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ACCEPT BY MOTION PROPOSITION 111 APPROPRIATION LIMIT (GANN LIMIT), CORE REVENUES AUDIT, MEASURE M STRONG COMMUNITIES TAX FUND AUDIT, AND MEASURE W PUBLIC SAFETY TAX FUND AUDIT FOR THE YEAR ENDED JUNE 30, 2017
recommended action
RECOMMENDATION
It is recommended that the Audit Committee accept by motion the Proposition 111 Appropriation Limit (GANN Limit), Agreed-Upon Procedures Applied to Core Revenues, Measure M Strong Communities, and Measure W Public Safety Tax Fund Audit for the year ended June 30, 2017 for submission to the City Council.
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Summary
Presented for the Audit Committee’s review and acceptance are the City of Stockton’s:
• Agreed-Upon Procedures Report on Compliance with Proposition 111 Appropriation Limit (GANN Limit) for the year ended June 30, 2017 (Attachment A). The City met the requirements of the Gann Limit Calculation, Article XIII-B of the California Constitution and the auditors found no exceptions.
• Independent Accountants’ Report of Agreed-Upon Procedures Applied to Core Revenues (Attachment B). The Agreed-Upon Procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. No exceptions were found from the application of these audit procedures.
• Measure M Strong Communities Tax Fund Audit (Measure M) for the first year ended June 30, 2017 (Attachment C). The City received an unmodified (clean) opinion.
• Measure W Public Safety Tax Fund Audit (Measure W) on a comparative basis for year ended June 30, 2017 (Attachment D). The City received an unmodified (clean) opinion.
Once accepted, these reports will be submitted the City Council for acceptance at its February 27, 2018, meeting.
DISCUSSION
Proposition 111 or Gann Limit Report
State law limits appropriations made by the State and individual local governments. The limit for the growth rate of those appropriations is the percentage increase in the cost of living and the percentage increase in the State or local government's population. Each year City staff calculates the appropriation limit. The procedures performed by the auditor were to test the sufficiency of the procedures the City used to determine the Proposition 111 appropriation limit for fiscal year 2016-17. The auditors did not discover any findings from the application of these audit procedures.
Agreed-Upon Procedures Applied to Core Revenues
The procedures performed on the City’s Core Revenues Schedule for the year ended June 30, 2017, meet the annual requirements under the Reimbursement Agreement between the City and Assured Guaranty Municipal Corporation, as stipulated in Article IV Covenants, Section 4.02(b). This Agreement entitled “Agreed-Upon Procedures Applied to the Core Revenues,” is part of the City’s approved Bankruptcy Plan of Adjustment. The Plan wrote-down the liabilities of the Taxable Pension Obligation Bonds 2007 Series A and B and non-taxable Variable Rate Bonds Series 2007 A and B for property on Main Street.
This negotiated Agreement created an alternate liability and related payments that began on February 25, 2015. As part of the Agreement, the City agreed to make contingent General Fund payments commencing on June 1, 2018, through June 1, 2052, in the manner described in Section 2.05 of the Agreement. The calculation of potential contingent General Fund payments is made by determining actual core revenues in excess of baseline core revenue and averaging revenue increments of three fiscal years. The City is obligated to pay an allocable share of resulting incremental revenue to Assured Guaranty Municipal Corporation subject to the provisions of subsections (c) and (d) of Section 2.03. Future contingent payments from the General Fund are anticipated in the City’s Long-Range Financial Plan (L-RFP). The actual payments depend on future revenue receipts, but the payments are estimated to be approximately $1.1 million annually for the first ten years.
Measure M Strong Communities Tax Fund
Measure M was approved by voters on November 8, 2016 and authorized by Ordinance No. 2016-06-07-1212. This measure authorizes an additional one-quarter cent sales tax with proceeds to be used exclusively for library and recreation services for the community. The City separately accounts for Measure M revenues generated from this sales tax and related expenditures. The measure requires an annual audit which was conducted for this first partial fiscal year (April - June 2017). The auditors did not report any findings, and the City received an unmodified (clean) opinion on the financial schedule of revenues, expenditures, and changes in fund balances of the Measure M Fund for the year ended June 30, 2017.
Measure W Public Safety Tax Fund
Measure W, approved by voters on November 2, 2004, authorized Ordinance No. 038-04 CS that provides for an additional one-quarter cent sales tax, the proceeds of which are used exclusively for police and fire services. The Measure W Fund is where the City separately accounts for the collection of revenues generated from this sales tax and the expenditures of these taxes. The measure approved by voters also requires an annual audit. The auditors did not report any findings, and the City received an unmodified (clean) opinion on the financial schedule of revenues, expenditures, and changes in fund balances of the Measure W Fund for the year ended June 30, 2017.
FINANCIAL SUMMARY
There is no financial impact associated with accepting these items.
Attachment A - 2017 Proposition 111 Appropriation Limit (GANN Limit)
Attachment B - 2017 Independent Accountants’ Report of Agreed-Upon Procedures Applied to Core Revenues
Attachment C - 2017 Measure M Strong Communities Tax Fund Audit
Attachment D - 2017 Measure W Public Safety Tax Fund Audit