14 Staff Report.Five-Year Forecast with attachments
PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager, Town Attorney, and Assistant Town Manager
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024 ITEM NO: 14
DATE: February 14, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review the Five-Year Forecast (Fiscal Year 2024/25 -FY 2028/29) and the
Finance Commission Recommendations, Determine Key Assumptions for the
Five- Year Forecast, and Provide Direction for the Preparation of the FY
2024/25 Operating Budget
RECOMMENDATION:
Review the Five-Year Forecast (FY 2024/25 -FY 2028/29) and the Finance Commission
recommendations, determine key assumptions for the Five- Year Forecast, and provide
direction for the preparation of the FY 2024/25 Operating Budget.
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, 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.
PAGE 2 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
BACKGROUND (continued):
Attachment 1 contains the staff report to the Finance Commission with Attachments 1 through
6. The report to the Finance Commission outlines the major assumptions and their sensitivity
to more optimistic or pessimistic outlooks. The analysis also includes historical information,
particularly pertaining to the elements of property tax revenue.
DISCUSSION:
The initial Forecast (FY 2024/25 – 2028/29) is predicated on estimates derived from the FY
2023/24 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.
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. The forecast based on a point in time information and has to be updated
periodically and will differ from final actual numbers.
Base Case
The base case Five-Year Forecast (FY 2024/25 – 2028/29) as presented to the Finance
Commission identifies deficits for all future years, using a 2% salary increase assumption, a 4.6%
vacancy saving factor as approved by the Town Council for the FY 2023/24 budget, and other
assumptions as outlined further in this report.
The deficits are on the order of approximately $2M per year and can currently be resolved
through expenditure controls and the use of one-time funds.
5 Year Forecast
"Base Case"
with 4.6% Vacancy Factor
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of
Reserves
$54.5 $56.3 $58.1 $59.6 $61.4
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($2.3)($1.8)($2.0)($2.1)($2.4)
PAGE 3 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
DISCUSSION (continued):
Finance Commission Recommendations
The Finance Commission discussed the Five-Year Forecast at its February 12th meeting. The
Finance Commission unanimously passed the following motion with no specific guidance on the
assumptions:
Motion: The Finance Commission recommends the Town Council not accept, nor rely
upon, the current version of the FY 2024/25 – 2028/29 5-Year Plan. Given the
importance of the Five-Year Forecast in establishing tax policy, the Finance Commission
makes a finding that the draft forecast of a 2.9% Compound Annual Growth Rate (CAGR)
in total tax revenue is too conservative compared to historic growth rates and the 4.9%
CAGR in operating expenditures needs to be reduced through cost containment and
productivity measures. The Finance Commission does not agree with staff’s conclusion
that “the persistent presence of a deficit indicates that the Town needs to consider new
revenues ensures if it wants to maintain high levels of municipal services” as stated on
page 1 of the staff report.
The Commission’s general observation was that the base forecast is too conservative.
Forecasting Approach Consistent with Government Finance Officers Association (GFOA)
A "conservative" forecast as described by GFOA is conservative with revenue assumptions and
builds in a layer of contingencies for expenditures. This approach might make it harder to
balance the budget but reduces the risk of an actual shortfall. The Town’s past forecasting
practice represents this conservative approach.
During the last couple of years, staff changed elements of the budgeting and forecasting
methodology. Starting FY 2020/21, the salaries are budgeted and forecasted at actual salary
plus one step higher. Beginning FY 2023/24 the budget and the forecast included a 4.6%
vacancy factor, moving toward less conservative approach.
An "objective" forecast as described by GFOA seeks to estimate revenues and expenditures as
accurately as possible, making it easier to balance the budget, yet increasing the risk of an
actual shortfall.
It is very important that the approach to the forecast and the underlying assumptions are clear,
analyzing the risk between being objective versus conservative. While one-time solutions can
solve near term shortfalls, the best practice is to build a structurally balanced forecast where
recurring revenues (the portion of the Town’s revenues that can reasonably be expected to
PAGE 4 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
DISCUSSION (continued):
continue year to year with some degree of predictability) equal or exceed recurring
expenditures (salaries, benefits, and other operational expenditures).
Modifying the Forecast from Conservative to Objective by Changing the Property Tax
Assumptions
Given the Finance Commission’s recommendations, this section focuses on the property tax
revenue assumptions that would move the forecast from conservative to objective.
The Town is highly dependent on five economically sensitive revenues comprising 70% of
General Fund forecasted revenues. The Finance Commission staff report (Attachment 1)
includes detailed analysis (Attachment 1, pages 4 to 14) of the Town’s major revenues including
property tax, sales tax, business license tax, franchise fees, and transient occupancy tax (TOT).
Property tax is the single largest revenue source for the Town and comprised approximately
42% of total Town estimated General Fund revenues for FY 2023/24. Secured Property Tax,
Motor Vehicle in Lieu (VLF), and Excess Education Revenue Augmentation Fund (ERAF)
constitutes 91% of the current year property tax proceeds. The following table and graphs
illustrate how is the actual year-over-year (YOY) performance for the different property tax
categories varies from fiscal year to fiscal year.
PAGE 5 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
DISCUSSION (continued):
Secured Property Tax and Motor Vehicle in Lieu (VLF) Property Tax are usually increasing by
the growth of the Total Assessment Rolls. The Total 2024 Assessment Roll will be published in
July 2024 from the Santa Clara Assessor’s Office. In addition to the annual assessment
increases and the reassessed Proposition 13 properties as they changed ownership, the
historical growth includes the annexation of 24 pockets from Santa Clara County and property
sales from the First Phase of North Forty development. VLF collection based on the assessed
roll is included as well. Property Tax and VLF are considered recurring revenues. The base case
forecast includes the normalized 5.1% growth rate throughout the forecast years.
