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Overview of City Finances
- Purpose
- General Fund vs. Other Funds
- General Fund Revenue Sources
- General Fund Expenditures
- Common Misconceptions about City Finances
- Resources and Links
I. Purpose
The City Council of the City of Oxnard (“City”) is constrained in its ability to provide new and enhanced levels of service to residents. Given the current state of the economy and the outlook for the foreseeable future, the City Council and staff will probably not be able to provide new services, expand existing service levels, or rebuild aging infrastructure for the community.
II. General Fund vs. Other Funds
Oftentimes there is the misconception the City has unlimited funds to spend on basic services. The City Council is limited by law to spend funds in a certain manner, depending upon the funding source. Fund accounting is the way the City segregates funds according to their intended purpose. Each fund is an independent set of self-balancing accounts.
There are several types of funds in governmental accounting. The manner in which these funds can be spent is dependent upon a number of factors (i.e. the fund “type” and state/federal law).
The General Fund is the City’s primary operating fund. This fund provides money for most of the daily operations of the City with very few restrictions on the type of permitted expenditures. Generally Accepted Accounting Principles (“GAAP”) prescribe that a city’s General Fund be used “to account for all financial resources except those required to be accounted for in another fund.” Examples of the types of expenditures accounted for in the General Fund include Police protection, Fire protection, City administration, Finance, and City Attorney.
Special Revenue Funds account for revenue sources that are legally restricted to expenditures for specific purposes. Expenditures from these funds are usually restricted by state or federal law. Examples of this type of fund are Gas Tax Funds and Community Development Block Grant (CDBG) funds.
Enterprise Funds are used to account for those operations that are financed and operated in a manner similar to a private business. By law (Prop 218) these funds can only be used to provide the services associated with the service fee. The City’s water and wastewater funds are examples of enterprise funds.
When analyzing the City’s budget, such as the budget for Fiscal Year 2007-08, one should note that not all funds can be used for general government functions. For example, the City’s combined budget totals $277,407,613 for Fiscal Year 2007-08 includes the general fund, special revenue funds, enterprise funds, and other funds. The General Fund only accounts for $115,878,753 of this total. As stated above, the General Fund is the fund from which general governmental expenditures are made (e.g., Police, Fire, Administration, Finance, City Attorney).
III. General Fund Revenue Sources
The General Fund budget for Fiscal Year 2007-08 is $115,878,753. There are numerous sources of revenue that contribute to this total. The following six revenue sources (percentage of total General Fund revenue in parentheses) account for approximately 73% of total General Fund revenues:
- Property Tax (24%)
- Sales Tax (23%)
- Vehicle License Fees (15%)
- Business License Tax (4%)
- Franchise Tax (4%)
- Transient Occupancy Tax (3%)
Beyond these six revenue sources, the magnitude of every other revenue type becomes a smaller percentage of overall General Fund revenues. As a result, the above six General Fund revenue sources are the most critical to understand, and have the largest impact as to the services that can be provided by the City as discussed below.
1. Property Tax (24%)
Property tax accounts for 24% of the total revenues of the General Fund. The County of Ventura collects an ad valorem tax of 1% of the assessed value of real property (and some personal property) located within Oxnard. The City receives approximately $0.178 for each $1 of property tax collected. The remaining $0.822 of each dollar of property tax is retained by the County of Ventura, with certain shares distributed to school districts and other special districts operating within the City.
2. Sales Tax (23%)
Sales tax is the second largest source of General Fund revenue at 23%. The current sales tax rate in Oxnard is 7.25%. The State Board of Equalization collects and allocates sales tax as follows:
| State |
6.00% |
| City |
0.95% |
| County |
0.05% |
| County Transportation |
0.25% |
In Fiscal Year 2007-08, Oxnard’s budget for sales tax revenue was $27,000,000.
3. Vehicle License Fees (15%)
The Motor Vehicle License Fee is a local fee for operating a vehicle on public streets. The license fee, equivalent to 2% of the market value of motor vehicles, is imposed annually by the State Department of Motor Vehicles in lieu of local property taxes. The amount of revenue distributed to the City is based upon its population.
4. Business License Tax (4%)
The Business License Tax is imposed on persons and entities conducting business within the City. The tax is commonly based on gross receipts or a flat rate basis.
