Staff Report.Five-Year Forecast
PREPARED BY: Arn Andrews
Assistant Town Manager
Reviewed by: Town Manager, Town Attorney, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/15/2021 ITEM NO: 13
DATE: February 10, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Discuss the Five-Year Forecast (Fiscal Years 2022/23 – 2026/27), Provide
Direction on Budget Assumptions, and Provide any Specific Direction for the
Preparation of the Town’s Fiscal Year 2022/23 Operating Budget
RECOMMENDATION:
Discuss the Five-Year Forecast (Fiscal Years 2022/23 – 2026/27), provide direction on budget
assumptions, and provide any specific direction for the preparation of the Town’s Fiscal Year
(FY) 2022/23 Operating Budget.
EXECUTIVE SUMMARY:
The base case Five-Year Forecast (FY 2022/23 – 2026/27) (Attachment 2) identifies deficits for
all future years, using the 2% salary increase assumption approved by the Town Council for the
FY 2021/22 budget and other assumptions (see Attachments 3 and 4). The deficits are on the
order of approximately $2M per year and can currently be resolved through expenditure
controls and the use of one-time funds. The persistent presence of a deficit indicates that the
Town needs to consider new revenue measures if it wants to maintain high levels of municipal
services.
The sensitivity of the Forecast to its assumptions is demonstrated in this report. The Council
may wish to modify the assumptions for the FY 2022/23 budget and provide other budget
direction as appropriate. The Capital Program is scheduled for a separate discussion at the next
Council meeting.
PAGE 2 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
BACKGROUND:
An important aspect of the Town’s budget development process is taking a multi-year approach
to understand revenue and expenditure trends over time. Serving as the foundation of the
budget planning process (Attachment 1), the Town develops a Five-Year Financial Forecast
(“Forecast”) beginning in the winter of each year. The Forecast enables the Town to evaluate
the Town’s fiscal condition and to help guide policy, programmatic planning, and budget
decisions. Development of a financial forecast as part of the budget development process has
been identified as a best practice by the Government Financial Officers Association (GFOA).
The Forecast takes a forward look at the Town's General Fund revenues and expenditures and
is updated regularly. Its purpose is to identify financial trends, potential shortfalls, and other
issues so the Town can proactively address them and budget accordingly. It does so by
projecting out into the future the fiscal results of continuing the Town's current service levels
and policies. This process helps to provide a snapshot of what the future may look like as a
result of the decisions made to date.
The initial Forecast (FY 2022/23 – 2026/27) is predicated on estimates derived from the FY
2021/22 Mid-Year review and includes updates to Town revenues and expenditures based on
the Mid-Year end of year projections. Like any forecast, the Forecast’s revenue estimates for
the first year is the most critical in the process as they ultimately define the expenditure
limitations for the upcoming budget year.
This report contains detailed information that contributes to the preparation of the annual
budget, including the Town’s “Base Case” Five Year Forecast, its data sources, and budget
assumptions. This report also provides two additional forecast scenarios utilizing a sensitivity
analysis for three of the major revenue assumptions. These additional forecast scenarios
illustrate the effects on future budgets of a more optimistic revenue scenario (“Greater
Growth”) and a pessimistic revenue one (“Lower Growth”).
The Five-Year Financial Forecast is not a budget, nor a proposed plan. The Five-Year Financial
Forecast sets the stage for the upcoming budget process and is a tool in facilitating both the
Town Council and Town Manager in establishing priorities and allocating resources
appropriately.
DISCUSSION:
National and Local Economic Backdrop
The UCLA Anderson School of Business publishes an annual economic forecast for the nation
and California. The results of the forecast are utilized as a portion of the macroeconomic basis
of the Five-Year Forecast development. The September 2021 report establishes data for a
2021-2023 forecast period.
