Staff Report.Mid-Year Budget Performance ReportPREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/21/2023 ITEM NO: 14
DATE: February 15, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2022:
a.Receive FY 2022/23 Mid-Year Budget Report;
b.Authorize Budget Adjustments as Recommended in the Mid-Year Budget
Report; and
c.Provide Direction of the Order of Authorized Funding Source to Balance
the FY 2022/23 Operating Budget, if Necessary, at the Final Close of the
Fiscal Year.
RECOMMENDATION:
Staff recommends that the Town Council take the following actions regarding the Mid-Year
Budget Performance Report - July 1 - December 31, 2021:
a.Receive FY 2021/22 Mid-Year Budget Report (Attachment 1);
b.Authorize budget adjustments as recommended in the Mid-Year Budget Report; and
c.Provide direction of the order of authorized funding sources to balance the FY 2022/23
Operating Budget, if necessary, at the close of the Fiscal Year.
REMARKS:
The purposes of the Mid-Year Report (Attachment 1) are to provide the Town Council with a
status of the adopted Fiscal Year (FY) 2021/22 Operating Budget after the first six months and
to make any adjustments to ensure the continuity of municipal services and operations for the
remainder of the fiscal year. The Report is one of several periodic updates to the Town Council
on the status of the current year’s revenues and expenditures and the projected financial
condition of all Town funds compared with the Adopted Operating Budget. The updates
primarily focus on the Town’s General Fund.
On February 13, 2023, the Finance Commission discussed the Mid-Year Report. The
Commission’s comments are included in this report to Town Council.
PAGE 2 OF 4 SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):
Highlights of the Mid-Year Budget Report include:
Financial Overview and Executive Summary
As discussed in the Report, the current fiscal year-end projections for FY 2022/23 reflect an
anticipated $0.7 million surplus of operating revenues and planned use of reserves over
expenditures compared to the anticipated $3.2 million deficit in the Adopted Budget.
As discussed in greater detail later in this Report, the primary drivers of the reduction in the
projected deficit are estimated increases in property tax, business license tax, Transient
Occupancy Tax (TOT), and franchise fee distribution. ln addition to the improvement in
revenue projections, staff is estimating that there will be year-end operating expenditure
savings. Staff anticipates savings attributable to Departmental vacancies and lower cost
structures associated with retiree replacements. In addition, for FY 2022/23, salaries were
again budgeted at actual salary plus a one step increase, which was a significant budgeting
methodology change from previous practice.
On June 7, 2023, the Town Council adopted the combined use of American Rescue Plan Act
(ARPA) funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB)
Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.
The significant revenue increases combined with projected expenditure savings indicate that
the approved sources might not be necessary; however, it can only be determined at the time
of the final close of the fiscal year. Staff recommends not to re-program the proposed sources
until the fiscal year is closed. Since it is probable that not all sources will be utilized, staff is
asking for Council direction regarding what source should be utilized first to cure current fiscal
year deficit, if needed. Due to the fact that OPEB Trust withdrawal should be requested in June,
significantly earlier than the final numbers are available, staff recommend to not utilizing the
Trust Reimbursement first. The Finance Commission did not agree with the staff
recommendation. It preferred using the ARPA source last so as to give Council more resources
to reprogram.
ARPA Replacement Reveneue $1,643,281
Measure G Residual for Operation $679,443
OPEB Trust Reimbursement for Retiree Medical $902,579
Total $3,225,303
Planned Use of One-Time Sources Balancing the FY 2022/23 Operating Budget
PAGE 3 OF 4 SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):
General Fund Revenue Analysis
The current forecast expects increases in economically sensitive revenues such as property tax,
business license tax, transient occupancy tax, and franchise fee; however, sales tax revenues
trending lower than the adopted budget. Pass Through Revenue increase with matching
expenditure increases also recognized for development activity, recognizing loan repayment
and grant proceeds. The combined recommended mid-year revenue adjustments total a net
increase of $2.8 million. While staff conducted a detailed analysis of all General Fund revenues
and provided the expected year-end estimates, only major revenue sources are recommended
for adjustment at this time.
General Fund Expenditure Analysis
General Fund expenditure totals are trending in accordance with the Adjusted Budget, with
total operational expenditures at the end of the second quarter at or about 40% of the
Adjusted Budget. With six months of data now available, staff expects that the next six months
of expenditures will be within the Adjusted Budget, although unexpected costs can still occur
which may require future Council action. The staff analysis examines potential salary and other
expenditure savings; however, budget adjustments are only recommended in certain instances
as outlined in the next section of the Report. The recommended General Fund mid-year
expenditure adjustments including pas through items with matching revenues total a net
increase of $1.4 million.
FY 2022/23 Recommended Budget Adjustments and Summary of Key Recommended Budget
Adjustments
All recommended revenue and expenditure adjustments are contained in these sections along
with a description of the major adjustments.
General Fund Financial Summaries and Estimates
This section introduces the Schedule of General Fund Operating Revenues Versus Operating
Expenditures for the second quarter of FY 2022/23 which includes comparison information from
the prior year.
Financial Summaries of Other Funds
This section provides financial summaries and presents data by governmental, proprietary, and
fiduciary fund types. For each, the fund information starts with a beginning fund balance, adds
PAGE 4 OF 4 SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):
current year revenues, and subtracts current year expenditures, resulting in an ending fund
balance.
Finance Commission Review
On February 13, 2023, the Finance Commission received the FY 2022/23 Mid-Year Budget
Report. After staff presentation, the Commission asked questions and provided input regarding
the FY 2022/23 Mid-Year Budget Report. Commissioners commented on the big uncertainty of
the ERAF proceeds and the probability of a higher year end surpluses. As mentioned above,
the Finance Commission did not recommend using ARPA first as one of the three budget
balancing options.
COORDINATION:
All Town Departments participated in the data collection and analysis that informed the
preparation of the Mid-Year Report and proposed budget adjustments.
CONCLUSION AND NEXT STEPS:
Staff is continuing to monitor all revenues and expenditures during the preparation of the
Proposed Operating and Capital Budgets for FY 2023/24. Should any additional budget
adjustments be necessary to balance operating revenue and expenditures prior to the FY
2022/23 close, staff will advise the Council accordingly. The Draft FY 2023/24 Operating and
Capital Budgets will be available in May with the budget hearing tentatively scheduled for May
16, 2023.
Staff recommends that the Town Council approve the proposed revenue and expenditure
budget adjustments as described in Attachment 1 and provide direction on the order of the use
of the approved funding sources to balance the FY 2022/23 Operating Budget, if necessary, at
the close of the Fiscal Year. In additon, staff looks forward to answering the Town Council’s
questions.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Mid-Year Budget Report - July 1 - December 31, 2022 as Presented at the Finance
Commission February 13, 2023 Meeting.
2. Public Comments Receive before Posting the Staff Report