Agenda Item Wording:
title
Annual Recertification of the Measure T (Sales Tax) Plan for FY 2022/23.
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Deadline for Action: 6/30/2021
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Renee Nagel, Finance & Technology Director 713-4375, Amee Swearingen, Financial Analyst 713-4170
Department Recommendation:
It is recommended that the Council recertify the Measure T expenditure plan for the new budget year July 1, 2022 to June 30, 2023 (FY 2022/23) as required per the plan.
Background Discussion:
In 2004, City of Visalia voters approved a measure to increase sales tax by ¼ cent. This was known as Measure T and the sales tax revenues generated by the voter-approved measure are earmarked for public safety. The sales tax is shared 60% police and 40% fire. Thus, the City maintains two funds: Measure T - Fire and Measure T - Police. The measure uses a detailed, 20-year plan which includes hiring of personnel, construction of capital projects, and equipment purchases. The plan requires each fund to have an economic uncertainty fund of 25% of sales tax revenues collected. This is to be used if revenues do not cover expenditures. However, the plan elements should be funded before the economic uncertainty fund is fully funded. Annually the plan is required to get recertified by Council. For the recertification, staff brings all the completed elements and a projection of both the funds revenues and expenditures.
Plan elements implemented to date are as follows:
• 2 Police substations completed;
• 23 Police Officers hired and vehicles purchased (reduced from 28 due to revenue shortfalls and as directed by the City Council at their June 20, 2011 meeting);
• 13 Firefighters hired;
• Administrative Captain position and 1 Battalion Chief position added;
• Fire Stations 53, 55, and Training Facility completed;
• New Fire Engine purchased;
• New Fire Ladder Truck purchased;
• Contributed towards the Visalia Emergency Communication Center
In addition, the plan requires both police and fire portions of the funds to contribute towards the future construction of a Public Safety building.
It is important to remember that the original Measure T plan was not balanced from its inception and included a structural deficit. The original Measure T plan was adopted with a deficit after the first 20 years. The plan anticipated that the solution for the deficit would be funded by 1) greater than expected revenues, 2) less than expected costs; or 3) addition General Fund revenues. In reality, Measure T had several years of revenues being lower than the plan and higher expenditures due to increased personnel costs (PERS and health), construction, and vehicle costs. In addition, the General Fund has had limited available resources due to the same increased costs.
To keep the Measure T funds from going negative, the City has taken several remedial actions over the years, specifically :
• Reduced Police Officer allocations by 6 (3 through attrition & 3 transferred to the General Fund). In July 2013, an officer was added back. The current number of officers funded by Measure T is 23 - reduced from 28;
• Reduced hiring of firefighters from 18 to 15;
• Declared fiscal emergency for fiscal years 09/10, 10/11, 11/12, 12/13;
• Reduced funding contribution towards the VECC building. General Fund is covering a portion of Measure T’s share;
• Moved 1 Administrative Captain and 1 Battalion Chief to Measure N funding;
• Transferred $150,000 from General Fund to offset overtime in Measure T Fire annually;
• Transferred 1 vacant position from Police and Fire.
Sales Tax
Measure T does not receive any of the general 1% sales tax. It only receives the additional ¼ cent tax. Measure T sales tax continues to have growth but at a slower rate than the General Fund sales tax rate due to how district sales taxes are applied compared to general sales taxes in two main areas: car sales and business to business sales. District sales tax is applied to the City in which a car is registered, not the City in which it is sold. Therefore, for Visalia to receive the district sales tax for a purchase of a vehicle, that vehicle would have to be registered to an owner address in Visalia. If a resident from Dinuba purchases a vehicle in Visalia, Visalia would receive their local 1% share of the State sales tax but would not receive any of the district taxes (Measure T & N). Likewise, Business to Business sales tax works the same way. One of the areas that Visalia has seen a large sales tax growth is in Business to Business sales. These transactions do not help Measure T to the degree that they help General Sales Tax.
Since last fiscal year, Measure T has seen a large rise in sales tax like the General Fund. Last fiscal year sales tax grew by 17%, this year it is projected to grow by 11%. Sales tax growth prior to FY 20/21 was on average between 3-4%. Staff is projecting sales tax to continue to grow but at a much smaller pace of 2%. This growth is building upon the inflated sales tax numbers from the past two years. These projections do not include an economic downturn which would result in less revenues Chart 1 - Measure T Revenues, shows the projected sales tax to be well above the amended plan needs.
Chart 1 - Measure T Revenues
Fire Measure T
The majority of expenditures for the Fire Measure T fund are for salary and benefits, as shown in Table 1: Fire Measure T Projection. The fund balance that is projected to be $6 million at the end of this fiscal year (2021/22). The City has a policy that all allocated positions are budgeted. With the current amended plan, if there is a vacant position it will be transferred to Measure T. This will help reduce an operating deficit by approximately $100,000. The projected surpluses will help fund any additional increases in salaries and benefits as well as this fund’s share of the public safety building as outlined in the plan.
Table 1: Fire Measure T Projections:
Police Measure T
Police Measure T revenues have exceeded the expenditures since FY 2012/13 due to the reduction in police officers. This reduction, as well as reducing the VECC contribution, has allowed the fund to have a surplus at the end of each year. Like Fire, the majority of the expenditures are for salary and benefits for 23 officers. The projection for the next 5 years shows the surplus decreasing due to PERS and benefit increases, as shown in Table 2: Police Measure T Projection. The surpluses will help with this fund’s share of the public safety building as outlined in the plan. Also, the City has a policy that all allocated positions are budgeted. With the current amended plan, if there is a vacant position available, it will be transferred to Measure T. This will help reduce any deficit by approximately $120,000.
Table 2: Police Measure T Projections:
Measure T Recertification and Maintenance of Effort Requirement
Measure T is required to complete an annual recertification and maintenance of effort (MOE) calculation. The MOE is to ensure that the General Fund monies budgeted for Police and Fire operations does not fall below the previous years’ service level. In the event of an economic emergency, the City Council may only alter this provision by a supermajority (4/5th’) vote. The City meets this calculation for FY 2022/23 as shown in Table 3: FY 2022/23 MOE Calculation.
Table 3 - FY 2022/23 MOE Calculation
Conclusion
Measure T has implemented the majority of the components of the expenditure plan. Previously, the City has taken steps to reduce ongoing operational costs as expenditures have exceeded revenues. The 5-year projection shows revenues exceeding expenditures which results in the cash balances increasing each year. This projection does not include an economic downturn, which would result in less revenues. At this time, staff recommends continuing with the plan and its amendments and will continue to monitor revenues and expenditures. If the projection continues to be met, staff will return with recommendations to change the plan.
Fiscal Impact:
None
Prior Council Action: Measure T Reauthorization 1/4/21
Other: N/A
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
Recertify the Measure T expenditure plan for the new budget year, including continuing to modify the Measure T plan elements. end
Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: N/A