PAGE 3 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
Because of plateauing vaccination rates and the emergence of variants, the UCLA Anderson
Forecast is projecting slower growth in average annual Gross Domestic Product (GDP) for 2022
of 4.1%, down from their previous forecast of 5.0%. However, for 2023 they have increased
their forecast to 3.1% from the previous forecast of 2.2%. The report states that the
“…reduction in growth in 2022 and increase in growth in 2023 represent a shifting of
consumption and investment further into the future.” Other forecast assumptions include that
the economy remains constrained because of COVID, that consumers continue to spend on
entertainment, leisure and hospitality, and services, but that they occasionally pull back if there
are new variants or if cases increase rapidly. In addition, the report assumes that the impact of
COVID on economic activity diminishes through 2023.
As the graph on the next page illustrates, the report states that real GDP surpassed its pre-
COVID peak in Q2 2021. However, real GDP is still 2.2% below its pre-COVID trend and the
report does not expect real GDP to reach its pre-COVID trend until the third quarter of 2023.
The Report notes, “although California began a significant recovery later than some other states
due to the public health interventions in the state, they expect the California recovery to
ultimately be, once again, faster than the U.S. The authors attribute this to two reasons. First,
variants notwithstanding, the better public health outcomes should result in a more rapid
return to normalcy. Second, the move to new ways of work and social interaction will
disproportionately impact California through its technology laden sectors. The leisure and
PAGE 4 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
hospitality sector will be the last to recover due to the depth of the decline in this sector, the
slower return of restaurant and bar services demand, and the sub-sectors dependent upon
international tourism demand. The recovery will be considerably faster in higher income
technical services and faster in residential construction as California’s shortage of housing
relative to demand drives new developments.”
Operating Revenue Trends and Five-Year Forecast Scenarios
The Town is highly dependent on three economically sensitive revenues comprising 65% of
General Fund forecasted revenues. Following are summaries of the Town’s major revenues of
property tax, sales tax, and transient occupancy tax (TOT). To provide context for the
development of the Five-Year Forecast (FY 2022/23 – 2026/27), the prior year’s growth
assumptions and resulting revenue projections are provided. The Base Case Forecast can be
found in Attachment 2.
With that context, updated growth assumptions are provided for each revenue source, and the
resultant projected revenues for the new Forecast period. The revenue assumptions provided
are informed by the County Tax Assessor, the Town’s sales tax consultant, and direct
communication with the Town’s hospitality industry. In addition, alternative forecast scenarios
are discussed in this report for these three revenue streams. Please see Attachment 3 for a
description of all revenue categories with a comprehensive listing of revenue forecast
assumptions.
Property Tax
Property tax is the single largest revenue source for the Town and comprised approximately
34% of total Town projected revenues for FY 2021/22. As the following table illustrates, Los
Gatos has benefited from the economic expansion as evidenced by year-over-year (YOY) roll
growth in property assessment since 2012. For the 10-year period, the average annual growth
rate was 6.4%.
Los Gatos Assessment Roll Growth
(values in billions)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Total
Roll
8.68 9.46 9.99 10.63 11.54 12.29 13.15 13.84 14.90 15.6
Percent
Growth
3.67 9.06 5.62 6.40 8.56 6.54 6.95 5.23 7.70 4.33
Source: Santa Clara County Assessors Annual Reports
PAGE 5 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
The County of Santa Clara provides property tax collection updates and projections throughout
the year. The following table illustrates the most recent estimates relative to the Adopted FY
2021/22 Budget and FY 2020/21 actuals. The current County estimate indicates a modest
deviation from budget of approximately $400,000. The decrease is attributed to the
combination of lower than expected secured property tax estimates and increases to Vehicle
License Fees, property transfer tax, and Educational Revenue Augmentation Fund (ERAF)
estimates.
FY 2020/21
Actual
FY 2021/22
Adjusted
Budget
County Estimate
with 70% ERAF
Property Tax
Revenue &
Vehicle License
Fee Backfill
$19.9 M
$20.0 M
$19.6 M
The Town has been monitoring ongoing developments regarding the distribution of excess
ERAF funds. A portion of property tax revenue goes to the ERAF to support local school
districts. When the amount contributed to ERAF is more than the minimum cost of funding
local schools, excess funds have traditionally been returned to the county, cities, and special
districts. Five counties, including Santa Clara, have been using a redistribution allocation
formula that has been contested by the State. The Town received the full amount for FY
2020/21; however, the Santa Clara County Assessor’s Office recommends budgeting only 70%
of the FY 2021/22 projected number. The Adopted FY 2021/22 Budget included a $1.45 million
ERAF estimate, 70% of the current ERAF base revenue estimate is $1.5 million.