Percentage
of Total
Proceeds
Property Tax Categories FY 2018/19
Actuals
FY 2019/20
Actuals
FY 2020/21
Actuals
FY 2021/22
Actuals
FY 2022/23
Actuals
FY 2023/24
Estimated
Average
YOY
Growth
60%Secured Property Tax 6.9% 5.6% 1.6% 6.1% 12.3% 7.0%6.6%
21%Motor Vehicle in Lieu (VLF)6.9% 5.2% 4.6% 4.4% 7.7% 7.7%6.1%
10%ERAF 90.5% 46.1% 41.4% 16.1% -3.1% 8.8%33.3%
4%Unsecured Property Tax 16.4% -5.1% 6.9% -7.8% 8.8% 6.1%4.2%
2%Property Transfer Tax -21.8% -9.2% 76.0% 17.0% -37.8% -23.2%0.2%
2%Other Property Tax -11.1% -0.2% 10.7% 1.0% -2.6% 4.1%0.3%
1%Supplemental Property Tax 17.7% -31.8% 40.3% -9.0% 61.1% -40.5%6.3%
FY 2024/25
Assumptions
FY 2025/26
Assumptions
FY 2026/27
Assumptions
FY 2027/28
Assumptions
FY 2028/29
Assumptions
Option A - Lowest YOY over the Last Six Year Period 4.3% 4.3% 4.3% 4.3% 4.3%
Option B - Normalized for County Annexation and Other One
Time Roll Growth ~$1.5 M 5.1% 5.1% 5.1% 5.1% 5.1%
Option C - Average YOY Property Tax Roll 6.6% 6.6% 6.6% 6.6% 6.6%
Option A - Lowest YOY VLF Revenue Growth over the Last Six Year Period 4.4% 4.4% 4.4% 4.4% 4.4%
Option B - Normalized based on Property Tax Roll 5.1% 5.1% 5.1% 5.1% 5.1%
Option C - Average YOY VLF Revenue Growth 6.1% 6.1% 6.1% 6.1% 6.1%
Secured Property Tax
Motor Vehicle in Lieu (VLF)
PAGE 6 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
DISCUSSION (continued):
If Council selects Option C for both Secured Property Tax and VLF, the estimated deficit is
reduced as displayed below.
Excess ERAF is not tied to the Total Assessment Roll. A portion of property tax revenue goes to
the ERAF to support local school districts. When the amount contributed to ERAF is more than
the minimum cost of funding local schools, excess funds have traditionally been returned to the
county, cities, and special districts.
While Excess ERAF grew significantly in the recent fiscal years, there is no guarantee for funding
in the future. Santa Clara County has only provided projections for the current fiscal year. FY
2024/25 Excess ERAF projections will not be available until March 2024 and the County has
recommended the jurisdictions set aside 30% due to pending litigation. FY 2025/26 estimates
will be available in March 2025. The Town has been monitoring and providing periodic updates
to the Finance Commission and to the Town Council on the ongoing developments regarding
the distribution of excess ERAF funds. Additional information can be found Attachment 1.
If Council assumes 70% of the FY 2024/25 Estimated Excess ERAF proceeds and assumes greater
growth (option C) for both the Secured Property Tax and VLF, the estimated deficit is displayed
below.
Alternative Scenario Selecting
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers $54.9 $56.9 $59.0 $60.9 $63.1
Total Expenses &
Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($1.9)($1.2)($1.1)($0.8)($0.7)
Alternative Scenario Selecting
70% of the Excess ERAF and
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of Reserves $55.4 $57.4 $59.5 $61.4 $63.6
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($1.4)($0.7)($0.6)($0.3)($0.2)
PAGE 7 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
DISCUSSION (continued):
If Council assumes 100% of the FY 2024/25 Estimated Excess ERAF proceeds and assumes
greater growth (option C) for both the Secured Property Tax and VLF, the estimated result is
displayed below.
Other Scenarios
As demonstrated, the Forecast is highly sensitive to the assumptions. If Council were interested
in modifying other assumptions as outlined in Attachment 1, the Forecast would change
accordingly.
Risk Considerations
It is not unusual for the State to take revenue from local government, such as occurred with the
dissolution of the former Redevelopment Agencies (RDA), or for the County to redistribute
property tax retroactively based on court rulings. In the recent past (FY 2020/21 and FY
2021/22), the County of Santa Clara withheld approximately $1.6 million over the three fiscal
years to recapture excess RDA residual property tax revenues distributed to the Town. This
action was necessary to comply with an appellate court decision involving the City of Chula
Vista (49 Cal. App. 5th 539 (2020)) that held that any funds remaining in each RDA Property Tax
Trust Fund (RPTTF) must be distributed in accordance with the taxing entities’ pro-rata shares
without any caps or reductions to the distributions of RPTTF residuals to taxing entities that
received pass-through payments. Calculating the redistribution went back three years
retroactively.
The Governor's most recent budget assumes the approval of legislation allocating ERAF to
charter schools, potentially reversing the recent appellate decision that charter schools do not
get ERAF.
Alternative Scenario Selecting
100% of the Excess ERAF and
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of Reserves $55.4 $57.4 $59.5 $61.4 $63.6
Total Expenditures &
Reserve Allocations $55.9 $57.1 $59.1 $60.7 $62.7
Surplus/Deficit ($0.4)$0.3 $0.4 $0.7 $0.9
PAGE 8 OF 8 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 14, 2024
CONCLUSION:
The Council should review, discuss, and select the assumptions for the initial Five-Year Forecast
and provide direction on other budget considerations.
