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ACCEPT BY MOTION THE REPORT ON COMPLIANCE WITH THE PROPOSITION 111 APPROPRIATION LIMIT (GANN LIMIT), THE CORE REVENUES REPORT, THE MEASURE M STRONG COMMUNITIES TAX FUND AUDIT, AND THE MEASURE W PUBLIC SAFETY TAX FUND AUDIT FOR THE YEAR ENDED JUNE 30, 2018
recommended action
RECOMMENDATION
It is recommended that the City Council accept by motion the Report on Compliance with the Proposition 111 Appropriation Limit (Gann Limit), the Report of Agreed-Upon Procedures Applied to Core Revenues, the Measure M Strong Communities Tax Fund Audit, and the Measure W Public Safety Tax Fund Audit, for the year ended June 30, 2018.
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Summary
Presented for the City Council’s review and acceptance are the following audit reports:
• The Agreed-Upon Procedures Report on Compliance with Proposition 111 Appropriation Limit (Gann Limit) for the year ended June 30, 2018 (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.
• The Independent Accountants’ Report of Agreed-Upon Procedures Applied to Core Revenues (Attachment B). The auditors conducted the Agreed-Upon Procedures engagement in accordance with the attestation standards established by the American Institute of Certified Public Accountants. The independent accounting firm found one (1) exception from the application of these audit procedures.
• The Measure M Strong Communities Tax Fund Audit (Measure M) for the year ended June 30, 2018 (Attachment C). The City received an unmodified (clean) opinion.
• The Measure W Public Safety Tax Fund Audit (Measure W) for the year ended June 30, 2018 (Attachment D). The City received an unmodified (clean) opinion.
On January 22, 2019, the Council Audit Committee received, reviewed and acted to accept these reports.
DISCUSSION
Proposition 111 (Gann Limit) Report
State law limits appropriations made by the State and 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 tested the sufficiency of the procedures the City used to determine its Proposition 111 appropriation limit for fiscal year 2017-18. 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, 2018, meet the annual requirements under the Reimbursement Agreement (Agreement) between the City and the 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 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.
This negotiated Agreement created alternate liability and related payments that began 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 the Assured Guaranty Municipal Corporation subject to the provisions of subsections (c) and (d) of Section 2.03. The City’s Long-Range Financial Plan (L-RFP) anticipates future contingent payments from the General Fund. 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.
The auditors discovered one (1) finding from the application of these audit procedures. There are two payments associated with the Agreement: the Contingent General Fund payment and the Lease Ask payment. Both were due June 1, 2018, but the City made the Lease Ask payment June 6, 2018. The City reviewed its procedures to ensure future payments are made timely.
Measure M Strong Communities Tax Fund
Stockton’s voters approved Measure M on November 8, 2016, which authorized a one-quarter cent sales tax with the proceeds to be used exclusively for library and recreation services. The City separately accounts for the revenues generated from this sales tax and for the related expenditures. The measure requires an annual audit which was conducted for the fiscal year ended June 30, 2018 of the tax. 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, 2018.
Measure W Public Safety Tax Fund
Measure W, approved by voters on November 2, 2004, provides for a 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, 2018.
FINANCIAL SUMMARY
There is no financial impact associated with accepting these items.
Attachment A - 2018 Proposition 111 Appropriation Limit (Gann Limit)
Attachment B - 2018 Independent Accountants’ Report of Agreed-Upon Procedures Applied to Core Revenues
Attachment C - 2018 Measure M Strong Communities Tax Fund Audit
Attachment D - 2018 Measure W Public Safety Tax Fund Audit