cumulative Unassigned Fund Balance

($250)
($200)
($150)
($100)
($50)
$0
$50
Millions
Cumulative Unassigned Fund Balance
$(120)
$(100)
$(80)
$(60)
$(40)
$(20)
$-
$20
Millions
Cumulative Unassigned Fund Balance
74 Figure 6 – Scenario 3 Cumulative Unassigned Fund Balance

Section 2: Unfunded Liabilities and Other Priorities

This next section outline s the City’s unfunded liabilities, estimated deferred maintenance, operating and program costs, CIP projects, and master plan implementation costs . Given the challenges with forecasting future costs, preliminary assumptions were made on estimates and further detailed under the Expenditure and Assumptions section of this report.

Cost estimates presented in the report are subject to change over time and so any estimated amounts listed now will differ from what will be experienced. Prior to Council considering or action on unfunded priorities, cost estimates should be updated.

Unfunded Liabilities:

The City has pension and retiree medical obligations , along with a one -time settlement agreement with the Department of Finance (DOF) related to the RDA dissolution (see Table 3 below). Unfunded liabilities are as of recent actuarial reports and repayment schedules and total $9. 3 million. Funding is currently set aside for both pension unfunded accrued liabilities and OPEB liabilities in the General Fund. The City appropriates an annual payment amount of approximately $776,000 related to the DOF settlement agreement, and annually appropriates liability payments for CalPERS UAL and expenditures directly related to retiree OPEB healthcare costs. The settlement agreement is scheduled to be paid off by FY 24/25.

Table 3 – Summary of Unfunded Liabilities

Unfunded
Liabilities
Est.

Amount
Current
Funding
Adj. Est.

Amount
Potential Funding
Sources
CalPERS UAL $ 3,517,839 $ 333,500 $ 3,184,339
Section 115 Trust
(once funded)
OPEB UAL $ 2,438,474 $ 170,000 $ 2,268,474
Section 115 Trust
(once funded)
Settlement
Agreement $ 3,880,000 $ - $ 3,880,000 N/A Total $ 9,836,313 $ 503,500 $ 9,332,813
($35)
($30)
($25)
($20)
($15)
($10)
($5)
$0
$5
$10
$15
Millions
Cumulative Unassigned Fund Balance
75 Note: Funding set aside for CalPERS and OPEB UAL will soon be transferred to the recently established Section 115 Trust with PARS. Next steps with the Section 115 Trust includes meeting with the Finance Committee to recommend a strategy and policy, and then brought back to City Counc il for authorization. Given the timing, staff resources and capacity, staff anticipates this process to begin in January.

Unfunded Priorities in Operating Budget

The City has various unfunded priority needs , with some costs offset by other special revenues, such as with those related to street maintenance, street lighting, solid waste and the library. Table 4 provides a list of other City priority funding needs and is not complete.

The list provides information on other priorities, such as additional pavement budget needed to maintain an average PCI level of 69 and operating and maintenance costs related to other facilities, ongoing programs or projects and staff level imbalances. Actual funding needs will require additional analysis.

The list is separated in two sections, identified as one-time and ongoing. “One-time” uses of funds are expenditures for projects or programs that are completed within the fiscal year.

While there may be some future maintenance costs for some of these items, such costs are relatively minor when measured against the General Fund as a whole. “Ongoing” uses of funds, on the other hand, demand continuing expenditures in future years. The most obvious example is the addition of a new employee. Salary, benefits, and support co sts, such as training and equipment, will affect every future budget for as long as the new position remains programmed. Because there are future cost increases to which the City may be committed, extreme care needs to be exercised so that current year com mitments do not overwhelm future year resources. While most of the projects funded by the General Fund will not create new expenditure commitments, some of the projects funded from other sources will have that effect —particularly new parks (as compared to improvement of existing parks) and new public buildings. On the other hand, many projects, if addressed now (especially street maintenance and park rehabilitation projects ) should help control future costs by minimizing the need for emergency repairs and higher costs.

Table 4 - Summary of Unfunded Priorities
The costs identified are either one -time if identified or annual ongoing costs in addition to the current budget. Some of the major deferred maintenance items related to transportation have other special revenue funding sources allocated such as Gas Tax or Measure A. Also, the additional unfunded costs are not related to what was identified as part of the temporary cost reduction strategies or positions related to the hiring freeze. These are areas preliminary identified and subject to further review and analysis as noted in the table.

Unfunded
Categories:

Unfunded
Notes and Funding
Sources One-time
Annual Ongoing
Costs Additional to
Current Budget
Deferred Infrastructure Maintenance
Additional Pavement
Budget to maintain
average PCI level of
69 TBD $3,300,000 Additional annual amount
needed. Tax revenue.
76 Backlog of concrete
repair
TBD $250,000 Tax revenue
Backlog of public tree
maintenance
TBD $300,000 Tax revenue
Deferred Traffic
Signals – Full
replacement
TBD $500,000 Tax revenue
Deferred Traffic
Control Sign
Replacements
TBD $40,000 Tax revenue
Storm drain
maintenance
TBD $250,000 Tax revenue
Vehicles and
Equipment
TBD $150,000 Tax revenue
ADA related
improvements
TBD TBD Tax revenue

Facility maintenance TBD $275,000 Tax revenue, user fees San Jose Creek
Annual Cleanout
TBD $200,000 Tax revenue
Park and open space
maintenance
rehabilitation
TBD $150,000 Tax revenue, user fees
Staff level imbalances or service level by Dept/Program General Government TBD TBD Tax revenue, user fees
Library $200,000 Annual cost estimates for
book budget needed once
Library DIF is used up.

Grants, Tax revenue, user
fees
Finance TBD $260,000 Staff level imbalances.

Department to undergo
assessment. Was delayed
due to COVID-19.

Unrelated to hiring freeze
and preliminary analysis.

Tax revenue, user fees
Planning and
Environmental
Review
TBD TBD Affordable Housing
Program. Staff level
imbalances.

Tax revenue, user fees
Public Works TBD TBD Staff level imbalances. Tax
revenue, user fees
Solid Waste TBD $90,000 Tax revenue, user fees
77 Streetlights TBD TBD Tax revenue
Neighborhood
Services and Public
Safety
TBD TBD Tax revenue, user fees
Master Plan Documents Needing Implementation
Parks Master Plan TBD TBD Federal/State Grants
Creek and
Watershed
TBD $50,000 Depending on future action
costs may increase one-
time for CIP and annually if
department or program
created.

Tax revenues, grants, user
fees
Bike/Ped Master Plan $ 13,980,000 TBD Federal/State Grants, tax revenues
IT Strategic Plan TBD $1,188,000 Further analysis needed.

Amount subject to change
based on action.

Economic
Development Plan

TBD TBD TBD
Economic Recovery
Plan
TBD TBD Currently being developed.

Homelessness
Strategic Plan
TBD $760,000 Preliminary estimates,
subject to change on
action. Plan is still under
draft and review
Strategic Energy Plan
and Climate Action
Plan
$3,830,000 $282,000 Preliminary estimates,
subject to change on
action.

Butterfly Habitat
Management Plan
$63,500 $203,600 $3.9 million one-time state
grant. Amount listed is
estimated future unfunded
cost.

Lake Los Carneros
Master Plan
TBD TBD Tax revenues

Unfunded CIP Projects

The City has a major investment in its infrastructure – streets, bike paths, parks, public buildings and improvements, which is valued on the City’s books at $191 million (excluding vehicles and equipment) as of June 30, 2019. Table 5 is a list of the City ’s CIP projects identified in the recent FY 20/21 mid-cycle budget with total estimated amounts of $78 million that have no, or only partial funding sources identified. These amounts along with the entire Five-Year CIP Budget will be updated in the upcoming budget cycle for FY 21/22 and 22/23. 78 Funding sources are subject to change as more information is known and other funding sources may become available. Depending on the type of project, grants , DIFs or debt financing may be available to offset some or all costs. For now, staff has included potential funding sources, though this will require further analysis by individual project. The current list below is listed by project number, in no order of priority.

Table 5 - Summary of Unfunded CIP Projects

CIP Projects
(Unfunded Next Five Years)
Est. One-Time
Amount Funding Sources
9001-Hollister Avenue Complete
Streets Corridor Plan $ 1,186,000
Grants, DIF, IBank, Other
Debt Financing
9006-San Jose Creek Bike Path -
Southern Extent $ 1,210,000
Grants, DIF, IBank, Other
Debt Financing
9009-San Jose Creek Improvements
and Fish Passage $ 570,000
General Fund $460,750
appropriated 9/1/2020
9025-Fire Station No. 10 $ 14,821,994
DIF, IBank, Other Debt
Financing
9027-Goleta US 101 Overcrossing $ 28,500,000 Other Debt Financing 9053-Cathedral Oaks Crib Wall
Interim Repair Project $ 8,300,000 IBank, Other Debt Financing 9056-LED Street Lighting Project $ 100,000 Special Revenue Funds,
IBank, Debt Financing
9064-Reclaimed Water Service to
Evergreen Park $ 310,000 DIF
9065-Reclaimed Water Service to
Bella Vista Park $ 230,000 DIF
9067-Goleta Community Center
Upgrade $ 7,650,000
Grants, IBank, Other Debt
Financing
9069-Miscellaneous Facilities
Improvements $ 1,150,000 Other Debt Financing 9077-Recreation Center/Gymnasium $ 1,938,585
Revenue Bonds, Grants,
DIF, Other Debt Financing
9078-Rancho La Patera
Improvements $ 2,985,000
Revenue Bonds, Grants,
DIF, Other Debt Financing
9081-Covington Drainage System
Improvements $ 3,700,000 IBank, Other Debt Financing 9085-Goleta Storm Drain Master
Plan $ 220,000
GF or Special Revenue
Funds
9086-Vision Zero Plan $ 300,000
GF or Special Revenue
Funds
9096-Orange Avenue Parking Lot $ 300,000 Special Revenue Funds 9097-Fairview Corridor Study
(Fowler Road to Calle Real) $ 370,000
GF or Special Revenue
Funds
9100-Hollister Avenue/Fairview
Avenue Roundabout (Intersection
Improvements) $ 550,000 Special Revenue Funds 9101-City Hall Purchase &
Improvements $ 435,500
GF Facility Reserves, IBank
or Other Debt Financing
79 9103-Citywide School Zones
Signage & Striping Evaluation $ 65,000 Special Revenue Funds 9104-Citywide Evaluation of Existing
Traffic Signals $ 65,000 Special Revenue Funds 9105-Ellwood Beach Drive Drainage
Infrastructure Replacement $ 226,725
Special Revenue Funds,
Other Debt Financing
9106-Phelps Ditch Flood Control
Channel Trash Control Structure $ 670,000
Special Revenue Funds,
Other Debt Financing
9107-Old Town South Fairview
Avenue, High Flow Trash Capture
Devices $ 325,000
Special Revenue Funds,
Other Debt Financing
9109-Ward Drive Sidewalk Infill $ 390,000
Special Revenue Funds,
Other Debt Financing
TBD-03-Ellwood Coastal Trails and
Habitat Restoration $ 2,475,000
Grants, Other Debt
Financing
Total Cost $ 79,043,804
Total Adjusted Cost $ 78,473,084
Accounts for GF appropriation
for 9009 of $460,750 and
removes the unfunded budget
amount of $570,000

Any type of debt financing or use of loans should be further evaluated. The type of financing will depend on multiple factors including useful life, project cost, type of project, and how the project is used in regard to private activity. If the type of infrastructure needing funding is considered ongoing, like maintenance and repair, a dedicated source of ongoing revenues should be utilized instead of financing.

Section 3: Revenue Enhancement and Financing Options to Address Ongoing Unfunded Priorities and One-Time Infrastructure Projects

Revenue Enhancement Options

The purpose of this section is to provide the City Council with data that may assist the Council in considering future revenue enhancement options, such as increasing existing tax rates or implementing new taxes . While conducting research last spring on the City’s potential adoption of an ordinance to place a new 1% (or one cent) sales tax measure on the November 3, 2020 ballot, staff presented information regarding various revenue options to Council. This material encompasse d: 1) the details of the adoption process for the two - types of add-on sales taxes measures; 2) the difference between a General Purposes and a Specific Purpose Tax; 3) specifics about Goleta’s current Sales and Use Tax rates; 4) add- on sales tax limits; 5) the difference between a Transactions and Use Tax and Sale s and Use Tax; 6) potential impacts of a sales tax increase; and, 7) a summary of alternative revenue options. Attachment 3 contains this detailed information for reference.

Financing Options

In general, local governments rely on two methods of financing infrastructure:

1) Pay-as-you-go (pay-go, or cash)
80 2) Pay-as-you-use (pay-use, or debt)

Each financing method has its unique advantages and disadvantages. Depending on the amount of financing needed, it may become a heavy financial burden for the City to continue paying “cash” for infrastructure improvements that use up a significant amount o f General Fund cash flow each year for capital improvements with long useful lives. Financing infrastructure and capital assets can achieve inter -generational equity as these long -term investments are paid for by the future taxpayers who will benefit from them. The following table provides a list of traditional financing methods and funding sources that may be used for capital improvements.

Table 6 – Summary of Financing Options

Pay-As-You-Go Financing
(Cash and Savings)
Pay-As-You-Use Financing
(Debt Financing)
Taxation
 General Taxes (General Fund)
 Special Dedicated Taxes (Special
Revenue Fund)

Capital reserves and fund balance
 Inter-fund loans
User charges
Federal/State grants and aid

Loan financing
 Private bank loans

Bond financing
 General obligation bonds
 Revenue bonds
 Private activities bonds
 Leasing-revenue bonds
 State Bond Banks

Any financing options pursued will require a full analys is regarding debt capacity (ongoing revenue available to support debt service payment) , conformance with the City’s debt management policy, and would be subject to the City’s debt limitations level, which is currently at $279 million. Staff has provided detail ed information on financing options available to the City in Attachment 4.

Summary Recap, Next Steps, and Recommended Actions

As previously stated in the forecast section, in all scenarios modeled, staff projected budget shortfalls through the forecast periods. While there may be one -time fund balance and reserves to help bridge the short-term gap, revenue levels are not sufficient to keep up with ongoing expenditures when factoring in funds needed to address the deferred maintenance items (such as pavement ), and will continue to grow when factoring additional deferred maintenance items. Without ad ditional revenue streams or policy changes , the City’s General Fund does not have the capacity to take on the additional ongoing $3.3 million pavement budget needed, any new projects or programs, funding needed for new personnel and staffing levels, investment in facilities and other ongoing deferred maintenance, or provide one-time gap funding support to the CIP. The current forecast also indicates the City is not in position to issue debt or take on new debt without going to voters.

The long-range financial forecast makes clear that the City faces financial challenges in the near term and long term . New ongoing revenue streams will be needed, or service level reductions will need to be implemented. The CIP needs to be prioritized and financing options need to be pursued. Staff will present recommended CIP project prioritization 81 strategies at a future workshop following the discussion of the City’s 20 -year financial forecast.

Funding Ongoing Operations and Unfunded Maintenance

Based on the scenarios modeled above, when averaging out all three scenario’s deficits over a 20 -year period, the additional annual revenues needed in the near term are $2.7 million and in the long term are approximately $5.4 million, as summarized in Table 7.

Table 7 – Summary of Average Annual Deficit

The average annual deficit will grow larger when factoring in the other additional budget needed to fund ongoing deferred maintenance. Using current estimates, this would result in an additional $2.1 million or increase the average to approximately $7.5 million.

There are several options available in funding ongoing operations and maintenance in both the near term and long term . Given that these types of expenditures require significant ongoing revenue streams, it is recommended that the City Council direct staff t o explore both near term and long-term revenue enhancement solutions.

Near Term Recommendations

In the near term, staff recommends City Council direct staff to evaluate adjustments to existing cannabis business tax rates. For example, based on preliminary estimates, staff have modeled that with a 1% increase to each category except medicinal, the City will have the possibility to almost double its cannabis revenue. Based on the current license types and rates, staff’s model indicated a possible 88% increase in cannabis overall revenues. If Council supports this recommendation, staff will work with the City’s consultants to bring a feasibility analysis back to Council on recommend rate adjustments.

It should be noted that staff is continuing to evaluate other near-term treatments. One of the primary objectives for the City is to ensure full cost recovery of services. Staff plans to bring its final User Fee Study and Cost Allocation Plan for Council consideration in January.

Long Term Recommendations
In the long term, staff recommends City Council direct staff to explore a one percent transaction and use tax measure, as was discussed in the prior fiscal year, and bring it back to Council for further consideration. As was shown in the polling results earlier this year, this type of tax measure has a good chance of being supported by voters, and would generate the amount of ongoing revenue required in the long -term to help meet community needs and allow the City the capacity to finance CIP projects when needed. 5 Years 10 Years 15 Years 20 Years
Scenario 1 (4,969,811)$ (6,085,453)$ (7,727,939)$ (9,701,587)$ Scenario 2 (2,580,215)$ (2,975,407)$ (3,856,853)$ (4,985,740)$ Scenario 3 (473,761)$ (493,934)$ (903,435)$ (1,482,948)$ Average (2,674,595)$ (3,184,931)$ (4,162,742)$ (5,390,092)$ Average Annual Deficit
82 A preliminary analysis of local revenue measure results shows th ere were over 400 measures on local ballots in California for the November 3, 2020 election, including 260 local tax and bond measures, with 146 tax measures proposed by cities. For the local add- on sales tax measures there were 68 cities and three counties, with 59 of the 71 measures passing - a passing rate of 83%. Further details of the November tax measure results have been included in Attachment 5. Should the City Council choose to pursue a transaction and use tax measure, the earliest that it can be brought to the voters would be November 2022.

Should the City Council ever declare a fiscal emergency, it can be considered earlier by a unanimous vote of the City Council.

Alternatively, Council can direct staff to explore other types of tax measures, including a Transient Occupancy Tax increase, a Utility User Tax, a Business Operations Tax or a Parcel Tax.

Funding Unfunded Liabilities

There are several strategies that can be used to meet the future unfunded pension and OPEB UAL challenges. At Council’s direction, staff has implemented the Section 115 Trust, and now seeks Council direction to transfer funds that have been set aside for this purpose to the Trust and begin investing the plan assets. At this time, staff recommends City Council authorize staff to t ransfer funds currently set aside in reserves for CalPERS UAL in the amount of $170,000 and OPEB UAL in the amount of $333,500 to the Section 115 Trust and utilize the Moderate (passive) investment strategy. Given that these funds are there to be held and used in the long-term, this type of strategy best fits the City’s needs. While not recommended, if the City were considering withdrawing funds in the near term , then a conservative investment strategy should be considered . Additional information o n the investment strategies available to the City is found in Attachment 5.

If directed by Council, staff will initiate the transfer to the Section 115 Trust. Additionally, staff will come back in January or February to the Finance Committee and the City Council with a recommended funding policy and strategy for the trust. As of right now, staff’s preliminary analysis recommends making funding OPEB a higher priority given the plan does not have accumulated assets like CalPERS pension plan, which is currently 80% funded. OPEB is currently 0% funded, until assets are held in the trust.

Funding CIP and Major One-time Maintenance Projects

There are several options available in funding CIP and major maintenance projects in full or in part that would result in a balanced budget. Those options include the following:

Using One-Time Unassigned Fund Balance or Internal Fund Borrowing if Available The City’s General Fund unassigned fund balance has continued to grow over the years due to savings and higher than anticipated one-time revenues over the years. A good portion of these funds could be used to supplement high priority CIP projects or major maintenance items. Ideal use of these funds would be on high priority items or CIP projects that have difficulties securing funding or need a one-time match. Staff recommends that not all of the unassigned fund balance be utilized but a portion. The fund balance is necessary to ensure 83 liquidity to cover large outstanding grants reimbursements, unexpected expenditures, and fluctuations in revenues. Based on current projections reported in the FY 20/21 First Quarter Financial Report, approximately $3.4 million may be available for one-time uses, leaving a balance of $5.5 million . Staff recommends City Council direct staff to further analyze and consider this option and recommend a final number be set aside for CIP project funding.

Debt Financing
Similar to what was done for the City Hall acquisition project. The City could pursue debt financing for large capital projects such as Fire Station No. 10. The only issue would be ensuring enough revenue capacity is available to finance that amount. Based on the rate structure for the recent City Hall purchase financing, a maximum annual debt service of approximately $500,000 will allow the City to finance $10 million.

New Revenues
This is related to pursuing the same tax measure as identified above in f unding ongoing operations, except allocating a portion of the new revenues by policy to high priority maintenance items or CIP projects. The additional revenue sources would also give the City the additional capacity to finance more, large projects.

The City could also identify certain projects that benefit specific users and direct staff to pursue a benefit assessment district as well. This would need to be further evaluated.

Combination of Options
Rather than relying on only one option, the City could utilize a combination of them. As stated, a new revenue source would ensure funds are available to support debt financing.

Staff recommends that Council direct staff to pursue new revenues and debt financing options and b ring them b ack to Council with a CIP Funding Plan. The combination of the two would ensure fiscal stability and flexibility with debt capacity when needed. Funding polices could be developed around the use of the new revenue stream (s) to address maintenance, CIP and staff n eeded to implement a variety of programs, projects and services. Revenues could then be reprogrammed when available to other priority needs.

FINANCE COMMITTEE:

The Finance Committee received a presentation on Long Range Financial Forecast and Revenue a nd Funding Options and provided feedback to staff in preparation for this workshop.

FISCAL IMPACTS:

There are no fiscal impacts associated with report, as the information provided is for forecast purposes. Future action taken based on the information provided may result in positive or negative fiscal impacts and will be provided in a later report.

ALTERNATIVES:

The City Council may direct staff to continue with discussion of the Long-Range Financial Forecast and direct staff to model different types of scenarios and continue to provide further 84 analysis on other funding mechanisms.

Reviewed By: Approved By:
___________________ _________________
Kristine Schmidt Michelle Greene
Assistant City Manager City Manager
ATTACHMENTS:

1. Revenue and Expenditure Assumptions

2. Alternative Financial Forecast Scenarios

3. Tax Measures

4. Debt Financing Options

5. California Local Revenue Measure Results

6. Section 115 Trust Investment Strategies

7. PowerPoint Presentation
85 ATTACHMENT 1:

Revenue and Expenditure Assumptions
86 Revenue and Expenditure Assumptions

The forecast methodology used includes analyzing historical and current trends and reviewing the growth rates and changes from the last five years. Growth rates are then adjusted based on staff’s knowledge of known one -time events and fiscal conservatism or other economic adjustments.

By applying an average growth rate, there are no up or down cycles depicted in the base model. The annual growth rate approach provides an overview of the general trend where revenues and expenditures are going in a linear fashion. In reality, year over year changes may deviate significantly positively or negatively. This type of model show s where the City’s financial condition is headed if it does nothing, and where it stands with current net operating revenues.

The forecast shown in the body of the staff report starting on page six now extends twenty years and summarizes the City’s net operating revenues. Having positive net operating revenue consistently over the years is a key indicator of the City’s ability to support additional ongoing costs, including staffing level changes or taking on debt. Any negative net operating revenue may indicate the City has either a one-time or ongoing deficit, that may be supported by one-time reserves or fund balance if it is available. For Goleta, it is common to see the City adopt a balanced budget with revenues matching or exceeding expenditures by approximately $1 million and then later make adjustments in the new fiscal year where expenditures now exceed revenues. This is due to prior year budget carryovers or new appropriations authorized. Those increased expendit ures are supported by use of fund balance or reserves, if available, or other new revenue sources made available.

For this forecast, if there is a positive net operating revenue, this is considered a surplus which in turn adds to the overall fund balance. If there is a negative net operating revenue, where expenditures exceed revenues, this is considered a deficit, shortfall, or budget gap.

The longer the deficit, the more it will deplete the City’s overall fund balance and reserves.

To the extent that a shortfall is not resolved, or a surplus is not expended on an ongoing basis, it is important to understand that the remaining budget gap or surplus will carry over to the following year.

Given that we know what was experienced from March through June of 2020 with sales tax and TOT, along with current trending data, Scenario 1 is now considered the worst - case scenario. Should another economic shutdown happen similar to what was experienced, revenues could produce similar results as assumed in Scenario 1 .

Additionally, staff also provided a very low and conservative cannabis tax estimate given the volatility and uncertainty of not having experienced our first full quarter and seeing data. Staff has since received data for two full quarters and cannabis tax r evenues are now projected higher than budgeted which is adjusted for in Scenario 2.