The preparation of the FY 2024/25 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.
The Draft FY 2024/25 Operating and Capital Budgets will be available on April 22, 2024 for the
Finance Commission’s consideration and the Council’s budget hearing is tentatively scheduled
for May 21, 2024.
Staff looks forward to answering the Council questions and receiving any recommendations for
Council consideration for the preparation of the proposed FY 2024/25 Operating Budget that
results from the discussion.
COORDINATION:
This Report was prepared in coordination between the Finance Department and the Town
Manager’s Office.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Five-Year Forecast Report to the Finance Commission with Attachments 1 through 6
2. Public comment received after the Finance Commission’s February 12, 2024 meeting and
prior to 11 a.m. on February 15, 2024
PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager, and Assistant Town Manager
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/12/2024 ITEM NO: 4
DATE: February 9, 2024
TO: Finance Commission
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Make a Recommendation to the Town Council to Accept as
Presented or Accept with Modification the FY 24 Five-Year Forecast and
Supporting Work Product
RECOMMENDATION:
Review and provide recommendations to the Town Council regarding the Five-Year Forecast
(Fiscal Years 2024/25 – 2028/29), assumptions, and scenarios, and provide input for the FY
2024/25 budget direction.
EXECUTIVE SUMMARY:
The base case Five-Year Forecast (FY 2024/25 – 2028/29) (Attachment 2) identifies deficits for
all future years, using 2% salary increase assumption and 4.6% vacancy saving factor approved
by the Town Council for the FY 2023/24 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 Finance
Commission can provide recommendations on the assumptions and selections from different
options for Council consideration for the FY 2024/25 budget and provide other budget direction
as appropriate. The Capital Program is scheduled for a separate discussion at the next
Commission meeting.
ATTACHEMENT 1
PAGE 2 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
BACKGROUND:
With the passage of Measure A, the Finance Commission has been tasked with several
mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. –
Duties states that:
(a) The Finance Commission shall:
Serve as an on-going. substantive and expert advisory body to the Town and Town
Council so that the Town and Town Council can make informed decisions about the
Town's financial, budgetary and investment matters and operations related thereto.
On February 20, 2024, the Town Council is scheduled to consider the FY 2024/25 Five Year
Forecast which is an important component of the annual budget cycle (Attachment 1).
The Commission is welcome to provide comments on the Forecast, its assumptions, and
scenarios as well as any comments for consideration in the preparation of the FY 2024/25
Operating Budget. The Finance Commission will have an opportunity to discuss the Capital
Program at its March meeting.
DISCUSSION:
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 2024/25 – 2028/29) is predicated on estimates derived from the FY
2023/24 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.
PAGE 3 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
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 four 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.
National and Local Economic Backdrop
The UCLA Anderson School of Business publishes a quarterly 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. In their December 2023 Report, they mentioned that
based on their analysis, the chance of recession in U.S. have diminished. Their assessment was
backed by strong consumer and government spending that offset the tightening monetary
policy in 2022. Their assumption is that the economy will grow 2.4% in 2023, 1.9% in 2024, and
1.5% in 2025. The report indicates the reason for the slower growth in the upcoming years is
due mainly to the monetary policy affecting economic growth.
The US economy’s resiliency is demonstrated by the Gross Domestic Product (GDP) increase of
4.9% in the third quarter and 3.3% in the fourth quarter of 2023 (Advance Estimate). As the
graph below illustrates, the 3.3% increase in GDP is comprised of gains in all areas except
imports.
PAGE 4 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
In the quarterly California state report, Anderson indicates that California will outpace the US
economy by a small margin. The main areas of concern are the tightened monetary policy and
risks of instability in domestic politics and geopolitics. The negative factors are offset by an
increase in technical manufacturing and international immigration. Anderson forecasts the
state unemployment rate to decline on average from 4.7% in 2023 to 4.5% in 2024 and then
3.8% in 2025. Housing stock is expected to increase based on new building policies. Stock is
forecasted to increase to 127,000 net new units in 2024 to 155,000 in 2025.
Operating Revenue Trends and Five-Year Forecast Scenarios
The Town is highly dependent on five economically sensitive revenues comprising 70% of
General Fund forecasted revenues. Following are summaries of the Town’s major revenues of
property tax, sales tax, business license tax, franchise fees, and transient occupancy tax (TOT).
To provide context for the development of the Five-Year Forecast (FY 2024/25 – 2028/29), 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
42% of total Town estimated General Fund revenues for FY 2023/24. The County of Santa Clara
provides property tax collection updates and projections quarterly. The following table
illustrates the most recent estimates relative to the Adopted FY 2023/24 Budget and FY
2022/23 actuals. The current County estimate indicates $654,587 more than the FY 2023/24
Adopted Budget. The increase is a combined effect of higher-than-expected Redevelopment
Agency (RDA) Residual Apportionment, and Motor Vehicle License in Lieu (VLF), Educational
Revenue Augmentation Fund (ERAF) estimates and decrease in secured property tax estimates
and in property transfer tax.
FY 2022/23
Actual
FY 2023/24
Adopted Budget
FY 2023/24
County Estimates
$22.7 M $23.2 M $23.9 M
Property Tax Revenue &
Vehicle License Fee Backfill
PAGE 5 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
As the following table illustrates, Los Gatos has benefited from the economic expansion as
evidenced by year-over-year (YOY) roll growth in property assessment since 2018. For the 6-
year period, the average annual growth rate was 6.6%.