5. Franchise Tax (4%)
Franchise Tax is imposed on certain businesses in the City or for the use of City-owned rights of way. Several state statutes provide cities with the authority to impose fees on privately owned utility companies and other businesses using city rights-of-way. Typically, the types of businesses paying franchise tax include public utilities (electricity and gas) and cable television companies.
6. Transient Occupancy Tax (3%)
The City imposes a transient occupancy tax on persons staying 30 days or less in a room(s) in a hotel, motel or vacation rental.
IV. General Fund Expenditures
General Fund expenditures can be classified by function (e.g. department) or by type (e.g. personnel, services and supplies, capital outlay). Table 1 provides a summary of General Fund expenditures by function in declining order of relative funding. Table 2 provides a summary of General Fund expenditures by type in declining order of relative funding.
| Department |
FY 2007-2008 Budget |
% of Total Budget |
| Police |
$47,016,368 |
40.6% |
| Fire |
13,694,773 |
11.8% |
| Central Services |
11,936,999 |
10.3% |
| Parks and Public Grounds |
8,731,150 |
7.6% |
| Development Services |
7,068,781 |
6.1% |
| Recreation/Community Services |
5,893,774 |
5.1% |
| Library |
5,354,387 |
4.6% |
| Public Works |
4,574,477 |
3.9% |
| Finance |
4,159,461 |
3.6% |
| City Attorney |
1,666,878 |
1.4% |
| City Manager |
1,591,875 |
1.4% |
| Human Resources |
1,153,186 |
1.0% |
| City Treasurer |
1,145,008 |
1.0% |
| Community Development |
751,389 |
0.7% |
| City Clerk |
469,538 |
0.4% |
| City Council |
392,832 |
0.3% |
| Housing |
277,877 |
0.2% |
| TOTAL |
$115,878,753 |
100.0% |
The Police and Fire Departments receive 50% of the General Fund.
General Fund Expenditures by Type
| Expenditure Type |
FY 2007-2008 Budget |
% of Total Budget |
| Salaries |
79,136,862 |
68.3% |
| Services and Supplies |
16,125,323 |
13.9% |
| Reserves and Transfers |
10,977,496 |
9.5% |
| Internal Service Fund Charges |
8,110,081 |
7.0% |
| Capital Outlay |
1,528,991 |
1.3% |
| TOTAL |
$115,878,753 |
100.0% |
V. Common Misconceptions About City Finances
- “I pay property tax, sales tax, and income tax. The City should be able to provide services to me without increasing my taxes.”
Most tax dollars do not flow directly to the City. As mentioned above, the City only receives approximately 17.8% of property taxes from property in its corporate boundaries, and only 1% of the total 7.25% in sales tax collected. The majority of sales tax and property tax revenue is distributed to other levels of government. The City receives no direct income tax revenue.|
- “The City Council can raise taxes any time it wants.”
Due to Proposition 13, approved in 1978, local property taxes were reduced by more than one-half. The general purpose property tax rate was set at one percent of assessed valuation, and generally cannot be increased more than 2 percent annually. Proposition 13 also required a two-thirds voter approval for any new special taxes and a two-thirds legislative approval for new state taxes.
- “Doesn’t my water, wastewater, and trash fees pay for City services?”
City staff may not lawfully use enterprise funds for the purpose of providing general services such as police protection or fire services and street repair. Water, wastewater, and trash fees are used to pay the cost of delivering those services. These funds cannot be used for general fund purposes, or any other purposes.
- “The City has enough money to re-pave all of its streets”
After paying all of its operating costs, the City has few General Fund resources to invest in its capital infrastructure. While there are other sources of funds that can and do contribute towards capital improvement (e.g., gas tax funds, CDBG grants, redevelopment funds), they are generally not sufficient to meet all of the City’s infrastructure needs.
- “But look at all of the new homes that have been built in the City. Surely, the City will have more revenues because of the additional property tax and fees paid by the developers.”
The revenue generated from property taxes from a residential unit is less than the cost of providing general services to the residential unit. So, while revenues may increase, costs will generally increase more. With regard to developer fees, these are one-time revenues that can be used to finance construction or rehabilitation projects, but not ongoing operations.
VI. Resources and Links
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