Morro Bay’s citizens’ watchdog committee formed to track spending of the local sales taxes, is predicting revenues will go on a steady decline in the near future.
The Citizens Oversight Committee/Citizens Finance Committee (CFAC) made up of appointed citizen volunteers, is charged with watching the spending of the 0.5-percent Measure Q and the 1% Meas. E, passed in 2006 and 2020 respectively, which added with the State’s 7.25% sales tax rate, increases the total citywide sales tax rate to 8.75%, but while the City gets just a fraction of the statewide tax, all of Meas. Q&E stays local.
When Measure Q was approved by voters, the City Council promised to spend it on meeting the extra needs of the police and fire departments, plus money for fixing streets and storm drains. Meas. E was also approved by voters and must be entirely spent on public safety (police, fire and harbor patrol).
The citizen committees were formed as part of the deal with voters and are in charge of watching how the money is spent. Part of that is an annual report, which the current committee released in February.
The tax measures have done remarkably well. According to the report revenues in Fiscal Year 2020/21, before Meas. E was added, were right at $2 million annually. In 2023/24 with the addition of Meas. E they jumped to $4.5 million. But that bit of good news was tempered by recent returns.
“Revenue has been flat for two consecutive years and are expected to go down in FY 2024/25,” the report said.
How the money is being spent has changed too. “Police, Fire and streets,” the report said, “were the primary (98%) expenditures pre-E-20. They now represent a little more than half (56.1%).”
The tax measures started out paying for department needs but that’s flipped now. “In FY 2020/21,” the report said, “24% of revenue was spent on departmental services (personnel, services, supplies and minor capital), with 76% spent on capital.
“As of the FY 2024/25 budget, that pattern has reversed with 76% spent on departmental services and 24% spent on capital.”
It seems the promise that was made to voters to use these added tax revenues on “extras” for the public safety needs and not on personnel, has evolved as the City’s other revenue sources — property and bed taxes — have flattened out as well.
According to the report, the Police Department’s use of these monies started out low and quickly rose. In FY 2020/21 the police used $82,000 for personnel, rising to $401,000 in 2021/22; to $719,000 in 2022/23; and $723,000 in FY 2023/24, the year just completed last July.
The City budget for this year (FY 2024/25) is $789,000 for personnel in the police department. The department’s overall budget has been on a similar ascent as the PD budget in 2020/21 was at $4.18 million and now is at $5.8M in the current budget. Meas. Q&E comprise 15.6% of the department’s budget and the police get 26.6% of the Q&E monies.
The fire department has been on a similar trajectory starting FY 2020/21 at $200,000 of Meas. Q&E monies. That too jumped quickly as the fire department got $716,000 in 2021/22; $896,000 in 2022/23; $854,000 in FY 2023/24; and is currently budgeted at $925,000 for FY 2024/25.
The fire department’s budget has also been on the rise, starting at $3.57M in 2020/21; $3.56M in 2021/22; $4.19M in FY 2022/23; and $4.28M in the last fiscal year. The fire department is currently budgeted at $4.08M for FY 2024/25.
Ironically, it was the poor condition of the old Harbor Street Fire Station that prompted the formation of the Friends of the Fire Department, which lobbied the voters to pass Meas. Q, and has continued to raise funds to pay for things like scholarships for paramedic school for new firefighters and needed equipment. Through Meas. Q the City was able to secure a low-interest loan from the USDA to rebuild the old, dilapidated fire station, which was pieced together from different buildings in town and started in the 1930s.
The new Harbor Street Firehouse is expected to be in use for 50-or-more years.
Meas. Q&E started out as 9.8% of the fire department’s budget in FY 2020/21 and is now 22.7%. It is getting 28.3% of the Meas. Q&E monies.
The harbor department hasn’t fared as well, as the harbor patrol got zero dollars from that first year of Meas. E but started to benefit in 2021/22 when $48,000 was allocated to department personnel. From there it’s risen to $138,000 in 2022/23; $124,000 in 2023/24 and is currently budgeted at $187,000 for FY 2024/25.