Source: Santa Clara County Assessors Annual Reports
The following table illustrates the Town budget to actuals total Property Tax and VLF proceeds
for the same time period.
2018 2019 2020 2021 2022 2023
Six Year Average
Growth
Total Assesment Roll
(Values in Billions)13.15 13.84 14.9 15.6 16.8 18.1
Percent Growth 6.95% 5.23% 7.70% 4.33% 7.77% 7.72%
6.6%
Budget Budget Budget Budget Budget Budget Adopted
FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24
Final Budget 15,370,934$ 16,718,348$ 18,352,880$ 18,705,325$ 20,138,320$ 22,484,118$ 23,249,311$
Actuals 15,958,406$ 17,321,347$ 18,330,426$ 19,878,835$ 21,129,080$ 22,743,088$
Estimated 23,903,989$
Final Budget YOY Growth 8.8% 9.8%1.9%7.7% 11.6%3.4%
Actuals YOY Growth 8.5% 5.8%8.4%6.3%7.6%
Estimated YOY Growth 5.1%
PAGE 6 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
The average YOY Property Tax Budget growth is 7.2% and the Actual Property Tax YOY growth
including FY 2023/24 most recent estimates is 7.0%.
The following chart illustrates the major categories of the FY 2023/24 Estimated Property Tax.
Secured Property Tax, VLF Property Tax in Lieu, and ERAF constitutes 91% of the current year
proceeds.
The following graphs illustrate the historical amounts based on the major categories and the
YOY growth of these categories.
PAGE 7 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
As the graphs and table illustrate, the YOY performance for the different property tax
categories varies from fiscal year to fiscal year.
FY 2018/19
Actuals
FY 2019/20
Actuals
FY 2020/21
Actuals
FY 2021/22
Actuals
FY 2022/23
Actuals
FY 2023/24
Estimated
Average
YOY
Growth
Secured Property Tax 6.9% 5.6% 1.6% 6.1% 12.3% 7.0%6.6%
Unsecured Property Tax 16.4% -5.1% 6.9% -7.8% 8.8% 6.1%4.2%
Supplemental Property Tax 17.7% -31.8% 40.3% -9.0% 61.1% -40.5%6.3%
Property Transfer Tax -21.8% -9.2% 76.0% 17.0% -37.8% -23.2%0.2%
ERAF 90.5% 46.1% 41.4% 16.1% -3.1% 8.8%33.3%
Other Property Tax -11.1% -0.2% 10.7% 1.0% -2.6% 4.1%0.3%
VLF Property Tax in Lieu 6.9% 5.2% 4.6% 4.4% 7.7% 7.7%6.1%
PAGE 8 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Staff analysis includes the three most significant property tax categories.
Secured Property Tax and VLF Property Tax are usually increasing by the growth of the Total
Assessment Rolls. The Total 2024 Assessment Roll will be published in July 2024 from the Santa
Clara Assessor’s Office. In addition to the annual assessment increases and the reassessed
Proposition 13 properties as they changed ownership, the historical growth includes the
annexation of 24 pockets from Santa Clara County and property sales from the First Phase of
North Forty development. VLF Property Tax in Lieu collection based on the assessed roll is
included as well.
ERAF, as the chart illustrates above, can vary from year to year, and it is not tied to the Total
Assessment Roll. 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. The Santa Clara County has only provided projections for the current fiscal year. FY
2024/25 Excess ERAF projections will not be available until March 2024. FY 2025/26 estimates
will be available in March 2025. The Town has been monitoring and providing periodic updates
to the Finance Commission and to the Town Council on the ongoing developments regarding
the distribution of excess ERAF funds. Additional information can be found Attachment 5.
The following table illustrates potential growth factors to choose in the development of the
Five-Year Forecast (FY 2024/25 – 2028/29) based on the historical information provided. For
each of the three largest revenue categories, staff is asking Finance Commission to select which
option to recommend for inclusion in the Forecast.
PAGE 9 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Secured Property Tax:
Option A – Represent the lowest YOY growth rate the last six-year period.
Option B – Represent the normalized (24 County Packet annexation and North 40 First Phase of
housing sale, approximately $1.5 million) YOY growth over the last six-year period.
Option C – Represent the average YOY growth rate the last six-year period.
Staff recommendation is Option B highlighted in orange.
Motor Vehicle in Lieu (VLF):
Option A – Represent the lowest YOY growth rate the last six-year period.
Option B – Represent the normalized total assessed roll YOY growth rate.
Option C – Represent the average YOY growth rate the last six-year period.
Staff recommendation is Option B highlighted in orange.
