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ADVISORY MEASURE B 35% PROCEEDS DISCUSSION
recommended action
This item is for informational purposes only.
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Summary
On November 5, 2013, voters approved Measure B to advise the City on how it should use Measure A monies. 65% of the proceeds were to be used on public safety activities, while the remaining 35% was to be used towards ending the bankruptcy and for services. Staff have held numerous discussions with the Committee on what benefit(s) the 35% has provided the City and its citizens. Staff have compiled an illustrative summary of those benefits for discussion.
DISCUSSION
Background
Measure A, a general (unrestricted) transaction and use tax was approved by a majority of voters on November 5, 2013. A non-binding advisory (Measure B) was presented to and approved by voters that provided an opportunity to express an opinion about how the City should use Measure A monies.
Measure B - Ballot Question (As it appeared on the November 5, 2013, Ballot)
"If Measure A is approved by the voters, shall (i) 65% of its proceeds be used only to pay for law enforcement and crime prevention services in the City such as those described in the City's Marshall Plan on Crime and (ii) 35% of its proceeds be used only to pay for the City's efforts to end the bankruptcy and for services to residents, businesses, and property owners?"
This question requires the approval of a majority of those casting votes. It is an advisory measure only.
- A "Yes" vote expresses an opinion that 65% of the tax proceeds should be used to pay for law enforcement and crime prevention services, such as those described in the City's Marshall Plan on Crime, and 35% should be used only to pay for the City's efforts to end bankruptcy and for services to residents, businesses and property owners.
- A "No" vote may be viewed as an opinion against the uses or as neutral, as to the uses proposed.
The City Council supported this advisory measure through approval of the Measures A and B Implementation Plan - Phase 1 on February 25, 2014. Collection of the tax went into effect on April 1, 2014.
Present Situation
The table below shows the last projected use of Measure A proceeds between improving public safety services (Marshall Plan) and other General Fund activities (Bankruptcy Recovery Plan). This table was presented to the Committee at its April 25, 2022 meeting. Initially, more proceeds were devoted to bankruptcy recovery, and then as Marshall Plan costs (Police and Office of Violence Prevention) were fully phased in, more proceeds would be used to fund this improvement in public safety services. Over a ten-year period, it was estimated that safety services would consume approximately 65% of the total tax proceeds, and balancing the General Fund budget and emerging from bankruptcy would use approximately 35% of the total tax proceeds.
Through the 2020-21 fiscal year, the "Bankruptcy Recovery" proceeds (or 35%) proceeds total approximately 42% of the revenues, or $99.1 million. Because the Measure A tax is a general tax that is deposited into the General Fund, staff cannot tell the Committee exactly how the City spends each Measure A dollar. What staff can do is use some assumptions to give context to what the City was able to do with those proceeds and what benefits those funds have provided Stockton and its residents.
Using the 42% figure from the above table, a portion of certain General Fund line items can be attributed to Measure A. This list is not intended to be exhaustive or serve as an accounting of all Measure A-related expenditures. It is intended to convey the breadth of the benefits Measure A (aside from the critical Police and Office of Violence Prevention services funded by the Measure) has provided the City and its residents since its approval.
Measure A has been a critical component of the City's path back to fiscal sustainability while also helping improve services and facilities for citizen enjoyment. In 2015, it was expected that the City would not be able to increase the number of employees, only grow employee compensation by 2%, and provide no increases in services provided to the community. Inflationary growth assumptions in the City’s Long-Range Financial Plan were 2% per year. Due to improved revenues, including Measure A, the City has been able to go above and beyond in all of these areas. The General Fund with Measure A tax dollars has expanded capacity in the following areas since 2014:
1. Expanded services in public safety, parks, economic development, and the data analytics
2. Employee retention and compensation
3. Staffing growth to deliver services,
4. Build up reserves for future recessions or other catastrophic events
The City Council reviews and approves spending appropriations each year through the budget process. Restricted and special purpose funding sources are put into separate funds for tracking purposes. The remaining general tax revenues, including Measure A, are reported in the City’s General Fund. These revenues are consolidated and distributed to the various departments and activities funded by the General Fund. The Police and Fire Departments account for 72% of the activities funded by the general tax revenues.
Below is a comparison of some basic General Fund data before the passage of Measure A and now.
Sources: FY 2013-14 Adopted Annual Budget, pages D-1, D-4, P-7, O-33
and FY 2022-23 Adopted Annual Budget, pages C-3, C-4, C-6, B-4, N-23
Both General Fund revenues and expenditures have increased approximately $120 million during the nine-year timeframe depicted above. The Police Department annual budget is $65 million more than it was before Measure A, of which $31 million is reported under the Measure B Advisory expenses. The Fire, Public Works, Economic Development, and Office of Violence Prevention (OVP) annual budgets combined have increased $32 million since 2014 with $1.3 million falling under the Measure B advisory reports for OVP. Larger increases in retirement expenses and the Public Works budget indicate areas that have grown more extensively than other areas. The Public Works budget increase reflects the change in the cost of doing business with contract services from post Great Recession lows to the current high inflation environment as well as expanded/restored services.
