FOR THE COUNCIL MEETING OF MARCH 15, 2022
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
SUBJECT: MEASURE U ANNUAL REPORT FOR THE PERIOD ENDING JUNE 30, 2021, AS SUBMITTED BY THE MEASURE U CITIZENS' OVERSIGHT
COMMITTEE
RECOMMENDATION:
That the City Council:
1. Receive a presentation from City staff and Vice -Chair of the Measure U Citizens' Oversight Committee on the Measure U Annual Report for the period ending June 30, 2021; and
2. Receive and file the Measure U Citizens' Oversight Committee 2020-21 Annual Report.
BACKGROUND:
Measure U is a local transaction and use tax within the City of Santa Maria. City voters initially approved Measure U in the June 2012 election (63.95 percent support), enacting a one -quarter -cent general transactions and use tax. More recently, City voters in the November 2018 election (with a 74.18 percent majority) extended and enhanced Measure U at the one -cent rate, to support essential City services.
The tax is imposed upon all retailers within the incorporated City Limits. The tax applies to gross receipts from any retailers from the sale of tangible property sold at retail within the City. Santa Maria residents do not shoulder the entire cost because the tax also is paid by all visitors who make purchases on taxable goods.
As part of the Ordinance establishing this general-purpose tax, on September 4, 2012, the City Council adopted a Resolution establishing the Measure U Citizens' Oversight Committee (Committee). The Committee consists of five (5) residents who are charged with ensuring oversight of the revenue generated by and expenses made in relation to Measure U are consistent with the City Council's intended use for said tax proceeds.
The Committee is not charged with decision -making responsibilities on spending priorities, funding decisions, or financing plans. Rather, Committee Member duties consist of reviewing the annual independent financial audit on the Measure U generated revenue and associated expenses during the previous fiscal year (2020-21), as well as reviewing any other relevant financial reports necessary to advise the City Council of its findings.
The following are the five (5) Committee members:
Trent Benedetti (Patino)
Jack Owen, Jr. (Cordero)
Abraham Melendrez (Soto)
Cathie Ortiz (Escobedo)
John Childers (Waterfield)
At the January 21, 2022, Committee meeting, Trent Benedetti and Jack Owen were nominated as Chair and Vice -Chair, respectively, to continue serving in those roles for calendar years 2022 and 2023, and through the first meeting in January 2024.
DISCUSSION:
On January 21, 2022, and February 21, 2022, the Committee reviewed the annual independent financial audit on the Measure U revenues and associated expenses for the fiscal year 2020-21, as performed by Moss, Levy & Hartzheim (the City's Auditors).
The Committee is hereby submitting this report to the City Council in compliance with its assigned duty. As the City Council is aware, the one -quarter -cent transactions and use tax was a nine-year tax, due to sunset on December 31, 2021. However, on November 6, 2018, voters approved a three-quarter cent enhancement to Measure U and removed the sunset date. The new one -cent transactions and use tax went into effect on April 1, 2019. To account for this funding (both revenues and expenses), staff established a separate fund to track Measure U tax proceeds and account for all Measure U -related expenditures with any unspent tax proceeds remaining in the Measure U Fund.
However, it should be noted that the Measure U Fund is a part of the General Fund and a subset thereof.
This was the first full year of the newly increased voter -approved local transactions and use tax for Measure U from one -quarter -cent to one full cent. The City Council set perimeters around the expenditure of Measure U funds and continues to prioritize public safety, youth services, and quality of life. Previously established spending benchmarks remain the same at 90 percent to public safety, 5 percent to youth services, and 5 percent to quality of life, and to maintain and enhance these services. Additionally, a reserve policy of 20 percent of revenue was established by the City Council for the Measure U fund to weather the volatility of sales tax and protect the services and employee costs funded by Measure U.
The COVID-19 pandemic disproportionately impacted the spending limits set for Measure U. Less than 5 percent was spent on quality of life and youth services, and a little more than 90 percent was spent on public safety services. Public safety services were deemed essential under the COVID-19 mandates, where some of the quality of life and youth services were deemed non -essential and were required to discontinue or shut down due to the health orders.