Key Revenue Assumptions

87 Property Tax Assumptions

Over the last five years, property tax revenues have grown on average by approximately

6.8% annually. In Scenario 1, this growth is anticipated to remain flat in FY 21/22, with an approximate 2% growth thereafter accounting for Prop 13 inflation values. Staff does not assume new building or new properties coming on the tax rolls. In Scenario 2, property tax is assumed to grow by 2% annually, and then climb to 3% by FY 25/26. In Scenario 3, property tax is assumed to grow by 3% annually and then climb to 3.5% by FY 25/26.

Update as of December 3, 2020 – There is a high risk that property tax inflation will be less than the maximum 2% as projected in the forecast and experienced since FY 16/17.

The actual number will be known by end of December. The inflation factor is a calculation determined by the California Department of Industrial Relations known as the California Consumer Price Index as is based on the October annual change. Last fiscal year, this number was released on December 27, 2019.

Sales Tax Assumptions

Over the last five years, sales revenue has grown on average by approximately 1.35% annually, though it was impacted with timing of store closures and new ones reopening in the same places . In Scenario 1, this growth was anticipated to remain impacted by COVID-19 in the first year for a total of $5.9 million and then expected to grow on average by 3.33% the nex t five years and return back to FY 18/19 levels at $6.9 million by FY 25/26. Going forward growth is expected to be at 2%. In Scenario 2, this growth is anticipated to be 11% in the first year, based on internal revised estimates and trending data received from our sales tax consultants. Recovery and impacts are anticipated to be quicker, primarily due to increased allocation in online sales , which will offset the losses in certain industry groups. Going forward the next five years average growth is projected at 2.9%, then it is projected to drop to 2.5%. Sales tax is expected to recover by FY 22/23.

In Scenario 3, this growth is anticipated to be 22% in the first year, then average 2.9% the next five years, then drop down to 2.5%. The 22% growth for a total of $7.2 million is based on the latest projection received by our sales tax consultants. Sales tax will have recovered by FY 21/22 under this scenario. The forecast considers continued economic impacts through end of calendar year 2020 with only a mild return into 2021. Anticipated growth expected in FY 21/22 has more to do with a continued return of consumers from the initial COVID-19/economic shutdown period and sustained growth in countywide use tax pool allocations as online shopping continues to take away from brick and mortar sales.

Transient Occupancy Tax Assumptions

Over the last five years, prior to COVID -19, TOT revenues have grown on average approximately 10.75%. This growth is primarily due to two new hotels coming online and changes in hotel ownership/operations. In FY 19/20, the City experienced a decrease over 20% due to the impact of the pandemic. In Scenario 1, TOT is forecasted to increase by 76% in the first year, and gradually increase over the next few years and reach FY 88 18/19 levels of $11 million by FY 25/26 and remain steady at 1% annual growth. In Scenario 2, TOT is forecasted to recover quicker and reach pre -COVID-19 levels by FY 23/24, and then experience steady annual growth at 1.5%. In Scenario 3, TOT is forecasted to fully recover by FY 22/23 and experience steady annual growth of 2%.

Scenario 3 assumes travel behavior is back to pre-pandemic levels by end of 21/22 and fully experienced in FY 22/23, with TOT revenues at $11.2 million. UCSB is assumed fully reopened and airport passenger numbers at pre-pandemic levels. The forecast assumes returning hotel occupancy and average daily rates to the high levels experienced in 18/19.

The scenario however does not assume any one-time spikes or increase TOT due to pent up demand.

Cannabis Tax Revenues

In FY 19/20 the City received its first quarterly tax receipts of cannabis business tax revenues, which totaled $391,000. Given the timing of when cannabis tax revenues are due, and the volatility and uncertainty of COVID-19 impacts, there was little data received at the time of preparing the original FY 20/21 budget estimates. Since preparing the First Quarter Financial Review for FY 20/21, the City has now received approximately $500,000 in cannabis tax revenues remitted in total from five operators. Based on current data, cannabis tax revenues on a full fis cal year basis are trending towards $1 million to $2 million. When the City Council originally adopted the cannabis tax rates that appeared on the ballot measure which enacted them, it was projected that revenues would range from $334,000 to $1.4 million a nnually. In Scenario 1, cannabis tax revenues were left status quo at original preliminary estimates. In Scenario 2, cannabis tax revenues are forecasted at $1,000,000 in the first year, which reflect conservative estimates based on current trends. It isn’ t until FY 23/24 that this scenario forecasts revenue levels at $1.8 million as more businesses become operational and full fiscal years of tax receipts are received. There is still substantial uncertainty in this revenue category as the first full fiscal years of receipts have yet to be experienced. In Scenario 3, cannabis tax is forecasted at $2 million in the first year, reflecting the higher end of current trends. It is then projected to gradually increase over the next few years and assumes new busines ses become operational with sales ramping up on average of 10%. Then starting in FY 25/26, steady annual growth at 2% is assumed.

All Other Fees and Revenues

All other fees and revenues are made up of cost recovery fees, user fees, franchise fees and investment earnings. Given the makeup of this category each major fee category was reviewed based on expected activity level for the current fiscal year and assumed steady small conservative growth in all scenarios of approximately 1%, since majority of fees are offset by cost of services provided. Over the last five years, before COVID-19, this overall category experienced total growth of less than 1%. For investment earnings it is expected that interest earnings rate will remain below 1% the next few years . When looking at the last ten years of LAIF, they averaged annually 81 basis points.

89 Key Expenditure Assumptions

For all three scenarios, expenditures were forecasted the same and assumptions are summarized below.

Salaries and Benefits

Salary and benefits account for 32% of total operating costs in the FY 20/21 adopted budget and will represent 36% of total operating costs when normal FTE levels are reached in FY 21/22. For the purpose of this forecast all 11 FTE positions subject to the hiring freeze and other related personnel costs are factored back into the forecast in FY 21/22, along with adjustments made to CalPERS retirement costs. Retirement costs have been adjusted to match the latest information in the most recent actuarial report, plus estimated COVID-19 pandemic impacts. COVID-19 pandemic impacts to investment gain and losses experienced in FY 19/20 are expected to be felt beginning in FY 22/23 with a 5-year ramp up approach. The investment earnings rate by 6/30/2020 was 4.70% which was below CalPERS targeted discount rate of 7.00%. The following estimated impacts for Goleta are listed below and factored in the forecast.

Amortization Payments for Investment
(Gain)/Loss
Est. Additional
UAL Payment
FY 2022-23 $8,540
FY 2023-24 $17,066
FY 2024-25 $25,606
FY 2025-26 $34,147
FY 2026-27 to FY 2041-42 $42,687

Overall salary and benefit increases are assumed to grow 4% from FY 22/23 through FY 26/27 and then at 3.5% from FY 27/28 to FY 40/41. No new personnel are assumed or programmed in future years and assumed at FY 20/21 levels, though it should be noted that some divisions in the organization are significantly understaffed, and when feasible, additional positions should be considered.

Operating and Maintenance

Non-personnel operation and maintenance costs generally grow at 2% in the forecast.

For the purpose of this forecast , 2% is assumed through FY 25/26 and then 2.5% beginning FY 27/28. For the additional annual ongoing pavement maintenance budget needed of $3.3 million, staf f assumed an average of 3% increase starting in FY 22/23.

The 3% is a rounded average derived from the Department of General Services (DGS) California Construction Cost Index (CCCI). Staff used the annual change for the month of June and averaged the last four years. The CCCI is developed based upon the Building Cost Index (BCI) cost indices average for San Francisco and Los Angeles only as produced by Engineering News Record (ENR).

The annual DOF settlement repayment of $776,000 is expected to be paid of f by end of 90 FY 24/25 and was removed in future fiscal years.

Capital

For forecasting purposes no use of new General Fund is assumed in the forecast for CIP projects. The initial amount of $6,200 estimated in this category is related to operating equipment expenditures, such as for computer replacement or office furniture, a nd assumes a 2% increase. Unfunded CIP projects are discussed further in the Unfunded Priorities section of the staff report.

91 ATTACHMENT 2:

Alternative Financial Forecast Scenarios
92 Alternative Financial Forecast Scenarios
Staff has modeled various other alternative financial forecast scenarios that are further described below under each scenario. The baseline forecast assumptions utilized for each alternative scenario are identified below.

Revenue Neutrality Agreement Scenarios
The following scenario shows what Scenario 1 may have looked like without the revenue neutrality agreement in place over the next twenty years. As a reminder, the City shares with the County of Santa Barbara 50% of is property tax allocation revenues (AB 8 Basic 1% only) and 30% of the 1% Bradley -Burns uniform sales and use tax allocation of the

7.75% sales and use tax rate. The full 1% is normally allocated to cities. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 1. A surplus is projected for the first seven years, then a deficit for the following 13 years.

Alternative Scenario 1 with No Revenue Neutrality Agreement

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($10)
($8)
($6)
($4)
($2)
$0
$2
$4
Millions
Net Operating Revenue (Annual Change in Fund Balance)
93 The following scenario shows what Scenario 2 may have looked like without the revenue neutrality agreement in place. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 2. An annual surplus is projected in all twenty years.

Alternative Scenario 2 with No Revenue Neutrality Agreement

Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 1,530,496$ 741,778$ (579,068)$ (2,217,859)$ Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$1
$0
$1
$2
$3
$4
$5
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,265,616$ 4,363,318$ 4,030,200$ 3,506,242$ 94 The following scenario shows what Scenario 3 may have looked like without the revenue neutrality agreement in place. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 3. An annual surplus is projected in all twenty years. In this scenario revenue growth begins to closel y align with expenditures, resulting in an average annual surplus range of $7.3 million to $7.7 million over the 10 to 20-year period.

Alternative Scenario 3 with No Revenue Neutrality Agreement

Annual Surplus
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
($1)
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 6,726,741$ 7,283,421$ 7,518,207$ 7,656,513$ 95 Revenue Neutrality Agreement Ramping Down Over a 10 Year Period The following scenarios have been prepared showing the RNA ramping down over a 10-year period and how that would affect the General Fund in all three of the primary scenarios.

Alternative Scenario 1 with Revenue Neutrality Agreement Ramping Down over 10 Years

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($10)
($8)
($6)
($4)
($2)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (2,340,584)$ (1,613,264)$ (2,149,096)$ (3,395,380)$ 96 Alternative Scenario 2 with Revenue Neutrality Agreement Ramping Down over 10 Years

Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$8
-$6
-$4
-$2
$0
$2
$4
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 194,459$ 1,874,965$ 2,371,297$ 2,262,065$ 97 Alternative Scenario 3 with Revenue Neutrality Agreement Ramping Down over 10 Years

Annual Surplus
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
($8)
($6)
($4)
($2)
$0
$2
$4
$6
$8
$10Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,448,580$ 4,663,068$ 5,771,306$ 6,346,337$ 98 Recession Scenarios
The following forecasts model recessionary impacts as felt during the Great Recession period and assume a moderate recession . The Great Recession officially began in December 2007 and ended in June 2009 with impacts felt over the two succeeding years.

The City experienced a decline of 20% in sales tax and an average decrease of 12% in TOT over two fiscal years. These next alternative scenarios assume a recession every seven years, starting in FY 27/28 and FY 34/35. The first recession assumes the same impact as of the Great Recession and the second recession a more moderate recession about half the impact of the Great Recession.

Alternative Scenario 1 with Recessionary Impacts Every Seven Years

Total revenue loss in the recessionary periods were 11.7% and 4.21%

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($30)
($25)
($20)
($15)
($10)
($5)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (4,969,811)$ (7,703,331)$ (10,580,117)$ (13,608,842)$ 99 Alternative Scenario 2 with Recessionary Impacts Every Seven Years

Total revenue loss in the recessionary periods were 9.93% and 2.56%

Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$20
-$18
-$16
-$14
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (2,580,215)$ (4,736,921)$ (7,010,407)$ (9,377,469)$ 100
Alternative Scenario 3 with Recessionary Impacts Every Seven Years

Total revenue loss in the recessionary periods were 9.53% and 2.06%.

Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($16)
($14)
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (473,761) $ (2,436,445)$ (4,413,404)$ (6,420,874)$ 101
Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out The following alternative scenarios assume the original five-year forecast extended out twenty years. The temporary cost containment strategies are phased out over two -year period as original ly presented in the FY 20/21 budget, and the additional pavement budget of $3.3 million is not factored in.

Alternative Scenario 1 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 35,783$ (786,316)$ (2,037,418)$ (3,560,259)$ 102
Alternative Scenario 2 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget

Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
-$8
-$6
-$4
-$2
$0
$2
$4
Millions
Net Operating Revenue (Annual Change to Fund Balance
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,425,379$ 2,323,730$ 1,833,668$ 1,155,587$ 103
Alternative Scenario 3 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget

Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55Millions
General Fund Forecast: Revenues and Expenditures
($8)
($6)
($4)
($2)
$0
$2
$4
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,531,833$ 4,805,203$ 4,787,086$ 4,658,379$ 104
ATTACHMENT 3:

Tax Measures
105
Goleta Tax Measure Information
Adoption Process for Add-on Sales Tax (District Tax, Transactions and Use Tax)11 In order for a governing body of any city to levy, increase or extend a transactions and use tax (TUT) for general purposes, an ordinance proposing the tax must be approved by a two-thirds vote of all members of the governing body and the tax must be approved by the a majority vote of the qualified voters of the city voting in an election on the issue (California Revenue and Taxation Code 72 51.1). For a specific purpose, this requires a two-thirds vote of all members of the governing body and the tax must be approved by two-thirds vote of the qualified voters. Figure 1 summarizes clarifying information regarding the adoption rules for an add-on sales tax.

Figure 12

General Purposes vs. Specific Purpose Tax
Taxes fall into one of two categories: general or special. As noted above, a simple majority approval is required for general purpose taxes. A simple majority means 50% of voters plus one additional voter. A general tax is a tax: 1) levied by a general -purpose government (city or county); and, 2) expended at the discretion of the local government’s governing body on any programs or services. All non –property taxes which cities and counties are authorized to levy may be imposed as general taxes. A general tax is imposed to raise general-purpose revenues. Counties and cities may use revenues from a general tax for any lawful public purpose. A simple majority of voters also must approve the decision to increase or extend a general tax. A general tax may only be submitted for voter approval at an election for city council or board of supervisors seats, unless a unanimous vote of the governing board declares an emergency. 1 Add-on sales tax is also known as transactions and use tax and district tax. 2 Figure 1 Source: California Department of Tax and Fee Administration (CDTFA). 106
Special taxes require approval from two–thirds of local voters. Definitions of a special tax are as follows: 1) Special –Purpose District Tax (all taxes, other than property taxes for infrastructure bonds, levied by special districts, school districts, and community college districts are special taxes); 2) Tax Dedicated to a Specific Purpose (a city or county tax dedicated to a specific purpose or specific purposes, including a tax for a specific purpose deposited to the agency’s general fund. All non –property taxes that cities and counties are authorized to levy may be raised as special taxes); 3) Tax Levied on Property (all taxes levied on property other than the property tax —typically parcel taxes—are special taxes). Special taxes may be placed before the electorate at any time, e ither during a general election or in a special election.

A special tax is a tax imposed for a specific purpose. For example, a city may increase the sales and use tax by adding a special use tax for public safety, the acquisition of open space or transpor tation projects. All taxes imposed by special districts are considered special taxes. Since the tax is for a specific purpose, the revenues may only be used for that purpose. Two-thirds of voters must agree to enact, increase or extend a special tax.

Special tax revenues must be accounted for in a separate fund. It should be noted that normally a special tax only requires a simple majority of the governing body approval to place on the ballot, but the TUT is one of the few exceptions. The following table summarizes the comparison between general and special purpose taxes.

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Table 13

In the context of the City of Goleta, the main benefit of a general -purpose tax is th e flexibility of its use and ability to support all operations of the City as needed. Given the various critical funding needed for the City of Goleta, such as a variety of unfunded CIP projects, deferred maintenance of roads and facilities, costs associated with maintaining services, etc., a general purpose tax would give the City the additional funding needed to meet a wide variety of needs since general revenues can be used for any legitimate public purpose.

A special purpose tax legally restricts the fu nds for a specific use and ensures ongoing funding for that specific function. An example of this in Goleta is the special tax assessment for the library. If Council is interested in a special purpose tax, it could choose 3 Table 1 Source: Institute for Local Government.
*Transaction and Use
Tax is the exception and
requires two-thirds for
special purpose
108
to restrict the use of funds to specific purposes such as pavement, capital projects, and/or COVID-19 recovery. Doing so would legally restrict those funds for such purposes. The risk with this approach may be that other priority needs may arise in the future that could not be supported by special purpose taxes.

Transactions and Use Tax vs. Sales and Use Tax
TUT’s are local taxes in which revenues are collected and spent locally within that taxing district. Sales and Use Tax are state mandated taxes imposed by the state and allocated to various agencies by law. The base statewide sales tax rate is 7.25% TUTs generally apply to merchandise that is delivered in a jurisdiction which imposes such a tax. In practice, the tax application and allocation for most retail sales will not differ from the sales and use tax. But there are some key differences. The Sales and Use Tax is generally allocated to the jurisdiction where the sale is negotiated or order taken (the “origin” or the “place of sale”), whereas TUT is place of delivery or put into use.

Importantly, in the case of a sale or lease of a vehicle, vessel, or aircraft, a transaction and use tax is charged and allocated based on the location in which the property will be registered.

In other words, a TUT is allocated to the district where the goods are delivered or placed into use (the “place of first possession”) rather than the place of sell. This means that sellers of vehicles are required to collect TUT for the jurisdiction in which the vehicle will be registered. Thus, residents are unable to “escape” paying the tax by buying from a dealer outside the City, as dealers statewide are required to collect the TUT for the jurisdiction where the vehicle will be registered. This means that the patrons of Goleta’s auto dealers who do not reside in Goleta, will not be subject to the TUT, but would rather only be subject to the TUT (if any) that is imposed by the city where they live (where the vehicle will be registered). Conversely, with an add-on sales tax increase of 1%, a Goleta resident purchasing a $30,000 vehicle would pay an additional $300 in TUT that would be directed to the City, regardless of where the vehicle is purchased.

For example, if the City of Goleta has a 1% TUT, and a buyer from Goleta purchases a vehicle from a dealer in the City of Santa Barbara, the City of Santa Barbara would receive revenue from the 1% Bradley -Burns sales tax and the City of Goleta would receive revenue from the 1% TUT. On the other hand, if a buyer from the City of Santa Barbara purchases a vehicle from a de aler in City of Goleta, the City of Goleta and County of Santa Barbara would receive revenues from the 1% Bradley-Burns sales tax, but no TUT would be collected for Goleta, though the City of Santa Barbara would receive revenue for their 1% TUT.

If the veh icle is purchased through a private party or individual and registered at the Department of Motor Vehicles (DMV) the 1% of the Bradley -Burns sales tax revenue is allocated through the countywide use tax pool system on a pro -rata basis. With TUTs there are no pool systems since it is a local tax specific to the district imposing the tax. 109
Under the pool concept, the tax is first coded to the county of use and then distributed to each jurisdiction in that county on a pro rate share of taxable sales each quarte r. An agency generating 8% of the county’s total taxable sales receives 8% of the pool. If the county of use cannot be identified, the allocation goes to the state pool for pro rata distribution on a statewide basis. The following table shows a comparison of the countywide pool allocations based on first quarter taxable sales:

Table 2
Share of County Pool (First Quarter Comparisons)
Agency Name 1Q2017 1Q2018 1Q2019 1Q2020
Buellton 3.3% 3.7% 3.6% 2.8%
Carpinteria 2.3% 2.8% 2.7% 2.4%
Goleta 13.0% 14.3% 12.6% 13.8%
Guadalupe 0.4% 0.5% 0.4% 0.6%
Lompoc 11.6% 1.6% 7.2% 6.8%
Santa Barbara 29.5% 31.0% 30.0% 26.5%
Santa Maria 28.8% 32.8% 30.3% 33.1%
Solvang 1.7% 1.9% 1.7% 1.7%
County of SB 9.5% 11.3% 11.6% 12.4%
Totals (rounding errors) 100.1% 99.9% 100.1% 100.1%

The largest components of the base that makes up the pools are: 1) private party sales of vehicles, vessels and aircraft registered at the DMV, and mobile homes reported by the Department of Housing and Community Development; 2) private par ty sales of vessels (not required to register with the DMV) and aircraft purchases; 3) use tax paid by contractors who are consumers of materials purchased without tax, but used by the contractor in the improvement of real property, and whose job site is r egarded as the place of businesses; 4) merchandise shipped directly to consumers by common carriers from inventory located outside the state with the title passing out of state 4; 5) long term leases of tangible personal property except long term leases of motor vehicles; 6) catering trucks, itinerant vendors (transient businesses), vending machine operators and other permit holders who operate in more than one local jurisdiction and are unable to readily allocate taxable transactions to specific point of sale; 7) use tax on purchases consumed at non -selling facilities (research and development for example); 8) use tax on motor vehicle leases negotiated by out -of-state leasing companies; 9) internet, telephone and mail-order sales from out of state retailers.

Given the number of options that consumers now have in how they select, pay and take possession of merchandise. new challenges in properly allocating local sales and use tax 4 If merchandise is inventoried and delivered from out of state, the tax is allocated through the countywide pools, except for transactions over $500,000, which are allocated to the jurisdiction of first delivery. 110
have arisen. The following table summarizes the various scenarios that determine where the local tax from online sales is allocated.

Table 3
Place of Sale
Location of Goods at
the Time of Sale
How Customer
Receives Goods Allocation of Tax
Online – Order is placed
or downloaded outside
California
California Fulfillment
Center
Shipped to Customer
from California
Location
Local tax is allocated to the jurisdiction in
which the fulfillment center is located
Online – Order is placed
or downloaded in
California
California Fulfillment
Center
Shipped to Customer
from California
Location
Per CDTFA Regulation 1802, local tax is
allocated to the jurisdiction where the
order is placed
Online Out of State Fulfillment
Center
Shipped to California
Customer
Local tax is allocated to the countywide
pool based on point of delivery
Online Out of State Fulfillment
Center
Picked Up In-Store
(Click & Collect)
Local tax is allocated to the countywide
pool based on point of delivery

Online
In-Store (Goods
withdrawn from store
inventory)
Shipped to California
Customer
Local Tax is allocated to the jurisdiction
where the store is located

Online
In-Store (Goods
withdrawn from store
inventory)
Picked Up In-Store
(Click & Collect)
Local Tax is allocated to the jurisdiction
where the store is located

In-Store
In-Store (Goods
withdrawn from store
inventory)

Over the Counter
Local Tax is allocated to the jurisdiction
where the store is located

It should be noted that the South Dakota v. Wayfair U.S. Supreme Court decision in 2018 and CA passing of AB 147 (Burke) in 2019 addressed the under-collection of local sales and use tax revenues and made conforming changes to TUT law. As a result, the State of California amended Revenue and Taxation code section 6203 which became effective on April 1, 2019 and requires out -of-state retailers wit h total annual combined sales of tangible personal property of $500,000 or more delivered into California to collect and remit the state’s sales and use taxes. Further, Revenue and Taxation code section 7262 now requires that all retailers with statewide sales of $500,000 or more collect and remit voter approved local TUT for every agency imposing such a tax regardless of the level of sales within the individual district.

Additionally, California also adopted Revenue and Taxation code sections 6040 -6049.5, which became effective on October 1, 2019 and requires Marketplace Facilitators such as Amazon, eBay, Google, Walmart.com and Etsy, to assume the obligation for collecting 111
and remitting the sales and use taxes for third party retailer who contract with the facilitator to provide sales related services. These include payment processing, fulfillment or storage services, setting of prices, taking orders, providing customer service or assisting with returns or exchanges. The $500,000 threshold applies to the su m of all third -party transactions that the Marketplace Facilitator processes for its clients.

Current Goleta Sales and Use Tax Rate
The sales and use tax rate currently applied in the City of Goleta is 7.75%, which is the base rate for Santa Barbara County. This includes a combined statewide rate of 7.25% and the Santa Barbara County district tax of 0.50% for Santa Barbara County Association of Governments (SBCAG). Of the total 7.75% collected, Goleta receives only 0.70%, which is 0.30% less than the 1% normally allocated to cities and is referred to as the Bradley-Burns Local Sales and Use Tax. Since Goleta is subject to revenue sharing with the County of Santa Barbara per the Revenue Neutrality Agreement (RNA), the County receives that 0.30% instead of the City. However, any new add-on sales tax levied by the City is not required to be shared.

Figure 2 below shows a breakdown of the City of Goleta’s current sales and use tax rate of 7.75%.

Figure 2

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Add-on Sales Tax (District Tax, Transaction and Use Tax) Limits The Transactions and Use Tax (TUT) is an additional tax levy on top of the Bradley-Burns Local Sales and Use Tax imposed by individual cities or counties when approved by the local jurisdiction’s voters. Local TUT Tax rates are added on and administered in tandem with the sales and use tax. A Transactions Tax District can be established for a county, within only the unincorporated area of a county or for an incorporated city as a whole. The CDTFA refers to these taxes as “District Taxes”.