Services
As revenue receipts have exceeded budget projections, the funds have been allocated at Council direction to improve services and facilities throughout the community. In the last fiscal year, Council allocated over $22 million to high priority projects mostly within the Public Works Department. Attachment A is a recent monthly progress update for $20.6 million worth of projects administered by the Public Works Department providing details on the specific projects funded. This additional allocation at year-end for priority projects has occurred most fiscal years though not to the magnitude of last year’s allocation. The annual budget process also includes a review of recommended service enhancements from General Fund tax revenues. Attachment B is a summary of new or expanded services totaling $60 million funded through the budget process and the year-end allocations for the most recent four fiscal years. A similar summary was provided to the oversight committee on September 9, 2021 that included FY 2016-17 through FY 2018-19 with total new services of $4.8 million. These are not comprehensive lists of all General Fund service enhancements but are presented to demonstrate that Measure A dollars have been part of expanding services to the community. Some examples reflect increased services to the public like the operation of a new police helicopter (Air Support), the Police body camera program, additional homeless encampment cleanups, sidewalk repairs, tree trimming, and the reopening of Fire Engine Company 1. Other categories show how the cost of maintaining current service levels is increasing, in some cases, dramatically so, like the costs to operate the Animal Shelter and to maintain the adoption rate, and the increased costs of the parks and streetscape maintenance contracts.
Attachment C lists the Mission Critical projects that can be attributed 100% to Measure A as part of the initial implementation plan. Those projects total $16 million from Measure with funding from other sources including the General Fund. These projects were all important endeavors including:
• Replacement of the City's antiquated financial system
• Replacement of public safety portable radios
• Conversion to LED streetlights
• Sidewalk repairs
• Street resurfacing
Retirement Benefits
Increasing pension costs are one of the most pressing fiscal issues facing local governments nationwide. The increased cost in retirement expenses was anticipated and is driven by many factors outside of the City’s control including CalPERS adjustments in long-term investment earnings projections. The City also established a pension trust to save funds and invest them to cover future increased pension payments. The City has contributed $65.5 million to the trust since January 2018.
Labor
Financial projections used by the City when Measure A was approved for the ballot, assumed 2% annual cost of living adjustments for all employees. To retain and recruit qualified employees, the City has had to provide larger wage increases over the years. As an example, cost of living and market adjustment increases implemented through labor negotiations since 2014 as a means of retaining Police Officers are shown below.
|
2015 |
2016 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
2% |
11% |
3.5% |
2% |
10% |
4% |
4% |
Reserves
In 2020, when many local governments were considering cutting services and staff positions, the City's reserves enabled the City to produce a FY 2020-21 Budget that preserved current service levels. Maintaining adequate reserves is important for the City. The Government Finance Officers Association (GFOA) recommends reserves be established at 16.67% (two months) of annual operating expenses. This is $47.2 million for the City of Stockton General Fund. In 2013, the City had less than $6 million in reserves which was all set aside for Bankruptcy expenses and settlements. To maintain fiscal sustainability, the General Fund reserves had to be rebuilt completely. Reserves as of June 30, 2021 were $84.5 million to cover the 16.67% reserve (“Working Capital Reserve”), fund infrastructure projects, and set aside funding for salary and benefit expenses in anticipation of recently completed negotiations with the safety units.
Bankruptcy Exit
The City exited bankruptcy in February 2015, but the negotiated settlements continue through 2053. Over the last five years, debt service payments negotiated during the bankruptcy paid by the General Fund have totaled $19.3 million ($12.6 million based on core revenue growth including Measure A revenues and other payments of $6.7 million). The annual debt payments in FY 2022-23 are projected to be close to $8 million with an average annual payment of $3.8 million through 2053.
Measure A has been an integral part of the City’s recovery from bankruptcy, and its path towards fiscal sustainability and stability. The City’s current reserves and the funds that it has invested towards future pension costs are essential segments of the City’s Long-Range Financial Plan. Thanks to Measure A, the City has also been able to make numerous investments in City services and infrastructure that directly benefit the community and the City as an organization. Finally, the Measure continues to provide critical public safety services to Stockton’s residents through the additional sworn officers in the Police Department and the staff in the Office of Violence Prevention.
Attachment A - Community Projects Monthly Update Fiscal Year 2021-22 (August 4, 2022)
Attachment B - General Fund Service Enhancements FY 2019-20 to FY 2022-23
Attachment C - Mission Critical Projects Summary