A positive impact on the Measure U funding was the 2018 Supreme Court Wayfair decision, resulting in the State establishing new rules requiring out-of-state retailers to 2 collect and remit sales tax for goods sold on-line to customers within the state. The decision has helped the City and other cities receive additional sales tax revenue from online purchases, especially during the COVID-19 stay-at-home orders.
Since Measure U was approved, staff has been working with Hinderliter, de Llamas & Associates, the City's sales tax consultants, to estimate the annual tax proceeds revenues. This has proven to be quite a challenge this past year due to the COVID-19 pandemic. Further depiction and clarification have been provided in the financial statements (Attachment B).
Regarding expenditures, the major issues are two -fold: 1) Staffing Vacancies - as the budget applied the full year enhanced Measure U and it took time to hire the new staff, therefore, there were vacancies; and 2) State Health Orders impacted the ability of the Library and Recreation & Parks Department to provide services, and therefore they had expenditure savings, which have also impacted the actual ratio to less than 90/5/5 as set by the City Council.
Measure U Expenditure Plan
Attached are the audited financial statements of the Measure U Fund and presents the budgeted versus actual revenue and expenditures. Accordingly, the budgeted expenditures comply with City Council's direction.
The Measure U Annual Report (Attachment A) will be presented to the City Council by Vice -Chair Owen.
Assistant City Manager
Attachment A: Measure U Citizens' Oversight Committee 2020-21 Annual Report Attachment B: Measure U Audited Financial Statements for the Period Ending June 30, 2021 3 February 2022
Measure U
Citizens' Oversight Committee
2020-21 Annual Report
Committee Members
Trent Benedetti, Chair
Jack Owen, Jr., Vice Chair
John Childers, Jr.
Abraham Melendrez
Cathie Ortiz
Dear Santa Maria City Council,
The Measure U Citizens' Oversight Committee (Committee) is pleased to submit to the City Council this annual report on the revenues received and expenditures made from the Measure U tax proceeds for the fiscal year ending June 30, 2021.
On January 24, 2022, the Committee reviewed the annual independent financial audit on the Measure U revenues and associated expenses for fiscal year 2020-21, as performed by Moss, Levy & Hartzheim (the City's Auditors). The Committee is hereby submitting this report to the City Council in compliance with its assigned duty. As the City Council is aware, the one quarter -cent transactions and use tax was a nine-year tax, due to sunset on December 31, 2021. However, on November 6, 2018, voters approved a three-quarter cent enhancement to Measure U, and removed the sunset date. The new one -cent transactions and use tax went into effect April 1, 2019. To account for this funding (both revenues and expenses), staff established a separate fund to track Measure U tax proceeds and account for all Measure U -related expenditures with any unspent tax proceeds remaining in the Measure U Fund.
However, it should be noted that the Measure U Fund is a part of the General Fund and a subset thereof.
On March 5, 2019, the City Council set goals and objectives regarding the use of Measure U proceeds.
The goals are to first maintain services, and second, to make service enhancements. The objectives are to make Santa Maria safer, with more services for youth, and to improve the quality of life. To meet these goals and objectives, the City Council authorized Measure U proceeds, beginning in fiscal year 2019-20, be used 90 percent for public safety, 5 percent for youth services, and 5 percent for quality of life. The City Council also indicated a desire to create a Measure U reserve to help assure these vital services can be sustained during a temporary or cyclical reduction of revenue. The City Council set an eventual goal of a 20 percent reserve or $3.6 million (based on 2019-20 estimated revenues).
Since Measure U was approved, staff has worked with Hinderliter, de Llamas & Associates, the City's sales tax consultants, to estimate the annual tax proceed revenues. For 2020-21, approximately $17,315,000 in revenues were estimated and actual receipts came in at nearly $22,752,000 (or 131.4 percent of budget). Consumer spending, including on-line sales, did not decline in the first year of the pandemic as many economists predicted and is the primary reason for the significant $5.4 million positive variance in Measure U revenues. Expenditures for the fiscal year were $18,448,500 (or 96.3 percent of budget).
