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ADVISORY MEASURE B 65%/35% PROCEEDS ALLOCATION
recommended action
This item is for informational purposes only.
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Summary
On November 5, 2013, voters approved Measure A, a ¾ cent general transaction and use (sales) tax. This tax is a general tax and may be used for any lawful use of the City. At the same time, voters approved Measure B, a non-binding advisory measure designed to communicate to the City their preference of how to use Measure A monies. Measure B advised that 65% should be prioritized for law enforcement and crime prevention services, while 35% should be used for bankruptcy recovery and city services. The measurement for the 65%/35% split was defined as the initial ten-year term. The Measure A transaction tax went into effect on April 1, 2014, so March 31, 2024 is the end of the ten-year term.
The projection of Measure A proceeds allocation is now updated based on audited financial data through June 30, 2023, and is available for review. By March 31, 2024, staff projects the City will have spent approximately 61% of cumulative Measure A proceeds on Measure B eligible expenditures. This is four percent (4%) less than the 65% recommended by Measure B.
This is not caused by a failure to program sufficient Measure B expenditures. Rather, this is due to unanticipated higher revenues from Fiscal Year (FY) 2020-21 through FY 2022-23 causing an excess in funding compared to what could have been predicted. Projected cumulative expenditures for the ten-year period are actually 67% of the originally estimated ten-year revenue total of $331 million.
DISCUSSION
Background
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.
Present Situation
Original 35%/65% split from 6/25/13 Marshall Plan Report
The table below shows the original projected use of the Measure A proceeds between improving public safety services (Marshall Plan) and balancing the General Fund budget (Bankruptcy Recovery Plan). Initially, more proceeds were devoted to bankruptcy recovery, and then as Marshall Plan costs 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 66% of the total tax proceeds while balancing the General Fund budget and emerging from bankruptcy would use approximately 34% of the total tax proceeds.
Updated 35%/65% split at 6/30/23 Financial Report
The same table is updated below to include actual revenue and expenditures for ten fiscal years, and revised projections through FY 2023-24. Collection of the tax started April 1, 2014, so FY 2013-14 in the table is a partial year with one quarter of activity and FY 2023-24 is also a partial year with three quarters of activity.
The updated table projects that the City will not exceed the Measure B recommended spending on law enforcement and crime prevention services with 61% spent on Marshall Plan activities based on revenue projections, current spending, and projected future spending.
*FY 2023-24 compares the first three projected quarters of the year because Measure A was initially set to expire on 3/31/2024.
While expenditures have increased at a reasonable rate over the past several years and are expected to climb even further, with budgeted Marshall Plan expenditures equaling 84% of FY 2023-24 projected revenues, revenue has grown at extraordinary levels. Actual revenues in FY 2020-21 through FY 2022-23 were approximately $27.2 million more than projected in the original table above and FY 2023-24 is on track to exceed the projection by $5.7 million. The chart below compares the originally estimated revenues to actual receipts for each fiscal year.
*projected revenue for sales through March 31, 2024
Actual expenditures have exceeded originally estimated Marshall Plan expenses in six out of ten years. Measure B expenditures coming in at 61% of revenues is not caused by a decrease in expenditures spent on Measure B service delivery, but rather an excess of revenue, which is a positive result for the fiscal health of the City.
In addition, the renewed Measure A was accompanied with the approval of a retention and recruitment plan, which reprogramed 60 vacant positions to retention and recruitment benefits for all officers. Starting in FY 2024-25, this is expected to eliminate most vacancy savings in Measure A and bring the City’s utilization of these revenues to well over the advised 65%.