The following table illustrates the growth factors used in the development of the Five-Year
Forecast (FY 2022/23 – 2026/27).
Property Tax 2022/23
Forecast
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
Proposed Growth 3% 3% 3% 3% 3%
For purposes of the Forecast, the “Base Case” utilizes a growth factor of 3.0% and the “Greater
Growth” and “Lower Growth” scenarios utilize a 2% differential from the Base Case. In addition
to the growth factor, staff continues to assume $372,000 additional North 40 revenue in FY
2021/22 and an additional $711.320 in FY2022/23 due to the project’s construction and sales
schedule. Base non-residual excess ERAF revenue is forecasted at $400,000 annually until
PAGE 6 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
further direction received annually from the County. FY 2022/23 also anticipates an additional
$500,000 Redevelopment Agency residual allocation representing the current allocation
calculation of Santa Clara County.
Property Tax
(Property Tax & VLF)
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Greater Growth Scenario $20.2 $21.0 $22.0 $23.0 $24.2
Base Case
Modest Growth
$19.9 $20.2 $20.7 $21.4 $22.0
Less Growth Scenario $19.4 $19.4 $19.7 $19.8 $20.0
Sales Tax
Sales tax is the second largest revenue source for the Town and comprised approximately 12%
of total Town projected revenues for FY 2021/22. The following table illustrates the most
recent projections from the Town’s sales tax consultant MuniServices relative to the Adjusted
FY 2021/22 budget and FY 2020/21 actuals.
FY 2020/21
Actual
FY 2020/21 Adjusted
Budget
January 10, 2022
MuniServices
Estimate
Base Sales Tax $6.8 M $7.2 M $7.0 M
FY 2020/21
Actual
FY 2020/21 Adjusted
Budget
January 10, 2022
MuniServices
Estimate
Measure G – 1/8 District Tax $1.1 M $1.0 M $1.2 M
The current estimate indicates a total improvement from budget of approximately $64,000;
however, staff will continue to monitor MuniServices updates into the close of the fiscal year
and adjust as appropriate. The table below provides the MuniServices Most Likely scenario
which staff is utilizing for development of the FY 2022/23 Five-Year Forecast.
PAGE 7 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
Base Sales Tax & District
Tax
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
MuniServices COVID
Scenario
$8.7 $8.9 $9.2 $9.4 $9.6
The following tables illustrates MuniServices Most Likely scenario relative to their
“Conservative” and “Optimistic” scenarios.
Base Sales Tax 2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Conservative $ 6.7 $6.9 $7.1 $7.3 $7.4
Most Likely $7.5 $7.7 $7.9 $8.1 $8.2
Optimistic $8.2 $8.5 $8.7 $8.9 $9.1
Measure G
1/8 District Tax
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Conservative $1.1 $1.1 $1.1 $1.2 $1.2
Most Likely $1.2 $1.2 $1.3 $1.3 $1.4
Optimistic $1.3 $1.3 $1.3 $1.4 $1.5
Transient Occupancy Tax
TOT is an important revenue source for the Town and comprised approximately 3% of total
Town projected revenues of $1.4 million for FY 2021/22. The following table illustrates TOT FY
2020/21 actuals, the Adjusted FY 2021/22 Budget, and year-end collection estimates .
PAGE 8 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
FY 2020/21 Actual
FY 2021/22 Adjusted
Budget
Year-end Estimate
TOT
$1.0 M
$0.9 M
$1.4 M
The FY 2021/22 Adjusted Budget modeled a slight increase to $900,000 in anticipated TOT
revenues from $700,000 the prior year during the budget process; however, actual FY 2020/21
TOT proceed was $1.0 M. The slight increase reflected significant uncertainty around the return
of corporate travel and a continuation of slower leisure travel. Due to a significant rebound in
leisure “staycation” travel, current TOT collections are trending higher than anticipated and
average occupancy rates are rebounding as well.