Regarding expenditures, the City Council authorized Measure U 2020-21 revenue to maintain a variety of municipal services and programs performed by 101 full-time and part-time positions. In addition, the Attachment A
City Council authorized the use of Measure U revenue to fund the City's match requirement for nine firefighter positions hired through the Staffing for Adequate Fire and Emergency Response (SAFER) grant. The City Council also approved the use of $1.3 million from Measure U reserves (fund balance) to fill the gap between anticipated expenditures and lower -level revenues.
Four budget adjustments were also processed in 2020-21, increasing appropriations by a total of $484,933. Three of the four budget adjustments stemmed from department requests to carry over remaining 2019-20 appropriations. First, the Recreation and Parks Department requested a capital budget carryover of $66,786 to fund two vans in support of youth services. Both vans were received and put into service in October 2020. Of the remaining contracts and services balance, $6,043 was carried over to pay for support of downtown events.
The Fire Department requested capital appropriations carryover of $239,490 to allow for the payment of one of three fire engines that were ordered in 2018-19. The City Council authorized the appropriation to supplement existing fleet replacement funds to replace three fire engines on December 4, 2018. Two of the engines were received in July 2019 and the third engine was received in April 2021 which was put into service in late summer. In addition, the Fire Department requested a carryover of $9,000 to pay for operational gear including turnouts, personal protective equipment, and a fire hose ordered but not received in 2019-20.
The Police Department requested a budget carryover of $124,410 to complete the purchase and upgrade of replacement vehicles and fund a new vehicle for new positions authorized as part of the 2019-20 budget. The Police Department also requested to carry over the contracts and services budget of $39,204 to complete an Office of Independent Review (OIR) study that was started in June 2020.
The OIR Group completed an independent audit on the Police Department's leadership, management, and supervision practices with an emphasis on public transparency, use of force, the handling of community complaints, and internal administrative investigations.
Lastly, on November 3, 2020, the City Council authorized the use of $50,000 of salary savings in the Police Department for erosion mitigation at the Police Department Los Flores Ranch Shooting Range.
Although this action is considered a budget amendment, it did not affect the overall Measure U budget, rather it simply moved budget from salaries and wages to capital.
Measure U Audit Review
On January 24, 2022, and February 21, 2022, the
Committee convened to review the Measure U
audited financial statements. Committee members
reviewed the audit report and were able to ask
questions of staff regarding Measure U -related
expenses. After reviewing the relevant financial
information and deliberating on the actions taken by
staff, the Committee determined that the
expenditures made with Measure U tax proceeds
were in compliance with the City Council's intended
purpose for said tax proceeds. Accordingly, 92
percent of Measure U expenditures have been spent
Expenditures -$18,448,546
Fire
39%
Reerealon & Parks
,0%
_ Library
2%
City Altana),
2%
-._Ciry Manager
0%
0%
O%
Figure 1 - Actual expenditures of Measure U for 2020-21.
Attachment A
on Public Safety, 3 percent on Youth Services, and 5 percent on Quality of Life. Unfortunately, the effects of the COVID-19 pandemic continue to prevent the City from providing planned activities that were budgeted in the Youth Services category.
Committee Issues/Questions/Comments
At the Committee Meeting of January 24, 2022, the Committee inquired about whether any overtime incurred by fire personnel funded by Measure U, would be reimbursed through the Mutual Aid program.
Staff explained that overtime recorded in Measure U was incurred to maintain mandated staffing levels when fire staff are on some type of leave (sick, vacation, medical, or workers' compensation) and since it is not related to support of wildland fires it is not reimbursable. Staff also explained that all overtime related to support of wildland fires, both staff working at wildland fires and staff backfilled to maintain staffing levels, are recorded in a separate account in the General Fund.
