The numbers attached in a worksheet to an agenda item the Manteca City Council is being asked to approve tonight as part of the voter mandated Gann Limit were accurate based on the provisional budget put in place before July 1 but do not reflect current reality.
Interim Finance Director Stephanie Beauchaine, who started working for the city at the end of August, noted the report was supposed to be approved by the council and sent to the state months ago.
It was one of a number of routine items that the municipal finance department had failed to complete and/or address before Beauchaine came on board.
Beauchaine noted it was her fault for not doing an update to the figures — or at least attaching an explanation to the cover memo pertaining to the attached worksheet — regarding sales tax and room tax collection projections for the current fiscal year ending on June 30, 2021.
She indicated that staff was prepared to answer questions if council members brought the issue up. Beauchaine said she plans to explain why the numbers were used before the council votes on approving the Gann Limit report when they meet tonight.
The worksheet reflects an increase in sales tax this year. That is the exact opposite of what Beauchaine was able to ascertain the last week of October after she got a handle on city revenue losses attributed to COVID-19 shutdowns. The losses are expected to create a $6 million shortfall in general revenue funds for the current year based in past on a 14.7 percent drop-off in sales tax.
By law, the Gann Limit numbers are what a city, school district or county projects to be expected in terms of revenue and expenditures at the start of a fiscal year. Given they are based on a budget at the start of a fiscal year they are essentially a snapshot in time.
However, the city opted to adopt a provisional budget by July 1 due to financial uncertainty over the pandemic shutdowns and disarray in the finance department. They are allowed by law to put in place a caretaker or provisional budget.
The provisional budget in essence is the budget that was in place for the fiscal year that ended June 30, 2020. Typically the expenses and revenue from the adopted budget that was in place at the end of the fiscal year are the basis for the provisional budget.
The worksheet the council was presented for tonight accompanying the Gann Limit resolution reflects a projected increase in sales tax to $14,186,876 for the current fiscal year ending June 30, 2021.
Not only does that go counter to indications last month sales tax revenue is off by 14.7 percent so far due to retail and restaurant shutdowns but it is also not the projected number used at the start of the 2019-2020 fiscal year. Sales tax revenue was projected to reach $13.8 million for the fiscal year ending on June 30, 2020. Sales tax receipts the city collected in fiscal year 2018-2019 came to $13.2 million.
While the sales tax figure in the worksheet doesn’t reflect the reality as of the last week of October, it is a snapshot in time that the Gann Limit resolution is supposed to address.
The Gann Limit was put in place by voters in 1979 by a 74 percent approval vote. It came 18 months after passage of Proposition 13. The Gann Limit was designed to put a lid on government expenditures by politicians coming up with other tax and fee increases to replace the loss of property tax.
Voter approved measures in 1988 and 1990 rendered the Gann Limit virtually useless. The first tweak came after the Gann Limit in 1987 forced the state to refund $1.1 billion in surplus revenues to taxpayers.
The rebate irked education interests that wanted the surplus money to go to schools. That led to Proposition 98 being passed that mandated the state to share revenues that exceeded the Gann Limit. That same proposition also required the state to cover any shortfall when decreases in school spending happened whenever revues dropped.
In 1990, voters exempted gasoline taxes from the Gann Limit when they passed Proposition 111.
The resolution the council is being asked to adopt tonight when they meet at 7 p.m. via a meeting being livestreamed on the city’s website and carried on Comcast Channel 97 notes $47.3 million of the city’s revenues this fiscal year are subject to the Gann Limit. Essentially all of that is general fund expenditures used to cover basic day-to-day services such as police, fire, parks, street maintenance crews, and general government.
Based on appropriation limits using population gains and other factors, Manteca can spend up to $81.1 million. That means Manteca is $33.8 million under the Gann Limit based on projections for the current fiscal year.
If current up-to-date projection had been used on sales and room taxes, the city would be more than $36 million under the limit.
The city has yet to adopt a budget for the current fiscal year that started more than more than four months ago to replace the caretaker budget.
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