Agenda Item D.4
DISCUSSION/ACTION ITEM
Meeting Date: April 18, 2023
TO: Mayor and Councilmembers
FROM: Robert Nisbet, City Manager
CONTACT: Luke Rioux, Finance Director
SUBJECT: Measure B Framework
RECOMMENDATION:
Provide input, feedback and policy direction related to Measure B framework.
BACKGROUND:
On June 14, 2022, the City Council held a workshop to discuss a priority spending plan for the potential 1% sales t ax measure and encouraged public input. At the workshop, staff provided a report and gave a presentation on the City’s current budget condition and outlined the need for additional revenues to address the City’s ongoing unfunded priorities. A t the time , the unfunded priorities included over $104 million in unfunded Capital Improvement Projects (CIP) and over $9 million in annual deferred maintenance costs for pavement, other assets and a considerable number of strategic and master plan documents reflecting community priorities which lacked a source of ongoing revenue to implement.
The discussion was designed to identify potential areas of spending that the new sales tax revenue could address, and to seek input, feedback and policy direction from the City Council for use in developing a Priority Spending Plan for the potential new sales tax revenues. While the money raised by the sales tax measure would go a long way to addressing identified needs, it was determined that the additional potential revenue would not address all the City’s needs, so Council’s input was needed to prioritize spending in the short- and long-term. During the presentation it was discussed that the tax was a general-purpose tax, and that the city cannot commit funds generated by the new sales tax for any particular expenditure and must maintain the availability of such funds for any general purpose, however, the City Council can establish specific priorities to guide the use of the new revenue generated by a sales tax measure.
The workshop engaged the City Council in a priority ranking process to identify their key priorities so potential dollar amounts can be identified and programmed towards the unfunded priorities. The exercise in the workshop was not designed to commit the Council 1 Meeting Date: April 18, 2023
to an economic course of action, but to spur a public discussion about priorities for the potential $10.6 million annual increase in revenues that a 1% sales tax would generate.
Due to the time constraints at the June 14, 2022 workshop, the City Council directed staff to continue the Priority Spending Plan discussion when considering the final recommended Fiscal Year (FY) 22/23 Mid-Cycle Budget on June 21, 2022.
On June 21, 2022, the City Council continue d discussion on the Priority Spending Plan and went through a prioritization process with a tracking spreadsheet . It was discussed that Council may wish to approve a plan for how to allocate potential new sales tax revenue where funds go to the highest priority instead of allocating them to the backlog of unfunded capital projects, strategic plans, and degrading roads. It was determined that this strategy would help the community see progress and accomplishments that are of the highest priority to the community . Also, utilizing this strategy, t he plan can then be revised each year or two years as conditions warrant and as community priorities are adjusted as part of the annual budget process.
Finance staff shared a spreadsheet t hat allowed the City Council to view the list of unfunded priorities and various spending scenarios and were asked to engage in a ranking process to identify their key priorities. Based on council members that gave input on their priorities, an average was calculated to determine the City Council’s consensus priorities. After further discussion, staff clarified this was a general tax and not a special tax, and to not commit specific funds to specific programs. The City Council’s consensus priorities were then highlighted in the spreadsheet so the average percentages could stand out in four major categories . The column labeled “Council Preliminary Recommendation % Allocation” was highlighted . The following motion was made and approved and shown as excerpt from the minutes related specifically to this item:1
C.2 City of Goleta Operating Budget and Capital Improvement Program Budget for FY 2022/23 (Mid-Cycle) and Comprehensive Capital Improvement Plan.
Recommendation:
D. Receive City Council direction on a potential Priority Spending Plan should a potential add-on sales tax measure move forward and be approved by voters.
MOTION: Councilmembers Kyriaco/Richards to approve the Priority Spending Plan.
VOTE: Motion approved by the following roll call vote: Ayes: Mayor Perotte, Mayor Pro Tempore Kasdin, Kyriaco, and Richards Noes:
Councilmember Aceves.
1 The minutes from the June 21, 2022 meeting can be seen in full detail on the City’s website:
https://www.cityofgoleta.org/meetings-agendas
2 Meeting Date: April 18, 2023
The intent of this exercise served multiple purposes , including f or Council to rank their priorities and for staff to then use this draft consensus priority ranking spending plan as a guide in the upcoming budget process.
