June 07, 2022
AGENDA REPORT
TO: Edward D. Reiskin FROM: Erin Roseman
City Administrator Director of Finance
SUBJECT: Appropriations Limits for FY 2022-23 DATE: May 24, 2022
City Administrator Approval Date: May 26, 2022
RECOMMENDATION
Staff Recommends That The City Council Adopt A Resolution Establishing An Appropriations Limit For Fiscal Year 2022- 23 Pursuant To Article XIIIB Of The California Constitution.
EXECUTIVE SUMMARY
California Government Code section 7910(a) requires the governing body of each local jurisdictions to establish, by resolution, its appropriations limit for the fiscal year pursuant to Article XIIIB of the California Constitution. Approval of this resolution will bring the City of Oakland (City) into compliance with Government Code section 7910(a).
A government entity cannot appropriate the proceeds of taxes it receives in excess of the Appropriations Limit during any fiscal year. The City’s Appropriations Limit for Fiscal Year (FY) 2022-23 is $921.48 million. The FY 2022- 23 Proposed Budget appropriates $810.95 million in proceeds of taxes, which is $110.53 million less than the Appropriations Limit.
BACKGROUND / LEGISLATIVE HISTORY
California Proposition 4 (November 1979) established Article XIIIB of the California Constitution, which governs limitations on government appropriations. Effective July 1, 1980, it created an upper limit on the annual amount of funds that can be appropriated by the State and local governments. The appropriations limit is sometimes referred to as the “Gann limit,” after Paul Gann, one of the proposition’s authors.
Article XIIIB, Section 1 of the California Constitution states that the annual appropriations limit of “…each local government shall not exceed the appropriations limit of the entity of government for the prior year adjusted for the change in the cost of living and the change in population...” Further, Article XIIIB, Section 1.5 states that “the annual calculation of the appropriations limit under this article for each entity of local government shall be reviewed as part of an annual financial audit.” Many local government appropriations are subject to the limit, although there
City Council
Edward D. Reiskin, City Administrator
Subject: Appropriations Limits for FY 2022-23
Date: May 24, 2022 Page 2
City Council
June 07, 2022
are exemptions, including appropriations related to capital outlay, debt service, and State subventions.
California Government Code sections 7900- 7914 contain specific direction regarding the implementation of Article XIIIB and the calculation of the appropriations limit. Section 7909 requires that “no later than May 1 of each year, the Department of Finance shall notify each local agency of the change in the cost of living or change in California per capita personal income, whichever is less, and population for each local agency for the prior calendar year.” Section 7910 requires that “each year the governing body of each local jurisdiction shall, by resolution, establish its appropriations limit and make other necessary determinations for the following fiscal year pursuant to Article XIII B of the California Constitution at a regularly scheduled meeting or noticed special meeting.”
In March 2020, City of Oakland voters passed Measure S, which increased the City’s appropriations limit until March 3, 2024 to allow the City to continue to spend tax revenue from voter-approved tax measures, including Measure M (The Emergency Medical Services Retention Act of 1997), Measure N (The Paramedic Services Act of 1997), Library Measure Q (The Library Services Retention and Enhancement Act of 2004), Measure C (Transient Occupancy Tax - Hotel Tax), Measure Z (The 2014 Public Safety and Services Violence Prevention Act), Measure HH (Sugar Sweetened Beverage Distribution Tax), Measure D (The 2018 Oakland Public Library Preservation Act), Measure AA (Children’s Initiative), Measure W (Oakland Vacant Property Tax Act), as well as other taxes received by the City such as Property Tax, State Tax, Business License Tax, Utility Consumption Tax, Real Estate Transfer Tax, Transient Occupancy Tax, and the Parking Tax. Election results can be found at https://votersedge.org/ca/en/election/2020-03-03/alameda-county/city-of-
oakland/measure/measure-s
ANALYSIS AND POLICY ALTERNATIVES
Pursuant to Article XIIIB, Section 10.5 of the California Constitution, for fiscal years beginning on or after July 1, 1990, the Appropriations Limit is required to be calculated based on the limit for fiscal year 1986- 87, adjusted for the inflation and population factors. Each year, the limit is recalculated by multiplying the previous year’s limit by adjustment factors for population growth and inflation. Proposition 111, passed in June 1990, gave cities the option of using their own growth or the growth of the entire county in which the city is located as the population adjustment factor. Cities were also given the option of using the increase in California Per Capita Income or the increase in the assessed valuation of non-residential property in the City as the inflation adjustment factor. Cities have the option each year of deciding which factor to use. For 2022- 23, Oakland is using the population growth of the County of Alameda and the increase in California Per Capita Income. These adjustment factors must be applied to retroactively recalculate the appropriations limit for 1987 -88 (i.e., the base year) and each year thereafter in order to arrive at the limit for FY 2022-23.
