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CONSENT CALENDAR
City of San Bernardino
Request for Council Action
Date: January 15, 2025
To: Honorable Mayor and City Council Members
From: Rochelle Clayton, Acting City Manager;
C. Jeannie Fortune, Interim Director of Finance & Management Services
Department: Finance & Management Services
Subject: Technical Correction to the Appropriations Limits for Fiscal Years 2022-23, 2023-24, and 2024-25 (All Wards)
Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino, California:
1. Adopt Resolution No. 2025-022 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limit for Fiscal Years 2022-23;
2. Adopt Resolution No. 2025-023 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limit for Fiscal Years 2023-24;
3. Adopt Resolution No. 2025-024 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limit for Fiscal Years 2024-25;
4. Re-establish the City’s Appropriations Limits for Fiscal Years 2022-23, 2023-24, and 2024-25 as required by Article XIII of the California State Constitution.
Executive Summary
In compliance with Article XIIIB of the California Constitution, the City is required to establish an annual appropriations or spending limit, commonly referred to as the "Gann Limit (named after Paul Gann, who coauthored Proposition 4)," and is approved by the legislative body annually. This limit restricts the amount of revenue that can be appropriated from proceeds of taxes, and is adjusted annually.
For the last three (3) fiscal years, the Appropriations or Gann Limits approved by City Council were calculated in error as detailed in the Discussion Section. Article XIII of the California State Constitution requires that the corrected Gann Limit Resolutions be 2 3
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approved by City Council and be reported correctly. There is no financial impact to approving the corrected Resolutions of all three fiscal years.
Background
Proposition 4 created Article XIIIB of the California Constitution that provides a formula for calculating spending limits. Its basic provisions are as follows:
•Each year, the State and local governments must adopt a resolution establishing an Appropriations Limit, also known as the “Gann Limit”. Fiscal Year 1978-79 appropriations serve as the base for this limit, and is recalculated each year based on growth in population (using either the growth in the City or County population) and the rate of inflation (using either growth in per capita income or new non-residential construction).
•Only tax proceeds are subject to the limit. Charges for services, regulatory fees, grants, loans, donations and other non-tax proceeds are not subject to the limit. Exemptions are also made for voter-approved debt, debt that existed prior to January 1, 1979, and for the cost of compliance with court or Federal government mandates.
•All tax revenues received in excess of the Appropriations Limit must be refunded to taxpayers within a two-year period.
•The voters may approve an increase in the Appropriations Limit. For the increase to remain in effect, however, it must be re-approved by voters at four- year intervals.
On June 5, 1990, California voters approved the Traffic Congestion Relief and Spending Limitation Act (Proposition 111), which made various amendments to Article XIIIB of the State Constitution. The major changes, which became effective July 1, 1990, are as follows:
•Proposition 111 updated the base year for calculating the Gann Limit from 1978-79 to 1986-87.
•The change in the cost of living is defined to be either the change in California per capita personal income, as provided to local cities and counties by the Department of Finance (DOF) annually, or the change in assessed valuation due to the addition of non-residential new construction. Previously, the change in the cost of living was defined as the lesser of the change in the U.S.
Consumer Price Index or the change in California per capita personal income. •The change in population is defined as either a change in the City’s population or a change in the County’s population, whichever is greater. California Revenue and Taxation Code section 2227 requires the DOF to transmit an estimate of percentage change in population to local governments annually. •Proposition 111 excluded capital outlay and emergency appropriations from the Gann limit. Qualified capital outlay projects must have a useful life of ten or more years and a cost that equals or exceeds $100,000.
•Tax revenues received in excess of the Appropriations Limit must be refunded to taxpayers only if the limit is exceeded over a two-year period. 2 3
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In March 2022, the state was unable to accommodate all its “proceeds of taxes” within its Gann Limit. This was in part because growth in personal income tax revenue — the state’s largest revenue source — exceeded the appropriations limit’s growth rate.
When “proceeds of taxes” cannot be accommodated within the state’s Gann Limit, the state must return tax revenues to taxpayers and increase school spending over a two- year period.
To avoid reaching its Gann Limit and returning money to taxpayers, and spending more on schools, the Legislature redefined “state subvention” so that money received from the state that includes direction for how, where, and what to spend the money on, is subject to the city’s Gann Limit.
