FOR THE COUNCIL MEETING OF JULY 18, 2023
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
Prepared by: Director of Finance
SUBJECT: Establishing the City of Santa Maria’s FY 2023-24 Appropriation Limit
Description:
The City Council will consider establishing the City of Santa Maria’s FY 2023-24 appropriation limit.
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
RECOMMENDATION:
Adopt a Resolution establishing the City of Santa Maria’s FY 2023-24 appropriation limit.
BACKGROUND:
Article XIIIB of the State Cons titution requires State and local governments to annually calculate and adopt an appropriation limit. Under the provisions of this article, a city may not appropriate “proceeds of taxes” in excess of its appropriation limit. Each year, municipalities compare the amount of revenues generated from tax proceeds with the previous year’s appropriation limit, as modified by the State Department of Finance figures.
The appropriation limit calculation was first applied in FY 1978-79, as a result of Proposition 4. The Proposition was described as an appropriation limit but, in essence, is a tax revenue limit. Municipal agencies were required to classify revenues as either “proceeds from taxes” or “non-tax proceeds.” The total amount of “non-tax proceeds” was deducted from total appropriations and the difference became the municipalities’ beginning appropriation limit.
DISCUSSION:
Each year, the municipalities’ previous year’s appropriation limit is modified by the current per capita personal income change or the change in the local non-residential construction assessment roll and the population change of either cities or counties, as provided by the State Department of Finance.
2 The City of Santa Maria’s FY 2023-24 appropriation limit was calculated by using the previous year’s appropriation limit ($ 244,347,863), multiplied by the change in the local non-residential construction percentage and multiplied again by the C ounty’s population percentage change resulting in the 202 3-24 appropriation limit of $ 259,301,952. The City’s tax base revenue is calculated at $95,384,843, which is $163,917,109 less than the legal appropriation limit.
State law (Government Code §7910) requires that the City Council annually establish an appropriation limit, after the documentation used in determining the limit has been made available to the public for 15 days. The documentation consists of the allocatio n of City revenues between the “proceeds from taxes” or “non -tax proceeds” and the calculation shown in Exhibit A of the Resolution. This calculation has been available for public review on the City’s website and in the office of the Director of Finance since July 3, 2023.
Alternative(s):
The law stipulates that each year , by resolution of the City Council at a regularly scheduled meeting or noticed special meeting, establish its Appropriations Limit, and make other necessary determinations pursuant to Article XIIIB.
The documentation used in the determination of the appropriations limit for the City of Santa Maria for FY 2023-24 is based on the change in local non-residential construction as the income change factor and the annual population change for th e County of Santa Barbara as the population change factor. The City reserves the right to adjust or amend the appropriations limit based upon the use of alternative growth factors as authorized by Proposition 111 if such changes or revisions would result i n a more advantageous appropriations limit, now or in the future.
Fiscal Considerations
If the City ends a fiscal year with tax -based revenue in excess of the appropriation limit, the City is required to return the excess tax -based revenue to the taxpayer s within two years. The excess tax -based revenue is returned by reducing taxes or fees. During the two-year period, the City is entitled to seek voter approval to retain the excess tax revenues.
Impact to the Community
The documentation allocating revenue s between “proceeds from taxes” and “non -tax proceeds,” have been on file in the Department of Finance , the City Clerk’s Office, and the Agenda Center & Meetings Portal since June 26, 2023. The modification of the prior year’s appropriation limit by the change in the assessment roll and population change are shown on Exhibit A of the Resolution.