Edward D. Reiskin, City Administrator
Subject: Appropriations Limits for FY 2022-23
Date: May 24, 2022 Page 3
City Council
June 07, 2022
FY 2021-22 Appropriations Limit $729,160,017
FY 2022-23 Adjustment Factors
County of Alameda Population Change = -1.0062 (-0.62%) California Per Capita Income Change = 1.0755 (7.55%)
Combined Change = (-1.0062) x 1.0755 = 1.0688
FY 2022-23 Appropriations Limit
(After Adjustment for Growth Factor of 1.0688) $779,326,226 ADD BACK:
TOTAL Gann Appropriation Limitation $921,479,012
The GANN Limit override to raise the spending limit for the special taxes are required to be renewed by voters every four years. The date the next GANN Limit override is to be submitted to voters is March 2024.
Not all City appropriations are subject to the limitation of Article XIIIB. The intent of Proposition 4 was to restrict only the appropriation of “proceeds of taxes.” Determining which appropriations are subject to the limit requires classifying each funding source as either proceeds of taxes or non-proceeds of taxes. Property tax and local taxes are subject to limitation. State taxes that are sub-vented to the City count against the City’s limit if their use is unrestricted, as in the case of sales tax and motor vehicle in lieu. State subventions – taxes/fees levied by the state and distributed to cities – that are restricted in use are applied against the State’s limit rather than the City’s, so they are considered non-proceeds of taxes for the City’s calculation. This includes Measure B sales tax, gas tax, and state grants and state-mandated cost subventions included in the Grants and Subsidies category. Interest income is prorated so that the interest earned on tax revenue is included as proceeds of taxes.
Most of the City’s other revenue sources are classified as non-proceeds of taxes: franchise fees, Landscape and Lighting Assessments (special benefit assessment districts are excluded from the limitation), fines and penalties, license and permit fees, service charges, rentals and concessions, federal grants, Oakland Redevelopment Successor Agency reimbursements (redevelopment agencies are exempt from Article XIIIB), internal service revenues, and other Emergency Medical Services 2,428,283
Paramedic Services 1,933,936
Library Services 18,724,130
Hotel Tax 6,541,894
Public Safety and Violence Prevention Services 19,598,935 Sugar Sweetened Beverages 6,911,494
Public Libraries Preservation 14,257,902
Vacant Properties 5,378,388
Children’s Initiative 37,389,400
OPR Preservation 28,988,424
Edward D. Reiskin, City Administrator
Subject: Appropriations Limits for FY 2022-23
Date: May 24, 2022 Page 4
City Council
June 07, 2022
miscellaneous revenues. Enterprise funds – sewer service charges and golf course revenues – are also exempt from the limitation. Fund transfers are re-appropriations of revenue received in previous years; these funds were included in the calculation of appropriations subject to limitation in the year they were received and are not counted twice.
The total city appropriations subject to limitation per Article XIIIB is $810.95 million, which is $110.53 million less than the Appropriation Limit. This amount is derived by taking the City’s total proceeds of taxes of $985.16 million less $174.20 million of property tax revenue appropriated to service voter-approved debt which is exempted from the appropriations limit.
This will advance the citywide priority of a responsible, trustworthy government.
FISCAL IMPACT
Failure to pass an appropriations limit would put the City in violation of the State Constitution this may legally impair the City’s ability to appropriate the proceeds of taxes it collects.
PUBLIC OUTREACH / INTEREST
California Government Code Title 1 (General), Division 9 (Expenditure Limitations), Section 7910(a) states that “Each year the governing body of each local jurisdiction shall, by resolution, establish its appropriations limit and make other necessary determinations for the following fiscal year pursuant to Article XIII B of the California Constitution at a regularly scheduled meeting or noticed special meeting. Fifteen days prior to the meeting documentation used in the determination of the appropriations limit and other necessary determinations shall be available to the public.” In compliance with this requirement, the documentation was posted on the City's website 15 days prior to the meeting at which this resolution will be adopted.
COORDINATION
This report was prepared by the Finance Department and reviewed by the City Attorney’s office.
SUSTAINABLE OPPORTUNITIES
Economic: No direct economic opportunities have been identified.
Environmental: No direct environmental opportunities have been identified.
Race & Equity: No direct equity opportunities have been identified.
Edward D. Reiskin, City Administrator
Subject: Appropriations Limits for FY 2022-23
Date: May 24, 2022 Page 5
City Council
June 07, 2022
ACTION REQUESTED OF THE CITY COUNCIL
Staff Recommends That The City Council Adopt A Resolution Establishing The Appropriations Limit For Fiscal Year 2022-23 Pursuant To Article XIIIB Of The California Constitution.
For questions regarding this report, please contact Bradley Johnson, Budget Administrator at (510) 238-6119.
Respectfully submitted,
ERIN ROSEMAN
Director of Finance
Reviewed by:
Bradley Johnson
Budget Administrator
Prepared by:
Michelle Soares
Senior Budget & Management Analyst