Agenda Item Wording:
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Measure T District Tax Recertification - Recertify the Measure T plan for Fiscal Year 2025/26.
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Prepared by: Renee Nagel, Finance Director 713-4375 renee.nagel@visalia.city Amee Swearingen, Financial Analyst 713-4170 amee.swearingen@visalia.city.
Department Recommendation: It is recommended that the Council recertify the Measure T expenditure plan for the new fiscal year July 1, 2025 to June 30, 2026 (FY 2025/26) as required per the plan to be done annually; and to continue with the existing plan until all staffing levels and projects have been met.
Summary:
In March of 2004, the voters of Visalia passed a Sales Tax Override measure to increase public safety in the community. The plan had several accountability components to assure that the City was accountable to the public, namely:
• An independent auditor will annually review and audit expenditures to ensure monies are spent as outlined in the plan.
• The Citizens Advisory Committee will annually review revenues and expenditures, providing a second independent verification.
• Every eight years, a public hearing will be conducted to review the progress of the plan and the continuing need for the sales tax. To continue the sales tax measure, a supermajority vote (4/5ths) is required. The public hearing is held the first meeting of January starting January 2013, then January 2021, and continuing every 8 years thereafter.
• Annually in June, the City Manager will recertify the expenditure plan for the upcoming fiscal year to City Council.
This report meets the annual requirements mentioned above.
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 which is to be used if revenues do not cover expenditures.
Annually the plan is required to be recertified by Council and every eight years an effectiveness review of the sales tax measure and the need to continue it. The next effectiveness review is scheduled 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)
• Added 1 Administrative Fire Captain and 1 Battalion Chief
• 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 construction of the Public Safety building. The construction bid was awarded at Council on May 5, 2025 and was not recommended to contribute towards the facility due to the funds operating on an amended plan. If funds are available in the future, staff recommends adding staff as outlined in the original plan.
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 5 (2 through attrition & 3 transferred to the General Fund). The current number of officers is 23 reduced from 28.
• Fire original plan was for 14 positions and was amended to add 4, bringing the total to 18. During the economic downturn this was amended to 15 and then again in June 2019 which moved the Battalion Chief and Administrative Captain to Measure N bringing the total Fire position allocation to 13 which is 1 less than the original plan.
• Declared a fiscal emergency for fiscal years 09/10, 10/11, 11/12, and 12/13
• Maximum of 1 vacancy is allowed in each Measure T fund
These changes helped reduce operating expenses, which allowed the funds to no longer be in a deficit. 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
Last fiscal year, Measure T decreased by -6%. This decrease is due to sales tax realigning after the COVID stimulus funds and less disposable income to use on purchases. Measure T sales tax growth and declines are not the same as the General Fund sales tax due to not receiving any of the general 1% sales tax. It only receives the additional ¼ cent tax. The difference 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 the 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.
Chart 1 - Measure T Revenues, shows the projected sales tax to be above the amended plan expenses for the for FY 2025/26.
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 five-year projection is conservative and has the sales tax growing annually at 1.5%. The fund is projected to have an operating surplus of $0.5 million which brings the fund balance to $6.8 million at the end of this fiscal year. The end of year surplus is projected to decrease annually, mainly due to the increase in salary and benefit costs.
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 as shown in Table 2 - Police Measure T Projection. The five-year projection is conservative and has the sales tax growing annually at 1.5%. The fund is projected to have a surplus of $1.0 million which brings the fund balance to $9.3 million at the end of this fiscal year. The Police Measure T Fund contributes $151,200 (9.6% of total debt payment) towards the annual VECC debt payment which started in fiscal year 15/16 and will end in December 2029. Per the original Measure T plan, this fund would be paying 25% ($284,500 annually) of the debt payment. Since revenues could not cover the full debt payment, staff reduced the Measure T portion of the annual debt payment to $151,000. In addition, the General Fund is carrying three Measure T officers. Each officer costs approximately $151,000. The end of year surplus is projected to decrease annually due to salary and benefit costs increasing more than revenues.
Table 2 - Police Measure T Projections
Measure T Economic Uncertainty Fund
In June 2024, Council amended the uncertainty fund policy to be maintained at 30% of operating expenditures to match the General Fund and Measure N. This will start in the current fiscal year (FY 24/25).
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 2025/26 as shown in Table 3: FY 2025/26 MOE Calculation.
Table 3 FY 2025/26 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 ensure that the funds remain in balance. If the projection continues to be met, staff will return with recommendations to add staff as outlined in the original 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 2025/26 and continue with the amended plan until all staffing levels and projects have been met.
Environmental Assessment Status: N/A
CEQA Review: N/A
Deadline for Action: 6/30/2025
Attachments: None