The Committee also asked about the levee loan payments and what will happen to that appropriation of $106,130 once the final payment is made in fiscal year 2021-22. Staff informed the Committee that an appropriation for the levee loan payment would not be included in the proposed 2022-24 budget and would be available to fund other Measure U activities as authorized by the City Council.
The Committee noted that for the past two years, Measure U expenditures spent on youth services have fallen short of the budgeted amounts and the City Council's goal of 5 percent. Although, the Committee understands that many youth activities were and continue to be hindered by the stay-at- home orders and restrictions enacted to deal with the coronavirus pandemic, the Committee felt it important to make the City Council aware that Measure U expenditures spent on youth services in fiscal years 2019-20 and 2020-21, were 4 percent and 3 percent, respectively.
Fiscal Results
The Measure U Fund began the year with a fund balance of $6,950,610, and because revenues ($22,751,964) exceeded expenditures ($18,448,546) by $4,303,418, the ending fund balance as of June 30, 2021, was increased to $11,254,028. Attached are the audited financial statements of the Measure U Fund, and Page 4 of the Statements which presents the budgeted versus actual revenue and expenditures. Accordingly, the budgeted expenditures comply with the City Council's direction.
Sincerely,
TRENT BENEDETTI
Chair, Measure U Citizens' Oversight Committee
Attachment A
CITY OF SANTA MARIA
MEASURE U
FINANCIAL STATEMENTS
June 30, 2021
Attachment B
CITY OF SANTA MARIA
MEASURE U
TABLE OF CONTENTS
June 30, 2021
Independent Auditors' Report 1
Balance Sheet 2
Statement of Revenues, Expenditures, and Changes in Fund Balance 3 Statement of Revenues, Expenditures, and Changes in Fund Balance — Budget and Actual 4
Notes to Financial Statements 5
ilf„f
Moss, Levy & Hartzheim LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
City Council
City of Santa Maria
Santa Maria, California
We have audited the accompanying financial statements of the Measure U Fund of the City of Santa Maria, as of and for the fiscal year ended June 30, 2021, and the related notes to the financial statements, as listed in the table of contents.
Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Measure U Fund of the City of Santa Maria as of June 30, 2021, and the changes in financial position thereof for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note I, the financial statements present only the Measure U Fund and do not purport to, and do not, present fairly the financial position of the City of Santa Maria as of June 30, 2021, the changes in its financial position for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
7i7eu, x. e'. :k,.CcP
Santa Maria, Califomia
January 13, 2022
2400 Professional Parkway, Suite 205 Santa Maria, CA 93455 Tel 805.925.2579 Fax 805.925.2147 mlhcpas.com BEVERLY HILLS CULVER CITY • SANTA MARIA
CITY OF SANTA MARIA
MEASURE U
BALANCE SHEET
June 30, 2021
ASSETS
Cash and investments
Accounts receivable
$ 7,291,305
4,474,805
Total current assets $ 11,766,110
LIABILITIES AND FUND BALANCE
Liabilities:
Accounts payable
Accrued liabilities
23,273
488,809
Total liabilities 512,082
Fund Balance:
Restricted
'iota) fund balance
Total liabilities and fund balance
11,254,028
11,254,028
$ 11;766,110
See notes to financial statements
2 CITY OF SANTA MARIA
MEASURE U
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE For the Fiscal Year Ended Lune 30, 2021
Revenues
Sales tax
Use of money and property
$ 22,682,383
69,581
Total revenues 22,751,964
Expenditures
Legal 314,509
City Manager 27,601
Finance 111,219
Library 471,291
Recreation and Parks 1,774,475
Fire 7,140,522
Police 8,608,929
Total expenditures
Excess (deficiency) of' revenues over expenditures
Fund balance at beginning of fiscal year
Fund balance at end of fiscal year
18,448,546
4,303,418
6,950,610
$ 11,254,028
See notes to financial statements
