FOR THE COUNCIL MEETING OF MARCH 21, 2023
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
SUBJECT: MEASURE U ANNUAL REPORT FOR THE PERIOD ENDING JUNE 30, 2022, 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, 2022; and
2. Receive and file the Measure U Citizens' Oversight Committee 2021-22 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 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 (2021-22), as well as reviewing any other relevant financial reports necessary to advise the City Council of its findings.
The following are the five Committee members:
Trent Benedetti (Patino)
Jack Owen, Jr. (Cordero)
Cathie Ortiz (Escobedo)
John Childers (Waterfield/Aguilera-Hernandez)
Vacant (Soto)
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 23, 2023, the Committee reviewed the draft (unaudited) Measure U financial statements prepared by City staff and pending completion of the annual independent financial audit performed by Moss, Levy & Hartzheim (the City's Auditors).
On February 23, 2023, Moss, Levy & Hartzheim completed the audit on the Measure U revenues and associated expenses for fiscal year 2021-22 and issued the annual independent audit report. The Committee received the final Measure U audited financial statements on February 27, 2023, and were informed by staff of one material difference between the draft and audited Measure U statements. The difference is due to an invoice paid in early July 2022, for the pre -payment of two type -6 pumper trucks for the fire department, that was posted to fiscal year 2021-22 expenditures and recorded as a liability (in accounts payable) as of June 30, 2022. The invoice should have been posted to July 2023 because the pumper trucks were not received in fiscal year 2021-22. The amount charged to Measure U was $500,000, is financially material, and therefore required a change to the draft financial statements that were presented to the Committee on January 23, 2023. The impact of the change is a decrease in expenditures in the Fire Department, a decrease in accounts payable, and an increase in fund balance.
The Measure U Fund began the year with a fund balance of $11,254,028, and because revenues ($25,502,203) exceeded expenditures ($19,348,284) by $6,153,919, the ending fund balance as of June 30, 2022, was increased to $17,407,947. Attached are the audited financial statements of the Measure U Fund, and Page 5 of the Statements which presents the budgeted versus actual revenue and expenditures. Accordingly, the budgeted expenditures comply with the City Council's direction.
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. 2 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 proceeds revenues. For 2021-22, approximately $21,787,000 in revenues were estimated and actual receipts came in at nearly $25,502,000 (or 117.1 percent of budget). The significant $3.7 million positive variance in Measure U revenues is attributable to growth in fuel and service stations, restaurants and hotels, and autos and transportation industry categories.
Regarding expenditures, the City Council approved 2021-22 appropriations of $22,429,597 to maintain a variety of municipal services and programs performed by 102 full-time and part-time positions. As part of the 2020-21 Mid -Cycle Budget process, the City Council restored funding for five positions slated for elimination during the 2020-22 Budget and authorized two additional positions. In addition, the City Council authorized the use of Measure U revenues to preserve staffing and the City's match requirement for nine firefighter positions hired under the Staffing for Adequate Fire and Emergency Response (SAFER) grant. The City Council also approved a $1.9 million capital appropriation and the use of $642,366 from Measure U reserves (fund balance) to fill the gap between anticipated expenditures and revenues.
Three budget adjustments were also processed in 2021-22, increasing appropriations by a total of $80,674. These budget adjustments stemmed from department requests to carry over the remaining 2020-21 appropriations. Recreation and Parks requested a capital budget carryover of $8,118 to purchase equipment for Park Ranger vehicles.
The Fire Department requested capital appropriations carryover of $24,629 to equip fire vehicles received in the previous fiscal year, $10,221 for payment of previously ordered wellness equipment for firefighter personnel, and $9,235 to pay for operational gear including turnouts, personal protective equipment, and fire hose ordered but not received in 2020-21. The Police Department requested a budget carryover of $21,588 to complete the purchase of equipment for police vehicles and $6,883 in contracts and services budget to fund a portion of the police records management assessment contract.