The table below illustrates the growth projections utilized for development of the Five-Year
Forecast (FY 2022/23 – 2026/27) for TOT and corresponding estimated revenues.
TOT 2022/23
Forecast
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
Proposed Growth 3% 3% 3% 3% 3%
Estimated Revenues $1.4 M $1.5 M $1.5 M $1.6 M $1.6 M
Unlike sales tax forecasts which continue to predict a return to pre COVID levels in the next
several years, the Town’s TOT revenue has historically been primarily driven by business travel.
Given the uncertainty around physical business travel resuming at prior levels, as opposed to a
continuation of remote work and online meeting forums, staff is recommending modest growth
for base case development of the FY 2022/23 Five-Year Forecast. However, given the
significant reduction to the revenue base compared to prior revenue history staff is providing a
base growth scenario and an additional more optimistic growth scenario.
PAGE 9 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
TOT 2021/22
Forecast
2022/23
Forecast
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
Base Growth Scenario 20% 20% 3% 3% 3%
Estimated Revenues $1.7 M $2.0 M $2.1 M $2.1 M $2.2 M
Base Growth Scenario 30% 20% 3% 3% 3%
Estimated Revenues $1.8 M $2.2 M $2.2 M $2.3 M $2.4 M
Operating Expense Trends and Five-Year Forecast Scenarios
Forecasts of future operating expenditures take into account two key factors: cost escalation
and new operating expenditures. New operating expenditures refer to costs created by new or
enhanced service programs approved during the annual budget process. See Attachment 4 for
the expenditure assumptions.
Cost escalation refers to largely unavoidable increases in the cost of doing business. It includes
inflation, multi-year contract costs, health care costs, and unfunded State mandates. Cost
escalation also includes other unavoidable cost increases unique to a government organization,
such as a rise in wages consistent with collective bargaining agreements and annual pension
payments mandated by CalPERS. The Town has three bargaining units, including the Town
Employees’ Association (TEA), the American Federation of State, County and Municipal
Employees (AFSCME), and the Police Officers’ Association (POA). The unrepresented groups are
Management and Confidential.
For FY 2021/22, General Fund Estimated Operating expenditures (not including debt payment
and transfers out) were programmed at $43.8 million. The delivery of Town services is highly
dependent on talent which comprises 64% of Estimated General Fund expenditures. Given the
high dependence on labor for service delivery the Town has helped manage salary escalation
(and benefits) through the maintenance of lower staffing levels. As the table below illustrates,
since 2001 the Town has reduced its full-time employees by 16.7% to 150 FTE employees.
PAGE 10 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
Mandated pension payments to CalPERS has consistently been one of the major cost drivers for
the Town over the past decade with persistent unanticipated increases in pension costs. The
Town’s plans over the past several decades, like all other CalPERS participants, have
experienced unfavorable investment returns, changes in actuarial assumptions, and
demographic changes which have outweighed any positive plan experiences. The outcome of
these unfavorable economic and demographic results is the development of unfunded pension
and Other Post-Employment Benefit (OPEB) obligations for the Town. To address the
escalation in pension costs, previous Councils have allocated additional discretionary pension
funding. totaling $10,400,000 million. These additional discretionary payments will ultimately
yield an approximate additional $12,700,000 in contribution savings.
The Town and its bargaining groups have also worked to contain benefit costs. The Town closed
the CalPERS retiree Tier 1 benefit for non-safety employees and created a new Tier 2 for non-
safety new employees in 2012, implemented the Public Employees’ Pension Reform Act
(PEPRA) for all new non-classic employees starting in 2013, and participates in the CalPERS
discounted prepayment option. The Town’s bargaining groups participated in wage freezes and
unpaid furloughs for several years to assist in achieving balanced budgets after the 2008
recession.
