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PAGE 3 <br />MAYOR AND TOWN COUNCIL/CHAIR & MEMBERS OF THE RDA <br />SUBJECT: OPERATING AND CAPITAL BUDGETS FOR FY 2009/10 <br />MAY 13, 2010 <br />Of persistent concern, however, is the long-term fiscal outlook, largely due to rapidly rising <br />employee pension and medical costs. Even with a continued modest recovery, additional budget <br />and service reductions are anticipated every year for the foreseeable future. These fuhu~e <br />reductions will likely directly impact Town residents, visitors, and businesses in significant <br />ways. The inevitable loss of Netflix sales tax revenue and potential infrastructure failure will <br />only exacerbate these difficulties in the years ahead. <br />Nonetheless, the core assets of Los Gatos remain strong, including an enviable downtown, a <br />beautiful environmental setting, proximity to Silicon Valley, fundamentally strong real estate, <br />and an active and engaged population. Further, the economic crisis has not impacted special <br />one-time projects with separate funding sources, including the new Library, the General Plan <br />Update, new Townwide sports facilities, and significant street projects. These all will contribute <br />to Los Gatos' high quality of life. <br />Recommended Budget Balancing Actions <br />The proposed operating budget incorporates reductions in staffing and other expenses and <br />revenue enhancements totaling approximately $2.0 million, sufficient to cover the $1.8 million <br />necessary to balance the FY 2010/11 budget.. Attachment 3 is a listing of all the recommended <br />budget balancing actions, which include: <br />• the elimination of eight full-time-equivalent positions and other staffmg, salary and <br />benefit reductions for a cost savings of more than $1.1 million; <br />• reductions in operating expenses for a cost savings of approximately $200,000, and; <br />fund transfers, cost recovery fee increases, and other revenue totaling nearly $650,000. <br />While the majority of the budget balancing actions will result in ongoing cost savings and <br />ongoing revenue enhancements, approximately $340,000 of the total savings are one-time or <br />temporary adjustments. One-time savings do not help to correct the structural imbalance <br />between ongoing revenues and expenditures, and thus, do not contribute to a long-term fiscal <br />solution. <br />Five-Year Forecast <br />The Five-Year Financial Plan is an independent financial tool that is based on current and <br />projected costs and revenues. It is designed to be fluid in natm~e, allowing staff to build various <br />funding scenarios and test "what if' assumptions. Staff has updated the forecast last prepared in <br />February, 2010 to incorporate the FY 2010/11 proposed budget changes. <br />The information presented in the forecast on page 5 includes conservative estimates of revenues, <br />based on generally flat growth for FY 2010/11 with low growth of 0 to 3% for most major <br />revenue categories in FY's 2011/12 through 2014/15. The forecast continues to set aside half of <br />Netflix revenues for reserves and future capital and one-time projects. However, we no longer <br />show an elimination of Netflix revenues during the next five years due to a recent lease renewal, <br />pending approval of potential expansion opportunities. <br />