Adopt a resolution establishing the County of Yolo appropriations limit for FY2025-26 in the amount of $5,432,001,858 and correcting the County of Yolo appropriations limit for FY2024-25 in the amount of $5,065,294,777. (No general fund impact) (Haynes/Liddicoet)

Proposition 4, the constitutional amendment adopted by voters on November 6, 1979, established a formula for limiting future appropriations. Proposition 4 became effective in 1980-81 and was designed to prevent governments from raising revenues and expenditures in excess of inflation or growth in personal income and population. The Proposition 4 limit formula used 1978-79 proceeds of taxes as the base year, with appropriations adjusted annually by the lesser of the change in the cost of living or the change in California per capita personal income, adjusted by the change in population of the jurisdiction.

To counter the slow growth of appropriations limits, Proposition 111 (GANN Initiative) was passed by the voters in June 1990. Proposition 111, which became effective in FY 1990-91, updated the State's appropriations limit to allow for new funding for priority state programs by changing the base year and formula for calculating the limit. Proposition 111 provides for the use of the FY 1986-87 appropriations limit as the new base and expands the number of growth factors local governments have the discretion to select. The "appropriations subject to limitation" consists of "proceeds of taxes", as defined in the Government Code. This includes appropriations of both locally generated tax revenues and State subventions derived from tax revenues. User fees and service charges are exempt from the limit unless the charges exceed the cost of providing the service. The excess, if any, would be subject to the limit.

In 2022, the State of California passed legislation that enacted Government Code 7903. This statute requires counties, starting in 2021-22 and for subsequent years, to treat additional State subventions as revenues subject to the limit. The California Department of Finance (DOF) has provided figures on State subventions for inclusion in fiscal year 2024-25 local appropriation limits. Should local agencies not be able to absorb these additional subventions within their limits, local agencies may report the excess revenue above the limit annually to the State of California in order for any excess to count against the State's appropriation limit. This statute was enacted as part of the State budget in 2022 in order to prevent the State from exceeding its own GANN limit by shifting certain revenues to be applied against local GANN limits. 

The calculation for the last two years is shown in Att. B. for comparison. The appropriations limit for Yolo County is based upon the prior year's limit adjusted by the percent change in population of the county, multiplied by the percent change in assessed valuation attributable to nonresidential new construction or the change in per-capita personal income (whichever is greater) as presented in Att. C. GANN Limit Calculation.

Revenues in excess of appropriations which exist for more than one year are required to be returned to taxpayers by revision of tax rates. The County's independent auditors review the computation of the appropriations limit for legal compliance on an annual basis. Using guidelines approved by the State Controller's Office, we find that Yolo County's proceeds of taxes are significantly below the appropriation limits established and applied on a consistent basis (other than the changes discussed in Government Code 7903 above). Since 1978-79 the Yolo County appropriations limit has increased from $25,361,952 to $5,432,001,858 (an increase of over 21,400%). This increase is after adjusting the base year amount for subsequent changes in the cost of living, population, the West Sacramento incorporation, and the shift of financial responsibility of trial courts from the County to the State.

In contrast, the amount of revenue subject to the limit has increased from $25,361,952 to $149,502,460 (an increase of 589%). Currently, the County has unused appropriation capacity of approximately $5.3 billion. As a result, there is not a practical effect or limitation imposed on the County budget as a result of the GANN Limit.

In addition, there is a correction to the GANN Limit for FY2024-25 that was approved by the Board of Supervisors on 9/24/2024 in the amount of $5,039,099,319. Upon further review, staff discovered a slight miscalculation in the formula regarding the change in population percentage that was pulled incorrectly showing 0.03% growth instead of the corrected 0.55% growth. After the adjustment, the corrected GANN limit stands at $5,065,294,777 as reflected in Att. D. and Att. E. This correction does not pose any practical effect or limitation on the County budget in 2024-25, but will allow the County to use the correct base figure for calculation of the GANN Limit in 2025-26 and future years. 

The 2025-26 Appropriations Limit for Yolo County was calculated by the Department of Financial Services.