As written in California Revenue and Taxation Code Part 1.6 and 1.7 (Sections 7251 through 7299), cities and counties are authorized to seek voter approval of either general purpose or specific purpose transaction and use tax districts at a rate of 0.125%, or a multiple thereof. The combined tax rate of all local sales taxes in any county is generally not allowed to exceed 2.00% (California Revenue and Taxation Code 7251.1). The 2.00% local tax rate cap is exceeded in any city with a combined sales tax rate in excess of

9.25% (7.25% statewide tax rate plus the 2.00% tax rate cap). Should the City Council choose to levy an additional 1% (or 1 cent sales tax) (and voters were to approve such a measure), this would move the City’s combined sales tax rate to 8.75% and will fall below the 2.0% cap by 0.50%.

The following tables summarizes the components of Goleta’s current combined sales tax rate of 7.75%, along with the maximum TUT rate that can currently be imposed by the City of Goleta without exceeding the 2.00% cap.

Table 45

5 Public Safety Augmentation Fund – Prop. 172 revenues are allocated to Santa Barbara County. 113
Table 5 below summarizes the City of Goleta’s 7.75% sales tax rate by primary entity showing the amount of sales tax revenue each entity receives. Additionally, it shows what the addition of a potential 1.00% add -on sales tax rate would loo k like. An add-on sales tax of 1% would increase the overall combined sales tax rate from 7.75% to 8.75% Table 5

To clarify what future TUT rates may be imposed, and how this affects the City of Goleta, the following figure and table summarize the cap is sue. Figure 3 shows an example of how the 2% cap applies.

Figure 36,7

For example, this means that in a county where there are three countywide district taxes that total 1.50%, the maximum levy remaining for a city within the county to propose is 0.50%. On the other hand, if a city within a county has already approved district taxes of 1.50%, the maximum levy available for a countywide tax would be the remaining 0.50%.

To show how the 2.0% cap rate applies in Santa Barbara County, Table 6 below summarizes the combined sales tax rates in neighboring cities, which range from

7.25% to 9.0% and displays the available add-on sales tax to each jurisdiction. 6 Figure 3 Source: California Department of Tax and Fee Administration (CDTFA). 7 Data from San Bernardino County used as an example for illustrative purposes.

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Table 6

City/County Entity Name
Base Sales and
Use Tax Rate
SBCAG
TUT
City/County
TUT
Total Sales and
Use Tax Rate
% Available
(9.25% Cap)
City of Buellton 7.25% 0.50% 0.00% 7.75% 1.50%
City of Carpinteria (1) 7.25% 0.50% 1.25% 9.00% 0.25%
City of Goleta 7.25% 0.50% 0.00% 7.75% 1.50%
City of Guadalupe (2) 7.25% 0.50% 0.25% 8.00% 1.25%
City of Lompoc (3) 7.25% 0.50% 1.00% 8.75% 0.50%
City of Santa Barbara (4) 7.25% 0.50% 1.00% 8.75% 0.50% City of Santa Maria (5) 7.25% 0.50% 1.00% 8.75% 0.50%
City of Solvang 7.25% 0.50% 0.00% 7.75% 1.50%
County of Santa Barbara 7.25% 0.50% 0.00% 7.75% 0.25% - 1.50% (1) City of Carpinteria passed a 1.25% sales tax measure at the November 6, 2018 General Election.
(2) City of Guadalupe passed a 0.25% sales tax measure at the November 4, 2014 General Election, along with two other tax measures.
(3) City of Lompoc passed a 1% sales tax measure during the primary election March 3, 2020, with a sunset date of 15 years
(4) City of Santa Barbara passed a 1.0% sales tax measure at the November 6, 2018 General Election.
(5) City of Santa Maria first passed a 0.25% sales tax measure at the June 5, 2012 Primary Election with a sunset date of 9 years (2021). City of Santa Maria then passed a sales tax renewal measure to increase the 0.25% rate to 1% with no sunset clause at the November 6, 2018 General Election.

In considering a local sales tax measu re, one of staff’s concerns is protecting the City’s ability to retain sales tax for the direct benefit of Goleta and its residents, as opposed to those revenues being used to support programs that serve greater Santa Barbara County. The following table summarizes the estimated TUT revenues at various levels of additional sales tax rates.

Table 78

In Goleta’s case, since SBCAG has implemented the Measure A countywide TUT, the maximum TUT increase that can be imposed by the City of Goleta is now 1.50% (without authorization by the state legislature to exceed the cap). Given that the combined sales tax rates differ across the city jurisdictions within Santa Barbara County, the County or SBCAG can only levy up to an additional 0.25% add-on sales tax countywide but can levy up to 1.50% in the unincorporated area. In other words, any taxes generated in the City of Goleta from the remaining add -on sales tax cap could be captured by the County or 8 Table 5 Source: HdL.
115
other local agencies such as SBCAG, instead of remaining in the City to provide funding for programs and services in Goleta.

If hypothetically, the County of Santa Barbara or SBCAG pursue a countywide 0.25% TUT that is passed by voters, then the City of Goleta would be restricted to a max add - on sales tax rate of 1.25%. Should the County of Santa Barbara or SBCAG want to levy a countywide TUT rate greater than 0.25%, they would need authorization by the state legislature to exceed the 2% cap. Numerous agencies in California have pursued state legislation so that the 2% c ap may be exceeded within their jurisdictions, including the Counties of Los Angeles, Alameda and Contra Costa. Pursuit of such exemption to the cap can be costly and requires significant political support for approval. When a taxing entity obtains a legislative exemption, that entity’s tax increase is not counted toward the 2% cap.

Draft Resident vs Non-Resident Spending data for the City of Goleta (Draft) Staff reached out to its sales tax consultants HdL and requested an analysis on resident versus non-resident spending for the City of Goleta. The following information is provided from their draft report for reference. Table 8 below summarizes the results of the resident vs versus non-resident spending analysis completed by HdL for the City of Goleta. This data is based on calendar year 2019 revenue estimates and shows 42.4% of the 1% Bradley Burns Sales Tax is estimated to be paid by non-residents of the City of Goleta Such a tax is generally assessed based on where the sale is negotiated or the place where the order is taken. Because Transactions and Use Taxes (TUT) are charged in accordance with where purchased goods are delivered or placed into use, HdL’s estimate for the percentage of a 1% TUT that would be paid by non -residents is slightly lower at

38.0% due to the fact that businesses often market and sell their goods and services to buyers and businesses outside the City’s jurisdictional boundaries.

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Table 89

The figures shown above were obtained utilizing a variety of methodologies customized to each economic segment. These methodologies considered the mix of businesses located in the City, per capita sales within the City verses the per capita sales across Santa Barbara County, as well as factoring average income population, trade area daytime and trade area population for the designated trade areas previously described as a percentage of those categories within the City of Goleta.10 Based on HdL ’s analysis and should the City pursue any TUT, approximately 38% would be paid by non- residents.

Potential Impacts of a Sales Tax Increase
A sales tax increase has several potential benefits and drawbacks that the City Council should consider. The potential benefits include:
1) With an add-on sales tax, revenues are generated not only by residents, but also by the thousands of patrons who visit the City on an annual basis to take advantage of the City’s regional retailers. Unlike other forms of taxes, including property taxes, a sales tax can generate needed revenue while dispersing the tax burden between City residents and visitors who also benefit from City services. As identified by the analysis above, a significant share of the tax burden 9 Table 6 Source: HdL ECONSolutions.
10 Note: It should be noted that retail performance has been estimated based upon market information and sales tax data gathered and analyzed prior to any market impacts as a result of COVID -19. The impact of the current global pandemic has not yet been fully realized or documented in the commercial marketplace as it relates to revenue generation and the impact to resident and non -resident contributions. While some short - term adjustments might be warranted, long -term impacts will likely be tempered through the experiences gained from the 2008 economic downturn.

117
(approximately 38%) would be borne by people who reside outside the City and who visit the retail destinations that Goleta provides. 2) The imposition of a sales tax allows the City to collect revenue from non-residents in order to offset their impacts on the City’s public facilities, infrastructure and services.
3) A sales tax increase would provide an immediate infusion of funds to address the City’s many deferred infrastructure maintenance needs and support unf unded capital projects. It will give the City the opportunity to cultivate economic recovery within Goleta by re-investing in the community.
4) A sales tax increase would provide a permanent and long -term revenue source for funding prioritized core City services and maintenance. It would be subject to repeal by voters by initiative or a City Council proposal, so the City will be held accountable for its use of these new revenues.
5) A sales tax measure supports the growth of property values City -wide, as revenue from the sales tax will allow the City to continue to provide the community with high quality programs and services in addition to well-maintained facilities and infrastructure, all of which are key factors in driving increases in property values. Goleta residents and businesses will reap these benefits, all while a significant portion of the burden is shared by non -residents. Conversely, the failure to adequately fund core City services and maintenance is likely to have a detrimental impact on Goleta property values over a sustained period of time.

The potential drawbacks of a sales tax include:
1) An increase in sales tax rates has the potential to adversely impact the City’s businesses, as potential patrons could seek to make similar purchases in cities with lower tax rates. However, while shoppers could shop or locate somewhere with a lower tax rate, it would not be nearby because even with a 1% increase in sales tax, Goleta’s tax rate would be the same as or lower than our south coast neighbors and Santa Maria.
2) The potential exists that some businesses may elect not to locate in Goleta (or leave Goleta) due to a sales tax increase, though it should be noted that the City of Goleta does not have business license taxes (except on cannabis) or utility user taxes like other nearby jurisdictions. Also, as noted above, the tax rate would be equal to or less than other jurisdictions on the south coast and Santa Maria, potentially making it less likely that a change in sales tax would be a catalyst for businesses to relocate.
3) A sales tax increase would fluctuate with the economy more than property taxes, utility user fees and some other revenues.
4) A sales tax will have more of an impact on low- to moderate-income households as a percentage of household income, given the regressive nature of sales taxes.

Consumption taxes such as sales taxes are regressive in that they raise prices of purchased goods. Lower-income earners save and invest less money and pay a larger proportion of their income toward these taxes. In terms of direct impact on Goleta residents, a 1.0% sales tax increase would add an additional $1.00 for every $100 spent in Goleta. As a reminder, this type of funding mechanism is not 118
levied on food purchased as groceries or prescription medication.

Alternative Revenue Options
The following is a discussion of certain general taxes that provide the most impact in the amount of resources generated.

Parcel Tax: A parcel tax is affixed to each property that is subject to the tax and is the most consistent revenue source amount from year -to-year. As such, it is only paid by property owners, many of whom are also residents in the jurisdiction that levies this tax. This tax, depending on how it is structured, is not subject to market trends or external detriments of the amount of tax levied, unless the parcel tax has an inflationary rate dependent upon a market indicator. However, the tax amounts also impact property owners in a more definitive manner as it becomes a fixed cost for them. There is no action that a property owner can take to reduce the amount of the tax amount they must pay. Property Tax revenue does not serve as a good projection about the amount of revenue possible, as property taxes are ad-valorem, which means they are determined by taking rates on the property’s value. However, parcel taxes are either fixed amounts or based upon characteristics of each parcel.

A ballot measure must be taken to the voters in order to institute a parcel tax. Parcel tax measures must pass with a two-thirds supermajority vote, regardless of a general purpose or special purpose11. It should be noted that a majority of parcel taxes are dedicated to education (local schools, community colleges).

If the City were to consider a parcel tax, it would not be based on the value of the property, as it would be a flat amount per parcel paid annually. If the parcel tax structure were the same as the Library special tax (inherited from the County and passed by voters on June 5, 1990), a fixed annual assessment amount would generate revenues as follows:

11 According to Ballotpedia, the approval rate of all parcel taxes in California is at 56.6% for the period of 2003 through November 2016. At the end of 2012, the median parcel tax was $60 for cities. 119
Table 9
Land Use FY 20/21
Proposed Rate Number of Parcels FY 20/21
Projected Revenue
Residential
Single Family $ 25.20 5,734 $ 144,497
Condominium $ 25.20 2,567 $ 64,688
Duplex/Triplex $ 50.32 173 $ 8,705
Apartments $ 151.03 193 $ 29,149
Commercial
Heavy $ 113.22 17 $ 1,925
Light $ 113.22 388 $ 43,929
Industrial $ 113.22 228 $ 25,814
Churches/Misc. $ 50.32 25 $ 1,258
Farm/Vacant $ 12.57 279 $ 3,507
Exempt $ - 498 $ -
TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 323,473

Transient Occupancy Tax (TOT): Prior to COVID-19, the City’s TOT had been the largest General Fund revenue source and is paid mostly by non-residents when they stay in hotels in the City and is not by residents unless they a rent a room. The TOT is levied on top of the rental cost of a hotel room and is based on a percentage. The City’s current rate is 12% (previously 10% prior to 2012). The 12% rate is in line with all other cities in the County of Santa Barbara. In some areas of California, TOT is as high as 15%. There is a fine balance between the rate and ability for hotels to compete with other regional hotels for transients to occupy. If the TOT is too high, transients may go to a neighboring city to get lower room rates. If t his happens, the reduced number of transients may limit the amount of revenue that can be generated, reducing the level of benefit. It should be noted that TOT is also one of the most volatile revenue sources; recently, more volatile than sales tax.

TOT may be increased by a simple majority vote on a ballot measure if the tax is for a general purpose. If it is for a specific purpose, then the voting threshold increases to two- thirds approval to be adopted. Should the City consider increasing the TOT rate above the current 12%, each additional percent would increase General Fund revenues by approximately $900,000.

Utility User Tax (UUT): A UUT is a tax that is levied by a rate charged on the total amounts of certain utilities. These utilities generally incl ude water, sewer, refuse, cable and satellite television, telephone (including mobile phones and long distance), as well as other utilities like electricity and internet, depending upon the design of the UUT. Currently the issue of streaming media services is under debate about whether it constitutes a utility. The City does not have a UUT, unlike other nearby cities. 120
Utility companies usually collect UUT from their customers as part of their regular billing procedures and remit the funds collected to the c ity which imposed the tax.

As such, residents, not visitors, pay these types of taxes. Over 150 cities and few counties levy utility user rates varying from 1% to 11%. For those jurisdictions with a UUT, it provides an average of 15% of general revenues an d as much as 22%.

UUT may be imposed as general taxes or special taxes, but currently in California all UUT have been imposed as general taxes. Most of the cities and counties with the UUTs adopted the taxes prior to 1986 by vote of the City Council or County Board of Supervisors. Any increase or extension of the local UUT now requires voter approval.

To place a UUT measure on the ballot for Goleta, the City Council would need a two- thirds vote for a general UUT or a majority vote for a special purpose UUT. Voters would then need to pass the UUT ballot measure by a simple majority (50% + 1) for a general purpose and two-thirds supermajority for a special purpose tax.

According to California City Finance, new UUTs appear far more difficult to pass than other taxes such as add-on sales taxes, transient occupancy taxes or business license taxes. Voters were more accepting of UUT’s already in place. It took the Isla Vista Community Services District two attempts to pass an 8% special UUT, which was approved in 2018. With special authorizing legislation, Isla Vista is the only special district with a UUT.

One of the advantages of a UUT is that it is considered a durable tax that is more consistent, and it adjusts and inflates with time and tracks growth in consumption of the elements that are subject to the tax. It is less susceptible to economic downturns than other revenue sources, though it is important to note that effective resource conservation may have some impact upon future consumption patterns. Sta te and Federal governments are exempt, as well as gas and water used by utility companies to generate electricity. Cities may also choose to include full or partial exemptions for low income residents, which include seniors.

If the City were to pursue a 6% UUT, projected ballpark revenues could range from $3.5 million to $4.5 million per fiscal year. The exact amount of revenue generated will be determined by the types of utilities taxed and the rates for each of those taxes.

Business License Taxes and Cannabis Business Taxes: The City has a business license regulatory program that only charges user fees. The City also has a cannabis business tax, approved by voters in November 2018. This tax measure subjects cannabis businesses to a maximum tax rate of 10% on gross receipts of cannabis sales based on classifications and is a general tax. Based on industry trends, the amount of revenue that can be generated ranged from approximately $334,000 to $1.4 million. This tax has recently brought in limited revenue this fiscal year; approximately $43,000. Due to considerable variations, including the number and types of issued licenses, pricing, medicinal sales, productivity of operators, and 121
preliminary revenues just being received, revenue estimates are still being developed and evaluated. The current cannabis business tax rate structure is as follows:

Table 10

Cannabis Business Classification Activities Taxed Tax Rate Adult Use Cannabis Retailing Gross Receipts 5%
Medicinal-Use Cannabis Retailing Gross Receipts 0%
Manufacturing Gross Receipts 2%
Cultivation Gross Receipts 4%
Distribution Gross Receipts 1%
Testing Gross Receipts 0%
Nurseries Gross Receipts 1%
Maximum Tax Limit Gross Receipts 10%
Maximum Cap for Multiple Operations Gross Receipts 10%
The City Council does have authority by ordinance or resolution to adjust the rate of tax imposed, up to a maximum of 10% per classification. Should the City Council pursue this option, additional revenues may be experienced. The cannabis business tax is still a new revenue source to the City and has not yet experienced its first full fiscal year.

Aside from cannabis business taxes, many cities have enacted business license taxes or a type of business operations tax. The tax is typically levied based on a percentage of gross receipts but may be based on the number of employees, square footage of the business, type of business operation or other factors. As mentioned, the City of Goleta does not assess a business l icense tax, but charges fees to recover costs of operating the business license program. More than half of the cities in the County of Santa Barbara assess a business license tax, while several others charge a small fee similar to Goleta to recover its costs to operate the program.

Business license taxes can affect business location and expansion decisions that could impact the decision to do business in Goleta. If a business operates in more than one city, a city may only tax that portion of the busines s’s activities conducted within the city. In most cases, business license taxes are not imposed for regulatory purposes (as the term license might imply), but to raise revenues for general municipal purposes.
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In terms of revenue estimates for Goleta, a stu dy would need to be conducted and evaluated on the taxing structure. If applying the FY 15/16 median city per capita business operations tax of $12.22 provided from the State Controller’s Office, and multiplied against a population of 32,223, this would result in approximately $393,000 per year. Though cities vary widely in business operations tax collections largely because cities vary as to the relative size of their commercial and residential sectors.

Documentary Transfer Taxes and Property Tax Transfe rs: A documentary transfer tax is a tax imposed on the transfer of interest in real estate. Counties tax at a rate of 55 cents per $500 of the property’s value. Cities may impose a tax of up to one half of that amount which is credited to the payment of the county tax. The State’s Constitution allows charter cities to enact a property transfer tax, with voter approval, on the value of real estate that is sold. In these cases, the entire county documentary transfer tax rate goes
to the County. All cities and counties in California have documentary transfer taxes or property transfer taxes.

The City of Goleta currently receives approximately $150,000/year in documentary transfer tax revenue. Should the city become a charter city and receive voter approval to enact a property transfer tax, the following revenues may be received at the various rates:

Table 11
Documentary Transfer Tax
Actuals
Estimated Real Property Transfer Tax at Various Rates
$ 0.55 $ 1.10 $ 2.20 $ 4.50 $ 8.50 $ 10.00 $ 12.00 $ 13.00 Fiscal Year Annual 2.00 4.00 8.18 15.45 18.18 21.82 23.64 5 YR AVERAGE $ 230,737 $ 461,477 $ 922,953 $ 1,887,859 $ 3,565,956 $ 4,195,242 $ 5,034,290 $ 5,453,812 5 YR MEDIAN $ 197,569 $ 395,141 $ 790,281 $ 1,616,485 $ 3,053,360 $ 3,592,188 $ 4,310,625 $ 4,669,842

Tax Calculator:

Property Value
Sold
$600,000

City $ 330 $ 660 $ 1,320 $ 2,700 $ 5,100 $ 6,000 $ 7,200 $ 7,800 County $ 330 $ 660 $ 660 $ 660 $ 660 $ 660 $ 660 $ 660
Total Tax Paid $ 660 $ 1,320 $ 1,980 $ 3,360 $ 5,760 $ 6,660 $ 7,860 $ 8,460 At the high end of $13.00 per $1,000 value, the City would generate approximately $4.7 to $5.5 million per year.
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Other Property Related Fees and Assessments: There are other mechanisms for imposing fees and assessments on property to fund public facilities and services, including benefit assessments, also known as special assessment districts. These typically require the City to hold noticed public hearings, notify the affected property owners and conduct pro perty owner elections. There are differing noticing, procedural and voting requirements for the various mechanisms available.

Revenues must be used for specific purposes, and, depending on the mechanism used, may require that the special benefit to the property owners to be assessed be identified, with specific benefit being a particular and distinct benefit over and above the general benefits conferred on real property located in the special assessment district or to the public at large.
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ATTACHMENT 4:

Debt Financing Options
125
City Financing Options
Financing Options
In general, local governments rely on two methods of financing infrastructure:
1) Pay-as-you-go (pay-go, or cash)
2) Pay-as-you-use (pay-use, or debt)

Financing infrastructure and capital assets can achieve inter-generational equity as these long-term investments are paid for by the future taxpayers who will benefit from them.

The following table provides a list of traditional financing methods and funding sources that may be used for capital improvements.

Pay-As-You-Go Financing
(Cash and Savings)
Pay-As-You-Use Financing
(Debt Financing)
Taxation
 General Taxes (General Fund)
 Special Dedicated Taxes (Special
Revenue Fund)

Capital reserves and fund balance
 Inter-fund loans
User charges
Federal/State grants and aid

Loan financing
 Private bank loans

Bond financing
 General obligation bonds
 Revenue bonds
 Private activities bonds
 Leasing-revenue bonds
 State Bond Banks

Any financing options pursued will require a full analysis regarding the City’s debt capacity, conformance with our debt management policy, and would be subject to our debt limitations which is currently at $279 million.

Pay-as-you-go Financing:

Pay-as-you-go financing involves paying for capital projects with cash on hand. This includes reserve balances set aside. These monies can also be derived from specific tax levies dedicated to capital im provements, surplus revenues after operating and debt service requirements are met, grants, or unassigned fund balance. A decision to use fund balance for capital projects should be made carefully, as the City always should keep an adequate level of availa ble reserves to be used as a cushion for unexpected revenue shortfalls, emergency expenditures, or other purposes. The City’s Reserve Policy includes a cushion in its Contingency Reserves that is set at 33% of ongoing expenditures but allows up to one -third of the balance to finance capital acquisitions as long as 126
repayment plan is approved at the same time. The repayment plan must be financially feasible based on the City’s Five -Year Financial Forecast. There is also the unassigned fund balance that the Ci ty utilizes to address any potential revenue shortfalls or unanticipated minor expenditures during the year. Ideally staff feels that $1 million is sufficient. Maintaining an ongoing unassigned fund balance also provides as a strong indicator for the City to borrow money in the long-term and pursue debt financing.

Cities should always rely on some amount of pay -as-you-go financing for their capital improvement program. Debt financing is not appropriate for capital assets with short useful lives (e.g., 2 – 5 years), as these assets should be paid for with cash or leased.

Assets, for which much of the benefit is realized in the short term, are also appropriate for pay-as-you-go financing. Each project should be individually evaluated.

Pay-as-you-use Financing (Debt Financing):

Debt financing means issuing long -term debt in the form of general obligation bonds or revenue bonds to fund capital projects. Long-term bonds (bonds with a maturity of greater than five years), are another method of financing used for capital infrastructure. Borrowing allows the City to acquire assets as needed rather than wait to accumulate a sufficient amount of cash. State and local governments usually can finance capital projects using tax-exempt bonds, where interest income is exempt from federal and often state taxation for investors holding these securities. Consequently, investors are willing to accept a lower interest rate than they would for a comparable taxable security, which lowers the cost of financing capital improvements for a City. The use of debt financing is justified in part by the rationale of spreading out the costs of public infrastructure investments throughout life of the asset. Tax-exempt bonds generally fall into two categories: general obligation bonds and re venue bonds. There are also other types of debts, which governments may issue and are briefly discussed in this memo.

General Obligation Bonds: Smaller governments most commonly issue general obligation bonds. Often called GO bonds or simply GOs, these bonds may be secured by an unlimited tax pledge, that is the City pledges to raise the necessary amount of taxes to repay the debt. They require voter approval (two -thirds vote of the electorate) and impose debt obligation on future taxpayers and limit budget flexibility in future years. GO’s are the most secure of all municipal debt and generally used for long -term financing of major public projects such as administration buildings, public safety facilities, and water and sewer systems.