The harbor department’s overall budget is a fraction of the other two public safety agencies, as in 2020/21 it stood at $1.52M and rose to $1.74M in 2021/22 and $1.98M in 2022/23. In 2023/24 it was at $2.29M and currently the department is budgeted at $2.61M. Percentagewise, in 2021/22 Q&E made up 10.8% of the budget and now stands at 9.6%, after peaking in 2023/24 at 11.1%.
Public works too, as the ones responsible for infrastructure maintenance, also shares in the Meas. Q&E bounty. In 2021/22, the first year they took money for personnel, they got got $173,000. In 2022/23 it rose to $436,000; $427,000 in 2023/24 and is budgeted this year at $707,000.
Public works also takes a lot of money under the category of “services,” starting in 2021/22 at $42,000 and rising each year — $57,000 in 2022/23; $335,000 in 2023/24; and currently at $420,000. The total Meas. Q&E monies going into public works right now is budgeted at $1.12M.
Public works’ budget too has been on the rise, starting in 2020/21 at $2.28M; then $2.82M in 2021/22; $4.13M in 2022/23; and $4.13M in 2023/24. Currently, the department is budgeted at $4.5M (FY 2024/25).
And the percentage of Meas. Q&E monies has taken a similar ascent. It started at just 2.1% in 2020/21 and jumped to 13.2% in 2021/22; 19.9% in 2022/23; and 29.1% in 2023/24. Currently, the $1.12M for FY 2024/25 amounts to 34.5% of the total. Public works uses much of these monies for its regular street paving and repairs project.
On the basis of the departmental uses for Meas. Q&E, these four departments take up 75.4% of the total Meas. Q&E monies.
The committee report makes a dire prediction. “By 2030,” the report said, “90% of Q/E will be necessary to support the same level of services, with less than $625,000 available that year and beyond for major capital like road paving.”
Overall, the report found that the City mostly spent the local sales tax monies as promised when the City took them to voters, however, “there were some areas that were underspent or there were no expenditures.”
The committee said they would like to see better reporting in some areas. “Reporting of Capital expenditures from Q/E funds should improve so that CFAC can track all of the actual expenditures and activities funded, not for just the most recent fiscal year.”
The committee made one rather dire prediction. The “2024/25 Budget projects a 5.2% decline in Q/E revenues.” And, “Sales tax/QE revenues are projected to stay flat and/or lose purchasing power. There is no real fund balance to work from anymore.”
The committee report also mildly criticizes the staff for not completing a Citywide Capital & Facilities Planning Project, which was begun in 2022. Finishing that study, “is essential to enable the Council, CFAC and the community to make informed decisions going forward.” It adds that there is a “significant backlog of funded capital projects.”
The report also predicts that available money for capital items — road repairs and equipment — “will be $0 by 2029/30.”
“Choices need to be made now about services funded from Q/E going forward.”
The report concludes with several items related to “Transparency, Compliance Maintenance, Citizen Participation, and Effectiveness:”
• Review and establish new expenditure policy and priorities for Q/E Funds, especially given recent revenue decline and projected declining purchasing power.
• Continue to involve the CFAC in joint meetings and special projects.
• Earlier involvement in the review of existing QE funded capital projects and the selection of projects for funding in each budget cycle.
• Early CFAC review of funding and activity changes.
• Review 10-Year revenue projections and 10-Year projections of commitments.
• Semi-Annual review of expenditures.
• Regular joint meetings with PWAB for capital projects.
• Improve video and audio quality of broadcasts.
• Provide historic, proposed and projected expenditures by legislative intent categories.
• Better explanation of changes and variances in a budget year.
So, it seems that despite voters in Morro Bay twice approving sales tax hikes, it will not be a boon in funding for much longer.