FY 2024/25
Assumptions
FY 2025/26
Assumptions
FY 2026/27
Assumptions
FY 2027/28
Assumptions
FY 2028/29
Assumptions
Option A - Lowest YOY over the Last Six Year Period 4.3% 4.3% 4.3% 4.3% 4.3%
Option B - Normalized for County Annexation and
Other One Time Roll Growth ~$1.5 M 5.1% 5.1% 5.1% 5.1% 5.1%
Option C - Average YOY Property Tax Roll 6.6% 6.6% 6.6% 6.6% 6.6%
Option A - Lowest YOY VLF Revenue Growth over the
Last Six Year Period 4.4% 4.4% 4.4% 4.4% 4.4%
Option B - Normalized based on Property Tax Roll 5.1% 5.1% 5.1% 5.1% 5.1%
Option C - Average YOY VLF Revenue Growth 6.1% 6.1% 6.1% 6.1% 6.1%
Option A - No ERAF $0 M $0 M $0 M $0 M $0 M
Option B - 50% of FY 2023/24 Estimated $1.25 M $1.25 M $1.25 M $1.25 M $1.25 M
Option C -70% of FY 2023/24 Estimated based on
County Recommendation $1.75 M $1.75 M $1.75 M $1.75 M $1.75 M
Unsecured Property Tax 4% of Total Property Tax Collections 3.0% 3.0% 3.0% 3.0% 3.0%
Supplemental Property Tax 1% of Total Property Tax Collections varies by sales
activity 3.0% 3.0% 3.0% 3.0% 3.0%
Property Transfer Tax 2% of Total Property Tax Collections varies by sales
activity 3.0% 3.0% 3.0% 3.0% 3.0%
Other Property Tax 2% of Total Property Tax Collections 3.0% 3.0% 3.0% 3.0% 3.0%
Secured Property Tax
VLF Property Tax in Lieu
ERAF
PAGE 10 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Excess ERAF:
Option A – Since the ERAF is not guaranteed and the FY 2024/25 ERAF estimates are not
published until Marh 2024, one of the options is not to include estimates this time.
Option B – Represent the 50% of the FY 2023/24 Estimated ERAF
Option C – Assumes that the Town will receive 100% of the ERAF proceeds; however, per prior
Council direction and the Santa Clara County Assessor’s Office advice, 30% is set aside until the
lawsuits and audit findings are resolved.
Staff recommendation is Option B highlighted in orange.
Unsecured, Supplemental, Other Property Tax, and Property Transfer Tax:
This category represents 9% of the current proceeds. Staff recommends growing them by 3%.
Staff recommends growing the rest of the property tax (Unsecured, Supplemental, Other
Property Tax, and Property Transfer Tax) that represent 9% of the current proceeds by 3%.
For purposes of the Forecast, the “Base Case” utilizes the Option B growth factor for Secured
Property Tax, VLF Property Tax in Lieu and Option B (50% of the FY 2023/24 Estimates) for
Excess ERAF reflecting the volatility of the revenue source. Option A represent the “Lower
Growth” and Option C represent the “Greater Growth” scenarios.
Sales Tax
Sales tax is the second largest revenue source for the Town and comprised approximately 15%
of total Town estimated General Fund revenues for FY 2023/24. The following table illustrates
the most recent projections from the Town’s sales tax consultant MuniServices relative to the
Adopted FY 2023/24 budget and FY 2023/24 actuals.
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth $22.17 $23.10 $24.08 $25.09 $26.15
Option B - Base Case $23.57 $24.67 $25.82 $27.03 $28.31
Option C - Higher Growth $24.34 $25.74 $27.23 $28.81 $30.49
Property Tax
(Property Tax & VLF)
PAGE 11 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Current total sales tax estimates include $6,960,850 ($915,383 decrease) in proceeds from
regular sales tax and $1,239,843 ($36,802 decrease) in proceeds from the Measure G one-
eighth cent district tax compared to the Adopted budget. Overall growth rates vary due to the
anticipation of when and to what extent inflation may begin to decline. The current forecast
incorporates a Recession Inflation Scenario, with the Consumer Price Index for all Urban
Customers hitting a target of 2.8% at the middle of 2025. Taxable sales for general retail and
transportation are expected to see the greatest impacts. Increased interest rates impact
business to business activities, while increased mortgage rates leaves customers with less
disposable income. In addition, gas service stations are projecting decreased activity due to the
popularity of electric vehicles. The most recent forecast also reflects the change of Netflix
discontinuing DVD rentals in September 2023. Actual receipts net of administrative fees
collected by the State will be confirmed at the close of the fiscal year. Per prior Council
direction, the Measure G funds are allocated 50% for capital improvement projects and 50% for
operating expenses.
The following tables illustrates MuniServices Most Likely scenario relative to their
“Conservative” and “Optimistic” scenarios. For both sales tax categories, staff is asking Finance
Commission to select which option to recommend for inclusion in the forecast.
FY 2022/23
Actual
FY 2023/24
Adjusted Budget
January 2024
MuniServices
Estimate
Base Sales Tax $7.5 M $7.8 M $6.9 M
FY 2021/22
Actual
FY 2022/23
Adjusted Budget
January 2024
MuniServices
Estimate
Measure G – 1/8 District Tax $1.3 M $1.3 M $1.3 M
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Conservative $6.54 $6.64 $6.74 $6.83 $6.91
Option B - Most Likely $7.04 $7.15 $7.26 $7.35 $7.43
Option C- Optimistic $7.54 $7.66 $7.77 $7.87 $7.96
Base Sales Tax
PAGE 12 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Staff recommendation is Option B highlighted in orange.
Further Information related Sales Tax context is included as Attachment 6.
Transient Occupancy Tax
TOT is an important revenue source for the Town and comprises approximately 4% of total
Town estimated revenues in the amount of $2.3 million for FY 2023/24. The Town levies a 12%
transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los
Gatos.
The following table illustrates TOT FY 2022/23 actuals, the FY 2023/24 Adjusted Budget, and
year-end collection estimates.
TOT is an important revenue source for the Town and comprises approximately 4% of total Town
estimated revenues in the amount of $2.3 million for FY 2023/24. The Town levies a 12%
transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los
Gatos. The 12% rate has been in effect since January 1, 2017, after the voters approved a ballot
measure to increase in the TOT from 10% to 12% at the November 8, 2016 election.