3 Including the budget carry-over amendments, 2021-22 appropriations increased to $22,510,271. Expenditures for the fiscal year were $19,348,284 (or 86 percent of budget).
Measure U Expenditure Plan
Attached are the audited financial statements of the Measure U Fund which 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.
ANDREW S. HACKLEMAN
Assistant City Manager
Attachment A: Measure U Citizens' Oversight Committee 2021-22 Annual Report Attachment B: Measure U Audited Financial Statements for the Period Ending June 30, 2022 4 February 2023
Measure U
Citizens' Oversight Committee
2021-22 Annual Report
Dear Santa Maria City Council,
Committee Members
Trent Benedetti. Chair
Jack Owen, Jr., Vice Chair
John Childers, Jr
Cathie Ortiz
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, 2022 The Committee is hereby submitting this report to the City Council in compliance with its assigned duty.
On January 23, 2023, the Committee reviewed the draft (unaudited) Measure U financial statements prepared by City staff and pending completion of the annual independent financial audit performed by Moss, Levy & Hartzheim (the City's Auditors).
On February 23, 2023, Moss, Levy & Hartzheim completed the audit on the Measure U revenues and associated expenses for fiscal year 2021-22 and issued the annual independent audit report. The Committee received the final Measure U audited financial statements on February 27, 2023, and were informed by staff of one material difference between the draft and audited Measure U statements. The difference is due to an invoice paid in early July 2022, for the pre -payment of two type -6 pumper trucks for the fire department, that was posted to fiscal year 2021-22 expenditures and recorded as a liability (in accounts payable) as of June 30, 2022. The invoice should have been posted to July 2023 because the pumper trucks were not received in fiscal year 2021-22. The amount charged to Measure U was $500,000, is financially material, and therefore required a change to the draft financial statements that were presented to the Committee on January 23, 2023. The impact of the change is a decrease in expenditures in the Fire Department, a decrease in accounts payable and an increase in fund balance.
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 2021-22, approximately $21,787,000 in revenues were estimated and actual receipts came in at nearly $25,502,000 (or 117.1 percent of budget). The significant $3.7 million positive variance in Measure U revenues is attributable to growth in fuel and service station, restaurants and hotels, and autos and transportation industry categories.
Regarding expenditures, approved 2021-22 appropriations of $22,429,597 to maintain a variety of municipal services and programs performed by 102 full-time and part-time positions. As part of the 2020-21 Mid -Cycle Budget process. the City Council restored funding for five positions slated for elimination during the 2020-22 Budget and authorized two additional positions. In addition, the City Council authorized the use of Measure U revenues to preserve staffing and the City's match requirement for nine firefighter positions hired under the Staffing for Adequate Fire and Emergency Response (SAFER) grant. The City Council also approved $1.9 million capital appropriation and the use of $642,366 from Measure U reserves (fund balance) to fill the gap between anticipated expenditures and revenues.
Three budget adjustments were also processed in 2021-22, increasing appropriations by a total of $80,674. These budget adjustments stemmed from department requests to carry over remaining 2020- 21 appropriations. Recreation and Parks requested a capital budget carryover of $8,118 to purchase equipment for Park Ranger vehicles. The Fire Department requested capital appropriations carryover of $24,629 to equip fire vehicles received in the previous fiscal year, $10.221 for payment of previously ordered wellness equipment for firefighter personnel, and $9,235 to pay for operational gear including turnouts, personal protective equipment, and fire hose ordered but not received in 2020-21. The Police Department requested a budget carryover of $21,588 to complete the purchase of equipment for police vehicles and $6,883 in contracts and services budget to fund a portion of the police records management assessment contract.
Including the budget carry-over amendments.
2021-22 appropriations increased to $22,510,271.
Expenditures for the fiscal year were $19,348,284
(or 86 percent of budget).
