Agenda Item Wording:
title
Annual Recertification of the Measure T (Sales Tax) Plan for FY 2023/24.
body
Deadline for Action: 6/19/2023
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Renee Nagel, 713-4375 renee.nagel@visalia.city Amee Swearingen, 713-4170 amee.swearingen@visalia.city
Department Recommendation:
It is recommended that the Council recertify the Measure T expenditure plan for the new budget year July 1, 2023 to June 30, 2024 (FY 2023/24) 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:
• Two Police substations built
• 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 (reduced from the original plan of 18)
• Built Fire Station 55 and Training Facility
• Built Fire Station 53
• Purchased 2 New Fire Trucks
• Built 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 Officers allocation by 6 (3 through attrition & 3 transferred to the General Fund). In July 2014, an officer was added back. The current number of officers is 23 reduced from 28.
• Reduced Fire position allocation from 18 to 13. Three positions were never filled and in June 2019, moved the Battalion Chief and Administrative Captain to Measure N bringing the total Fire position allocation to 13.
• Declared a fiscal emergency for fiscal years 09/10, 10/11, 11/12, and 12/13
• Maximum of 1 vacancy is allowed in each fund
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 grow but at a slower rate than the General Fund sales tax rate. This slower growth rate is 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 the car is registered in, not the City it is sold in. Therefore, for Visalia to receive the district sales tax for a purchase of a vehicle, that vehicle would have to be registered 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 as they do our General Sales Tax.
Measure T has also seen a large rise in sales tax like the General Fund over the past couple of years. Staff is projecting sales tax to continue to grow but at a much smaller pace of 1%. This growth is building upon the inflated sales tax numbers from the past few years. These projections do not include an economic downturn which would result in less revenue. Chart 1 - Measure T Revenues, shows the projected sales tax to be well above the amended plan needs.
Chart 1 - Measure T Revenues & Expenditures
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 Projections. The fund balance is projected to be $7.2 million at the end of the fiscal year. The surplus is projected to decrease each year due to the increase in benefits costs. In addition, the Measure T Fire plan is to contribute towards the Public Safety Building that is currently under design. The larger fund balance will help with this fund’s share of the public safety building as outlined in the plan. Once the Public Safety final building cost has been established, staff will return to potentially add back fire staff.
Table 1: Fire Measure T Projections:
Measure T - Police
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. Staff is projecting a smaller surplus in the future years, starting in FY 23/24, due to PERS increases as shown in Table 2: Police Measure T Projection. In addition, the Measure T Police plan is to contribute towards the Public Safety Building that is currently under design. The surpluses will help with this fund’s share of the public safety building as outlined in the plan. Once the Public Safety final building cost has been established, staff will return to potentially add back police officers.
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 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 to assure that the funds remain in balance and can contribute to the public safety building. If the projection continues to be met, staff will return with recommendations to add to the plan.
Fiscal Impact:
N/A
Prior Council Action: Measure T Reauthorization 1/4/21
Other: None
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to recertify the Measure T expenditure plan for the new budget year, including continuing to modify the Measure T plan elementsend
Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: None