On April 5, 2023, the City Council held its second annual work program workshop on the FY 23/24 Annual Work Programs for Planning and Environment Review, Public Works and Finance. D uring Item A.3 - Finance Department Priority-Setting Workshop, FY 2023/24 Annual Work Program item, the City Council briefly revisited and discussed the draft priority spending plan and spreadsheet that was discussed on June 12, 2022 and June 21, 2022 and directed staff to bring back the draft spending plan as a separate item to confirm what was approved and presented to the public and to provide additional input on the Measure B framework.
DISCUSSION:
Measure B Framework and Budget Process
Measure B, which was passed by Goleta voters on November 8, 2022, is a one -cent general sales tax that can be used for any lawful municipal purpose. A Measure B priority spending plan is meant to serve as a guide for allocating City resources and expenditures within the overall general fund, it does not, however, constitute a legal commitment of the City Council to approve any expenditures proposed within the priority spending plan.
Staff’s intent is to use the draft priority spending plan as a framework and a guide to initially program Measure B funds as part of the overall general fund budget when going through the annual budget process. In addition, the City Council and the public will have ongoing opportunities to provide feedback during the budget workshops and budget hearings.
While the City engages in a Two -Year Budget Plan process, the City must adopt an annual budget prior to July 1st of each year. The City is currently in its new two-year cycle for FY 23/24 and FY 24/25 . As such, the adopted Two-Year Budget Plan includes the operating and capital budget appropriations for the first year of the two-year plan and the second year being best estimates. The operating and capital budget for the second year is then revisited, minor updates are considered with Annual Work Program priorities and formally adopted the following year as part of the mid-cycle budget review and is referred to as the Mid-Cycle Budget (e.g., FY 24/25 Mid-Cycle Budget). This process helps staff save time in preparing a comprehensive budget document each year and provide s a roadmap for the next two years.
Based on the annual budget process that the City goes through every year, general timeframes are anticipated for the various components of the budget process that will include priority setting and programming the General Fund, which includes Measure B funds. The following summarizes major components and information on the overall budget process and when City Council priorities, input and direction are received:
1. Strategic Plan Update: February – March (every two years)
3 Meeting Date: April 18, 2023
a. The City of Goleta’s Strategic Plan (Plan) is a guiding policy resource that identifies the priorities and goals of the organization and serves as a roadmap to inform future decision making, the City’s budget allocations and defining priorities in the departments’ annual work programs. The Plan is driven by the City’s Vision Statement which describes the community, key attributes, and values. The Plan covers a two -year period that runs concurrently wit h the City’s Two -Year Budget Plan. This ensures the document continues to be dynamic and reflective of both the long -term goals and current priorities of the City Council and the Goleta community.
The City’s first formal adoption of the Strategic Plan was July 16, 2007. It has been updated on a two -year basis. The Two-Year Strategic Plan was last updated for FY 23/24 and FY 24/25 and adopted on March 21, 2023.
2. Annual Department Work Program Workshops: March – April (every year)
a. The Annual Work Program pr ocess provides a regular, structured method to allow the Council to review and discuss the City Department’s work commitments and staffing resources, consider individual Council member’s project ideas and provide direction on the Department’s work prioriti es for the next fiscal year. It also summarizes work progress and accomplishments for the current fiscal year and lays the groundwork for the Departments budget, which is then presented to City Council during the budget workshops. There are generally two to three separate workshops on the Annual Work Programs of each department. The City has been utilizing the annual work program prioritization process since FY 18/19.
Where available budget and staffing are finite and the list of possible programs and City-wide work efforts are growing, a priority-setting process is useful to allow the City Council to establish policy priorities. A regular priority-setting process allows departments to plan for and assign work within available resources in a structured way. This method is more efficient than attempting to shift resources ad hoc to new projects as Council members identify and introd uce new ideas and work priorities during the year.
3. Budget Workshops: May (every year)
a. This will be the first step in the process where specific recommendations are discussed on how general fund dollars are programmed, which will now include future Measure B monies. There are generally two budget workshops scheduled, one for the Operating Budget and the other for the Capital Improvement Program Budget. Additional workshops are scheduled when needed. Each major budget component contains 5-year forecasts.
