Desk Item.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 DESK ITEM
DATE: February 15, 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.
REMARKS:
On February 14, 2022, the Finance Commission received the Five-Year Forecast. After a brief
presentation by staff, the Commission asked questions and provided input regarding the Five-
Year Forecast. Below is a summary of the primary areas of review and comment provided by
the Finance Commission.
• Commissioners asked questions about the Measure G capture of online sales tax relative
to the base sales tax. Staff explained that online sales for the Measure G District tax
receive sales tax based on point of delivery versus point of distribution for the base tax.
• Commissioners asked if the 3% escalator for property tax was sufficient given the higher
historic annual increases. Staff explained that the recommended assumption was
informed by cautious input from the County Assessor and the potential of higher
interest rates to thwart inflation pressures. In addition, staff explained that the forecast
only incorporates a $400,000 projection for Education Revenue Augmentation Fund
(ERAF) in the outyears based on continued County guidance even though the Town is
expected to receive $1.5 million in the current year.
PAGE 2 OF 2 SUBJECT: Five-Year Forecast (FY 2022/23 – 2026/27) DATE: February 15, 2022
• Commissioners inquired if there were any assumptions for CalPERS lowering the
investment return assumption for the pension plan. Staff described that the reduction
to a 6.8% return assumption was predicated on implementation of their risk mitigation
strategy. The risk mitigation strategy uses excess portfolio returns to buy down the
discount rate. Once CalPERS triggers the policy and lowers the discount rate, it remains
at that level.
• A Councilmember cautioned that while the Town has navigated the financial impacts
related to COVID well the past several years, it appears that structural deficits are
developing.
• Commissioners inquired about the impacts of inflation on the Town’s forecast. Staff
offered that higher interest associated with inflation would probably benefit the
unfunded pension liability by achieving a greater proportion of returns from lower risk
assets but could negatively impact property tax revenues due to higher mortgage rates.
Salaries would potentially feel the immediate impacts of inflation as the cost of good
and services are felt directly by employees.
• Commissioners inquired if all the destination marketing funds had been expended. Staff
explained that to date the Chamber has not expended all the funds.
There were no verbal or written public comments.