Revenue Bonds: Revenue bonds distinguish themselves from GO bonds through their method repayment, unlike GOs, which rely on taxation. Revenue bonds generate from a specific revenue source and are securities for debt service payments. The source is usually the project being f inanced, or from a dedicated revenue stream (i.e., sales tax).

City enterprise funds, such as sewer operations, usually issue revenue bonds. They have more risk, due to the uncertainty of generated revenues, resulting in a higher cost of issuance.
127
Special Assessment or Special District Bonds: At times, cities are asked to fund capital infrastructure in a particular geographic area. For example, a special assessment district may be created in a residential area to finance sidewalks, curbs and gutters. Bonds issued to finance capital improvements are secured with the revenues from a special tax levied on businesses and residences located within the district. This type of financing requires property owner consent and vote.

Construction or Asset -Backed Debt: A construction or asset -backed debt is a loan product offered by financial institutions. As with any secured loan, the City provides collateral, or something of value, to guarantee repayment of the loan.

Lease-Purchase Agreements/Certificates of Participation:

Cities sometimes find it advantageous to use one form or another of lease financing.

Lease-purchase agreements are commonly used mechanisms to procure capital equipment or facilities. Under this arrangement, the City enters into an agreement with a vendor or financial institution to lease an asset over a certain number of years. At the end of the lease period, the City has the option to purchase the asset. These agreements are similar to tax-exempt debt, in that payments by the City are separated into a principal and interest component, with the interest component being exempt from federal and state income taxes.

Lease-purchase agreements have evolved, such that securities can be issued and marketed to investors in a manner similar to tax-exempt debt. These securities are known as certificates of participations or COPs. Interest rates are set at the time of the COP sale.

The amount financed would be dependent on the length of financing and debt service that the City could afford under its present and future operational revenues. Issuances of COPs have higher interest costs relative to issuing debt. If the City were to consider this financing option, staff recommends engaging financial consultant to assist the City, due to the complexity of this financing mechanism.

Grants:

The amount of grant funding from federal and state sources has diminished in recent years except for a few types of capital projects. Despite their limited availability, the City will seek out any type of grant for which we may be eligible, and which are consistent with the City’s goals for providing services and capital infrastructure.

Grants often are advantageous in that they do not have to be paid back. Most grants require the City to provide a matching share. Typically, local mat ching funds of 20% or more are required. The City needs to exercise caution, however, so that the availability of grant funding does not dictate program or service spending priorities. Projects may be moved forward in the capital program if grant funding b ecomes available, however, starting new programs that are not priorities of the City only because grant funding is available should be avoided, particularly if additional revenues are needed from the City’s own sources and staffing to support added operati ng, maintenance, or administrative 128
costs. This would have the undesirable effect of diverting revenues from essential projects that support the goals and policies of the City.

Development Impact Fees (DIF) and Exactions:

Development impact fees and exact ions are contributions paid by developers to fund capital improvements associated with new development. Negotiated exaction, usually determined on a project -by-projected basis, typically includes construction of public facilities, such as sewer or water systems, vehicles or equipment, land for public facilities, or payments to support the development. Impact fees are assessed on a one -time basis to pay for infrastructure costs associated with new developments. The City’s DIF fees are tied to a standard meas ure, such as square footage, vehicle trips associated with the development, or some other measure. The impact fees collected may only be used for specific projects listed in the impact fee program.

Revolving Loan Programs/Bond Banks/Conduit Issuer:

The City may be able to take advantage of state revolving loan programs through the California Infrastructure and Economic Development Bank (I -Bank) Infrastructure State Revolving Fund (ISRF) program. I-Bank is the State of California’s only general-purpose financing authority. They are a conduit bond issuer, meaning I -Bank issues bonds on behalf of a borrower and then lends those proceeds to that borrower. The borrower provides security to the bondholder and agrees to repay the bonds. The I -Bank is designed to assist smaller governments in financing capital improvements. Smaller governments are not frequent issuers of tax-exempt bonds and tend to sell small amounts of bonds when they decide to issue, hence they often pay higher issuance costs than frequent, large issuers and may pay higher interest rates as well. The I-Bank is an option that can lower the costs of financing for smaller governments. Governments planning to finance their capital assets through the I -Bank need to be sure they meet any special requirements of the I-Bank. The City may choose to pursue utilizing I -Bank in the future for other eligible infrastructure needs, which is the Finance Director’s preferred choice, due to the lower cost of financing. I-Bank financing is available from $50,000 to $25 million per applicant, with terms up to 30 years. Interest rates are based on a combination of the Interest Rate Benchmark (Thompson’s Municipal Market Data Index) and Interest Rate Adjustments. Generally, the Interest Rate Adjustments will cause the interest rate on the ISRF financing to be below the Interest Rate Benchmark, as it is dependent upon the repayment source and a variety of factors. Interest rates are set at the time the loan is issued. Before pursuing, cost comparisons should be performed.

Public-Private Partnerships:

Public-Private partnerships are created to permit the public and private sector to achieve certain financial benefits that would not be possible with only one side involved in the transaction. There are many forms of pub lic-private partnerships, including franchise agreements, joint development, and service contracts. With service contracts or franchise 129
agreements, the responsibility for acquiring the capital assets needed to provide the service may be shifted to the private sector.

Private Contributions:

In some cases, the private sector may be willing to donate capital assets or facilities to the government.

Other Financing Options:

The City also can utilize other types of common options for immediate infrastructure needs, such as inter-fund loans and bank loans. If utilizing inter-fund loans or bank loans, the Government Finance Officers Association (GFOA) recommends that governments develop policies and procedures related to these debt obligations.

Inter-fund Loans: This allows the City to borrow from its own special revenue funds that have large fund balances and save on issuance and interest costs. Typical uses include financing smaller capital projects or smaller land acquisitions, which will be paid back within five years to the borrowed fund. The interest rate normally charged for inter -fund loans is set at the LAIF rate and outlined in the resolution. Essentially, you are borrowing from cash reserves from other special revenue funds that are available and sit id le. If Council interested in exploring inter -fund loans, a cash flow analysis will be provided to display the timing of the funds along with a schedule of payments to properly track any inter-fund loan activity.

Bank Loans: Using bank loans, such as interest only loans or lines of credit, is an option for smaller governments that have limited access to the municipal bond market and cannot afford the costs of bond issuance. One potential advantage of bank loans is that the process for execution is simpler than a bond issue that is marketed to the public, with fewer issuance costs and ongoing compliance requirements. Financing terms can be adjusted, and further financing options can be explored if needed.

Exhibit A – Debt Management Policy
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ATTACHMENT 5:

California Local Revenue Measure Results
131
CaliforniaCityFinance.Com
Local Revenue Measure Results
November 2020
There were over 400 measures on local
ballots in California for the November 3, 2020
election including 260 local tax and bond
measures.

Over half of these measures (146) were
proposed by or for cities. There were also 16
county, 25 special district and 73 school tax
or bond measures. In prior elections, typically
about one-third of measures were majority
vote general taxes, one-third were special
taxes, and one third 55 percent school bonds.

But in this election there was a notably higher
proportion of majority vote general tax
measures and most are passing. These
include a record 71 measures to increase
local sales taxes, 20 lodging occupancy tax
increases and 26 taxes on cannabis.

There were five city, county and special
district general obligation bond measures
seeking a total of $1.9 billion in facility
improvements for affordable housing,
community pool improvements, a
hospital, and fire stations. There were 30
city, county and special district parcel
taxes, including 20 for fire /emergency
medical response.

Among the school measures were 60
bond measures seeking a total of $13.4
billion in school facility improvement
funding, substantially fewer than in
November 2018 (112) or November 2016
(184). There were 13 measures to
increase or extend (renew) school parcel
taxes compared to 14 in 2018 and 22 in
2016.

Overall Passage Rates
Updated tallies through November 11 have 195 of the 260 tax and bond measures passing with about 1.5 million mail in and provisional votes still to be processed and a record 16.2 million counted so far. Local tax measures passed in similar proportions to prior general presidential and gubernatorial elections in California. A few measures could flip from pass to fail or fail to pass once all votes are tallied.

Schools
Special Districts
Counties
Cities
Schools
Cities, counties, special districts
November 11, 2020 Preliminary
132
Local Revenue Measure Results November 2020 – 2 – Preliminary November 11, 2020

CaliforniaCityFinance.com

The proportion of passing 55 percent school bond measures from this election appears to be similar to prior years.

More non-school majority vote general tax measures appear to be passing than in prior years.

Of the 140 majority vote tax measures, 115 (82%) appear to have passed. Most general purpose cannabis, sales, business license, property transfer and hotel occupancy taxes passed. The few utility user taxes did not fare as well. Among the two-thirds vote city, county and special district special tax and bond measures, about half appear to have passed, similar to historic patterns.

Preliminary
results
as of 11/11/20
Preliminary
results
as of 11/11/20
Preliminary
results
as of 11/11/20
Local Revenue Measures November 2020
Total Pass Passing%
City General Tax (Majority Vote) 132 108 82%
County General Tax (Majority Vote) 8 7 88%
City SpecialTax or G.O.bond (2/3 Vote) 14 6 43%
County Spec.Tax, G.O.bond (2/3 Vote) 8 5 63%
Special District 25 13 52%
School ParcelTax 2/3 13 9 69%
School Bond 55% 60 47 78%
Total 260 195 75%
City / County / Special District Tax & Bond Measures November 2020 51% (24/47)
82% (115/140)
0% 20% 40% 60% 80% 100%
Special Tax 2/3
Voter Measures
General Tax
Majority Vote
Measures
Percent Passing
Since 2001
73%
Since 2001 48%
69% (9/13)
78% (47/60)
0% 20% 40% 60% 80% 100%
2/3 Vote
Parcel Tax,
Bond
55% Vote
Bond
Percent Passing
School Tax & Bond Measures November 2020
Since 2001 84%
Since 2001 62%
133
Local Revenue Measure Results November 2020 – 3 – Pre liminary November 11, 2020

CaliforniaCityFinance.com
Measure Outcome by Category
The common tax measure in this election was a majority vote gen eral purpose transactions and use tax (sales tax) and there were more sales taxes approved than any other type. It appears that 59 of the 71 general sales tax measures passed and this number could rise when the county is complete.

Passing and Failing Measures by Type November 2020

134
Local Revenue Measure Results November 2020 – 4 – Preliminary November 11, 2020

CaliforniaCityFinance.com
Local Add-On Sales Taxes (Transaction and Use Taxes)
Voters in 68 cities and three counties considered general purpose majority vote add-on sales tax rates ranging from 1/4 percent to 1 ½ percent. It appears fifty-nine were approved including all those that extended without increase an existing sun-setting tax.

Transactions and Use Tax (Add-on Sales Tax) - General Tax - Majority Approval City County Meas ure Rate incr/ext Sunset YES% NO%
San Pablo Contra Costa Measure S 1/2c for 5yrs,
then 5yrs at 1/4c extend 10yrs 78.9% 21.2% PASS
Wheatland Y uba Measure O 1/2 cent ex tend 10yrs 78.3% 21.7% PASS Cotati Sonom a Measure S 1 cent ex tend none 75.1% 24.9% PASS Beverly Hills L os Angeles Measure RP 3/4 cent* increase none 74.1% 25.9% PASS Trinidad Hum boldt Measure E 3/4 cent ex tend 4yrs 73.8% 26.2% PASS West Hollywood L os Angeles Measure E 3/4 cent increase none 73.6% 26.4% PASS Santa Rosa Sonom a Measure Q 1/2 cent ex tend 10yrs 72.6% 27.5% PASS Daly City San Mateo Measure Q 1/2 cent increase none 72.3% 27.7% PASS Bishop Inyo Measure P 1 cent increase none 72.3% 27.7% PASS Sonom a Sonom a Measure V 1/2 cent ex tend none 70.9% 29.1% PASS G uadalupe Santa Barbara Measure N by 3/4 to 1 cent increase/ none 70.9% 29.1% PASS Ex eter Tulare Measure P 1 cent increase none 70.7% 29.4% PASS South E l Monte L os Angeles Measure E S 1/4 cent increase none 70.6% 29.4% PASS Imperial Beach San Diego Measure I 1 cent increase none 70.1% 29.9% PASS Montclair San Bernardino Measure L 1 cent increase none 69.7% 30.3% PASS Fortuna Hum boldt Measure G 3/4 cent ex tend 8yrs 69.7% 30.3% PASS Com m erce L os Angeles Measure V S 1/4 cent increase none 69.5% 30.5% PASS San Jacinto Riverside Measure V 1 cent increase none 69.2% 30.8% PASS W illits Mendocino Meas ure K 3/4 cent increase 10yrs 68.1% 31.9% PASS E ureka Hum bol dt Measure H 1 1/4 cent ex tend none 67.3% 32.7% PASS Bellflo wer Los Angeles Meas ure M 3/4 cent increase none 66.9% 33.1% PASS Isleton Sacram ento Measure L 1/2 cent increase 5yrs 66.7% 33.3% PASS Crescent City Del Norte Measure S 1 cent increase none 66.2% 33.8% PASS Woodland Y olo Measure R 1/4 cent ex tend 10yrs 65.4% 34.6% PASS L ake E lsinor Riverside Measure Z 1 cent increase none 64.9% 35.1% PASS South Lake Tahoe El Dorado Measure S 1 cent increase none 64.4% 35.6% PASS Bell G ardens L os Angeles Measure A 3/4 cent increase none 64.3% 35.7% PASS Rio Vis ta Solano Meas ure O 3/4 cent increase 5yrs 62.8% 37.2% PASS San Rafael Marin Meas ure R 1/4 cent increase 9yrs 62.2% 37.8% PASS Pacific Grove Monterey Meas ure L by 1/2c to 1 1/2c increase none 62.1% 37.9% PASS Healdsburg Sonom a Measure T 1/2 cent ex tend none 62.0% 38.0% PASS Petalum a Sonom a Measure U 1 cent increase none 61.6% 38.4% PASS Lo mit a Lo s A n g ele s M e as u re L 3/4 cent increase none 61.3% 38.7% PASS G reenfield Monterey Measure T 3/4 cent ex tend 6yrs 61.2% 38.8% PASS Milpitas Santa Clara Measure F 1/4 cent increase 8yrs 60.9% 39.1% PASS Atascadero San Luis Obisp oMeasure D 1 cent increase none 60.6% 39.4% PASS Soledad Monterey Measure S 1/2 cent increase none 60.3% 39.7% PASS Orinda Contra Costa Measure R by 1/2 cent to 1 c increase 20yrs 60.1% 39.9% PASS Morro Bay San L uis Obisp oMeasure E 1 cent increase none 59.9% 40.1% PASS San L uis Obispo San L uis ObispoMeasure G by 1c to 1 1/2 c increase none 59.6% 40.4% PASS Cou nty of Co ntra CContra Costa Measure X 1/2 cent increase 20yrs 58.7% 41.3% PASS Palm dale L os Angeles Measure AV 3/4 cent increase none 58.5% 41.5% PASS San Fernando L os Angeles Measure SF by 1/4c to 3/4c increase none 58.0% 42.0% PASS Redlands San Bernardino Measure T 1 cent increase none 58.0% 42.0% PASS El Paso de Robles San Luis Obis poMeasure J 1 cent increase 12yrs 57.9% 42.1% PASS Turlock Stanislaus Measure A 3/4 cent increase none 57.6% 42.4% PASS di di / i PASS
135
Local Revenue Measure Results November 2020 – 5 – Pre liminary November 11, 2020

CaliforniaCityFinance.com

*
The city of Beverly Hills ¾ rate may only take effect “if another local governmental entity seeks to increase the transaction and use tax (sales tax) in Beverly Hills.”

There were eight add-on sales tax measures earmarked for specific purposes including two extensions of previously approved rates three countywide measures for transportation improvements.

Voters in San Francisco, San Mateo, and Santa Clara counties approved a 1/8 percent tax for CalTrain.

Four measures, all in more rural locations, could not achieve the two-thirds vote threshold required for special tax increases.

Transactions and Use Tax (Add-on Sales Tax) - Special Tax - Two-Thirds Approval Agency Name County Rate Sunset Use YES% NO%
Nevada City Nevada Measure M 1/2 cent ex tend none streets 86.3% 13.8% PASS Sonom a County
Trans portation Sonom a Measure DD 1/4 cent ex tend 20yrs transportati on 72.0% 28.0% PASS Peninsula Corridor
Joint Powers
San Francisco
/ San Mateo / Measure RR 1/8 cent increase 30 yr rail 70.4% 29.6% PASS
County of Sonom a Sonom a Measure O 1/4 cent increase 10yrs aff housing / hom eless69.0% 31.0% PASS County of Mariposa Mariposa Measure 1 cent increase none hospital/em s 64.4% 35.6% FAIL Willows Glenn Meas ure H 3/4 cent increase none fire/em s 57.7% 42.3% FAIL County of Trinity Trinity Measure K 1/2 cent increase Sherriff/DA/ Probation 51.2% 48.8% FAIL Lemoore Kings Measure K 1 cent increase 7yrs police/fire 47.7% 52.3% FAIL Transactions and Use Tax (Add-on Sales Tax) - General Tax - Majority Approval City County Meas ure Rate sunset YES%
Too
close
to
call
San Bernardino San Bernardino Measure S 3/4 cent increase none 57.4% 42.6% PASS Rancho Cordova Sacram ento Measure R 1/2 cent increas e none 54.1% 45.9% PASS G onzales Monterey Measure X by 1/2c to 1 cent increas e 20yrs 54.6% 45.4% PASS G rover Beach San Luis Obisp oMeasure F 1 cent increas e none 54.2% 45.9% PASS Cars on Los Angeles Measure K 3/4 cent increas e none 54.0% 46.0% PASS Ox nard V entura Measure E 1 1/2 cents increas e none 53.5% 46.5% PASS Lan cas t er Lo s A n g e les M ea s u re LC 3/ 4 ce n tincreas e none 53.2% 46.8% PASS Si gnal Hill Los Angeles Measure R 3/4 cent increas e none 53.2% 46.9% PASS L os Alam i tos Orange Measure Y 1 1/2 cent increas e none 50.7% 49.3% PASS Corona Riverside Measure X 1 cent increas e none 50.7% 49.3% PASS County of Del Nor Del Norte Meas ure R 1 cent increas e none 50.2% 49.8% PASS Concord Contra Costa Measure V by 1/2 cent to 1 c increase none 50.2% 49.8% PASS V ictorville San Bernardino Measure P 1 cent increase none 50.0% 50.0% PASS County of Alamed Alameda Measure W 1/2 cent increas e 10yrs 49.9% 50.1% FAIL Weed Siskiyou Measure M 1/4 cent increase none 49.3% 50.8% FAIL Vallejo Solano Measure G 3/4 cent increase none 49.2% 50.8% FAIL Manteca San Joaquin Measure Z 1 cent increase none 48.8% 51.2% FAIL Citrus Heights Sacramento Measure M 1 cent increase none 48.4% 51.6% FAIL Williams Colusa Measure B by 1/2 cent to 1 c increase none 47.5% 52.5% FAIL Auburn Place r Measure S 1 cent increase 7yrs 47.4% 52.6% FAIL Sand City Monterey Measure U by 1/2c to 1 1/2c increase none 45.2% 54.8% FAIL Fullerton Orange Measure S 1 1/4 cent increase none 43.8% 56.2% FAIL Dunsm uir Siskiyou Measure H 1 1/2 cents increase none 39.8% 60.2% FAIL Apple Valley San Bernardino Measure O 1 cent increase none 33.9% 66.1% FAIL Diamond Bar L os Angeles Measure DB 3/4 cent increase none 33.5% 66.5% FAIL 136
Local Revenue Measure Results November 2020 – 6 – Pre liminary November 11, 2020

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Transactions and Use Tax Measures – General Purpose

Transactions and Use Tax Measures – Special Purpose
137
Local Revenue Measure Results November 2020 – 7 – Pre liminary November 11, 2020

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Transient Occupancy (lodging) Taxes 
There were 22 measures to increase Transient Occupancy (lodging) Taxes, including 20 for general purposes (majority approval) and two two-thirds vote special taxes. The small towns of Farmersville and Tulelake, among the few cities in California not to have a TOT, proposed TOT rates. Farmersville’s 10 percent appears just short of passage.

Admissions Tax 

Voters in the island city of Avalon approved a $2 per passenger surcharge on visitors with the proceeds to go to their hospital.

Transient Occupancy Tax Tax Measures - Majority Vote General Use Agency Name County Rate YES% NO%
Truckee Nevada Measure K by 2% to 12% 86.8% 13.2% PASS
Pism o Beach San Luis Obispo Measure B by1%to11% 82.7% 17.3% PASS Novato Marin Measure Q by 2% to 12% 77.1% 22.9% PASS
San Mateo San Mateo Measure W by 2% to 14% 76.1% 23.9% PASS Santa Clara Santa Clara Measure E by 4% to 13.5% 75.1% 24.9% PASS Half Moon Bay San Mateo Measure U by 3%to 15% 74.0% 26.0% PASS Monterey Monterey Measure Y by 2% to 12% 73.2% 26.8% PASS Hayward Alam eda Measure NN by5.5%to14% 73.1% 26.9% PASS San Bruno San Mateo Measure X by 2% to 14% 72.6% 27.4% PASS Chino Hills San Bernardino Measure M by 2% to 12% 66.6% 33.4% PASS Malibu Los Angeles Measure T by3%to15% 59.2% 40.8% PASS Sutter Creek Amador Measure B by 2%to12% 58.4% 41.6% PASS Sonora Tuolumne Measure T by 2% to 12% 57.6% 42.4% PASS County of Tuolum ne Measure U by 2% to 12% 54.2% 45.8% PASS Farmersville Tulare Measure Q 10% new 49.1% 50.9% FAIL
Porterville Tulare Measure S by 4% to 12% 47.4% 52.7% FAIL Pico Rivera Los Angeles Measure TT by5%to15% 42.8% 57.2% FAIL Tulelake Siskiyou Measure O 8% new 34.5% 65.5% FAIL
Transient Occupancy Tax Tax Measures: Two-thirds Vote Special Purpose City County Meas ure Rate Sunset Use YES% NO% Pass/F
County of Sierra Sierra Measure E by3.5%to12.5% none fire/ems 74.4% 25.6% PASS East Palo Alto San Mateo Measure V by 2% to 14% none affd housing 63. 0% 37.0% FAIL Admissions Tax - Special - Two-thirds Approval
Agency County Rate Sunset Use YES% NO%
Avalon Los Angeles Measure H $2/passenger none Hospital 72.1% 27.9% PASS Too close
to call
138
Local Revenue Measure Results November 2020 – 8 – Pre liminary November 11, 2020

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Transient Occupancy (Lodging) Tax Measures
139
Local Revenue Measure Results November 2020 – 9 – Pre liminary November 11, 2020

CaliforniaCityFinance.com
Cannabis – Local Excise Taxes 
There were 27 measures taxing cannabis, all majority general pu rpose except in San Joaquin County where the tax increase was earmarked for “ early childhood education and youth programs, including literacy, gang reduction, after-school programs, and drug prevention, with emphasis on children facing the greatest disparities, and promoting public health, homeless mitigation, and enforcing cannabis laws.” That measure is failing narrowly.

*An initiative measure legalizing cannabis businesses in Solana Beach would have “authorized” a 1.5 percent “sales tax.” As structured in the initiative, the tax would have been illegal and could not have been implemented. It is not included here. The measure failed.

