CC 04-04-2023 Oral Communications (2)CC 04-04-2023
Written Communications
Oral
Communications
From:Rhoda Fry
To:City Clerk; City Council
Subject:April 4. 2024 City Council Non-Agenda Oral Communication - Fiscal Transparency and Accountability
Date:Monday, April 3, 2023 7:02:47 PM
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you
recognize the sender and know the content is safe.
Request for Fiscal Transparency and Accountability - Cupertino City Council OralCommunications April 4, 2022
Dear City Council,
On March 21, 2023 during oral communications, Cupertino resident Peggy Griffin shared herdiscovery that the City had received no sales (or use tax) income from the State in February2023. This is alarming because in the previous 3 years, income for February averaged $8M. Itis also alarming because by February 21, it would have been known to the City that we had nomoney coming in; yet we, the public, have not been informed when there has been ampleopportunity to do so during these Council meetings: 2/21, 3/1, 3/7, 3/21, and 4/4, and duringthese audit committee meetings: 2/27 and 3/27. Meanwhile, we have been making decisionsabout future expenditures, especially Capital Improvement Projects (CIP). Why weren’t weinformed?
Each month, the State deposits estimated sales tax (and use tax) income into our City’s bankaccount. In the second month after the quarter ends, the State adjusts that deposit to reconcilethe actual income from the previous quarter; this is called a true-up. Although the 2022 Q4deposits were much lower than Q4 2021 and Q4 2020 (and somewhat lower than Q4 2019),the true-up reduced February’s deposit to zero. And there will be further deductions in March($323K). We will know how we fared in Q1 on May 24.
Here is a chart that shows Cupertino sales and use tax revenue by quarter from Q3 2018 to Q12023. This data was extracted from https://www.cdtfa.ca.gov/
Cupertino receives sales (and use) tax revenue from transactions that originate within the City.Additionally, through a special revenue-sharing arrangement with Apple and Insight,Cupertino also receives sales tax revenue from all online purchases in our State and returns35% of it to those companies. For example, if someone in Los Angeles buys $1000 in Apple
products online, Cupertino receives $10 (1%) from the State and kicks back $3.50 (35%) of itto Apple. As residents and businesses equipped their home offices during COVID, our sales-tax revenue boomed. You can learn more about this arrangement in this article:https://news.bloombergtax.com/daily-tax-report-state/apple-taps-covid-shopping-boom-for-record-tax-haul-in-hometown
A Double Whammy: Our sales-tax income is at further risk due to an audit by the CaliforniaDepartment of Tax and Fee Administration (CDTFA). Our first warning came around May2022, and was mentioned in the June 29, 2022 budget https://apps.cupertino.org/pdf/FY_2022-23_Adopted_Budget.pdf and the November 15 2022 budget: Due to the uncertainty around aCalifornia Department of Tax and Fee Administration (CDTFA) sales tax audit of one of theCity’s taxpayers, City staff is not recommending any transfers to reserves currently. Theimpact of this audit is unknown but has the potential to significantly affect the City’s sales taxrevenues. Staff anticipates bringing recommendations on the use of fund balance to the CityCouncil at mid-year in March 2023 once more information regarding the sales tax audit isavailable.https://www.cupertino.org/home/showpublisheddocument/32377/638041943093670000
Long story short, it looks like we might need to re-evaluate our spending habits. At the sametime, we need to secure the pensions of City employees as has been highlighted by the Stateauditor: https://www.auditor.ca.gov/local_high_risk/dashboard-csa.html
Separately, at the March 27 Audit Committee meeting, I raised other concerns about thebudget. Can the City Council request more information on the following?
1. Please correct the multiple factual errors in the Annual Comprehensive FinancialReport (ACFR). For example, the ACFR mentions that council appoints the treasurer, tomy knowledge, this has not happened in at least 50 years. Information on developmentwithin the City is also woefully out of date.
2. The AFCFR indicates that admin cost has more than doubled between 2021 and 2022.There is some explanation for some increases, but this does not explain entire increase.We need an explanation.
3. In the past, we had fiscal transparency of City programs that ran like businesses, suchas the Senior Center and Blackberry Farm pool/picnics. These were tracked in “EnterpriseFunds” which provide a separate accounting and reporting mechanism for fee-basedprograms. We have no idea as to the extent that these fee-based amenities are beingsubsidized. To avoid confusion, the golf course is tracked in an Enterprise Fund calledBlackberry Farm; the name should be changed to Blackberry Farm golf. Especiallybecause of Cupertino’s economic uncertainties, we need more transparency.
First and foremost, I am asking you to provide greater transparency and accountability to ourcommunity. Second, if needed, consider deferring Capital Improvement Programs andreducing grants in order to preserve our summer community events. And finally, consideradopting partnerships with local businesses and community members to assist in funding ourcommunity events.
Thank You,
Rhoda Fry