During the pandemic, TOT experienced the most significant percentage decline relative to
historical adopted budgets. Due to a significant rebound in leisure “staycation” travel and
modest improvements in business travel, TOT collections were recovering but current quarter is
trending lower than prior year. Based on the current trend, staff is recommending a $154,516
decrease to this revenue source.
Measure G
1/8 District Tax
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Conservative $1.22 $1.26 $1.29 $1.32 $1.35
Option B - Most Likely $1.28 $1.32 $1.35 $1.39 $1.42
Option C- Optimistic $1.33 $1.37 $1.41 $1.45 $1.48
FY 2023/24 Actual FY 2023/24
Adjusted Budget
FY 2023/24 Year-end
Estimate
TOT $2.2M $2.4 M $2.3 M
PAGE 13 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
For purposes of the Forecast, the “Base Case” utilizes a growth factor as illustrated above and
the “Greater Growth” and “Lower Growth” scenarios utilize a 2% differential from the Base
Case.
TOT:
Staff is asking Finance Commission to select which option to recommend for inclusion in the
forecast.
Staff recommendation is Option B highlighted in orange.
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. In November 2022, Los Gatos voters approved Measure J, which
modernized the Town’s business license tax program. This is the first update to the program
since 1991, strengthening funding for core Town services that are enjoyed by Town businesses.
Measure J included a 30% increase on flat rate fees, a 40% increase in retailing gross receipts,
and a 120% increase in e-commerce, manufacturing, wholesaling, and jobbing gross receipts.
Fees for activities such as wholesale sales and manufacturing are charged on a sliding scale
based on gross receipts, as is retail, with retail being capped at $1,365. These gross receipt
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 prorated by quarter.
Business license tax revenue projections provided by HdL are trending slightly lower than the
adopted budget. Staff is recommending a $11,347 decrease to this revenue source.
2024/25 2025/26 2026/27 2027/28 2028/29
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 3%3%3%3%3%
Estimated Revenues $2.3 M $2.4 M $2.5 M $2.6 M $2.6 M
TOT
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth 1%$2.29 $2.31 $2.33 $2.36 $2.38
Option B - Base Case 3%$2.33 $2.40 $2.47 $2.55 $2.63
Option C- Greater Growth 4%$2.36 $2.45 $2.55 $2.65 $2.76
TOT
PAGE 14 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
The following table illustrates Business License FY 2022/23 actuals, the FY 2022/23 Adjusted
Budget, and FY 2023/24 year-end collection estimates.
For purposes of the Forecast, the “Base Case” utilizes a growth factor as illustrated above and
the “Greater Growth” and “Lower Growth” scenarios utilize a 2% differential from the Base
Case.
Business License
Staff is asking Finance Commission to select which option to recommend for inclusion in the
forecast.
Staff recommendation is Option B highlighted in orange.
Garbage Franchise Fee
Franchise fees are collected by the Town for the privilege of operating a utility service within
Los Gatos, and as a fee in lieu of a business license tax. Franchise fees are currently received
from Comcast for cable television, PG&E for gas and electric services, West Valley Collection
and Recycling for solid waste collection services, and AT&T and Comcast for video services.
Franchise fees represent 6% of projected General Fund revenues in FY 2023/24.
FY 20232/23 Actual FY 2023/24
Adjusted Budget
FY 2023/24 Year-end
Estimate
Business License Tax $2.36 M $2.44 M $2.43 M
2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 3%3%3%3%3%
Estimated Revenues $2.5 M $2.6 M $2.7 M $2.7 M $2.8 M
Business License Tax
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth 1%$2.45 $2.48 $2.50 $2.53 $2.55
Option B - Base Case 3%$2.50 $2.58 $2.65 $2.73 $2.82
Option C- Greater Growth 4%$2.53 $2.63 $2.73 $2.84 $2.96
Business License Tax
PAGE 15 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
As the Town previously disclosed in the FY 2021/22 Annual Comprehensive Financial Report
(ACFR), the California Supreme Court recently issued an opinion in a case challenging the
franchise fees that the City of Oakland charges to certain waste hauling companies. In Zolly v.
City of Oakland, the court concluded that it did not have enough evidence to rule as a matter of
law that the fees are exempt from the voter approval requirements that apply to taxes under
Proposition 26, Article XIII C of the California Constitution.
However, there are several exceptions to the general rule that a tax must be approved by the
voters. One exception (Article IIIC, section 1 (e)(1)) is for “a charge imposed for a specific
benefit conferred or privileged granted directly to the payor that is not provided to those not
charged, and which does not exceed the reasonable costs to the local government of conferring
the benefit or granting the privilege.”
Town anticipated the impact starting on March 1, 2024 when the new garbage hauler contract
goes into effect and reduced the Adopted Budget accordingly. The Town has a seat on the
Board of the West Valley Solid Waste Management Authority (WVSWMA), a Joint Powers
Authority (JPA) that manages the solid waste contracts. The West Valley Solid Waste
Management Authority recently completed Franchise Valuation Study indicates that prior level
of proceeds will be restored. Staff is recommending $1,097,703 increase in garbage franchise
fee collection to restore the prior year levels of proceeds, and a $94,530 increase in PG&E
Franchise Fee collection.
The following table illustrates Franchise Fee FY 2022/23 actuals, the FY 2022/23 Adjusted
Budget, and FY 2023/24 year-end collection estimates.
For purposes of the Forecast, the “Base Case” utilizes a growth factor as illustrated above and
the “Greater Growth” and “Lower Growth” scenarios utilize a 2% differential from the Base
Case.