Cannabis Taxes - Majority Vote General Purpose
Agency Name County Rate YES% NO%
Sonom a Sonoma Measure X 4% grossRcpts 79.3% 20.7% PASS increase San Buenaventura V entura Measure I 8% grossRcpts 72.6% 27.4% PASS increase Lem on G rove San DiegoM e a s u r e J 8 %grossRcpts 72.6% 27.4% PASS revise County of Trinity INIT Measure G 2.5% grossRcpts 72.0% 28.0% PASS increase King City Montere y Measure P 5% grossRcpts 71.4% 28.6% PASS increase La Habra Oran geM e a s u r e W t o 6 %grossRc pts 70.5% 29.5% PASS increase Ojai Ventura Measure G 3% grossRcpts 69.9% 30.2% PASS increase Banning Riverside Measure L 10% grossRcpts 69.0% 31.0% PASS increase Artesia Los An geles Measure Q 15%grossRcpts 67.5% 32.5% PASS increase Madera Madera Measure R 6% grossRcpts 67.0% 33.0% PASS increase Fairfield Solano Measure C 6% grossRcpts 66.6% 33.4% PASS increase Costa Mesa Oran geM e a s u r e Q 4%to7%grossRcpts 66.0% 34.0% PASS increase Tracy San Joaquin Measure W 6% grossRcpts 65.9% 34.1% PASS increase V acaville Solano Measure V 6% grossRcpts 65.6% 34.4% PASS increase County of Calaveras Measure G 4%to7% grossRcpts 64.6% 35.4% PASS increase San Bruno San Mateo Measure S 10% grossRcpts 64.1% 35.9% PASS increase Hawthorne Los An geles Measure CC 5% grossRcpts 63.7% 36.3% PASS increase Oceanside San Die goM e a s u r e M 6 %grossRcpts 63.4% 36.6% PASS increase Marysville Y uba Measure N 6% grossRcpts 63.4% 36.6% PASS increase Gras s Valley Nevada Measure N 8% grossRcpts 63.2% 36.8% PASS increase Calabasas Los An geles Measure C 10% grossRcpts 63.0% 37.0% PASS increase Waterford Stanislaus Measure S 15% grossRcpts 59.9% 40.1% PASS increase Porterville Tulare Measure R 10% grossRcpts 58.8% 41.2% PASS increase County of V entura V entura Measure O 4% grossRcpts 57.1% 43.0% PASS increase Jurupa V alley INIT Riverside Measure U 6% grossRcpts 48.4% 51.6% FAIL increase Yountville NapaM e a s u r e T 3 %grossRcpts 32.8% 67.2% FAIL increase Cannabis Taxes - Two-Thirds Vote Special Purpose
Agency Name County Rate YES% NO%
County of San Joaquin Uninc Measure X 3.5to8%grossRcpts 65.4% 34.6% FAIL Too close
to call
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Local Revenue Measure Results November 2020 – 10 – Pr eliminary November 11, 2020

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Cannabis Tax Measures

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Business Operations Taxes 
There were seven business operations tax measures other than the cannabis tax measures, all majority vote. All but Lynwood’s unusual “for-profit hospital” tax passed.

Business Operations Tax Measures (other than on cannabis) - Majority Vote, General Use Agency County YES% NO%
San Jose Santa Clara Measure H 73.5% 26.5% PASS
Richmond Contra CostaMeasure U 73.0% 27.0% PASS
San Francisco Pro position F 68.3% 31.7% PASS
San Francisco Pro position L 65.2% 34.8% PASS
Berkeley Alameda Measure G G 60.5% 39.5% PASS
Long Beach Los Angeles Measure US 58.5% 41.5% PASS
Lynwood Los An geles Measure LH 46.2% 53.8% FAIL
To protect, m aintain and enhance vital public safety services, infrastructure needs including streets, utility m aintenance, park and recreation services including program s for youth and seniors, and other essential services, shall the City of Lynwood impos e a three percent (3% ) p riv ilege tax on the gross receip ts of for-profit hospitals operating within the City of L ynwood? All funds to be deposited in Lynwood general fund.

To fund general San José services, including fire protection, disaster preparedness, 911 emergency response, street repair, yo uth programs, addressing homelessness, and supporting vulnerable residents, shall an ordinance be adopted increasing the cardroom tax rate from 15% to 16.5%, applying the tax to third party providers at these rates: up to $25,000,000 at 5%; $25,000,001 to $30,000,000 at 7.5%; and over $30,000,000 at 10%, increasing card tables by 30, generating approximately $15,000,000 annually, until repealed? To maintain quality of life in Richmond by continuing certain City services, including 911 emergency response, pothole/street repair, homeless/youth services and other general services, shall an ordinance amending the City’s business tax to charge businesses 0.06% to 5.00% of gross receipts, and other rates as stated , with the highest rates on cannabis, firearm and the biggest businesses, providing approximately $9.5 million annually until ended by voters, be adopted? Shall the City eliminate the payroll expense tax ; permanently increase the registration fee for some businesses by $230-460, decreasing it for others; permanently increase gross receipts tax rates to 0.105-1.040%, exempting mo re small businesses ; permanently increase the administrative office tax rate to 1.61% ; if the City loses certain lawsuits, increase gross receipts tax rates on some businesses by 0.175-0.690% and the administrative office tax rate by 1.5%, and place a new 1% or 3.5% tax on gross receipts from commercial leases, for 20 years; and make other business tax changes ; for estimated annual revenue of $97 million? Shall the City place an additional tax permanently on some businesses in San Francisco when their highest-paid managerial employee earns more than 100 times the median compensation paid to their employees in San Francisco, where the additional tax rate would be between 0.1% -0.6% of gross receipts or between 0.4% -2.4% of payroll expense for those businesses in San Francisco, for an estim ated revenue of between $60-140 million a year? Shall an ordinance enacting a tax on users of Transportation Network Companies for prearranged trips originating in Berkeley, at a rate of 50 cents per trip for private trips and 25 cents per trip for pooled trip s, regardless of the num ber of passengers on the trip, which is estimated to generate $910,000 annually for general municipal services in the City of Berkele y until January 1, 2041, be adopted?
To provide funding for community healthcare services; air/water quality and clim ate change program s; increase childhood education/ youth program s; ex pand job training opportunities; and m aintain other general fund program s, shall a m easure be adopted increasing Long Beach’s general oil p rod uction tax from 15¢ to maximum 30¢ p er b arrel, subject to annual adjustm ents, generating approx imately $1,600,000 annually, until ended by voters, requiring audits/ local control of funds? 142
Local Revenue Measure Results November 2020 – 12 – Pr eliminary November 11, 2020

CaliforniaCityFinance.com
Property Transfer Taxes 
Voters in six charter cities considered increasing their taxes on transfers of real estate. Voters in the wealthy enclave turned down their Measure TT.

Utility User Taxes 
Voters in ten cities and one county unincorporated area considered measures to increase or continue utility user taxes for general purposes.

Utility Transfers 
Voters in Pasadena authorized the continued transfer from their electric utility to support general fund services such as police, fire, paramedics and parks.

Property Transfer Taxes
City County Meas ure Na Rate YES% NO%
Santa Monica Los Angeles Measure SM by $3 to $6/$1k AV if <$5m AV 73.1% 26.9% PASS
San Francisco San Francisco Proposition I by 2.75%to5.5% for $10m- $25mAV, by3%to6% for 58.0% 42.0% PASS
Albany Alameda Measure CC by$3.50 to $15/$1000AV 57.9% 42.1% PASS San Leandro Alam eda Measure V V by$5to $11/$1000AV 54.2% 45.8% PASS Culver City Los Angeles Measure RE 1.5% on $1.5m+, 3% on $3m+, 4% $10m+ 53.3% 46.7% PASS
Piedmont Alameda Measure TT by$4.50 to $17.50/$1000AV 47.8% 52.3% FAIL Utility User Taxes
City County Rate Sunset YES% NO%
South Pasaden aL os Angel es Measure U 7.5% tele,electr,gas,video,w ex tend none 77.3% 22.7% PASS Newark Alameda Measure PP 3.25% tele,electr,gas,video extend 9yrs 72.8% 27.2% PASS County of Alameda UNINC Measure V 6.5% tele, electr, gas extend to 6/30/2033 70.4% 29.6% PASS Albany Alam eda Measure DD by 2.5%to9.5% electr, gas,

7.5% on water increas e none 58.3% 41.7% PASS
Union City Alameda Measure W W 5% tele,electr,gas,video increase 8yrs 57.8% 42.2% PASS Cloverdale Sonoma Measure R 3% tele, electr, gas, video ex tend none 53.9% 46.1% PASS Hawthorne Los Angeles Measure UU by 2.5%to7.5%
tele,electr,gas,video,water increase none 47.8% 52.2% FAIL Berkeley Alameda Measure HH by 2.5%to10% electr,gas increase none 47. 0% 53.0% FAIL Brawley Imperial Measure R 4% to video* ex pand 28.6% 71.4% FAIL Calipatria Imperial Measure T 5% tele, electr, gas, water, trash, sewer, catv increase none 24.8% 75.2% FAIL
Pomona INIT Los Angeles Measure PA by 0.75%to 9.75%
tele,elect,gas,video,water increas e 14.6% 85.5% FAIL
Utility Transfer Taxes
City County Rate YES% NO%
Pasadena Los Angeles Measure P 12% of gross electric revenue extend 84.6% 15.4% PASS 143
Local Revenue Measure Results November 2020 – 13 – Pr eliminary November 11, 2020

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General Obligation Bonds 
There were eleven non-school general obligation bond measures totaling $1.9 billion. Five passed.

In all, $1.3 billion in local non-school general obligation bonds were approved. The largest, San Diego’s $900 million measure for affordable and homeless housing failed.

Parcel Taxes – Non-School 
There were 30 parcel tax measures for a variety of public services. Fourteen appear to have passed and several others are too close to call. The Beyers Lane tax received one “yes” among six votes counted on election eve.

City, County and Special District General Obligation Bond Measures (2/3 vote Agency Name County Amount Rate YES% NO%
San Francisco Proposition A $487.5m $14/$100k71.1% 28.9% PASS Piedmont Alameda Measure UU $19.5m $26/$100k 68.7% 31.3% PASS Alameda County Fire Au Alameda Meas ure X $90m $16/$100k 68.3% 31.7% PASS Washington Township
Health Care District Alameda Measure XX $425m $10/$100k 67.1% 32.9% PASS San Diego San Diego Meas ure A $900m $21/$100k 57.4%42.6% FAIL Too
close to
call
City, County and Special District Parcel Taxes (2/3 vote) Agency Name County Amount Purpose sunse tYES% NO%
Mountains Recreation and Conservatio Los Angeles Measure HH $68/pa rcel fire 10yrs 83.1% 16.9% PASS Santa Clara V alley Open Space AuthoritSanta Clara Measure T $24/parcel parks/open spac e none 81.8% 18.2% PASS Arcata Humboldt Measure A $37/parcel park/wildlands none 78.4% 21.6% PASS Arcata Fire Protection District Humboldt Measure F ??? fire 6/30/203 0 77.1% 22.9% PASS Timber Cove Fire Protection District Sonoma Measure AA $185/parcel fire/ems 15yrs 76.5% 23.5% PASS Sierra City Fire District Sierra Measure H $60/parcel fire/ems none 75.9% 24.1% PASS Santa Clara V alley Water District Santa Clara Measure S $.006/sf water none 75.7% 24.3% PASS Berkeley Alameda Measure FF $0.1047/sf fire/ems none 75.6% 24.4% PASS Altadena Library District Los Angeles Measure Z $0.10/sf library non e 73.3% 26.7% PASS Woodbridge Rural Fire Protection Distr iSan Joaquin Measure U 8c/sf fire none 72.9% 27.1% PASS Trinity Life Support Com munity Service Trinity Measure I $45/parcel em s none 72.9% 27.1% PASS Lake Shastina Community Services Dist Siskiyou Measure J $80/parcel fire/ems none 70.7% 29.3% PASS Downieville Fire Protection District Sierra Measure G $60/parcel f ire/ems none 70.1% 29.9% PASS Happy Cam p Fire Protection District Siskiyou Measure D $39/parcel fire/ems none 67.1% 32.9% PASS Parlier Fresno Measure G $120/parcel* police none 66.3% 33.7% FAIL Adelanto San Bernardin Measure R $50+ to $600+/acre v acant property 20yrs 65.4% 34.6% FAIL G reater McCloud Fire and Emergency reSiskiyou Measure G $94/parcel fire/ems none 65.1% 34.9% FAIL Cameron Park Airport District El Dorado Measure P by $900 to $1200/parcel airport none 62.7% 37.3% FAIL Albany Alameda Measure EE by$44.34to$68 fire/ems none 60.7% 39.3% FAIL Hughson Fire Protection District Stanislaus Measure W $39.75/rdu fire 12yrs 60.5% 39.5% FAIL Rincon Ranch Comm unity Services DistSan Diego Measure Z $170/parcel+$6/acre fire 59.8% 40.2% FAIL Orland Fire Protection District G lenn Measure G $45+/parcel fire none 57.4% 42.6% FAIL V alley Center Fire Protection District San Diego Measure AA 6c/sf fire none 57.0% 43.0% FAIL Hickok Road Com munity Services DistriEl Dorado Measure N by $200to$400/parcel streets/roads none 52.2% 47.8% FAIL Burbank-Paradise Fire Protection DistricStanislaus Measure Z $250/parcel fire none 51.7% 48.3% FAIL El Medio Fire District Butte Measure D $60+/parcel fire/ems none 50.8 % 49.2% FAIL Lakeside Fire Protection District San Diego Measure Y by $15 to $25+/parcel fire none 40.2% 59.8% FAIL Mortara Circle Community Services DistEl Dorado Measure Q by $600 to $950/parcel streets/roads none 26.1% 73.9% FAIL Tulelake Siskiyou Measure N $60+/parcel police none 24.9% 75.1% FAIL Beyers Lane Community Service Distric Nevada Measure O $300/parcel streets/roads 16.7% 83.3% FAIL 144
Local Revenue Measure Results November 2020 – 14 – Pr eliminary November 11, 2020

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Parcel Taxes – Non-School

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School Parcel Taxes 
As in the past, school parcel taxes fared better than non-school parcel taxes. Nine of the 13 parcel tax measures for schools passed with the Fort Ross measure just a few votes short and too close to call.

School Parcel Taxes (2/3 voter approval)
Agency Name County Rate Sunset YES% NO%
Shoreline Unified School District Marin /
Sonom a Measure L $212+/parcel 8yrs 79.4% 20.6% PASS
Palo Alto Unified School District Santa Clara Measure O $836+/parc el 6yrs 78.5% 21.5% PASS Sebastopol Union School District Sonom a Measure N $76/parcel 8yrs 75 .1% 24.9%PASS San Francisco Unified School District San Francisco Proposition Jfrom $320 per parcel to $288 per parcel 17.5 yrs 75.0% 25.0%PASS
Frem ont Union High School District Santa Clara Measure M $98/parce l 8yrs 74.3% 25.7% PASS Tamalpais Union High School District Marin Measure M $469+/parcel 9 yrs 73.6% 26.4% PASS Mam moth Unified School District Mono Measure G $59/parcel 5yrs 73.6% 26.4% PASS V entura Unified School District V entura Measure H $59/parcel 4yrs 73 .4% 26.6%PASS Franklin-Mckinley School District Santa Clara Measure K $72/parcel 5yrs 70.9% 29.1% PASS Fort Ross School District Sonom a Measure M $48/parcel 8yrs 66.2% 33.8 % FAIL Loma Prieta Joint Union Elementary
School District
Santa Clara /
Santa Cruz Measure N $164/parcel 7yrs 64.6% 35.4%
FAIL
Campbell Union High School District Santa Clara Measure L $85/parc el none 63.6% 36.4% FAIL San Jose - Evergreen CCD Santa Clara Measure I $18/parcel 9yrs 61.5% 38.5% FAIL Too
close
to call
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Local Revenue Measure Results November 2020 – 16 – Pr eliminary November 11, 2020

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School Parcel Taxes
147
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School Bonds 
There were 60 school bond measures on the ballot for a total of over $13.4 billion in school construction bonds. So far, 47 are passing totaling $12.2 billion. Among the passing measures is the $7 billion Los Angeles Unified School District measure.

School Bond Measures
School District County Meas ure Amount Tax Rate YES% NO% Inglewood Unified School Dis Los Angeles Measure I $240m $60/$100k 79.9% 20.1% PASS Oakland Unified School DistricAlameda Measure Y $735m $60/$100k 77.0% 23.0% PASS Sausalito Marin City School DMarin Meas ure P $41.6m $30/$100k 72.8% 27.3% PASS Calexico Unified School DistricImperial Measure Q $47m $60/$100k 71.5% 28.5% PASS Goleta Union School District Santa Barbara Meas ure M $80m $19/$100k 71.5% 28.6% PASS Los Angeles Unified School DLos Angeles Meas ure RR $7billion $22/$100k 71.2% 28.8% PASS G reenfield Union School DistriKern Measure G $21m $30/$100k 68.0% 32.0% PASS Bassett Unified School Distric Los Angeles Measure BB $50m $60/$100 k 66.9% 33.1% PASS Whittier Union High School DLos Angeles Meas ure AA $183.5m $30/$100k 66.2% 33.8% PASS River Delta Unified School
District SFID #2
Sacramento /
Solano / Yolo Measure K $14.6m $60/$100k 64.2% 35.8%
PASS
Mt Pleasant Elementary Scho oSanta Clara Meas ure Q $12m $30/$100k 64.8% 35.2% PASS V allecito Unified School Distri Calaveras Measure I $2.8m $10/$100k 64.7% 35.3% PASS Jefferson Union High School DSan Mateo Measure Z $163m $30/$100k 64.2% 35.8% PASS River Delta Unified School Dis Sacramento /
Solano Measure J $45.7m $60/$100k 64.0% 36.0% PASS
San Mateo-Foster City Schoo lSan Mateo Measure T $409m $30/$100k 64.0% 36.0% PASS Siskiyou Union High School DSiskiyou Measure K $3m $8/$100k 63.5% 36.5% PASS Washington Unified School DYolo Meas ure Z $150m $60/$100k 63.1% 36.9% PASS Riverdale Unified School DistrFresno / Kings Measure J $25.9m $60/$100k 63.0% 37.0% PASS La Mesa - Spring Valley SchooSan Diego Measure V $136m $24/$100k 62.9% 37.1% PASS Monterey Peninsula Commun iMonterey Meas ure V $230m $18/$100k 62.9% 37.1% PASS Pasadena Unified School Dist rLos Angeles Measure O $516.3m $45/$100k 62.9% 37.1% PASS Cambrian School District Santa Clara Measure R $88m $30/$100k 62.4% 37.6% PASS Woodland Joint Unified Scho oYolo / Sutter Meas ure Y $44.2m $24/$100k 62.3% 37.7% PASS Sunnyside Union E lem entary STulare Measure O $2m $30/$100k 62.1% 37.9% PASS Shandon Joint Unified
School District
Monterey / San
Luis Obis
po Measure H $4m $40/$100k 61.9% 38.1% PASS
Winters Joint Unified School DYolo / Solano Meas ure W $19m $49/$100k 61.6% 38.4% PASS Gonzales Unified School DistriMonterey Measure K $37m $60/$100k 61.5% 38.5% PASS Oceanside Unified School DistSan Diego Measure W $160m $30/$100k 61.1% 38.9% PASS Ojai Unified School District V entura Measure K $45m $27/$100k 61.0% 39.0% PASS Stanislaus Union School Dist r Stanislaus Measure Y $21.4m $30/$100k 60.8% 39.2% PASS Salinas Union High School DisMonterey Meas ure W $140m $30/$100k 60.7% 39.3% PASS Soledad Unified School DistricMonterey Meas ure N $13.75m $26/$100k 60.6% 39.4% PASS South Bay Union School Dist rHumboldt Measure D $5m $30/$100k 60.3% 39.7% PASS Willits Unified School District Mendocino Meas ure I $17m $40/$100k 60.0% 40.0% PASS 148
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Le G rand Union High School DMerced Measure S $6m $29/$100k 60.0% 40.1% PASS Aromas San Juan Unified
School District
Monterey / San
Benito / Santa
Cruz
Measure O $30.5m $51/$100k 59.8% 40.2%
PASS
Central Unified School DistrictFresno Measure D $120m $60/$100k 59.6% 40.4% PASS Clovis Unified School District Fresno Measure A $335m $60/$100k 59.4% 40.6% PASS Newm an-Crows L anding Unifi Stanislaus Measure X $25.8m $48/$100k 58.7% 41.3% PASS G onzales Unified School DistriMonterey Measure J $24.5m $60/$100k 58.2% 41.8% PASS Washington Unified School DFresno Measure K $46m $60/$100k 58.0% 42.0% PASS Sanger Unified School District Fresno Measure C $150m $60/$100k 57.4% 42.6% PASS Manteca Unified School Distr iSan Joaquin Measure A $260m $45/$100k 57.2% 42.8% PASS Citrus Community College Los Angeles Measure Y $298m $25/$100k 57.4% 42.6% PASS Duarte Unified School District Los Angeles Measure S $79m $50/$100k 57.1% 42.9% PASS Evergreen Elementary School DSanta Clara Measure P $80m $30/$100k 55.9% 44.1% PASS Salida Union School District Stanislaus Measure U $9.24m $20/$100k 55.4% 44.6% PASS Waterford Unified School DistStanislaus Measure T $5.35m $30/$100k 54.6% 45.5% FAIL San Miguel Joint Union
School District
Monterey / San
Luis Obis
po Measure I $6.2m $30/$100k 54.4% 45.6% FAIL
Atascadero Unified School Di sSan Luis ObispoMeasure C $40m $50/$100k 54.2% 45.8% FAIL Esparto Unified School Distric Yolo Measure X $19.9m $60/$100k 53.1% 46.9% FAIL Cajon V alley Union High SchoSan Diego Measure T $125m $13/$100k 53.1% 46.9% FAIL Scotts V alley Unified School DSanta Cruz Measure A $49m $32/$100k 52.9% 47.2% FAIL San Jose - Evergreen CCD Santa Clara Measure J $858m $17.5/$100k 52.7% 47.3% FAIL Cold Spring Elementary SchooSanta Barbara Measure L $7.8m $13/$100k 52.2% 47.8% FAIL Romoland School District Riverside Measure P $39m $30/$100k 51.8% 48.2% FAIL Calaveras Unified School DistrCalaveras Measure H $32.8m $10/$100k 50.3% 49.7% FAIL Wasco Union School District Kern Measure H $16m $30/$100k 48.5% 51.5% FAIL Maricopa Unified School DistrKern Measure F $14m $50/$100k 47.2% 52.8% FAIL Dehesa School District San Diego Measure U $3.1m $30/$100k 36.7% 63.3% FAIL School Bond Measures continued
School District County Meas ure Bond Amount Tax Rate YES% Too
close to
call
149
Local Revenue Measure Results November 2020 – 19 – Pr eliminary November 11, 2020

CaliforniaCityFinance.com
Some Historical Context
The volume and make-up of measures in this election is somewhat lower than the previous two presidential and gubernatorial general elections in 2018 and 2016, but comparable to years prior. The drop off in proposed measures is specific to certain types of measures: 1) those with higher vote thresholds, and 2) cannabis tax measures.

The 79 proposed sales tax measures is comparable to November 2018 (69) and November 2016 (89) and the 71 majority vote sales taxes is actually the highest of this type of tax proposal at any election, ever. Cannabis taxation has been hot for the last several years since legalization and the drop-off in those measures is essentially a function of this area of taxation and regulation running its course.

Other than cannabis tax measures, the most precipitous drop off in proposed measures from November 2016 and November 2018 is in school bonds. There are just 60 school bond measures this election, all 55 percent (i.e. no two-thirds vote school bond measures). This is about half as many as in 2018 and a third of the 184 proposed in 2016. It appears that school boards are anticipating that this election is a more difficult one for the more difficult to pass higher vote threshold measures.

Likewise, here are just 25 non-school parcel taxes and general obligation bonds on local ballots compared to 52 in November 2018 and 51 in November 2016.

150
Local Revenue Measure Results November 2020 – 20 – Pr eliminary November 11, 2020

CaliforniaCityFinance.com

45 26 26 25
33 39
41 30
13 8
3 7
5 12 11
5 $2.0
$1.7 $0.1
$0.4
$0.6
$7.3
$2.4
$1.9 $-
$5.0
$10.0
$15.0
$20.0
$25.0
0 10
20 30
40 50
60 70
80 90
100
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Billions
Number of Measures
Parcel Taxes and GO Bonds
70 95
63 106
113
184
112
60 $9
$22
$4
$14
$12
$25
$16
$13
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
0 20
40 60
80 100
120
140
160
180
200
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Billions
Number of Measures
School Bonds
4 21 18
25 8
22 14 13
0 10
20 30
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
School Parcel Taxes
G.O. Bonds
Parcel Taxes
2/3 vote bond
55% bond
0 12
3 11
39 79
27 Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Cannabis
Taxes
17 12
16 18
14 22
40 20
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Hotel Taxes
8 26
21 10
16 9
5 11
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Utility User Taxes
17 19 19
28 42
59 58
71 21 13
2 7
13 30
11 8
0 10
20 30
40 50
60 70
80 90
Nov
'06
Nov
'08
Nov
'10
Nov
'12
Nov
'14
Nov
'16
Nov
'18
Nov
'20
Sales
Taxes
Spe cial 2/3
General
151
Local Revenue Measure Results November 2020 – 21 – Pr eliminary November 11, 2020

CaliforniaCityFinance.com
Other measures of Note
 There were twelve measures to convert elected city clerk or tr easurer positions to appointed (by city council or manager) and one initiative (in Dixon) to revert to an elected city clerk. Seven appear to have passed.  Voters in Sacramento turned down a proposal to move to a “strong mayor” form of governance from their current “council-manager” form, common in all but the largest cities in California.  Oxnard voters rejected an initiative measure to cede major new powers to that city’s elected city treasurer, even as they re-elected him. Oxnard voters appear to have narrowly approved a measure dictating that a previously approved general purpose sales tax be used for streets and roads or repealed.  Dixon voters approved an initiative repeal of a water rate increase.  Menifee voters appear to have rejected an initiative to repeal a recently approved sales tax increases. Voters in the San Bernardino County Fire Protection District appear to have turned down an initiative to repeal a recently enacted (two-thirds voter approved) parcel tax.  Albany and Eureka approved ranked choice voting.

