CC 10-10-2023 Item No. 11. General Fund Sales Tax Repayment Reserve_Supplemental Report1
CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: October 10, 2023
Agenda Item #11
Subject
Establish a General Fund Sales Tax Repayment Reserve.
Recommended Action
A. Approve an amendment to the City’s Committed, Unassigned Fund Balance, and Use of One
Time Funds Policy to:
i. Create a General Fund Sales Tax Repayment Reserve with an initial allocation of $56.5
million
ii. Authorize staff to increase the Sales Tax Repayment Reserve when the City receives
additional sales tax revenue in dispute
iii. Decrease the General Fund Capital Projects Reserve by $10.0 million
iv. Decrease the General Fund Economic Uncertainty Reserve by $6.0 million
Background:
Staff’s responses to questions received from councilmembers are shown in italics.
Q1: What is the immediate impact on the community as a result of moving funds out of the
various contingency and other reserve funds to the newly created ST Repayment Reserve?
What should the public expect in terms of service level decreases? (Vice Mayor Mohan)
Staff response:
There is no immediate impact to the community as the result of moving funds out of various reserves
for the new Sales Tax Repayment Reserve. This action will set aside previously unassigned and
committed funds. There is no request to use the funds and the total fund balance in the General
Fund will remain unchanged. This action has no immediate impacts on service levels in the
community.
Q2: What is our investment policy? Do we specify when we should diversify investment
firms? (Councilmember Moore)
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Staff response:
The question is not germane to the agenda item.
Q3: The City Council may appoint a Treasurer annually and review that position but
does not appear to perform this duty. The last Treasurer appointment appears to have
happened in 2014. Why does the Council not comply with this? (Councilmember Moore)
Staff response:
The question is not germane to the agenda item.
Q4: How much do we pay for asset management services and how are they paid?
(Councilmember Moore)
Staff response:
The question is not germane to the agenda item.
Q5: Does the investment policy specify when to have a new RFP? (Councilmember
Moore)
Staff response:
The question is not germane to the agenda item.
Q6: The staff report states ʺStaff proposes an initial allocation of $56.5 million,
corresponding to sales tax revenue received between April 2021 and June 2023 that the City
may need to repay to the CDTFA.ʺ The likely repayment obligation of $57=6.3M [sic]was
not mentioned during the budget adoption process back in May and June. The staff told
the community, who was concerned and asked specifically, whether the assumption made
was the ʺworst scenarioʺ. But the likely repayment obligation of close to $60M was not
mentioned. Did we receive new information from CDTFA so that we have to an adjust
ʺworst scenarioʺ? That information did not receive on what date resulted in this change?
(Councilmember Chao)
Staff response:
There are two items that caused this change. One is the close out of the remaining two quarters in
FY 2022‐23 that allowed staff to better estimate the anticipated payback. Secondly, the City was
making concerted efforts at the State level to limit the repayment. Those efforts were unsuccessful
and the likelihood of repayment is more certain.
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Q7: Why did CDTFA look at the sales tax from April 2021 or after? What changed in
April 2021, which resulted in a difference in sales tax calculation? (Councilmember
Chao)
Staff response:
There were not changes that correspond to the April 2021 date. Per CDTFA regulations once a
misallocation is substantiated the look back period is eight quarters or two years prior to calculate
the repayment amount.
Q8: There were sales tax share agreements. With what companies do we have such share
agreements? Where do I find these agreements? (Councilmember Chao)
Staff response:
The question is not germane to the agenda item.
Q9: With the sales tax agreements, the city basically gave tax breaks to some companies
as incentives. Would those companies be repaying them back too? (Councilmember
Chao)
Staff response:
The question is not germane to the agenda item.
Q10: What other cities are facing similar CDTFA audit? Where do we find information
about their CDTFA audits? (Councilmember Chao)
Staff response:
CDTFA reviews of sales tax allocation are confidential.
Q11: There were projects with allocated funds, especially those approved between April
2021 and June 2023, utilizing the sales tax we now have to refund. We were basically
spending money that we did not have. Whatʹs the total of the current funded projects
with allocated, but unspent fund? (Councilmember Chao)
Staff response:
Capital Projects are funded with Capital reserve funds. The transfer of unassigned fund balance
from the General Fund to the Capital Reserve was suspended in March of 2021 as part of the Mid‐
Year Financial Report, after receiving the initial letter from CDTFA about the audit.
Q12: Whatʹs the plan to revisit the FY 2023‐24 budget given this new assumption?
(Councilmember Chao)
Staff response:
We will revisit the FY 2023‐24 budget as part of the quarterly financial reports.
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Q13: Whatʹs the plan to inform the public about this situation? (Councilmember Chao)
Staff response:
The staff report and presentation will serve to inform the public. Community Budget meetings are
scheduled for January and April when proposed Service Level Reductions will be known and the
impact to the community will be clearer.
Attachments Provided with Original Staff Report:
A. Committed, Unassigned Fund Balance, and Use of One Time Funds Policy Clean
B. Committed, Unassigned Fund Balance, and Use of One Time Funds Policy Redline