FY 20232/23 Actual FY 2023/24
Adjusted Budget
FY 2023/24 Year-end
Estimate
Franchise Fees $3.07 M $2.12 M $3.31 M
2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 3%3%3%3%3%
Estimated Revenues $3.4 M $3.5 M $3.6 M $3.7 M $3.8 M
Franchise Fees
PAGE 16 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Franchise Fees:
Staff is asking Finance Commission to select which option to recommend for inclusion in the
forecast.
Staff recommendation is Option B highlighted in orange.
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. Attachment 4
contains 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 2023/24, General Fund Estimated Operating expenditures (not including debt payment
and transfers out) are $51.6 million. The delivery of Town services is highly dependent on
talent which comprises 67.4% of estimated General Fund expenditures. Given the high
dependence on labor for service delivery, the Town has helped manage salary escalation (and
benefits) through the maintenance of lower staffing levels.
Mandated pension payments to CalPERS has consistently been one of the major cost drivers for
the Town over the past decade with persistent unanticipated increases in pension costs. The
Town’s plans over the past several decades, like all other CalPERS participants, have
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth 1%$3.34 $3.38 $3.41 $3.44 $3.48
Option B - Base Case 3%$3.41 $3.51 $3.62 $3.72 $3.84
Option C- Greater Growth 4%$3.44 $3.58 $3.72 $3.87 $4.03
Franchise Fees
PAGE 17 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
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 $10.4 million. These additional discretionary payments will ultimately yield an
approximate additional $12.7 million 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.
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
$23.4 million in OPEB assets (as of 9/31/2023) from zero in 2009. In 2016, the Town’s
bargaining groups 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.
In addition, the FY 2023/24 budget built in a 4.6% vacancy factor. These methodologies will be
continued for the development of FY 2024/25 budget unless modified by the Town Council.
PAGE 18 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
For the Forecast, positions are budgeted at the actual rate of pay of employees including
benefits as of January 2023. 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, 2024. POA’s MOU will expire on September 30,
2024. 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 2024/25 and a 4.6% vacancy factor.
Pension and Other Benefits
For purposes of the Forecast, staff utilizes estimates provided by each plan’s most recent
actuarial valuation received from CalPERS. The employer contribution rates reflect percentages
of covered payroll. Rates shown for FY 2023/24 are actual rates as prescribed by CalPERS.
Forecasted rates for FY 2024/25 and subsequent years are based on the most recent CalPERS
Actuarial Valuation Reports as adjusted by the impact related to the FY 2022/23 CalPERS actual
investment return and forecasted payroll.
Beginning in FY 2021/22, the estimates of employer contributions were credited with an
anticipated reductions associated with the approximate $4.8 million additional discretionary
payment (ADP) toward the 2016 unfunded amortization base paid off in October 2019 and the
total of approximately $5.8 million in ADPs toward unfunded 2013 and 2015 amortization bases
that were paid off in FY 2020/21. Other Benefits includes health insurance, life insurance and
workers’ compensation insurance premium. The forecast models a $500,000 increase in the
Premium Townwide in FY 2024/25 with a 3% growth in the out years to properly recover the
cost of the program.
Salaries
(2%)
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M)($M)($M)($M)($M)
Base Case $23.10 $23.62 $24.09 $24.63 $25.17
Pension
Benefits
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M)($M)($M)($M)($M)
Base Case $8.98 $9.15 $9.72 $10.32 $11.22
PAGE 19 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Given that investment returns have one of the largest impacts on contribution variability,
CalPERS provides projected employer Unfunded Actuarial Liability (UAL) contributions under
alternate investment returns. Analysis using the investment return scenarios from the Asset
Liability Management process completed in 2021 was performed to determine the effects of
various future investment returns on required employer contributions.
The projections below reflect the impact of the CalPERS Funding Risk Mitigation policy. The
projected normal cost rates reflect that the rates are anticipated to decline over time as new
employees are hired into lower-cost benefit tiers. The projections also assume that all other
actuarial assumptions will be realized and that no further changes in assumptions,
contributions, benefits, or funding will occur. The table shows projected contribution
requirements if the fund were to earn either 3.0% or 10.8% annually. These alternate
investment returns were chosen because 90% of long-term average returns are expected to fall
between these levels over the 20-year period ending June 30, 2041.
CalPERS Actuarial Valuations as of June 30, 2022.
For the year ending June 30, 2023, the Public Employees Retirement Fund (PERF) returned
6.1%. The table below illustrates the historic investment returns for five years, ten years,
twenty years, and thirty years.
Workers’ Compensation and Liability Self Insurance Internal Service Charges
Workers’ Compensation Fund and Joint Powers Authority Pooled Liability Network (PLAN) Self-
Insurance Fund finance and account for workers’ compensation and general liability services for
the entire Town.
Other Benefits 2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M)($M)($M)($M)($M)
Base Case $5.59 $5.78 $5.97 $6.18 $6.39
UAL Town Contributions
(Misc & Safety)
2025/26
Forecast
2026/27
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
Greater Investment Return Scenario (10.8%)$5,492,000 $5,650,000 $5,540,000 $5,469,000 $1,453,000
Base Investment Return Case (3.0%)$5,797,000 $6,564,000 $7,381,000 $8,580,000 $9,526,000
CalPERS Compound Annual Rates of Return
(as of June 30, 2022)5 Years 10 Years 20 Years 30 Years
Compound Annual Return 8.30%7.10%8.50%8.60%
PAGE 20 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
Increased premium rates and increased claim activities require the Town to increase its Liability
Internal Service charges to increase by $450,000 or 58% percent to assure cost recovery. Staff
recommends increasing the internal service rate by $500,000 or 45% percent to assure cost
recovery in the Workers’ Compensation Internal Service Fund. Staff incorporated this increase
starting FY 2024/25 in the forecast.