************
For more information: Michael Coleman 530-758-3952. [email protected]

mjgc rev 11Nov 18:15
Appointed City Clerk / City Treasurer / etc.

City County YES% NO%
Sierra Madre Los Angeles Measure AC appoint city clerk 67.5% 32.5% PASS Nevada City Nevada Measure L appoint city clerk and
city treasurer 65.6% 34.4% PASS
Placerville El Dorado Meas ure R appoint city treas urer 63.5% 36.5% PASS Coalinga Fresno Measure B appoint city clerk 57.4% 42.7% PASS Yreka Siskiyou Measure E appoint city clerk 55.6% 44.4% PASS Sonora Tuolumne Measure R appoint city clerk 52.3% 47.7% PASS Sonora Tuolumne Measure S appoint city treasurer 50.3% 49.7% PASS Suisun City Solano Measure R appoint city clerk 47.1% 52.9% FAIL Plym outh Am ador Measure D appoint city treasurer 45.4% 54.6% FAIL Plym outh Am ador Measure C appoint city clerk 45.3% 54.7% FAIL Pittsburg Contra Costa Measure Q appoint city clerk 36.9% 63.1% FAIL Brawley Imperial Meas ure S appoint city clerk 34.7% 65.3% FAIL Tax and Fee Initiative to Repeal or Revise
Agency Name County Rate YES% NO%
Dixon INIT Solano Measure S repeal water rate increase 72.8% 27.2% PASS Oxnard INIT Ventura Measure N use TrUT for streets or end 50.8% 49.2% PASS San Bernardino County Fire Protection DSan Bernardino Measure U repeal tax 49.0% 51.0% FAIL Menifee INIT Riverside Measure M repeal TrUT 36.5% 63.5% FAIL 152
ATTACHMENT 6:

Section 115 Trust Investment Strategies
153
City of Goleta
PARS 115 Trust – OPEB & Pension Investment Selection
October 8, 2020
154
City of Goleta ▎ 2
Contacts
Mitch Barker
Executive Vice President
(800) 540-6369 x116
[email protected]
Angela Tang
Client Services Coordinator
(800) 540-6369 x159
[email protected]
Tory Milazzo, CFA
Senior Portfolio Manager
(805) 564-6219
[email protected]
155
City of Goleta ▎ 3
• OPEB & Pension Trust Team
• Investment Selection Form
• Actuarial Valuation – OPEB
• Actuarial Valuation – Pension
• Efficient Frontier
• Active vs. Passive
• Quarterly Performance Sheets
• IGD (Investment Guidelines Document)
• Averaging-in Period
Investment Selection Checklist
156
City of Goleta ▎ 4
Pars 115 Trust Team
Trust Administrator & Consultant
36 Years of Experience
(1984-2020)
1,500+
Plans under
Administration
1,000+
Public Agency
Clients
$4.5 B
Assets under
Administration
500 K+
Plan Participants
• Recordkeeping
• Sub-trust accounting
• Monitors plan compliance
• Processes contributions/disbursements
• Hands-on, dedicated support teams
• Coordinates all agency services
Investment Manager
• Investment sub-advisor to trustee U.S. Bank
• Investment policy assistance
• Uses open architecture
• Active and passive platform options
• Customized portfolios (with minimum asset level)
101
Years of Experience
(1919-2020)
$16.2 B
Assets under
Management
Trustee
• 5th largest commercial bank and one of the
nation’s largest trustees for Section 115 trusts
• Safeguard plan assets
• Oversight protection as plan fiduciary
• Custodian of assets
157
Years of Experience
(1863-2020)
$5.0 T
Assets under
Administration
157
City of Goleta ▎ 5
Subaccounts
OPEB and pension assets are
individually sub-accounted,
and can be divided by dept.,
bargaining group, or cost center.

Assets in the PARS Section 115
Combination Trust can be used
to address unfunded liabilities.

Financial Stability
Allows separate investment
strategies for OPEB and
pension subaccounts.

Flexible Investing
OPEB and pension assets
aggregate and reach lower fees
on tiered schedule sooner –
saving money!
Economies-of-ScaleAnytime Access
Trust funds are available
anytime; OPEB for OPEB
and pension for pension.

No set-up costs, no minimum
annual contribution amounts,
and no fees until assets are added.

No Set Up Cost or Minimums
Retiree Medical Benefits
Prefund OPEB GASB 75
OPEB
Reimburse agency; or
Pay benefits provider
Pension Rate Stabilization Program
Prefund Pension (PRSP) GASB 68
Pension
Reimburse agency; or
Pay retirement system
Assets can be used to: Assets can be used to:
prefund
either or both
General Fund
PARS IRS -Approved Section 115 Trust
158

PENSION OPEB HM MANAGED
ISSDF 203 09.22.2016

Investment Strategy Selection and Disclosure Form
PARS Pension / OPEB Trust Program

■ This document is entered into by client and U.S. Bank National Association (“U.S. Bank”), as trustee. ■ Employer:
■ Plan/Trust Name: Public Agencies Post-Employment Benefits Trust ■ To: HighMark Capital Management, Inc. and U.S. Bank:

U.S. Bank has been or is hereby appointed Investment Manager of the above-referenced Plan/Trust. Please invest t he assets of the above-referenced Plan/ Trust for which you have been appointed Investment Manager in the (select one of the strategies listed below for each Plan funded by the Trust) :

 OPEB Account  Pension Account Primary Goal Strategic Range



Liquidity Management (US Treasury)



Liquidity Management (US Treasury)

Provide current income with liquidity
and stability of principal through
investments in short-term U.S.

Treasury obligations.

Money Market Fund


Liquidity Management (Prime Obligation)



Liquidity Management (Prime Obligation)

Generate current income with liquidity. Money Market Fund

D IVERSIFIED PORTFOLIO S
 Conservative HighMark PLUS  Conservative HighMark PLUS Provide a consistent level of inflation- protected income over the long-term.

Equity:

Fixed Income:

Cash:
5-20%
60-95%
0-20%  Conservative Index PLUS  Conservative Index PLUS  Moderately Conservative HighMark PLUS  Moderately Conservative HighMark PLUS Provide current income with capital appreciation as a secondary objective.

Equity:

Fixed Income:

Cash:
20-40%
50-80%
0-20%  Moderately Conservative Index PLUS  Moderately Conservative Index PLUS  Moderate HighMark PLUS  Moderate HighMark PLUS Provide current income and moderate capital appreciation.

Equity:

Fixed Income:

Cash:
40-60%
40-60%
0-20%  Moderate Index PLUS  Moderate Index PLUS
 Balanced HighMark PLUS  Balanced HighMark PLUS Provide growth of principal and income.

Equity:

Fixed Income:

Cash:
50-70%
30-50%
0-20%  Balanced Index PLUS  Balanced Index PLUS
 Capital Appreciation HighMark PLUS  Capital Appreciation HighMark PLUS Primary goal is growth of principal.

Equity:

Fixed Income:

Cash:
65-85%
10-30%
0-20%  Capital Appreciation Index PLUS  Capital Appreciation Index PLUS  Custom  Custom Specify:

Note: HighMark PLUS portfolios are diversified portfolios of actively managed mutual funds. Index PLUS portfolios are diversified portfolios of Index-based mutual funds or exchange-traded funds.

Acknowledged and Approved

Signature of Authorized Signer Title

Print Name of Authorized Signer

Date

SAMPLE
159
City of Goleta ▎ 7
OPEB Actuarial Results
Data from 2019 CAFR
Valuation Date: 6/30/2019
Pay-as-you-Go
Discount Rate: 3.75% Percent Change Prefunding
Discount Rate: 6.75%
Total OPEB Liability (TOL) $2,241,108 30-36%▼ ?
Fiduciary Net Position $0 -- $0
Net OPEB Liability (NOL) $2,241,108 30-36%▼ ?
Service Cost
for FY 2018-19 $318,822 30-36%▼ ?
Annual Benefit Payments
(Pay-as-you-Go)
for FY 2018-19
$16,745 -- $16,745
Rule of thumb: For every one percent increase in the discount rate, the unfunded liability is lowered by 10-12%. 160
City of Goleta ▎ 8
Combined Miscellaneous
& Safety Groups
Valuation as of
June 30, 2018
Valuation as of
June 30, 2019 Change
Actuarial Liability $17.7 M $19.8 M 11.86% ↑
Assets $14.4 M $16.1 M 11.81% ↑
Unfunded Liability $3.3 M $3.6 M 9.09% ↑
Funded Ratio 81.4% 81.6% 0.25% ↑
Employer Contribution Amount $703.0 K
(FY 19-20)
$869.1 K
(FY 20-21) 23.63% ↑
Employer Contribution Amount (FY 26-27) --- $1.2 M 34.7% ↑ Pension Funding Status
As of June 30, 2019, City of Goleta’s CalPERS pension plan is funded as follows*:
* Data through 2026-27 from Agency’s latest CalPERS actuarial valuation. 161
City of Goleta ▎ 9
Projected Employer Contributions (Misc.)
Projected misc. contributions increase from $869.1K to $1.2M* (34.7% ↑) * Data through 2026-27 from Agency’s latest CalPERS actuarial valuation.

12.80%

13.00%

13.20%

13.40%

13.60%

13.80%

14.00%

14.20%

14.40%

14.60%
2020-21
2021-22
2022-23
2023-24
2024-25
2025-26
2026-27
% of Payroll
Total Contributions (%)
162
City of Goleta ▎ 10
HighMARK CAPITAL MANAGEMENT
163
About HighMark Capital Management, Inc.
*Includes predecessor organizations. HighMark Capital Management, Inc. registered with the SEC as an investment adviser on August 7, 1998. **Assets under management (“AUM”) include assets for which HighMark provides continuous and regular supervisory and management services.

Assets under advisement (“AUA”) include assets for which HighMark provides certain investment advisory services (including, but not limited to, investment research and strategies) for client assets of its parent company, MUFG Union Bank, N.A.

Asset ClassClient Base

LONGEVITY
Managing assets for clients
since 1919*

STABILITY
Investment boutique structure
headquartered in San Francisco
backed by global strength within
MUFG Union Bank, N.A.

TALENT
43 investment professionals
24 professionals hold the Chartered
Financial Analyst® (CFA) designation
22 years average industry experience
ASSETS UNDER MANAGEMENT AND ADVISEMENT**
$16.7 billion as of 6/30/2020
Equity $5.9 billion
Fixed Income $5.3 billion
Liquidity $3.6 billion
Cash $1.9 billion
AUM $8.6 billion
AUA $8.1 billion
164
Establish: Determine your Strategic Asset Allocation Strategy Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment.

Moderately Conservative
Moderate
Expected Standard Deviation (Volatility)
Expected Return
Balanced
Capital Appreciation
Efficient frontier of portfolios with varying ranges of equities and fixed income Conservative
Equity Fixed Income Cash
Conservative 5-20% 60-95% 0-20%
Moderately Conservative 20-40% 50-80% 0-20%
Moderate 40-60% 40-60% 0-20%
Balanced 50-70% 30-50% 0-20%
Capital Appreciation 65-85% 10-30% 0-20%
165
Construct Your Plan’s Portfolio: PARS Diversified Portfolios – Tactical Allocation Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment.

Conservative
Moderately
Conservative Moderate Balanced Capital Appreciation
Equity 5-20% 20-40% 40-60% 50-70% 65-85%
Current Tactical 14.50% 29.00% 48.34% 58.00% 72.50%
Large Cap Blend 5.40% 10.65% 18.11% 21.98% 27.36%
Large Cap Value 1.68% 3.48% 5.94% 7.12% 8.71%
Large Cap Growth 1.68% 3.48% 5.94% 7.12% 8.71%
Mid Cap Blend 1.02% 2.04% 3.33% 4.07% 5.09%
Mid Cap Value 0.00% 0.00% 0.00% 0.00% 0.00%
Real Estate 0.25% 0.55% 0.94% 1.02% 1.21%
Small Cap Value 0.81% 1.42% 2.32% 2.75% 2.98%
Small Cap Growth 0.81% 1.42% 2.32% 2.75% 2.98%
International 1.83% 3.91% 6.06% 7.12% 10.23%
Tactical - Europe 0.00% 0.00% 0.00% 0.00% 0.00%
Emerging Markets 1.02% 2.05% 3.38% 4.07% 5.23%
Fixed Income 60-95% 50-80% 40-60% 30-50% 10-30%
Current Tactical 81.25% 66.85% 47.60% 38.00% 23.74%
Short Term Bond 16.75% 12.15% 8.80% 6.00% 2.64%
Intermediate Term Bond 64.50% 54.70% 38.80% 32.00% 21.10% Floating Rate Note 0.00% 0.00% 0.00% 0.00% 0.00%
Cash 0-20% 0-20% 0-20% 0-20% 0-20%
Current Tactical 4.25% 4.15% 4.06% 4.00% 3.76%
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
166
Construct Your Plan’s Portfolio: PARS Diversified Portfolios – Active v. Passive Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment. Specific securities identified above do not represent all of the securities purchased, sold or recommended for advisory clients, and you should not assume that investments in the securities identified in this presentation were or will be profitable.

HighMark Plus (Active) Index Plus (Passive)
Equity Ticker Fund Name Ticker Fund Name
Large Cap Blend COFYX Columbia Contrarian Core I3 IVV iShares Core S&P 500 ETF Large Cap Blend VGIAX Vanguard Growth & Income Adm
Large Cap Value DODGX Dodge & Cox Stock IVE iShares S&P 500 Value ETF Large Cap Value IVE iShares S&P 500 Value ETF
Large Cap Growth HNACX Harbor Capital Appreciation Ret IVW iShares S&P 500 Growth ETF Large Cap Growth PRUFX T. Rowe Price Growth Stock I
Mid Cap Blend IWR iShares Russell Mid-Cap ETF IWR iShares Russell Mid-Cap ETF Real Estate VNQ Vanguard Real Estate ETF VNQ Vanguard Real Estate ETF Small Cap Value UBVFX Undiscovered Managers Behavioral Val R6 IWN iShares Russell 2000 Value ETF Small Cap Growth RSEJX Victory RS Small Cap Growth R6 IWO iShares Russell 2000 Growth ETF International DFALX DFA Large Cap International Portfolio International DODFX Dodge & Cox International Stock
International MGRDX MFS International Growth R6 EFA iShares MSCI EAFE ETF Emerging Markets HHHFX Hartford Schroders Emerging Mkts Eq F VWO Vanguard FTSE Emerging Markets ETF Fixed Income Ticker Fund Name Ticker Fund Name
Short Term Bond VFSUX Vanguard Short-Term Investment-Grade Adm VFSUX Vanguard Short-Term Investment-Grade Adm Intermediate Term Bond PTTRX PIMCO Total Return Instl AGG iShares Core U.S. Aggregate Bond Intermediate Term Bond PTRQX PGIM Total Return Bond Q
Intermediate Term Bond DBLFX DoubleLine Core Fixed Income I Cash
Characteristics
Fund Manager Dependency Higher dependency on portfolio manager skill Tracks index, thus little-to-no dependency on portfolio manager skill
Opportunity to Outperform Index Opportunity to outperform index Typically performs below index after fees Costs Higher expense ratios due to portfolio manager skill Lower expense ratio due to little dependency on portfolio manager skill or opportunity for outperformance
167
City of Goleta ▎ 15
Strategy Equity (%) 1 Year 3 Years 5 Years 10 Years
Capital
Appreciation 65-85% 12.24% 8.41% 9.02% 9.68%
Balanced 50-70% 11.44% 7.81% 8.16% 8.73%
Moderate 40-60% 10.52% 7.28% 7.50% 7.88%
Moderately
Conservative 20-40% 8.54% 6.13% 6.08% 6.18%
Conservative 5-20% 7.10% 5.38% 5.14% 4.79%
HighMark Capital Management

ACTIVE PORTFOLIO RETURNS
* Past performance does not guarantee future results.

As of August 31, 2020
168
City of Goleta ▎ 16
Strategy Allocation (%)
Capital Appreciation
(65-85% Equity) 6.63%
Balanced
(50-70% Equity) 28.31%
Moderate
(40-60% Equity) 34.94%
Mod. Conservative
(20-40% Equity) 16.27%
Conservative
(5-20% Equity) 3.01%
Other
(Custom) 10.84%
TOTAL 100.00%
OPEB Strategy Allocations

HIGHMARK CAPITAL MANAGEMENT
As of July 31, 2020
Active: 64.86%, Passive: 35.14%
Capital Appreciation

6.63%
Balanced

28.31%
Moderate

34.94%
Moderately
Conservative

16.27%
Conservative

3.01%
Other

10.84%
169
City of Goleta ▎ 17
Strategy Allocation (%)
Capital Appreciation
(65-85% Equity) 5.37%
Balanced
(50-70% Equity) 13.42%
Moderate
(40-60% Equity) 30.87%
Mod. Conservative
(20-40% Equity) 35.57%
Conservative
(5-20% Equity) 6.04%
Other
(Custom) 8.72%
TOTAL 100.00%
PRSP Strategy Allocations

HIGHMARK CAPITAL MANAGEMENT
As of July 31, 2020
Active: 62.50%, Passive: 37.50%
Capital Appreciation

5.37%
Balanced

13.42%
Moderate

30.87%
Moderately
Conservative

35.57%
Conservative

6.04%
Other

8.72%
170
HighMark’s dedicated investment team
continuously seeks to add value to our
relationship with your organization.
▪ Integrated client service program established
with PARS over the last 23 years
▪ We have a tradition of interactive client
service to maintain a strong relationship
delivered by local portfolio managers
▪ You benefit from face-to-face meetings and
scheduled conference calls with your client
service team and portfolio management
team
▪ You receive regular communications in a
variety of formats
• Account holdings and transactions
• Quarterly performance evaluation
reports
• Investment outlook and economic
updates
Report: Responsive and Proactive Client Communication
Tory Milazzo, CFA
Vice President
Sr. Portfolio Manager
Central Coast
Andrew Brown, CFA
Director
Sr. Portfolio Manager
Northern California
Hoddy Fritz
Director
Business
Development
Southern California
Fred Hurst
Director
Business
Development
Northern California
Keith Stribling, CFA
Vice President
Sr. Portfolio Manager
Orange County
Christiane Tsuda
Vice President
Sr. Portfolio Manager
San Diego
Anne Wimmer, CFA
Director
Sr. Portfolio Manager
Los Angeles
Randy Yurchak, CFA
Vice President
Sr. Portfolio Manager
Northern California
171
HighMark Plus Composite (Active)
Current Quarter* 7.21%
Blended Benchmark*,** 4.99%
Year To Date* 2.61%
Blended Benchmark*,** 2.98%
1 Year 5.78%
Blended Benchmark** 6.19%
3 Year 4.93%
Blended Benchmark** 4.87%
5 Year 4.41%
Blended Benchmark** 4.22%
10 Year 4.75%
Blended Benchmark** 4.26%

PARS DIVERSIFIED PORTFOLIOS

CONSERVATIVE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — CONSERVATIVE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

Key features include: sophisticated asset allocation
and optimization techniques, four layers of
diversification (asset class, style, manager, and
security), access to rigorously screened, top tier
money managers, flexible investment options, and
experienced investment management.

Rigorous Manager Due Diligence
Our manager review committee utilizes a rigorous
screening process that searches for investment
managers and styles that have not only produced
above-average returns within acceptable risk
parameters, but have the resources and commitment
to continue to deliver these results. We have set high
standards for our investment managers and funds.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

HighMark Plus utilizes actively managed mutual
funds while Index Plus utilizes index-based
securities, including exchange-traded funds. Both
investment options leverage HighMark’s active asset
allocation approach.

Risk Management
The portfolio is constructed to control risk through
four layers of diversification – asset classes (cash,
fixed income, equity), investment styles (large cap,
small cap, international, value, growth), managers
and securities. Disciplined mutual fund selection and
monitoring process helps to drive return potential
while reducing portfolio risk.

WHY THE PARS DIVERSIFIED
CONSERVATIVE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 - Present: 7.5% S&P500,

1.5% Russell Mid Cap, 2.5% Russell 2000, 1% MSCI EM (net), 2% MSCI EAFE (net), 52.25% BBG Barclays US Agg, 25.75% ICE BofA 1-3 Yr US Corp/Gov’t, 2% ICE BofA US High Yield Master II, 0.5% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012, the blended benchmark was 12% S&P 500; 1% Russell 2000, 2% MSCI EAFE (net), 40% ICE BofA 1-3 Year Corp./Govt, 40% BBG Barclays US Agg, 5% FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 15% S&P 500, 40% ICE BofA 1-3Yr Corp/Gov, 40% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide a consistent level of
inflation-protected income over
the long-term. The major portion
of the assets will be fixed
income related. Equity securities
are utilized to provide inflation
protection.

Conservative
Moderately Conservative
Moderate
Balanced
Capital Appreciation
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)
Strategic Range Policy Tactical
Equity 5 – 20% 15% 15%
Fixed Income 60 – 95% 80% 81%
Cash 0 – 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
Index Plus Composite (Passive)
Current Quarter* 5.60%
Blended Benchmark*,** 4.99%
Year To Date* 3.74%
Blended Benchmark*,** 2.98%
1 Year 7.00%
Blended Benchmark** 6.19%
3 Year 5.05%
Blended Benchmark** 4.87%
5 Year 4.32%
Blended Benchmark** 4.22%
10 Year 4.49%
Blended Benchmark** 4.26%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 07/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 07/2004
No of Holdings in Portfolio 12
HighMark Plus Composite (Active)
2008 -9.04%
2009 15.59%
2010 8.68%
2011 2.19%
2012 8.45%
2013 3.69%
2014 3.88%
2015 0.29%
2016 4.18%
2017 6.73%
2018 -1.35%
2019 11.05%
Index Plus Composite (Passive)
2008 -6.70%
2009 10.49%
2010 7.67%
2011 3.70%
2012 6.22%
2013 3.40%
2014 4.32%
2015 0.06%
2016 3.75%
2017 5.52%
2018 -1.09%
2019 10.37%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
172

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

ABOUT THE ADVISER
HighMark® Capital Management, Inc. (HighMark) has
100 years (including predecessor organizations) of
institutional money management experience with $8.6
billion in assets under management and $8.1 billion in
assets under advisement*. HighMark has a long term
disciplined approach to money management and
currently manages assets for a wide array of clients.

ABOUT THE PORTFOLIO MANAGEMENT TEAM
Andrew Brown, CFA
®
Senior Portfolio Manager
Investment Experience: since 1994
HighMark Tenure: since 1997
Education: MBA, University of Southern California;
BA, University of Southern California
Salvatore “Tory” Milazzo III, CFA
®
Senior Portfolio Manager
Investment Experience: since 2004
HighMark Tenure: since 2014
Education: BA, Colgate University
J. Keith Stribling, CFA
®
Senior Portfolio Manager
Investment Experience: since 1985
HighMark Tenure: since 1995
Education: BA, Stetson University
Christiane Tsuda
Senior Portfolio Manager
Investment Experience: since 1987
HighMark Tenure: since 2010
Education: BA, International Christian University, Tokyo Anne Wimmer, CFA
®
Senior Portfolio Manager
Investment Experience: since 1987
HighMark Tenure: since 2007
Education: BA, University of California, Santa Barbara
Randy Yurchak, CFA
®
Senior Portfolio Manager
Investment Experience: since 2002
HighMark Tenure: since 2017
Education: MBA, Arizona State University;
BS, University of Washington
Asset Allocation Committee
Number of Members: 17
Average Years of Experience: 26
Average Tenure (Years): 14
Manager Review Group
Number of Members: 7
Average Years of Experience: 17
Average Tenure (Years): 8
*Assets under management (“AUM”) include assets for which HighMark provides continuous and regular supervisory and management services. Assets under advisement (“AUA”)
include assets for which HighMark provides certain investment advisory services (including, but not limited to, investment research and strategies) for client assets of its parent company, MUFG Union Bank, N.A.

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Conservative active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. US Bank pays HighMark 60% of the annual management fee for assets sub-advised by HighMark under its sub-advisory agreement with US Bank.

