Desk ItemTOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/21/2017
ITEM NO: 11
DESK ITEM
DATE: FEBRUARY 21, 2017
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: FISCAL YEAR 2016/17 MID -YEAR BUDGET PERFORMANCE AND STATUS
REPORT - SIX MONTHS ENDING DECEMBER 31, 2016
A. RECEIVE FY 2016/17 MID -YEAR BUDGET PERFORMANCE AND STATUS
REPORT, INCLUDING FY 2016/17 YEAR-END PROJECTIONS;
B. CONSIDER AUTHORIZING BUDGET ADJUSTMENTS AS RECOMMENDED IN
THE ATTACHED SECOND QUARTER BUDGET PERFORMANCE REPORT;
C. RECEIVE THE TOWN'S FIVE-YEAR FINANCIAL PROJECTION FROM FY
2017/18 TO FY 2021/22;
D. APPROVE A RESOLUTION TRANSFERRING $1,984,402 MILLION EXCESS
BALANCE FROM THE BUDGET STABILIZATION RESERVE TO THE CALPERS
RESERVE; AND
E. APPROVE THE UPDATED GENERAL FUND RESERVE POLICY TO RENAME
THE CALPERS RESERVE TO ENCOMPASS ALL POST -EMPLOYMENT
LIABILITIES BY CHANGING ITS TITLE TO CALPERS/OPEB RESERVE.
REMARKS:
After the release of the report a graphing error was found on page 8 of the FY 2016/17 Mid -
Year Budget Performance Report. A replacement page is contained in Attachment 4.
In addition, below are responses to a Council Member's inquiries regarding this agenda item.
PREPARED BY: STEPHEN CONWAY
FINANCE DIRECTOR
Reviewed by: Town Manager and Town Attorney
110 E. Main Street Los Gatos, CA 95030 • 408-354-6832
www.losgatosca.gov
PAGE 2 OF 2
SUBJECT: FISCAL YEAR 2016/17 MID -YEAR BUDGET PERFORMANCE AND STATUS
REPORT - SIX MONTHS ENDING DECEMBER 31, 2016
DATE: FEBRUARY 21, 2017
: Briefly provide the history and an update regarding the Albright Settlement (see pages 13 and
16):
Please see the table below regarding the Albright Settlement proceeds. There is no legal
restriction on use of the community benefit regarding the buildings, and therefore, the Finance
Department budgeted this money as General Fund revenue. The Council requested that these
funds be placed in a separate account, requiring an adjustment from the General Fund Revenue
Source. The monies were reclassified from General Fund revenues to GFAR deposits and now
are held in deposit on the GFAR balance sheet until the ultimate use and disposition of the
funds is determined by Town Council.
Source of Revenue Amount Restriction of tse
Albright Buildings 1 Sr 2 - Community Benefit (S1 square foot) $ 241,865 No
Albright Buildings 3 Sz 4 - Community- Benefit (S 1 square foot) $ 244,596 No
Albright Settlement A eement - Community- Benefit $ 350,000 i es
Total Funding Received as of2/'21.'2017 S 836,461
Please explain "sales tax recovery services":
Sales tax recovery services are those that our sales tax auditor, MuniServices, conducts on our
behalf. MuniServices identified two major corrections of sales tax misallocations. The first was
$3.4 million in sales tax revenues misallocated to another County. The Town's share of the
County pool is 1.844%. As a result of the correction to the pool, the Town received an
additional $63,107.17 in sales tax revenue. Per the Town's agreement with MuniServices, 25%
($15,776.79) of the recovered $63,000 is the payment due to MuniServices. Overall, the Town
obtained a net gain of $47,330.38 of new sales tax revenue as a result of this MuniServices
audit correction.
The second MuniServices audit discovery was a misallocation of sales tax revenue from General
Motors Acceptance Corporation to another city in the amount of $44,266.01. Per the Town's
agreement with Muni Services, 25% ($11,066.50) of the recovered revenue was due back to
Muni Services. Overall, a net gain of $33,199.51 of new sales tax revenue for the Town as a
result of this Muni audit correction.
Attachments (previously received with the report):
1. Budget Performance Report for the Three Months Ending December 31, 2017.
2. Draft Resolution of the Town Council of the Town of Los Gatos Approving Commitments of
fund balance under Government Accounting Standard Board (GASB) 54
3. Proposed update to the General Fund Reserve Policy (red -lined)
Attachment 4 received with the Desk Item:
4. Replacement page 8.
S:\COUNCIL REPORTS\2017\02-21-17\Mid- Year\Desk Item FY 2016-17 2nd Quarter Budget Report FINAL.docx 2/21/2017 3:15 PM SLL
BUDGET PERFORMANCE REPORT - 2ND QUARTER FY 2016/17
Business License Tax
The Town requires all businesses located within Los Gatos and/or those that operate within Los Gatos, to obtain a
business license. The amount of business license tax paid by each business is based on its business activity. Fees for
activities such as wholesale sales and manufacturing are charged on a sliding scale based on gross receipts, as is
retail, but retail is capped at $975. These activities account for approximately 25% of annual business licenses,
while the remaining 75% are flat fee businesses. Annual renewal payments are due on January 2 of each year.
Payments for new flat -fee -based businesses are pro -rated by quarter.
Analysis — As a result of the projected increase in economic activity, business license tax revenue for the current
fiscal year was budgeted slightly higher than the prior year budgeted number. Second quarter revenues are
significantly lower compared to prior year second quarter revenue; however, first quarter revenue is trending
higher when compared to revenues prior to FY 2014/15. FY 2014/15 actual revenues reflected below include a one-
time prior year adjustment for business license tax collection from Netflix. This adjustment was due to a
reclassification that happened in the first quarter of FY 2014/15. Current year second quarter revenues are
trending in line with prior year result consistent with the improved economic outlook. Therefore, staff recommends
a budget increase of $150,000.
Business License Tax
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
Quarterly and Annual Revenues
5-Year History
FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17
® 2nd Quarter Actual
Revenues
0 Fiscal YearTotal
Actual Revenues
0 Fiscal Year Total
Budgeted Revenues
FY 12/13 FY 13/14 fY 14/15 FY 15/16 FY 16/17
2nd Quarter Actual Revenues $ 327,237 $ 352,049 $ 945,846* $ 870,249** $ 745,633
Fiscal YearTotal Actual Revenues $ 1,151,579 $ 1,130,020 $ 1,779,307 $ 1,465,547
Fiscal YearTotal Budgeted Revenues $ 1,300,000
2nd Quarter Revenue Percent of Total 28% 31% 53% 59% 57%
Recommended Budget Revision
* Incudesone-time" prior years adjustments due to Netflix recalssification to E-Commerce business
" includes 2014 actual gross receipt adjustment for Netflix at the first time
8
$ 150,000
ATTACHMENT 4