This change was made by identifying 47 state programs as state subventions, such as CalFresh and Project Roomkey. Funding for these programs now counts under the recipient city or county’s Gann Limit up to the amount representing the difference between the city’s appropriations, subject to limitation without the new definition, and the city’s appropriations limit.
The annual calculation of the Appropriations Limit of each fiscal year must be reviewed as part of the City’s annual financial audit.
Discussion
California Revenue and Taxation Code section 2227 requires the Department of Finance (DOF) to transmit an estimate of the percentage change in population to local governments. Each local jurisdiction must use their percentage change in population factor for each year, in conjunction with a change in the cost of living, or price factor, to calculate the appropriations limits for each fiscal year.
Price Factor
Proposition 111 made several changes to the method used to calculate the Gann Limit.
The change in the cost of living (or “price factor”) is defined to be either the change in California per capita personal income or the change in assessed valuation due to the addition of non-residential new construction. The City has chosen to use the change in California per capita personal income as the “price factor” for calculation of the Gann Limit as provided by the Department of Finance.
The cost of living factor or “price factor” provided by the DOF is per capita personal income. The City has chosen to use the percentage change in per capita personal income, therefore the percentage change to be used in setting each fiscal year’s appropriation limit is as follows:
Per Capita Personal Income
Fiscal Year (FY) Percentage change
over prior year
2022-23 7.55%
2023-24 4.44%
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Per Capita Personal Income
Fiscal Year (FY) Percentage change
over prior year
2024-25 3.62%
Population Factor
The “population factor” to be used in calculating the Gann Limit is defined by Proposition 111 as either a change in the City’s population or a change in the County’s population, whichever is greater. Per information provided by the DOF to be used for calculation for each fiscal year:
Population Factor
Fiscal Year
(FY)
Percentage change
in Population - City
Percentage change in
Population - County
Greater of the two
(City or County)
2022-23 -0.55% 0.14% 0.14%
2023-24 1.25% 0.12% 1.25%
2024-25 0.39% 0.42% 0.42%
State Subvention Funds allocated to the City of San Bernardino Government Code Section 7903 was updated in the Budget Act of 2022 requiring cities to include specified state subventions within the local appropriations limit. Cities were provided 47 state programs, that now count towards the City’s appropriation limit, without changing the original calculation of the Gann Limit.
Fiscal Year
(FY)
State Subvention Funds Program Allocation to City
of San Bernardino
2022-23 Board of State & Community Corrections –
Corrections Planning & Grant Programs
$1,300,000
2023-24 Board of State & Community Corrections –
Corrections Planning & Grant Programs
$1,300,000
2024-25 Board of State & Community Corrections –
Corrections Planning & Grant Programs
$3,300,000
Appropriations Limit Calculation Sample (using FY2022-23 data) Per Capita Cost of Living Change = 7.55%
Population Change (County) = 0.14%
Per Capita Cost of Living converted to a ratio: 7.55 + 100 = 1.0755 100
Population converted to a ratio: 0.0014 + 100 = 1.0014
100
Original Calculation of factor for FY2022-23: 1.0755 X 1.0014 = 1.0770057 Appropriation Limit calculation:
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Prior Year (2021-22) limit: $410,844,843
Allocation factor: x 1.0770057
FY2022-23 Gann Limit: $442,482,238
SUMMARY TABLE
The table below summarizes and highlights in red the technical errors that occurred over the last three fiscal years, with the corresponding corrections:
Fiscal
Year
(FY)
Correct
Price
Factor
Used
Incorrect
Population
Factor
Used
Correct
Population
Factor
Incorrect
Gann Limit
previously
Reported
Revised
Gann Limit
City
Revenues
subject to
Gann Limit
2022-23 7.55% 14.00% 0.14% $503,724,537 $442,482,238 $160,012,618 2023-24 4.44% 0.12% 1.25% $462,683,004 $467,905,055 $173,513,592 2024-25 3.62% 0.39% 0.42% $481,445,743 $486,879,560 $196,005,750 The next sections detail the incorrect and revised calculations for each fiscal year’s Gann Limit amounts. As stated earlier, the total City revenues subject to the Gann Limit requirements are well below the threshold. There is no fiscal impact to revising the City’s Gann Limit calculations.