The 0.36% paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio’s returns. Assuming an investment for five years, a 5% annual total return, and an annual sub-advisory fee rate of 0.36% deducted from the assets at market at the end of each year, a $10 million initial value would grow to $12.53 million after fees (Net-of-Fees) and $12.76 million before fees (Gross-of-Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. A client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm’s policies and procedures for calculating and reporting performance results is available upon request. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade-date accounting.

Blended benchmarks represent HighMark’s strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float- adjusted market capitalization index designed to measure dev eloped market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid- cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The ICE BofA US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domes tic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The ICE BofA 1-3 Year U.S. Corporate & Government Index tracks the bond performance of the ICE BofA U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged FTSE 1-Month Treasury Bill Index tracks the yield of the 1-month U.S. Treasury Bill.

HighMark Capital Management, Inc. (HighMark), an SEC-registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, and public and private retirement plans. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client’s investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. 350 California Street
Suite 1600
San Francisco, CA 94104
800.582.4734
www.highmarkcapital.com

HOLDINGS
STYLE
Small Cap

1.6%
Interm-Term Bond

64.5%
Short-Term Bond

16.7%
Large Cap Core

5.4%
Large Cap Growth

1.7%
Mid Cap

1.0%
Intl Stocks

2.9%
Cash

4.2%
Large Cap Value

1.7% Real Estate

0.3%
HighMark Plus (Active) Index Plus (Passive)
Columbia Contrarian Core I3 iShares Core S&P 500 ETF
Vanguard Growth & Income Adm iShares S&P 500 Value ETF
Dodge & Cox Stock Fund iShares S&P 500 Growth ETF
iShares S&P 500 Value ETF iShares Russell Mid-Cap ETF
Harbor Capital Appreciation - Retirement Vanguard Real Estate ETF T. Rowe Price Growth Stock - I iShares Russell 2000 Value ETF iShares Russell Mid-Cap ETF iShares Russell 2000 Growth ETF Vanguard Real Estate ETF iShares MSCI EAFE ETF
Undiscovered Managers Behavioral Value-R6 Vanguard FTSE Emerging Markets ETF Victory RS Small Cap Growth - R6 Vanguard Short-Term Invest-Grade Adm DFA Large Cap International Portfolio iShares Core U.S. Aggregate Dodge & Cox International Stock First American Government Obligations Z MFS International Growth - R6
Hartford Schroders Emerging Markets Eq
Vanguard Short-Term Invest-Grade Adm
PIMCO Total Return Fund - Inst
PGIM Total Return Bond - R6
DoubleLine Core Fixed Income - I
First American Government Obligations Z
Holdings are subject to change at the
discretion of the investment manager.
173

PARS DIVERSIFIED PORTFOLIOS

MODERATELY CONSERVATIVE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — MODERATELY CONSERVATIVE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
MODERATELY CONSERVATIVE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 - Present: 15.5% S&P500, 3% Russell Mid Cap, 4.5% Russell 2000, 2% MSCI EM (net), 4% MSCI EAFE (net), 49.25% BBG Barclays US Agg, 14% ICE BofA 1-3 Yr US Corp/Gov’t, 1.75% ICE BofA US High Yield Master II, 1% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 - 9/30/2012: the blended benchmark was 25% S&P 500; 1.5% Russell 2000, 3.5% MSCI EAFE (net), 25% ICE BofA 1-3 Year Corp./Govt, 40% BBG Barclays US Agg, 5% FTSE 1 Mth T-Bill. Prior to April 2007, the blended benchmark was 30% S&P 500, 25% ICE BofA 1-3Yr Corp/Gov, 40% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide current income, with
capital appreciation as a
secondary objective. The major
portion of the assets is
committed to income-producing
securities. Market fluctuations
should be expected.

Strategic Range Policy Tactical
Equity 20 - 40% 30% 29%
Fixed Income 50 - 80% 65% 67%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 9.68%
Blended Benchmark*,** 7.73%
Year To Date* 0.85%
Blended Benchmark*,** 1.56%
1 Year 4.87%
Blended Benchmark** 5.87%
3 Year 5.22%
Blended Benchmark** 5.52%
5 Year 4.90%
Blended Benchmark** 5.07%
10 Year 5.97%
Blended Benchmark** 5.79%
Index Plus Composite (Passive)
Current Quarter* 7.78%
Blended Benchmark*,** 7.73%
Year To Date* 1.80%
Blended Benchmark*,** 1.56%
1 Year 6.05%
Blended Benchmark** 5.87%
3 Year 5.41%
Blended Benchmark** 5.52%
5 Year 4.98%
Blended Benchmark** 5.07%
10 Year 5.80%
Blended Benchmark** 5.79%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 08/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 05/2005
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -15.37%
2009 18.71%
2010 10.46%
2011 1.75%
2012 10.88%
2013 7.30%
2014 4.41%
2015 0.32%
2016 4.94%
2017 9.56%
2018 -2.60%
2019 13.73%
Index Plus Composite (Passive)
2008 -12.40%
2009 11.92%
2010 9.72%
2011 3.24%
2012 8.24%
2013 6.78%
2014 5.40%
2015 -0.18%
2016 5.42%
2017 8.08%
2018 -2.33%
2019 13.53%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
174

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent a size-weighted composite of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderately Conservative active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap 2.8%
Interm-Term Bond

54.7%
Short-Term Bond

12.2%
Large Cap Core

10.6%
Large Cap Growth

3.5%
Mid Cap 2.0%
Intl Stocks 6.0%
Cash 4.1%
Large Cap Value

3.5%
Real Estate 0.6%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

MODERATE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — MODERATE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
MODERATE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 – Present: 26.5% S&P500, 5% Russell Mid Cap, 7.5% Russell 2000, 3.25% MSCI EM (net), 6% MSCI EAFE (net), 33.50% BBG Barclays US Agg, 10% ICE BofA 1-3 Yr US Corp/Gov’t, 1.50% ICE BofAUS High Yield Master II, 1.75% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012: the blended benchmark was 43% S&P 500; 2% Russell 2000, 5% MSCI EAFE (net), 15% ICE BofA 1-3 Year Corp./Govt, 30% BBG Barclays US Agg, 5% FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 50% S&P 500, 15% ICE BofA 1-3Yr Corp/Gov, 30% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide current income and
moderate capital appreciation.

It is expected that dividend and
interest income will comprise a
significant portion of total return,
although growth through capital
appreciation is equally important.

Strategic Range Policy Tactical
Equity 40 - 60% 50% 48%
Fixed Income 40 - 60% 45% 48%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 12.73%
Blended Benchmark*,** 11.27%
Year To Date* -1.32%
Blended Benchmark*,** -0.85%
1 Year 3.96%
Blended Benchmark** 4.75%
3 Year 5.77%
Blended Benchmark** 6.03%
5 Year 5.67%
Blended Benchmark** 5.91%
10 Year 7.48%
Blended Benchmark** 7.59%
Index Plus Composite (Passive)
Current Quarter* 10.92%
Blended Benchmark*,** 11.27%
Year To Date* -0.94%
Blended Benchmark*,** -0.85%
1 Year 4.54%
Blended Benchmark** 4.75%
3 Year 5.69%
Blended Benchmark** 6.03%
5 Year 5.60%
Blended Benchmark** 5.91%
10 Year 7.39%
Blended Benchmark** 7.59%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 10/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 05/2006
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -22.88%
2009 21.47%
2010 12.42%
2011 0.55%
2012 12.25%
2013 13.06%
2014 4.84%
2015 0.14%
2016 6.45%
2017 13.19%
2018 -4.03%
2019 17.71%
Index Plus Composite (Passive)
2008 -18.14%
2009 16.05%
2010 11.77%
2011 2.29%
2012 10.91%
2013 12.79%
2014 5.72%
2015 -0.52%
2016 7.23%
2017 11.59%
2018 -4.03%
2019 17.52%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
176

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderate active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap

4.7%
Interm-Term Bond

38.8%
Short-Term Bond

8.8%
Large Cap Core

18.1%
Large Cap Growth

5.9%
Mid Cap

3.3%
Intl Stocks

9.5%
Cash

4.1%
Large Cap Value

5.9%
Real Estate

0.9%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

BALANCED

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — BALANCED PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
BALANCED PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 – Present: 32% S&P500, 6% Russell Mid Cap, 9% Russell 2000, 4% MSCI EM (net), 7% MSCI EAFE (net), 27% BBG Barclays US Agg, 6.75% ICE BofA 1-3 Yr US Corp/Gov’t, 1.25% ICE BofA US High Yield Master II, 2% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012: the blended benchmark was 51% S&P 500; 3% Russell 2000, 6% MSCI EAFE (net), 5% ICE BofA 1-3 Year Corp./Govt, 30% BBG Barclays US Agg, 5% FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 60% S&P 500, 5% ICE BofA 1- 3Yr Corp/Gov, 30% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide growth of principal
and income. While dividend and
interest income are an important
component of the objective’s
total return, it is expected that
capital appreciation will
comprise a larger portion of the
total return.

Strategic Range Policy Tactical
Equity 50 – 70% 60% 58%
Fixed Income 30 – 50% 35% 38%
Cash 0 – 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 14.40%
Blended Benchmark*,** 13.11%
Year To Date* -2.36%
Blended Benchmark*,** -2.02%
1 Year 3.51%
Blended Benchmark** 4.23%
3 Year 6.07%
Blended Benchmark** 6.28%
5 Year 6.01%
Blended Benchmark** 6.33%
10 Year 8.24%
Blended Benchmark** 8.52%
Index Plus Composite (Passive)
Current Quarter* 12.53%
Blended Benchmark*,** 13.11%
Year To Date* -2.24%
Blended Benchmark*,** -2.02%
1 Year 3.90%
Blended Benchmark** 4.23%
3 Year 5.79%
Blended Benchmark** 6.28%
5 Year 5.90%
Blended Benchmark** 6.33%
10 Year 8.10%
Blended Benchmark** 8.52%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 10/2006
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 10/2007
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -25.72%
2009 21.36%
2010 14.11%
2011 -0.46%
2012 13.25%
2013 16.61%
2014 4.70%
2015 0.04%
2016 6.81%
2017 15.46%
2018 -4.88%
2019 19.85%
Index Plus Composite (Passive)
2008 -23.22%
2009 17.62%
2010 12.76%
2011 1.60%
2012 11.93%
2013 15.63%
2014 6.08%
2015 -0.81%
2016 8.25%
2017 13.39%
2018 -5.05%
2019 19.59%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
178

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Balanced active and passive objectives.

The composite name has been changed from PARS Balanced/Moderately Aggressive to PARS Balanced on 5/1/2013. The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. US Bank pays HighMark 60% of the annual management fee for assets sub-advised by HighMark under its sub-advisory agreement with US Bank. The

0.36% paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio’s returns. Assuming an investment for five years, a 5% annual total return, and an annual sub-advisory fee rate of

0.36% deducted from the assets at market at the end of each year, a $10 million initial value would grow to $12.53 million after fees (Net-of-Fees) and $12.76 million before fees (Gross-of-Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. A client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm’s policies and procedures for calculating and reporting performance results is available upon request. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade-date accounting.

HOLDINGS
STYLE
Small Cap

5.5%
Interm-Term Bond

32.0%
Short-Term Bond

6.0%
Large Cap Core

22.0%
Large Cap Growth

7.1%
Mid Cap

4.1%
Intl Stocks

11.2%
Cash

4.0%
Large Cap Value

7.1%
Real Estate

1.0%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

CAPITAL APPRECIATION

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — CAPITAL APPRECIATION PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
CAPITAL APPRECIATION PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: 39.5% S&P500, 7.5% Russell Mid Cap,

10.5% Russell 2000, 5.25% MSCI EM (net), 10.25% MSCI EAFE (net), 16% BBG Barclays US Agg, 3% ICE BofA 1-3 Yr US Corp/Gov’t, 1% ICE BofA US High Yield Master II, 2% Wilshire REIT, and 5% FTSE 1 Mth T-Bill.

To provide growth of principal.

The major portion of the assets
are invested in equity securities
and market fluctuations are
expected.

Strategic Range Policy Tactical
Equity 65 - 85% 75% 72%
Fixed Income 10 - 30% 20% 24%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
Consolidated Composite
Current Quarter* 15.95%
Blended Benchmark*,** 15.76%
Year To Date* -4.09%
Blended Benchmark*,** -3.94%
1 Year 2.66%
Blended Benchmark** 3.18%
3 Year 6.26%
Blended Benchmark** 6.46%
5 Year 6.42%
Blended Benchmark** 6.77%
10 Year 9.06%
Blended Benchmark** 9.48%

PORTFOLIO FACTS
Consolidated Composite
Composite Inception Date 01/2009
No of Holdings in Portfolio 19
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
Consolidated Composite
2008 N/A
2009 23.77%
2010 12.95%
2011 -1.35%
2012 13.87%
2013 20.33%
2014 6.05%
2015 -0.27%
2016 8.81%
2017 16.72%
2018 -5.82%
2019 22.62%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
180

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent a size-weighted composite of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Capital Appreciation active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap

6.0%
Interm-Term Bond

21.1%
Short-Term Bond

2.6%
Large Cap Core

27.4%
Large Cap Growth

8.7%
Mid Cap

5.1%
Intl Stocks

15.4%
Cash

3.8%
Large Cap Value

8.7%
Real Estate

1.2%
Holdings are subject to change at the
discretion of the investment manager.

HighMark Plus (Active) Index Plus (Passive)
Columbia Contrarian Core I3 iShares Core S&P 500 ETF
Vanguard Growth & Income Adm iShares S&P 500 Value ETF
Dodge & Cox Stock Fund iShares S&P 500 Growth ETF
iShares S&P 500 Value ETF iShares Russell Mid-Cap ETF
Harbor Capital Appreciation – Retirement Vanguard Real Estate ETF T. Rowe Price Growth Stock - I iShares Russell 2000 Value ETF iShares Russell Mid-Cap ETF iShares Russell 2000 Growth ETF Vanguard Real Estate ETF iShares MSCI EAFE ETF
Undiscovered Managers Behavioral Value-R6 Vanguard FTSE Emerging Markets ETF Victory RS Small Cap Growth - R6 Vanguard Short-Term Invest-Grade Adm DFA Large Cap International Portfolio iShares Core U.S. Aggregate Dodge & Cox International Stock First American Government Obligations Z MFS International Growth - R6
Hartford Schroders Emerging Markets Eq
Vanguard Short-Term Invest-Grade Adm
PIMCO Total Return Fund - Inst
PGIM Total Return Bond - R6
DoubleLine Core Fixed Income - I
First American Government Obligations Z
181
Attachment 7
Presentation
182
Long Range Financial Forecast, Revenue, and Funding Options Workshop Long Range Financial Forecast, Revenue and
Funding Options Workshop
City of Goleta
City Council Workshop
December 10, 2020
183
Long Range Financial Forecast, Revenue, and Funding Options Workshop  Forecast Overview
 History of General Fund and Five-Year Forecast
 20-Year General Fund Financial Forecast
 Unfunded Liabilities and Other Priorities
 Revenue Enhancement Options and Funding Strategies
 Staff Recommendations and Next Steps
2 184
Long Range Financial Forecast, Revenue, and Funding Options Workshop  Extension of the General Fund Five-Year Forecast, going out 20 years to FY 40/41  Creates a long-range view for strategic decision making and context for balancing short-term and long-term goals
 Forecast is not a Budget
 Forecast is the financial outcome from a given set of assumptions  Forecast sets long-term budget parameters, whereas the Budget sets annual spending priorities
 Revenue and expenditure trends over time
 Identifies outcomes if nothing changes
 Provides an “Order of Magnitude” feel for the General Fund’s ability to continue services and preserve fiscal sustainability
 Should be viewed as a “Work in Progress” as new information becomes available and updated
3 185
Long Range Financial Forecast, Revenue, and Funding Options Workshop  Analyzed historical and current trends, including growth rates, recession impacts and changes over the last five years
 FY 20/21 is used as the initial base for all scenarios  FY 18/19 actuals are used to compare when the City’s revenues return to normal levels  Three primary scenarios modeled with different revenue scenarios based on current policy  Expenditures assumptions for the three scenarios are all the same and updated to pre- pandemic status quo levels starting in FY 21/22
 All cost reductions and 11 FTE positions subject to hiring freeze added back in  Additional pavement budget of $3.3 million needed annually needed factored in 4 186
Long Range Financial Forecast, Revenue, and Funding Options Workshop  Scenario 1 – Current Budget (Worst Case)
 Was the recommended case during FY 20/21 Budget Adoption. Severe six- month shock, followed by slow period of growth through June 2021 and beyond, with total revenues estimated to be back to normal levels by FY 25/26 (~$30 million). Now considered worst case for forecasting purposes.  Scenario 2 – Moderate (Current Trend – Most Likely Case)  Revenues revised to reflect current trending data with conservative assumptions. Revenues estimated to fully recover to normal levels by FY 22/23. Includes cannabis tax revenues at $1 million starting in FY 21/22.  Scenario 3 – Optimistic (Best Case)
 Shorter recovery period, as revenues estimated to fully recover back to normal levels by FY 21/22. Cannabis tax revenues are assumed at $2 million starting in FY 21/22.
5 187
Long Range Financial Forecast, Revenue, and Funding Options Workshop 6 Fiscal Year
(FY)
Property Tax
Revenue
YOY
% Chg
Sales Tax
Revenue
YOY
% Chg
TOT
Revenue
YOY
% Chg
All Other
Revenue
YOY
% Chg
Total
Revenue
YOY
% Chg Notable Events
FY 02/03 1,792,081$ 3,485,996$ 2,141,810$ 4,382,338$ 11,802,225$ SARS - 11/2002 - 7/2003 FY 03/04 2,045,480$ 14.14% 3,623,036$ 3.93% 2,142,800$ 0.05% 5,261,570$ 20.06% 13,072,886$ 10.77% FY 04/05 3,727,087$ 82.21%
3,864,388$ 6.66% 2,281,612$ 6.48% 3,969,708$ -24.55% 13,842,795$ 5.89% Vehicle License Fee - Property Tax Swap FY 05/06 4,856,895$ 30.31% 4,039,979$ 4.54% 2,636,260$ 15.54% 3,885,783$ -2.11% 15,418,917$ 11.39% Goleta postal facility shooting: 1/2006, Start of
Triple Flip
FY 06/07 4,793,775$ -1.30% 4,116,749$ 1.90% 2,538,567$ -3.71% 5,257,402$ 35.30% 16,706,493$ 8.35% FY 07/08 4,765,991$ -

0.58% 4,160,113$ 1.05% 2,783,143$ 9.63% 4,287,520$ -18.45% 15,996,767$ -4.25% Great Recession 12/2007 - 6/2009, Zaca Fire
7/2007
FY 08/09 4,860,427$ 1.98% 3,353,658$ -19.39% 2,461,489$ -11.56% 5,602,297$ 30.67% 16,277,872$ 1.76% Gap Fire 7/2008, Tea Fire 11/2008, Jesuita
Fire 5/2009, 7 hotels now operating
FY 09/10 4,942,940$ 1.70% 3,310,542$ -1.29% 2,138,896$ -13.11% 4,004,651$ -28.52% 14,397,030$ -11.55% End of Great Recession FY 10/11 4,952,157$ 0.19% 3,905,548$ 17.97% 2,420,762$ 13.18% 3,348,128$ -16.39% 14,626,594$ 1.59% FY 11/12 5,215,822$ 5.32%
3,845,273$ -1.54% 4,141,635$ 71.09% 3,862,202$ 15.35% 17,064,932$ 16.67% FY 12/13 5,320,579$ 2.01% 5,776,818$ 50.23% 5,604,278$ 35.32% 4,698,890$ 21.66% 21,400,564$ 25.41% TOT RNA sharing adjusted from 40% to 0%
TOT tax rate increase from 10% to 12%
Sales Tax RNA sharing adjusted from 50% to
0%
FY 13/14 5,390,827$ 1.32% 6,812,304$ 17.92% 6,975,799$ 24.47% 4,079,384$ -13.18% 23,258,314$ 8.68% Ebola: 2014-2016, Isla Vista Shooting 5/2014,
8 hotels now operating
FY 14/15 5,517,146$ 2.34% 6,329,870$ -7.08% 7,807,860$ 11.93% 3,721,385$ -8.78% 23,376,261$ 0.51% Refugio Oil Spill: 5/2015 FY 15/16 5,999,416$ 8.74% 6,216,442$ -1.79% 8,175,381$ 4.71% 4,232,841$ 13.74% 24,624,080$ 5.34% Zika: 12/2015-9/2016, Sherpa Fire: 6/2016,
End of Triple Flip.