This linkage when discussing new tax revenues with the overall General Fund is important because potentially, there may be some needs and interests beyond the base budget that can be addressed during the normal 4 Meeting Date: April 18, 2023
budget process (i.e., excess revenues over exp enses not counting the 1% sales tax measure).
b. Operating Budget Workshop
Staff prepares and presents a draft budget to City Council at a budget workshop, which includes the conceptual framework of the budget. During the first workshop, staff provides the Council with an overview of the budget process and approach. Updated revenue and expenditure projections are reviewed, along with updates to the General Fund’s projected fund balance and reserves and Five-Year Forecast, which will now include Measure B.
Staff provides a summary review of each department’s line -item budget detail, various recommended personnel changes, along with updates to future pension costs and other post -employment benefit liabilities .
Additional information is shared such as overall funding programmed for the pavement rehabilitation program and the Library. Staff also reminds the City Council of the three-tier cost reduction strategy and triggers established of when to make critical decisi ons should revenues fall short . Staff receives feedback from the Council and the public and adjusts accordingly based on City Council direction.
c. Capital Improvement Program Budget Workshop
This second workshop p rovides the City Council with the opportunity to review the updated Comprehensive Capital Improvement Plan and Capital Improvement Program (CIP) Budget. During this workshop, staff provide the Council with an overview of the Comprehensive Capital Improvement Plan, and the three main c omponents. The three components include a Comprehensive CIP Project List, the Five-Year CIP Project List and the CIP Budget needed to be formally adopted and appropriated for the specific Fiscal Year. Additionally, Council receives an update on priority projects that are actively being worked on by both Public Works, Neighborhood Services and General Services. The review include s updated funding amounts and unfunded amounts. Staff then receives feedback and direction from Council and adjusts the final proposed budgets accordingly.
4. Budget Public Hearing and Adoption: June
a. Staff updates the budget accordingly based on feedback and direction received from the workshops and provides a final recommended balance budget. A summary of revisions is provided to the City Council and the public.
b. Any potential issues or items that may need to be addressed in the future is shared and discussed and Council is reminded we have a Quarterly 5 Meeting Date: April 18, 2023
Financial Review process, and depending on the economic environment or outside factors, budget revisions may be needed more frequently.
Measure B Accounting and Reporting
All new revenues generated from Measure B will be accounted for in the General Fund (Fund 101) and reported as a separate line item. Similar to how we report on Transient Occupancy Tax (TOT), Cannabis Business Tax, and Sales Tax (local Bradley -Burns).
This is a requirement since the add -on sales tax is a Transaction and Use Tax, and is administered similarly to Sales Tax, it is then pooled into the overall General Fund.
Updates on Measure B will be provided during the quarterly financial review and will also be subject to a citywide annual audit. When reporting total revenues for the General Fund, Measure B will be included in the total, but will be shown against the major revenue sources that account for the General Fund.
Expenditures for the General Fund will continue to be reported by Department, Program and object level basis for full transparency. The assumption is that the increase in General Fund expenditures compared to when Measure B did not exist will be what Measure B is supporting.
Any end of year unspent General Fund that is not spent and not tied to an unfinished CIP project, will be pooled into the General Funds fund balance accounts, and reprogrammed accordingly into the City’s reserve categories accordingly to policy. Any excess funds will be pooled in the unassigned fund balance. It should be noted that staff are evaluating the ongoing operating expenditures and will need to adjust the Contingency Reserve to meet the 33% policy. For example, if $10.6 million in expenditures is tied to ongoing operating expenditures, then the contingency reserve would need to increase by $3,498,000 (33% x 10.6 million). In other words, if the grand total ongoing operating budget is $45 million, the total contingency amount would be set at 33% or $14.85 million. This information will be provided in further detail during the budget workshops.
FISCAL IMPACTS:
As indicated above, this item is to facili tate discussion and receive input, feedback and discussion on Measure B Framework. As such, there is no fiscal impact associated with this discussion except staff time.
ALTERNATIVES:
The City Council can direct staff to bring this item back for further discussion.
Reviewed By: Legal Review By: Approved By:
___________________ ___________________ _________________ Kristine Schmidt Megan Garibaldi Robert Nisbet
Assistant City Manager City Attorney City Manager 6