3 CITY OF SANTA MARIA
MEASURE U
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE -
BUDGET AND ACTUAL
For the Fiscal Year Ended June 30, 2021
Variance
Final Favorable
Budget Actual (Unfavorable)
Revenues
Sales tax
Use of money and property
Total revenues
Expenditures
Legal
Salaries and wages
Materials and supplies
Equipment and operations
Contracts and services
Cost allocation transfer out
Total legal
City Manager
Contracts and services
Total city manager
$ 17,281,000 $ 22,682,383 $ 5,401,383
34,380 69,581 35,201
17,315,380 22,751,964 5,436,584
277,228
7,854
17,495
56,066
2,904
361,547
20,000
20,000
269,255
5,872
17,495
18,983
2,904
314,509 47,038
7,973
1,982
37,083
27,601 (7,601)
27,601 (7,601)
Finance
Contracts and services 108,730 111,219 (2,489)
Total finance 108,730 111,219 (2,489)
Library
Salaries and wages 658,984 450,577 208,407
Materials and supplies 34,270 16,320 17,950
Contracts and services 14,780 1,780 13,000
Cost allocation transfer out 2,614 2,614
Total library 710,648 471,291 239,357
Recreation and Parks
Salaries and wages 1,590,622 1,417,268 173,354
Materials and supplies 125,499 142,847 (17,348)
Equipment and operations _ 131,146 123,239 7,907
Contracts and services 23,130 25,182 (2,052)
Capital outlay 72,829 59,969 12,860
Cost allocation transfer out 5,970 5,970
"Total recreation and parks 1,949,196 1,774,475 174,721 Fire
Salaries and wages 5,712,159 6,365,040 (652,881)
Materials and supplies 57,263 47,706 9,557
Equipment and operations 397,539 387,362 10,177
Contracts and services 114,213 65,737 48,476
Capital outlay 245,720 214,861 30,859
Cost allocation transfer out 59,816 59,816
Total fire 6,586,710 7,140,522 (553,812)
Police
Salaries and wages
Materials and supplies
Equipment and operations
Contracts and services
Capital outlay
Cost allocation transfer out
Total police
Total expenditures
Excess (deficiency) of revenues over
expenditures
8,320,573 7,558,252
24,696 27,469
696,522 696,522
117,722 110,839
174,410 134,832
81,015 81,015
9,414,938 8,608,929
19,151,769 18,448,546
762,321
(2,773)
6,883
39,578
806,009
703,223
$ (1,836,389) 4,303,418 $ 6,139,807
Fund balance at beginning of fiscal year 6,950,610
Fund balance at end of fiscal year $ 11,254,028
See notes to financial statements
4 CITY OF SANTA MARIA
MEASURE U FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
In the June 5, 2012 election, City of Santa Maria (City) voters approved Measure U, establishing a temporary quarter - cent transaction sales and use tax. The Measure U Fund (Fund) was established to accumulate revenues transmitted by the State Board of Equalization (BOE), the agency responsible for administering and collecting the transactions and use taxes for the City, and apportion them to essential services outlined within the approved expenditure plan.
In the November 2018 election, City voters approved to extend and enhance Measure U at a one -cent rate. The rate became effective April 1, 2019.
The financial statements presented only the activity of the Measure U Fund and are not intended to present the financial position and changes in financial position of the City of Santa Maria, in conformity with accounting principles generally accepted in the United States of America.
B. Basis of Accounting
The Measure U Fund of the City is maintained on the modified accrual basis of accounting. As such, revenues are recognized when they become susceptible to accrual, that is, when they become both measurable and available to finance expenditures of the current period. Expenditures are recognized in the accounting period in which the liability is incurred (when goods are received or services rendered).
C. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 2 — CASH AND INVESTMENTS
Cash and investments at June 30, 2021, consist of the following:
Pooled cash and investments with the
City of Santa Maria S 7.291 305
Please refer to the notes of the City's June 30, 2021 Comprehensive Annual Financial Report regarding cash and investments for additional detail.
5