FY 16/17 6,284,688$ 4.76% 6,491,121$ 4.42% 8,615,207$ 5.38% 4,604,171$ 8.77% 25,995,187$ 5.57% Rey Fire: 8/2016, Debris flow: 1/2017 FY 17/18 6,931,399$ 10.29% 6,424,757$ -1.02% 10,117,983$ 17.44% 4,035,570$ -12.35% 27,509,710$ 5.83% Whittier Fire: July 2017, Thomas Fire/Debris
Flow: 12/2017 - 1/2018, 2 new hotels open:
11/2017, CDTFA established
FY 18/19 7,431,595$ 7.22% 6,994,204$ 8.86% 11,563,912$ 14.29% 4,034,618$ -0.02% 30,024,330$ 9.14% Holiday Fire 7/2018, Kmart closed: 10/2018,
Debris flow (154): 2/2019, Cannabis tax
measure passed
FY 19/20 7,684,647$ 3.41% 6,735,609$ -3.70% 9,197,440$ -20.46% 4,956,134$ 22.84% 28,573,830$ -4.83% Cave Fire: 11/2019, Target opened: 10/2019,
Wayfair decsision online sales tax effects,
COVID-19 Pandemic 3/2020 - ongoing
188
Long Range Financial Forecast, Revenue, and Funding Options Workshop 7 $12 $13 $14
$15 $17 $16 $16
$14 $15
$17
$21
$23 $23 $25
$26
$28
$30
$29
$0
$5
$10
$15
$20
$25
$30
$35Millions
Total General Fund Revenues
Great
Recession
189
Long Range Financial Forecast, Revenue, and Funding Options Workshop 8 Scenario 2 - Recession through FY 20/21
Summary of Five Year Forecast FY 20/21
Revised
FY 21/22
Projected
FY 22/23
Projected
FY 23/24
Projected
FY 24/25
Projected
Beginning Fund Balance 19,609,178$ 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ Total Revenues 22,910,700$ 27,487,920$ 28,769,500$ 29,224,400$ 29,690,100$ Total Expenditures 26,056,950$ 27,020,022$ 28,502,560$ 29,302,561$ 30,127,765$ Net Revenue over ExpendituresA (3,146,250)$ 467,899$ 266,940$ (78,161)$ (437,665)$ Fund Balance Categories
Prepaids and Deposits 10,000$ 10,000$ 10, 000$ 10,000$ 10,000$ Public Facilities 830,108$ 830,108$ 830,108$ 830,108$ 830,108$ Capital Equipment 594,869$ 594,869$ 594,869$ 594,869$ 594,869$ Compensated Leave 237,123$ 237,123$ 237,123$ 237,123$ 237,123$ Risk Management 200,000$ 200,000$ 200,000$ 200,000$ 200,000$ Contingency Reserves 7,963,101$ 8,279,643$ 8,766,311$ 9,027,687$ 9,297,324$ Litigation Defense Fund 300,000$ 300,000$ 300,000$ 300,000$ 300,000$ Sustainability 292,500$ 292,500$ 292,500$ 292,500$ 292,500$ OPEB UAL 333,500$ 333,500$ 333,500$ 333,500$ 333,500$ CalPERS UAL 170,000$ 170,000$ 170,000$ 170,000$ 170,000$ CIP Project Funding -$ -$ -$ -$ -$ Encumbrances -$ -$ -$ -$ -$ Unassigned Fund Balance 5,531,726$ 5,683,083$ 5,463,355$ 5,123,818$ 4,416,516$ Ending Fund Balance 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ 16,681,940$  Original forecast shown
 Cost reduction strategies
implemented through FY
21/22 with hiring freeze
of 11 FTE’s phased back
in over 2 years
 General fund share of
pavement maintenance
not programmed back in
 Scenarios on next slide
updated to assume all
expenditures added back
to status quo starting in
FY 21/22 plus $3.3
million of additional
pavement
190
Long Range Financial Forecast, Revenue, and Funding Options Workshop 9 Annual
Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
 Revenues based on FY
20/21 adopted budget
and five-year forecast
 Cannabis revenues
very low and not
increased
 TOT back to normal
levels FY 25/26
 Sales Tax back to
normal levels FY 24/25
191
Long Range Financial Forecast, Revenue, and Funding Options Workshop 10  Revenues based on FY
20/21 adopted budget
and five-year forecast
 Cannabis revenues
very low and not
increased
 TOT back to normal
levels FY 25/26
 Sales Tax back to
normal levels FY 24/25
($25)
($20)
($15)
($10)
($5)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average annual deficit over the next five years: ($5.0 million) Average annual deficit over the next 10 years: ($6.1 million ) Average annual deficit over the next 15 years: ($7.7 million) Average annual deficit over the next 20 years: ($9.7 million) 192
Long Range Financial Forecast, Revenue, and Funding Options Workshop 11  Revenues based on
current trending data
 Sales Tax, TOT and
cannabis adjusted
 Cannabis revenues
assumed at $1 million
starting in FY 21/22
 TOT back to normal
levels FY 23/24
 Sales Tax back to
normal levels FY 22/23
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
193
Long Range Financial Forecast, Revenue, and Funding Options Workshop 12  Revenues based on
current trending data
 Sales Tax, TOT and
cannabis adjusted
 Cannabis revenues
assumed at $1 million
starting in FY 21/22
 TOT back to normal
levels FY 23/24
 Sales Tax back to
normal levels FY 22/23
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average annual deficit over the next five years: ($2.6 million) Average annual deficit over the next 10 years: ($3.0 million) Average annual deficit over the next 15 years: ($3.9 million) Average annual deficit over the next 20 years: ($5.0 million) 194
Long Range Financial Forecast, Revenue, and Funding Options Workshop 13  Fastest recovery
 Sales Tax, TOT and
cannabis adjusted
 Cannabis revenues
assumed at $2 million
starting in FY 21/22
 TOT back to normal
levels FY 22/23
 Sales Tax back to
normal levels FY 21/22
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
195
Long Range Financial Forecast, Revenue, and Funding Options Workshop 14  Fastest recovery
 Sales Tax, TOT and
cannabis adjusted
 Cannabis revenues
assumed at $2 million
starting in FY 21/22
 TOT back to normal
levels FY 22/23
 Sales Tax back to
normal levels FY 21/22
($7)
($6)
($5)
($4)
($3)
($2)
($1)
$0
$1
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average annual deficit over the next five years: ($474,000) Average annual deficit over the next 10 years: ($494,000) Average annual deficit over the next 15 years: ($903,000) Average annual deficit over the next 20 years: ($1.5 million) 196
Long Range Financial Forecast, Revenue, and Funding Options Workshop 15  COVID-19 Pandemic
 Volatile Economy and Economic Downturns
 State Takeaways and Borrowing
 Unfunded Liability Pension Costs and OPEB
 Compensation Increases and Adjustments
 Deferred Maintenance
 No Major New One-time Expenses
 No New Personnel or Program Expansion
 Other Special Revenue Operating Fund Deficits
197
Long Range Financial Forecast, Revenue, and Funding Options Workshop 16  Projected budget shortfalls in all periods
 Short-term fixes with fund balance and reserves
 Ongoing revenues not sufficient to keep up with ongoing expenditures when factoring in additional $3.3 million deferred maintenance needed for pavement  Deficit to grow larger when other costs of additional items are known and included in updated forecast
 No capacity for additional pavement budget, investment in facilities, or to issue debt without going to voters
 At status quo service levels, without the additional $3.3 million, can possibly maintain the next few years, but at the growing cost of deferring maintenance, resulting in more expensive repairs and replacement.
198
Long Range Financial Forecast, Revenue, and Funding Options Workshop 17 ($250)
($200)
($150)
($100)
($50)
$0
$50
Scenario 1 - Cumulative Unassigned Fund Balance
$(120)
$(100)
$(80)
$(60)
$(40)
$(20)
$-
$20
Scenario 2 Cumulative Unassigned Fund Balance
($40)
($30)
($20)
($10)
$0
$10
$20
Millions
Scenario 3 Cumulative Unassigned Fund Balance
 Assumes no one-time use of unassigned fund balance for other unfunded priorities
 Scenario 1 negative by FY 22/23
 Scenario 2 negative by FY 23/24
 Scenario 3 negative by FY 31/32
199
Long Range Financial Forecast, Revenue, and Funding Options Workshop 18 Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 1,530,496$ 741,778$ (579,068) $ (2,217,859)$ Alternative Scenario 1
Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 2
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,265,616 $ 4,363,318 $ 4,030,200$ 3,506,242$ Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 6,726,741$ 7,283,421$ 7,518,207$ 7,656,513$  Assumes no revenue sharing with the County starting in FY 20/21  City shares 50% of is property tax allocation
 City shares 30% of the 1% Bradley-Burns uniform sales tax allocation of the 7.75% sales and use tax rate. The full 1% is normally allocated to cities.  Result in an additional annual $6.1 million in tax revenues beginning FY 20/21
Alternative Scenario 3
Assumes No Revenue Neutrality Agreement
200
Long Range Financial Forecast, Revenue, and Funding Options Workshop 19  Assumes phasing out revenue sharing with the County over a 10-year period , starting in FY 20/21
 Assumes ramping down in equal installments over ten years, with 100% reduced by FY 29/30
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Assumes Revenue Neutrality Agreement Ramping Down over 10 Years Alternative Scenario 1
Annual SurplusTotal Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 2
Annual Surplus
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 3
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,448,580$ 4,663,068$ 5,771,306$ 6,346,337$ Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 194,459$ 1,874,965 $ 2,371,297$ 2,262,065$ Average Years: 5 Years 10 Y ears 15 Years 20 Years
Average Surplus/(Deficit) (2,340,584)$ (1,613,264)$ (2,149,096)$ (3,395,380)$ 201
Long Range Financial Forecast, Revenue, and Funding Options Workshop 20  Models recessionary impacts every seven years (FY
27/28 and FY 34/35)
 First recession assumes decline in sales tax at 20% and TOT 12% over two years – similar to what was
experienced during Great Recession
 Second recession assumes moderate impacts and cuts in half the impacts felt during the Great Recession, 10%
reduction in sales tax and 6% reduction in TOT
Recessionary Impacts Every Seven Years
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 1 Alternative Scenario 2
Alternative Scenario 3
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (4,969,811)$ (7,703,331)$ (10,580,117)$ (13,608,842)$ Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (2,580,215)$ (4,736,921)$ (7,010,407)$ (9,377,469)$ Average Years: 5 Years 10 Y ears 15 Years 20 Years
Average Surplus/(Deficit) (473,761)$ (2,436,445)$ (4,413,404)$ (6,420,874)$ 202
Long Range Financial Forecast, Revenue, and Funding Options Workshop 21  Scenarios assume the temporary cost reduction strategy is phased out over two-year period
 Removes additional $3.3 million of pavement budget
Original FY 20/21 Budget with Temporary Cost ContainmentStrategies Phased Out and No Additional $3.3 Million Pavement Budget Alternative Scenario 1 Alternative Scenario 2
Alternative Scenario 3
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 35,783$ (786,316)$ (2,037,418)$ (3,560,259)$ Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,425,379$ 2,323,730$ 1,833,668$ 1,155,587$ Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,531,833 $ 4,805,203$ 4,787,086$ 4,658,379$ 203
Long Range Financial Forecast, Revenue, and Funding Options Workshop 22  Unfunded liabilities [CalPERS pension UAL, OPEB (retiree health care) UAL], and settlement agreement payment
 Unfunded deferred maintenance with pavement, concrete, public trees, ADA, traffic signals, storm drains, vehicles and equipment, facilities, and parks and open space  Staff level imbalances and service levels in departments and programs  Master Plan Documents needing implementation
204
Long Range Financial Forecast, Revenue, and Funding Options Workshop 23 Summary of Unfunded Liabilities
Unfunded
Liabilities Est. Amount Current
Funding Adj. Est. Amount Potential Funding Sources
CalPERS UAL $ 3,517,839 $ 333,500 $ 3,184,339
Section 115 Trust once
funded
OPEB UAL $ 2,438,474 $ 170,000 $ 2,268,474
Section 115 Trust once
funded
Settlement
Agreement $ 3,880,000 $ - $ 3,880,000 N/A
Total $ 9,836,313 $ 503,500 $ 9,332,813
205
Long Range Financial Forecast, Revenue, and Funding Options Workshop 24 Summary of Other Unfunded Priorities
Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Deferred Infrastructure Maintenance
Additional Pavement Budget to maintain
average PCI level of 69 TBD $ 3,300,000 Additional annual amount needed. Tax revenue.

Backlog of concrete repair TBD $ 250,000 Tax revenue Backlog of public tree maintenance TBD $ 300,000 Tax revenue Deferred Traffic Signals – Full replacement TBD $ 500,000 Tax revenue Deferred Traffic Control Sign Replacements TBD $ 40,000 Tax revenue Storm drain maintenance TBD $ 250,000 Tax revenue Vehicles and Equipment TBD $ 150,000 Tax revenue ADA related improvements TBD TBD Tax revenue
Facility maintenance TBD $ 275,000 Tax revenue, user fees San Jose Creek Annual Cleanout TBD $ 200,000 Tax revenue Park and open space maintenance
rehabilitation TBD $ 150,000 Tax revenue, user fees TOTAL CURRENT ESTIMATE $ 5,415,000
206
Long Range Financial Forecast, Revenue, and Funding Options Workshop 25 Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Staff level imbalances or service level by Dept/Program General Government TBD TBD Tax revenue, user fees
Library TBD $200,000
Annual cost estimates for book budget needed
once Library DIF is used up.

Grants, Tax revenue, user fees
Finance TBD $260,000
Staff level imbalances. Department to undergo
assessment. Was delayed due to COVID-19.

Tax revenue, user fees
Planning and Environmental Review TBD TBD
Affordable Housing Program. Staff level
imbalances.

Tax revenue, user fees
Public Works TBD TBD Staff level imbalances. Tax revenue, user fees Solid Waste TBD $90,000 Tax revenue, user fees
Streetlights TBD TBD Tax revenue
Neighborhood Services and Public Safety TBD TBD Tax revenue, user fees 207
Long Range Financial Forecast, Revenue, and Funding Options Workshop 26 Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Master Plan Documents Needing Implementation
Parks Master Plan TBD TBD Federal/State Grants
Creek and Watershed TBD $50,000
Depending on future action costs may
increase one-time for CIP and annually if
department or program created.

Tax revenues, grants, user fees
Bike/Ped Master Plan $13,980,000 TBD Federal/State Grants, tax revenues IT Strategic Plan TBD $1,188,000 Further analysis needed. Amount subject to change based on action.

Economic Development Plan TBD TBD TBD
Economic Recovery Plan TBD TBD Currently being developed.

Homelessness Strategic Plan TBD $760,000 Preliminary estimates, subject to change on action. Plan is still under draft and review
Strategic Energy Plan and Climate Action Plan $3,830,000 $282,000 Preliminary estimates, subject to change on action.

Butterfly Habitat Management Plan $63,500 $203,600 $3.9 million one-time state grant. Amount listed is estimated future unfunded cost.

Lake Los Carneros Master Plan TBD TBD Tax revenues
208
Long Range Financial Forecast, Revenue, and Funding Options Workshop 27 CIP Projects
(Unfunded Next Five Years)
Est. One-Time
Amount Funding Sources
9001-Hollister Avenue Complete
Streets Corridor Plan $ 1,186,000
Grants, DIF, IBank, Other Debt
Financing
9006-San Jose Creek Bike Path -
Southern Extent $ 1,210,000
Grants, DIF, IBank, Other Debt
Financing
9009-San Jose Creek
Improvements and Fish Passage $ 570,000
General Fund $460,750
appropriated 9/1/2020
9025-Fire Station No. 10 $ 14,821,994 DIF, IBank, Other Debt Financing 9027-Goleta US 101 Overcrossing $ 28,500,000 Other Debt Financing 9053-Cathedral Oaks Crib Wall
Interim Repair Project $ 8,300,000 IBank, Other Debt Financing 9056-LED Street Lighting Project $ 100,000 Special Revenue Funds, IBank,
Debt Financing
9064-Reclaimed Water Service to
Evergreen Park $ 310,000 DIF
9065-Reclaimed Water Service to
Bella Vista Park $ 230,000 DIF
9067-Goleta Community Center
Upgrade $ 7,650,000
Grants, IBank, Other Debt
Financing
9069-Miscellaneous Facilities
Improvements $ 1,150,000 Other Debt Financing
9077-Recreation
Center/Gymnasium $ 1,938,585
Revenue Bonds, Grants, DIF,
Other Debt Financing
9078-Rancho La Patera
Improvements $ 2,985,000
Revenue Bonds, Grants, DIF,
Other Debt Financing
9081-Covington Drainage System
Improvements $ 3,700,000 IBank, Other Debt Financing CIP Projects
(Unfunded Next Five Years) Est. One-Time Amount Funding Sources 9085-Goleta Storm Drain Master Plan $ 220,000 GF or Special Revenue Funds 9086-Vision Zero Plan $ 300,000 GF or Special Revenue Funds 9096-Orange Avenue Parking Lot $ 300,000 Special Revenue Funds 9097-Fairview Corridor Study (Fowler
Road to Calle Real) $ 370,000 GF or Special Revenue Funds 9100-Hollister Avenue/Fairview
Avenue Roundabout (Intersection
Improvements) $ 550,000 Special Revenue Funds 9101-City Hall Purchase &
Improvements $ 435,500
GF Facility Reserves, IBank or
Other Debt Financing
9103-Citywide School Zones Signage
& Striping Evaluation $ 65,000 Special Revenue Funds 9104-Citywide Evaluation of Existing
Traffic Signals $ 65,000 Special Revenue Funds 9105-Ellwood Beach Drive Drainage
Infrastructure Replacement $ 226,725
Special Revenue Funds, Other Debt
Financing
9106-Phelps Ditch Flood Control
Channel Trash Control Structure $ 670,000
Special Revenue Funds, Other Debt
Financing
9107-Old Town South Fairview
Avenue, High Flow Trash Capture
Devices $ 325,000
Special Revenue Funds, Other Debt
Financing
9109-Ward Drive Sidewalk Infill $ 390,000
Special Revenue Funds, Other Debt
Financing
TBD-03-Ellwood Coastal Trails and
Habitat Restoration $ 2,475,000 Grants, Other Debt Financing Total Cost $ 79,043,804
Total Adjusted Cost $ 78,473,804
Accounts for GF appropriation for
9009
209
Long Range Financial Forecast, Revenue, and Funding Options Workshop 28  Funding Ongoing Operations and Ongoing Unfunded Maintenance  When averaging out the three scenarios over a 20 years, approximately $5.4 million is needed annually to address pavement in the long-term. In the near term $2.7 million annually is needed  Early estimates indicate an additional $2.1 million in ongoing deferred maintenance is needed annually When combined with the $5.4 million, it is now anticipated to be $7.3 million needed annually  Ongoing annual expenditures should be matched with ongoing annual revenue streams 5 Years 10 Years 15 Years 20 Years
Scenario 1 (4,969,811)$ (6,085,453)$ (7,727,939)$ (9,701,587)$ Scenario 2 (2,580,215)$ (2,975,407)$ (3,856,853)$ (4,985,740)$ Scenario 3 (473,761)$ (493,934)$ (903,435)$ (1,482,948)$ Average (2,674,595)$ (3,184,931)$ (4,162,742)$ (5,390,092)$ Average Annual Deficit
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Long Range Financial Forecast, Revenue, and Funding Options Workshop 29  Near Term Recommendations
 In the near term, it is recommended that the City Council direct staff to evaluate adjustments to existing cannabis business tax rates. If Council supports this recommendation, staff will work with the City’s consultants to bring a feasibility analysis and recommended rates back to Council  As an example, based on preliminary estimates, staff have modeled that with a 1% increase to each category except medicinal, the City could almost double its cannabis revenue. Staff’s model indicated a possible 88% increase in cannabis overall revenues.
 Long Term Recommendations
 City Council direct staff to explore a one percent transaction and use tax measure, as was discussed in the prior fiscal year, and bring it back to Council for further consideration. As was shown in the polling results earlier this year, this type of tax measure has a good chance of being supported by voters and would generate the amount of ongoing revenue required in the long-term to help meet community needs and allow the City the capacity to finance CIP projects when needed.  Alternatives
 Council can direct staff to explore other types of tax measures, including a Transient Occupancy Tax increase, a Utility User Tax, a Business Operations Tax or a Parcel Tax. 211
Long Range Financial Forecast, Revenue, and Funding Options Workshop 30  Several strategies that can be used to meet future unfunded pension and OPEB UAL challenges
 Council adopted Section 115 Trust, and staff now seeks Council direction to transfer funds that have been set aside for this purpose to the Trust and being investing plan assets
 Staff recommends City Council authorize staff to transfer funds currently set aside in reserves for CalPERS UAL in the amount of $170,000 and OPEB UAL in the amount of $333,500 to the Section 115 Trust and utilize the Moderate (passive) investment strategy
 Ongoing future funding strategy for additional funds to the Trust to be brought back to Finance Committee in January or February
212
Long Range Financial Forecast, Revenue, and Funding Options Workshop 31  One-time expenditures should be matched with one-time revenues or funds available
 Multiple strategies and options
 Use of one-time unassigned fund balance or internal fund borrowing if available  Debt Financing Options
 New Revenues
 Combination of Options
 Staff recommends that Council direct staff to pursue new revenues and debt financing options and bring them back to Council with a CIP Funding Plan. The combination of the two would ensure fiscal stability and flexibility with debt capacity when needed. Funding polices could be developed around the use of the new revenue stream(s) to address maintenance, CIP and staff needed to implement a variety of programs, projects and services.
213
Long Range Financial Forecast, Revenue, and Funding Options Workshop 32 A. Receive a present ation from staff on a City of Goleta Preliminary Long- Range Financial Forecast; and
B. Direct staff to pursue new revenues and debt financing options and bring them back to Council with a CIP Funding Plan; and
C.Authorize the transfer funds currently set aside in reserves for CalPERS unfunded accrued liability in the amount of $170,000 and OPEB unfunded accrued liability in the amount of $333,500 to the City’s Section 115 Trust; and
D.Direct staff to further analyze available Unassigned Fund Balance and return to the City Council with a recommendation for a CIP project funding reserve level.
214
ATTACHMENT 4:

Power Point Presentations
215

REVENUE

ENHANCEMENT

OPPORTUNITIES
- City of Goleta
- HdL ECONSolutions
216

TRANSACTION USE TAX (TUT)
MARCH 2022, HdL ECONSolutions Meeting 2
217
MARCH 2022, HdL ECONSolutions Meeting 3
218
MARCH 2022, HdL ECONSolutions Meeting 4
219
MARCH 2022, HdL ECONSolutions Meeting 5
220
MARCH 2022, HdL ECONSolutions Meeting 6
221
MARCH 2022, HdL ECONSolutions Meeting 7
222

REVENUE SUMMARY TABLE
Month Day, Year City Council/Committee Meeting Name 8
223
Fiscal Analysis of the
Commercial Cannabis Industry
in Goleta
Presented by: Mark Lovelace
Senior Cannabis Policy Advisor
March 31, 2022
224
ABOUT
HdL
• Serves:
‒ 333 cities
‒ 49 counties
‒ 175 transaction districts
• Partnered with over 150 local agencies to
dev
elop cannabis policies
• Team consists of former policymakers, law
en
forcement and cannabis regulators with
State, County and local level experience
• HdL staff have experience conducting over
18 ,000 cannabis compliance reviews in
California, Colorado and Nevada
2 225
Overview
of the
Analysis
3 226
Purpose of the Analysis
• Ensure the C ity’s rates are competitive with other nearby jurisdictions and with common rates seen across the state. • Consider i mpacts t o business attraction, retention and success and to the City’s revenues.
• Discuss how re tail cannabis sales may be influenced by tourism and visitor traffic, along with the impact of UCSB.
• Work within th e parameters of Measure Z
4 227
Purpose of the Analysis
• Currently 8 co mmercial cannabis businesses
• Measure Z allows a ra te of up to 10% of gross receipts 5 Cannabis Business Type Tax Rate; Adult Use Tax Rate; Medicinal Retailers: 5.0% 0.0%
Cultivators: 4.0% 0.0%
Manufacturers: 2.0% 0.0%
Distributors: 1.0% 0.0%
Nurseries: 1.0% 0.0%
Testing: 0.0% 0.0%
228
Cannabis Industry in the Santa Barbara Region
6 229
Common Cannabis Tax Rates
7 Cannabis Business Type HdL Initial Rate HdL Maximum Rate Current City Rate Cultivation (indoors) $7 per square foot $10 per square foot 4.0% of gross receipts Nurseries $1 per square foot $2 per square foot 1.0% of gross receipts Manufacturing 2.5% of gross receipts 4% of gross receipts 2.0% of gross receipts Distribution 2% of gross receipts 3% of gross receipts 1.0% of gross receipts Retail 4% of gross receipts 6% of gross receipts 5.0% of gross receipts Testing 1% of gross receipts 2.5% of gross receipts 0.0% of gross receipts • The rates fo r manufacturing, distribution and testing are all somewhat below the range HdL commonly recommends.
230
Common Cannabis Tax Rates
• The City’s ra tes are generally competitive with other jurisdictions. 8 231
Cannabis Retailers
9 • 11 retailers s erving the Santa Barbara coastal plain • Estimated population of 1 97,000 people
• Average of 1 retailer for every 18,000 people
232
Cannabis Retailers
10 • Estimate cannabis
re
tailers could
generate between
$9 million and $19
million in sales
• Estimate between
$3
47,000 and
$1,100,000 in taxes
HdL does not disclose confidential
earnings or tax information for
individual cannabis businesses.
233
Cannabis Manufacturers
11 • Gross receipts f rom around $1 million to over $20 million • Average generally f rom $2 million to $3 million
HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 234
Cannabis Distributors
12 • Business models and g ross receipts vary greatly
• Gross receipts f rom $1 million to well over $100 million • Most commonly in th e range of $2.5 million
HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 235
Cannabis Cultivation
13 • May be t axed by square foot, gross receipts, or per pound • 4.0% o f gross receipts roughly equals $16 per square foot • City’s current ra te is consistent with Santa Barbara County HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 236
Summary and
Recommendations
14 237
Summary and Recommendations
15 • Recommendation 1
• HdL r ecommends t hat the City work within the existing limitations of Measure Z when making any desired
changes to its current cannabis tax rates.
• Recommendation 2
• HdL r ecommends that the Cit y consider applying its
cannabis taxes evenly to both adult-use and medicinal
cannabis businesses and sales.
238
Summary and Recommendations
16 • Recommendation 3
• HdL r ecommends t hat the City retain the existing gross receipts-based tax on cannabis cultivation and continue to set the rate at 4.0%.
• Recommendation 4
• HdL r ecommends that a ny desired adjustments to the
City’s current tax rates for cannabis business types other than cultivation stay within the minimum and maximum
ranges described in Figure 1.
239
Summary and Recommendations
17 Business Type HdL Std.

Initial Rate
HdL Std.

Maximum Rate
Current
City Rate
Recommendation
Cultivation $7 per SF or 1.75% GR $10 per SF or 2.5% GR 4.0% GR No Change Nurseries $1 per SF or 1.0% GR $2 per SF or 2.0% GR 1.0% GR No Change Manufacturing 2.5% GR 4.0% GR 2.0% GR 2.5%
Distribution 2.0% GR 3.0% GR 1.0% GR 2.0%
Retail, Adult Use 4.0% GR 6.0% GR 5.0% GR No Change
Retail, Medicinal 4.0% GR 6.0% GR 0.0% GR 5.0%
Testing 1.0% GR 2.5% GR 0.0% GR No Recommendation
SF = Square Feet
GR = Gross Receipts
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Summary and Recommendations
18 • Recommendation 5
• HdL r ecommends that the Ci ty exercise caution and
discretion in applying increases to the tax rates for any existing businesses.
• As an alternative, th e City may wish to consider a tiered tax rate for high-earning businesses when revenues
exceed a certain amount.
241
Summary and Recommendations
19 242
Summary and Recommendations
20 • Recommendation 6
• HdL r ecommends that the Ci ty consider extending the allowable hours of operation for cannabis retailers to
10:00 p.m., rather than the current 8:00 p.m.
• Extending the se hours could allow the City’s retailers to recapture sales (and related sales tax revenue) that are likely being lost to retailers in the City of Santa Barbara during these hours.
243
Thank You!
Mark Lovelace
Senior Cannabis Policy Advisor
[email protected]
714-879-5000
21 244
Questions?
22 245

Goleta City CouncilMarch 31, 2022

Goleta City Council
March 31, 2022