Fiscal Year 2022-23
For Fiscal Year 2022-23, since the percentage change in County’s population of 0.14% is greater than the City’s population change of -0.55%, the County’s percentage change was used as the population factor for the FY 2022-23 Gann Limit calculation, using the formula above. A typographical error occurred and instead of using 0.14%, 14% was used, resulting in a higher Appropriation Limit as shown below:
INCORRECT GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 7.55%
Population Change (County) = 14%
Per Capita Cost of Living converted to a ratio: 7.55 + 100 = 1.0755 100
Population converted to a ratio:0.14 + 100 = 1.14
100
Original Calculation for FY2022-23: 1.0755 X 1.14 = 1.2260700 Appropriation Limit:
Prior Year (2021-22) Gann limit: $410,844,843
Incorrect calculation factor: x 1.2260700
Incorrect Gann Limit: $503,724,537
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REVISED 2022-23 GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 7.55%
Population Change (County) = 0.14%
Per Capita Cost of Living converted to a ratio: 7.55 + 100 = 1.0755 100
Population converted to a ratio:0.0014 + 100 = 1.0014
100
Revised Calculation factor for FY2022-23: 1.0755 X 1.0014 = 1.0770057 Revised Appropriation Limit Calculation:
Prior Year (2021-22) Gann limit: $410,844,843
Revised calculation factor: x 1.0770057
Revised FY2022-23 Gann Limit: $442,482,238
Proceeds of Taxes Subject to the Limit: $158,712,618
State Subvention Funds Subject to the Limit: $1,300,000 Total Revenues subject to the Gann Limit: $160,012,618
As shown above, total City revenues ($160,012,618) subject to the Appropriations limit is under the limit by $282,469,620.
Adoption of the resolution will revise the FY2022-23 Gann Limit to $442,482,238 and comply with State law.
Fiscal Year 2023-24
For Fiscal Year 2023-24, when estimating the previous year’s (FY2022-23) Gann Limit, staff corrected the calculation and the 2022-23 revised Gann limit of $442,482,238 was used as its base.
However, a couple of technical errors occurred;
•The approved Appropriation Limitation Computation 2022-23 Gann Limit form listed the incorrect base of $462,683,004 instead of the prior year’s (2022-23) revised limit of $442,482,238; and
•Since the percentage change in City’s population of 1.25% is greater than the County’s population change of 0.12%, the City’s percentage change should have been used as the population factor for the FY 2023-24 Gann Limit calculation. Instead, the County’s population change percentage (0.12%) was used in error, resulting in a lower Appropriations Limit as shown below:
INCORRECT GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 4.44%
Population Change (County) = 0.12%
Per Capita Cost of Living converted to a ratio: 4.44 + 100 = 1.0444 2 3
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100
Population converted to a ratio:0.0012 + 100 = 1.0012
100
Original Calculation for FY2023-24: 1.0444 X 1.0012 = 1.0456533 Appropriation Limit:
Revised Prior Year (2022-23) Gann limit: $442,482,238
Incorrect calculation factor: x 1.0456533
Incorrect Gann Limit: $462,683,004
REVISED 2023-24 GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 4.44%
Population Change (City) = 1.25%
Per Capita Cost of Living converted to a ratio: 4.44 + 100 = 1.0444 100
Population converted to a ratio:0.0125 + 100 = 1.0125
100
Revised Calculation factor for FY2023-24: 1.0444 X 1.0125 = 1.0574550 Revised Appropriation Limit Calculation:
Revised Year (2022-23) Gann limit: $442,482,238
Revised calculation factor: x 1.0574550
Revised FY2023-24 Gann Limit: $467,905,055
Proceeds of Taxes Subject to the Limit: $172,213,592
State Subvention Funds Subject to the Limit: $1,300,000 Total Revenues subject to the Gann Limit: $173,513,592
As shown above, total City revenues ($173,513,592) subject to the Appropriations limit is under the limit by $294,391,463.
Adoption of the resolution will revise the FY2023-24 Gann Limit to $467,905,055 and comply with State law.