Measure U Audit Review
On January 23, 2023, and February 27, 2023, the
Committee convened to review the Measure U
draft and final 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
Actual Expenditures -519,348,284
Fi e
35%
P3 ce
45.4 We:reeda,b Irk- e
'_er
1.[I ary
!'b
'ly 4' -r-a,
rbr re;
Figure 1 - Actual expenditures of Measure U for 2021-22 •�y Manager
Measure 1.) tax proceeds were in compliance with the City Council's intended purpose for said tax proceeds. Accordingly, 91 percent of Measure U expenditures have been spent on Public Safety, 4 percent on Youth Services, and 5 percent on Quality of Life. Unfortunately, the tight labor market and the lingering effects of the COVID-19 pandemic continue to hamper the City from providing planned activities that were budgeted in the Youth Services category.
Committee Issues/Questions/Comments
Prior to the January 23, 2023, meeting, a committee member requested staff include status on Code Enforcement staffing at the scheduled meeting, noting the Measure U Draft (unaudited) Financial Statements agenda report indicated City Attorney's Office was under budget because of three vacant Code Enforcement Officers. Staff informed the Committee that two of the vacant positions were filled in August 2022 with Code Enforcement Technicians who are training to become Code Enforcement Officers.
At the Committee Meeting of January 23, 2023, the Committee inquired about whether Code Enforcement's move from City Attorney's Office to Community Development was simply a location change and City Attorney's Office would continue to be responsible for the Code Enforcement program.
Staff explained that Code Enforcement program was reassigned to Community Development and that was the reason for their physical relocation to Community Development office.
The Committee also asked questions about CaIPERS cost increases, unfunded pension liability and the percent pensions are funded. Staff explained there are many factors that affect CaIPERS costs, including actuarial assumptions, investment returns, and changes to the discount rate, all of which the City has no control over. Staff noted that the City has engaged in some pension reform measures, for example entering into cost share agreements with employee bargaining and salary groups. Regarding the funding status of the City's pension plans, Staff informed the Committee that the funding status has improved since the implementation of Public Employees' Pension Reform Act (PEPRA).
The Committee expressed interest in exploring staffs ideas on mapping out different ways to achieve the City Council's goals for use of Measure U funds. Staff shared the idea of budgeting at program level rather than at line -item detail as a possible option.
Fiscal Results
The Measure U Fund began the year with a fund balance of $11,254,028, and because revenues ($25,502,203) exceeded expenditures ($19,348,284) by $6,153,919, the ending fund balance as of June 30, 2022, was increased to $17,407,947. Attached are the audited financial statements of the Measure U Fund, and Page 5 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
CITY OF SANTA MARIA
MEASURE U
FINANCIAL STATEMENTS
JUNE 30, 2022
Attachment B
City of Santa Maria
MEASURE U FUND
TABLE OF CONTENTS
June 30, 2022
Independent Auditor's Report 1
Balance Sheet 3
Statement of Revenues, Expenditures, and Changes in Fund Balance 4 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual 5
Notes to Financial Statements 6
1\h,
Moss, Levy & Hartzheim LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
City Council
City of Santa Maria
Santa Maria, California
Opinion
We have audited the accompanying financial statements of the Measure U Fund of the City of Santa Maria, California (the Fund) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the basic financial statements as listed in the table of contents.
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, California as of June 30, 2022, and the changes in fmancial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City of Santa Maria, California, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1, the fmancial 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, 2022, 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.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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 Respoosibilitlea for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the fmancial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Fund's internal control. Accordingly, no such opinion is expressed.
1 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
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
We are required to communicate with those charged with governance regarding, among other matters. the planned scope and timing of the audit, significant audit findings, and certain internal control -related matters that we identified during the audit.