In addition to the management of the Town’s pension obligations, prior Councils and the
Town’s bargaining groups have worked to curb cost escalation in OPEB. In 2009, the Town
initiated prefunding of the retiree healthcare benefit and has since established approximately
$27.4 million in OPEB assets from zero in 2009. In 2016, the Town’s bargaining groups
PAGE 11 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
approved the introduction of dependent cost sharing and a reimbursement cap to Medicare
eligible employees, and in 2018 the elimination of the Town's existing retiree healthcare benefit
prospectively.
While these collective measures have helped to slow the growth in salary and benefit expenses,
the Forecast anticipates continued increases in the Town’s pension obligations.
Provided below are the expense assumptions for salary and benefits and alternate case
scenarios for pension contributions. The majority of other expenses are assumed to increase at
3% per annum. Detailed expenditure assumptions and factors can be found in Attachment 4.
Salary and Benefits
Salary
The Town has historically budgeted vacant and non-sworn positions at top step of the range for
the position. Sworn and management positions are budgeted at one step higher of current
step in anticipation of any merit increases expected to be awarded in the upcoming fiscal year.
Based on Council’s direction for FY 2021/22, salaries were budgeted at actual salary plus a one
step increase, which was a significant budgeting methodology change from previous practice.
This methodology will be continued for the development of FY 2022/23 budget.
For the Forecast, positions are budgeted at the actual rate of pay of employees including
benefits as of December 2021. Then, by position, salary costs are updated in accordance with
the applicable Memorandum of Understanding (MOU) between the Town and its bargaining
units. The Memoranda of Understanding that outline the individual agreements between the
Town and each unit related to compensation, health benefits, leave time, and grievance
procedures will expire with TEA and AFSCME on June 30, 2022. POA’s MOU expired on
September 30, 2021 and negotiations are currently in process. The Management and
Confidential groups are unrepresented.
In addition to the economic terms of the MOUs, the Forecast assumes step increases for
employees in applicable positions, and merit increases for Management and Confidential
employees. In addition, based on prior Council guidance, 2% cost of living wage adjustments
(COLA) are included in the Forecast for each year starting in 2022/23.
PAGE 12 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
Salaries
(Current MOUs)
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Base Case with 2% COLA $20.6 $21.2 $21.8 $22.3 $22.8
In comparison, the table below illustrates what the salary forecast would be utilizing the prior
practice of not including assumptions outside of current MOUs or 0%.
Salaries
(Current MOUs)
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Base Case with 0% COLA $20.2 $20.4 $20.6 $20.7 $20.8
Pension and Other Benefits
For purposes of the Forecast, staff utilizes estimates provided by each plan’s most recent
actuarial valuation received from CalPERS. Beginning in FY 2021/22, the estimates of employer
contributions were credited with an anticipated reduction associated with the $5.6M additional
discretionary payment (ADP) toward the 2015 unfunded amortization base paid off in early FY
2020/21.
Pension & Other
Benefits
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Base Case $10.9 $11.4 $11.9 $11.9 $12.3
As we move closer to the final development of the Proposed FY 2022/23 Operating Budget,
staff will further refine these estimates taking into account CalPERS recent assumption changes,
changes to the discount rate, and the 21.3% positive return experienced in FY 2020/21. Any
update will not impact the initial years of the forecast due to lags in actuarial reporting but will
be exhibited starting in the third year of the forecast.
Given that investment returns have one of the largest impacts on contribution variability,
CalPERS provides projected employer Unfunded Actuarial Liability (UAL) contributions under
alternate investment returns. The following alternative return scenarios assume that the
return was experienced for FY 2020/21 through FY 2023/24. As the table below illustrates
PAGE 13 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
returns higher than the expected return of 7% result in lower future UAL contributions and
returns lower than 7% result in higher future UAL contributions.
UAL Town Contributions
(Misc & Safety)
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
Greater Investment Return
Scenario (12%)
$5,037,000 $5,065,000 $4,428,000 $3,903,000
Base Investment Return
Case (7%)
$5,213,000 $5,598,000 $5,518,000 $5,769,000
Less Investment Return
Scenario (1%)
$5,446,000 $6,297,000 $6,919,000 $8,105,000
CalPERS Actuarial Valuations as of June 30, 2020
For the year ending June 30, 2021, the Public Employees Retirement Fund (PERF) returned
21.3%. The table below illustrates the historic investment returns for five years, ten years,
twenty years, and thirty years.
