State provides new information on local Gann Limit reporting requirement

The local appropriations limit, often referred to as the Gann Limit, is back in the limelight for local governments. In late March, the state released new guidance on how local governments can identify and report excesses beyond their Gann limits for fiscal years 2022-23 and 2023-24.

This follows guidance that the California Department of Finance released last year.  

What is the Gann Limit?

The Gann Limit is a result of Proposition 13 (1978) and Proposition 4 (1979), which limit the growth of government spending. As a result, there is a cap on local government revenue that can be appropriated in any given fiscal year.

There is also an appropriation limit for state expenditures. The state must spend any revenue that exceeds a certain limit — adjusted for inflation and population — on K-12 education and colleges or rebates back to taxpayers. The new policy is the result of an attempt by legislators to avoid exceeding the state Gann Limit in last year’s state budget.

What is the requirement?

Local agencies are now required to identify and report any new state subventions — unrestricted money received by a local agency from the state — that would cause them to exceed local appropriations limits. The requirement takes effect starting with the 2021-22 fiscal year, as outlined by the California Department of Finance.

The state will count those amounts at the state level instead. These additional expenditures are counted by local governments towards their local appropriation limits when capacity exists at that level of government.  

What is the new guidance?

Cities must use the same subvention information provided in late 2022 when calculating fiscal year 2022-23 and 2023-24 local appropriation limits. The provided subvention information identifies the total dollar value of all subventions that should be included within a city’s appropriations limit for the 2022-23 or 2023-24 fiscal year.

If any portion of those values causes a city to exceed its appropriations limit, cities must identify the specific amount attributable to these subventions in excess of their limit and report that information to the Department of Finance. These excess amounts will instead be included within the state’s appropriations limit.

The deadline to report this information is Nov. 1, 2023, and annually thereafter. The Department of Finance will provide updated subvention information for fiscal year 2024-25 no later than Feb. 1, 2024, and information for subsequent fiscal years on Feb. 1 annually thereafter.

Cities that will not exceed their appropriation limit for fiscal year 2021-22 do not need to report to the Department of Finance. No action is required if your city is not identified in the spreadsheet.

Cities may submit their information via email to Susan Wekanda and Matt Westbrook at the Department of Finance. Additional details about the dollar value attributable to each subvention are in the “City Programs” tab of the spreadsheets.

For questions, please contact Cal Cities Legislative Representative Ben Triffo.