Agenda Item Wording:
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Measure T District Tax Amendment and Recertification - Amend the Measure T plan and recertify the plan for FY 2024/25.
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Deadline for Action: 6/30/2024
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, 2024 to June 30, 2025 (FY 2024/25) as required per the plan to be done annually; amend the plan to change the Economic Uncertainty Fund calculation from 25% of budgeted revenues to 30% of operating expenditures; and to continue with the existing plan until all staffing levels and projects have been met.
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 maintain an economic uncertainty fund of 25% of budgeted sales tax revenues. This is to be used if revenues do not cover expenditures.
Annually the plan is required to get recertified by Council and every eight years a review of the sales tax measure and the need to continue it. The next effectiveness review is schedule for January 2029. For the annual 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
The last year of the 20-year plan is FY 2024/25 (year 1 began in FY 2004/05). Staff recommends continuing to fund the plan elements outlined and add staff back, per the original plan, as funding becomes available.
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. Measure T does not receive any of the general 1% sales tax. It only receives the additional ¼ cent tax. 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.
Since FY 2019/20, Measure T has had larger-than-normal growth due to the multi-year COVID stimulus money that the Federal Government issued. This one-time money has ended and sales tax is projected to end the fiscal year with a negative for the second year in a row. Last fiscal year, Measure T ended with a -1 % growth and is projected to end this fiscal year with -7%. Based on the past two years, staff is projecting no growth in 24/25 and a 1% growth in 25/26. However, this is very optimistic that the economy does not take a downturn. Chart 1 - Measure T Revenues, shows the projected sales tax to be above the amended plan expenses for the for FY 2024/25.
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 $6.1 million at the end of this fiscal year. The surplus is projected to decrease each year due to the sales tax realignment and increase in salary and benefits. In addition, the Measure T Fire plan is to contribute towards the Public Safety Building that is currently under design. Staff will return to Council at a later date to appropriate Measure T Fire funds as outlined in the plan. Once the Public Safety building is completed, any remaining surpluses can be used to add additional 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 which consists of 23 officers. Staff is projecting a smaller surplus in the future years, starting in FY 24/25, due to sales tax realignment and salary and benefit 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. Staff will return to Council at a later date to appropriate Measure T Police funds as outlined in the plan. Once the Public Safety building is completed, any remaining surpluses can be used to add additional officers.
Table 2 - Police Measure T Projections
Measure T Economic Uncertainty Fund
The plan calls for the economic uncertainty fund to be maintained at 25% of budget revenues. As mentioned above, staff is projecting sales tax to be down 7% this fiscal year, no growth next year (FY 24/25), and 1% growth in FY 25/26. The negative sales tax projection for this fiscal year lowers the base line that is being used in the next two years. This causes the economic uncertainty fund to be overfunded and will require no additional funds for the next two years. This method is not typically used when calculating a reserve to fund operations. Staff is recommending changing this method to a percentage of operating expenditures. Council recently approved the General Fund and Measure N emergency reserve policy to increase to 30% of operating expenditures. Staff is requesting to amend the Measure T policy for the economic uncertainty fund to be 30% of operating expenditures instead of 25% of budgeted revenues.
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 2024/25 as shown in Table 3: FY 2024/25 MOE Calculation.
Table 3 FY 2024/25 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 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, Recertification annually in June.
Other: None
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
Recertify the Measure T expenditure plan for FY 2024/25; change the Economic Uncertainty Fund calculation to 30% of operating expenditures; and continue with the amended plan until all staffing levels and projects have been met. end
Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: Measure T Resolution 2003-162