Windt y tr. Siewar.af
Santa Maria, California
February 23, 2023
2 City of Santa Maria
MEASURE U
BALANCE SHEET
June 30, 2022
General
ASSETS:
Cash and investments
Accounts receivable
Prepaid items
Total assets
$ 13,209,509
4,786,387
36,222
$ 18,032,118
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable $ 81,237
Accrued liabilities 542,934
Total liabilities 624,171
Fund Balance:
Restricted
17,407,947
Total fund balance 17,407,947
Total liabilities and fund balance $ 18,032,118
3 City of Santa Maria
MEASURE U
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 2022
General
REVENUES:
Sales Tax $ 25,934,795
Use of money and property (432,592)
Total revenues 25,502,203
EXPENDTTURES:
Legal 434,032
City Manager 9,643
Finance 108,814
Library 616,687
Recreation and Parks 1,913,847
Fire 6,791,190
Police 9,474,071
Total expenditures 19,348,284
Excess (deficiency) of revenues over expenditures
Fund balance at the beginning of fiscal year
Fund balance at the end of fiscal year
6,153,919
11,254,028
$ 17,407,947
4 CITY OF SANTA MARIA
MEASURE U
Statement of Revenues, Expenditures, and Changes in Fund Balance For the Fiscal Year Ended June 30, 2022
Revenues
Sales tax
Use of money and property
Final
Budget
Actual
variance
avorable
(Unfavorable)
5 21,757,877 5 25,934,795 5 4,176,918
29,354 (432,592)
(461,946)
Total revenues 21,787,231 25,502.203 3,714,972
Expenditures
Legal
Salaries and wages 580,924 367,054 213,870
Materials and supplies 8,311 6,052 2,259
Contracts and services 36,448 35,174 1,274
Equipment and operations 22.848 22,848
Capital 60,000 60,000
Cost allocation transfer out 2,904 2,904
Total legal 711435 434,032 277,403
City Manager
Contracts and services 20 000 9,643 10 357
Total city manager 20,000 9,643 10.357
Finance
Contracts and services 108 730 108,814 (84)
Total finance 108 730 108,814 (84)
Library
Salaries and wages 606,281 521,313 84,968
Materials and supplies 111,506 77,654 33,852
Contracts and services 24,426 15,106 9,320
Cost allocation transfer out 2,614 2,614
Total library 744 827 616 687 128 140
Parks and recreation
Salaries and wages 1,702,832 1,523,533 179,299
Materials and supplies 156,181 149,206 6,975
Equipment and operations 128,293 128,293
Contracts and services 212,820 106,845 105,975
Capital 128,118 128,118
Cost allocation transfer out 5,970 5,970
Total parks and recreate, 2 334 214 1,913,847 420,367
Fire
Salaries and wages 6,264,178 6,000,352 263,826
Materials and supplies 68,920 59,388 9,532
Equipment and operations 420,476 401,656 18,820
Contracts and services 232,054 200,162 31,892
Capital 1,714,867 69,816 1,645,051
Cost allocation transfer out 59,816 59,816
Total fire 8 760 311 6 791,190 1,969121
Police
Salaries and wages 8,486,052 8,346,715 139,337
Materials and supplies 53,112 52,055 1,057
Equipment and operations 764,269 764,269
Contracts and services 223,424 195,660 27,764
Capital 222,882 34,357 188,525
Cost allocation transfer out 81,015 81,015
Total police 9,830,754 9 474 071 356 683
Total expenditures 22,510,271 19,348,284 3 161 987
Excess (defidency) of revenues over
Expenditures $ (723,040) 6,153,919 $ 6,876,959
Fund balance at beginning of fiscal year 11,254,028
Fund balance at end of fiscal year $ 17,407,947
City of Santa Maria
MEASURE U FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2022
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
In a 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 at that time and apportion them to essential services outlined within the approved expenditure plan. In 2017 administration of transaction and use tax was transferred to the California Department of Tax and Fee Administration (CDTFA).
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, 2022, consist of the following:
Pooled cash and investments with the City of
Santa Maria $ 13,209,509
Please refer to the notes of the City's June 30, 2022 Annual Comprehensive Financial Report regarding cash and investments for additional detail.
6