Fiscal Year 2024-25
For Fiscal Year 2024-25, both price factor and population factors used were correctly; however, a number of instances inadvertently occurred:
•The use of the incorrect FY2023-24 Gann Limit of $462,683,004 as its base; •Although the actual population factor used was correct (0.42%), the population factor stated on the Appropriations Limit calculation form submitted to City Council was incorrect (0.39%);
•The State Subvention funds subject to the limit was in error, using the prior 2 3
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year’s amount of $1.3m; the State provided 2024-25 subvention funds amount of $3.3m should have been used.
INCORRECT GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 3.62%
Population Change (County) = 0.42% (although 0.42% was used in the calculation, the calculation document submitted to City Council indicated 0.39%) Per Capita Cost of Living converted to a ratio: 3.62 + 100 = 1.0362 100
Population converted to a ratio: 0.0042 + 100 = 1.0042
100
Original Calculation for FY2024-25: 1.0362 X 1.0042 = 1.0405520 Appropriation Limit:
Incorrect Prior Year (2023-24) Gann limit: $462,683,004 Calculation factor: x 1.0405520
Incorrect Gann Limit: $481,445,743
REVISED 2024-25 GANN LIMIT CALCULATION:
Per Capita Cost of Living Change = 3.62%
Population Change (County) = 0.42%
Per Capita Cost of Living converted to a ratio: 3.62 + 100 = 1.0362 100
Population converted to a ratio: 0.0042 + 100 = 1.0042
100
Revised Calculation factor for FY2023-24: 1.0362 X 1.0042 = 1.0405520 Revised Appropriation Limit Calculation:
Revised Year (2023-24) Gann limit: $467,905,055
Calculation factor: x 1.0405520
Revised FY 2024-25 Gann Limit: $486,879,560
Proceeds of Taxes Subject to the Limit: $192,705,750
State Subvention Funds Subject to the Limit: $3,300,000 Total Revenues subject to the Gann Limit: $196,005,750
As shown above, total City revenues ($196,005,750) subject to the Appropriations limit is under the limit by $290,873,809.
Adoption of the resolution will revise the FY2024-25 Gann Limit to $486,879,559 and comply with State law.
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2021-2025 Strategic Targets and Goals
By correcting the Gann Limit, the City supports Strategic Goal #1 - Improved Operational & Financial Capacity - Implement, maintain, and update a fiscal accountability plan, by ensuring compliance with state law.
Fiscal Impact
There is no fiscal impact associated with approving all Resolutions.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino, California:
1. Adopt Resolution No. 2025-022 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limits for Fiscal Years 2022-23;
2. Adopt Resolution No. 2025-023 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limits for Fiscal Years 2023-24;
3. Adopt Resolution No. 2025-024 of the Mayor and City Council of the City of San Bernardino, California, approving the technical correction to the Appropriations Limits for Fiscal Years 2024-25;
4. Re-establish the City’s Appropriations Limits for Fiscal Years 2022-23, 2023-24, and 2024-25 as required by Article XIII of the California State Constitution.
Attachments
Attachment 1 – Resolution No. 2025-022 Adopting the Revised FY2022-23 Appropriations Limit
Attachment 2 – Resolution No. 2025-023 Adopting the Revised FY2023-24 Appropriations Limit
Attachment 3 – Resolution No. 2025-024 Adopting the Revised FY2024-25 Appropriations Limit
Attachment 4 – Revised FY 2022-23 Appropriations Limit calculation Attachment 5 – Revised FY 2023-24 Appropriations Limit calculation Attachment 6 – Revised FY 2024-25 Appropriations Limit calculation Attachment 7 – State DOF Price Factor & Population Letter 2022 for 2022-23 Attachment 8 – State DOF Price Factor & Population Letter 2023 for 2023-24 Attachment 9 – State DOF Price Factor & Population Letter 2024 for 2024-25 Attachment 10 – State DOF Letter for State Subventions for FY2022-23 & 2023-24 Attachment 11 – State DOF Letter for State Subventions for FY2024-25 Ward:
All Wards
Synopsis of Previous Council Actions:
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June 1, 2022 Council adopted Resolution No. 2022-102 approving the original Gann Limit for FY 2022-2023 at $503,724,537.
June 21, 2023 Council adopted Resolution No. 2023-080 approving the original Gann Limit for FY 2023-2024 at $462,683,004.
June 26, 2024 Council adopted Resolution No. 2024-142 approving the original Gann Limit for FY 2024-2025 at $481,445,743.