Five-Year Financial Forecast Alternative Scenarios
The tables below present the “Base Case” forecast contrasted against the two alternative
revenue scenarios of “Greater Growth” and “Lower Growth.” As illustrated in the tables, even
modest changes to the “Base Case” forecast can result in either additional surpluses or deficits
during the forecast period.
Original 5 Year Forecast
“Base Case” with
2% Salary Increase
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Total Revenues,
Transfers & Use of
Reserves
$45.6 $46.6 $47.6 $48.9 $50.1
Total Expenses &
Allocations
$47.2 $48.6 $50.0 $51 $52.4
Original Surplus/Deficit ($1.6) ($2.0) ($2.4) ($2.1) ($2.3)
CalPERS Compound Annual Rates
of Return (as of June 30, 2020)
5 Years 10 Years 20 Years 30 Years
Compound Annual Return 6.3% 8.5% 5.5% 8.0%
PAGE 14 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
DISCUSSION (continued):
Original 5 Year Forecast
“Base Case” with
0% Salary Increase
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Total Revenues,
Transfers & Use of
Reserves
$45.6 $46.6 $47.6 $48.9 $50.1
Total Expenses &
Allocations
$46.7 $47.5 $48.4 $48.7 $49.5
Original Surplus/Deficit ($1.1) ($0.9) ($0.8) $0.2 $0.6
Alternative Scenario
“Greater Growth” with
2% Salary Increase
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Total Revenues &
Transfers
$45.7 $47.6 $61.8 $50.6 $52.6
Total Expenses &
Allocations
$47.2 $48.6 $50.0 $51 $52.4
New Surplus/Deficit ($0.1) $0.4 $1.6 $1.1 $1.7
Alternative Scenario
“Lower Growth” with
2% Salary Increase
2022/23
Forecast
($M)
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
Total Revenues &
Transfers
$44.1 $44.9 $45.6 $46.3 $47.0
Total Expenses &
Allocations
$47.2 $48.6 $50.0 $51 $52.4
New Surplus/Deficit ($3.0) ($3.7) ($4.4) ($4.6) ($5.3)
CONCLUSION:
The Town Council should review and discuss the elements and assumptions of the initial Five-
Year Forecast and other budget considerations. While the “Base Case” Forecast estimates
deficits at this time, it is based on assumptions that are subject to change given the significant
unknowns related to COVID and as shown with the alternative growth scenarios. As the
Forecast is not a budget, there are no specific budget balancing recommendations being
PAGE 15 OF 15 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 10, 2022
CONCLUSION (continued):
proposed at this time. The Town Manager will bring forward for Council consideration in May a
balanced proposed FY 2022/23 budget.
At this time, the preparation of the FY 2022/23 Operating and Capital Budgets is taking into
account the Town’s current economic reality and long term fiscal picture, as well as maintaining
the Town’s high level of municipal services. This is considered a “status quo” approach with no
major new initiatives or staffing. Key budget principles include:
• Develop and recommend a balanced budget that maintains service levels;
• Address projected deficits;
• Continue to make progress on Strategic Priorities identified by the Town Council; and
• Identify opportunities to maintain or enhance service delivery through new revenue
sources and technology.
Staff looks forward to answering the Town Council’s questions and receiving any direction for
the preparation of the proposed FY 2022/23 Operating Budget that results from the discussion.
The Capital Improvement Program and direction will be discussed separately at the next Town
Council meeting. The Council may also discuss budget assumptions. The Finance Commission is
meeting on February 14 and its comments on the Forecast will be provided to the Town Council
in a Desk Item on February 15, 2022. The Draft FY 2022/23 Operating and Capital Budgets will
be available in May with the budget hearing tentatively scheduled for May 17, 2022.
COORDINATION:
This Report was prepared by the Town Manager’s Office in coordination with the Finance
Department.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Annual Budget Process
2. Base Case Five-Year Forecast
3. Forecast Revenue Assumptions
4. Forecast Expense Assumptions