Staff recommends including the increase in the Forecast; however, the Finance Commission can
select not to include the rate increase to the Forecast. One-time General Fund transfers will be
required at year end if the fund balance is trending negative.
Five-Year Financial Forecast Alternative Scenarios
The tables below present the “Base Case” forecast contrasted against the two alternative
revenue scenarios of “Greater Growth” and “Lower Growth.” All scenario includes a 4.6%
salary saving factor. The fourth scenario presents the predicted results without workers’
compensation and self-insurance rate increase. As illustrated in the tables, even modest
changes to the “Base Case” forecast can result in either additional surpluses or deficits during
the forecast period.
Alternatice Scenario
Other Benefits
Without Workers' Comp
Rate Increase
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M)($M)($M)($M)($M)
$5.09 $5.28 $5.47 $5.68 $5.89
Alternatice Scenario
Internal Service Charges
Without General Liability
Rate Increase
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M)($M)($M)($M)($M)
$3.59 $3.76 $3.94 $4.11 $4.28
5 Year Forecast
"Base Case"
with 4.6% Vacancy Factor
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of
Reserves
$54.5 $56.3 $58.1 $59.6 $61.4
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($2.3)($1.8)($2.0)($2.1)($2.4)
PAGE 21 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
DISCUSSION (continued):
CONCLUSION:
The Finance Commission should review and discuss the elements and select the assumptions of
the initial Five-Year Forecast and other budget considerations. The “Base Case” Forecast
estimates deficits at this time. Staff looks forward to answering the Finance Commission
questions and receiving any recommendations for Council consideration for the preparation of
the proposed FY 2024/25 Operating Budget that results from the discussion.
Alternative Scenario
"Greater Growth"
with 4.6% Vacancy Factor
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of
Reserves
$55.5 $57.5 $59.6 $61.8 $64.2
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($1.3)($0.6)($0.5)$0.1 $0.4
Alternative Scenario
"Lower Growth"
with 4.6% Vacancy Factor
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of
Reserves
$53.1 $54.4 $55.7 $57.1 $58.5
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($3.7)($3.7)($4.4)($4.6)($5.3)
Alternative Scenario
"Base Case"
with 4.6% Vacancy Factor
Without Workers Comp and
General Liability Rate
Increase
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of Reserves $54.5 $56.3 $58.1 $59.6 $61.4
Total Expenditures &
Reserve Allocations $55.9 $57.1 $59.1 $60.7 $62.7
Surplus/Deficit ($1.3)($0.8)($1.0)($1.1)($1.3)
PAGE 22 OF 22 SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29) DATE: February 9, 2024
CONCLUSION (continued):
The preparation of the FY 2024/25 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.
The Capital Improvement Program and direction will be discussed separately at the March
meeting. The Finance Commission may also discuss budget assumptions. The Draft FY 2024/25
Operating and Capital Budgets will be available in April for the Finance Commission elaboration
with the budget hearing tentatively scheduled for May 21, 2024.
COORDINATION:
This Report was prepared by the Finance Department and the Town Manager’s Office.
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
5. Additional Information on ERAF
6. Additional Sales Tax Context from MuniServices
7. Commissioner Comments
December
January
February
May
June
July
December
Prior FY (2022/23)
June 30, 2023 ACFR finalized and
presented for Council approval.
ACFR surpluses assigned per the
Council Reserve Policy as of June 30,
2023
Council deliberates Strategic
Priorities and Budget direction for FY
2024/25.
Review of Five-year Forecast and
assumptions.
Council determines if previously
assigned surpluses should be
reallocated for FY 2024/25.
Council adoption of the FY 2024/25
Operating & Capital Budgets
End of June 30, 2024 ACFR period
June 30, 2024 ACFR finalized and
presented for Council approval.
ACFR surpluses assigned per the Council
Reserve Policy as of June 30, 2024
ATTACHMENT 1
All Council deliberations and actions include opportunities for public input
Current FY (2023/24)
Next FY
(2024/25)
Start of new FY 2024/25 Operating
Budget year
Council considers Mid-Year Budget adjustments through 12/31/2023 for
FY 2023/24 Budget.
͌͌͌͌
Public hearing on FY 2024/25
Operating & Capital Budgets Finance Commission review and
comment on Proposed FY 2024/25
Operating & Capital Budgets.
April
December
January
February
May
June
July
December
Prior FY (2022/23)
June 30, 2023 ACFR finalized and
presented for Council approval.
ACFR surpluses assigned per the
Council Reserve Policy as of June 30, 2023
Council deliberates Strategic Priorities and Budget direction for FY
2024/25.
Review of Five-year Forecast and
assumptions.
Council determines if previously
assigned surpluses should be
reallocated for FY 2024/25.
Council adoption of the FY 2024/25
Operating & Capital Budgets
End of June 30, 2024 ACFR period
June 30, 2024 ACFR finalized and
presented for Council approval.
ACFR surpluses assigned per the Council
Reserve Policy as of June 30, 2024
ATTACHMENT 1
All Council deliberations and actions include opportunities for public input
Current FY (2023/24)
Next FY
(2024/25)
Start of new FY 2024/25 Operating
Budget year
Council considers Mid-Year Budget
adjustments through 12/31/2023 for
FY 2023/24 Budget.
͌͌͌͌
Public hearing on FY 2024/25
Operating & Capital Budgets Finance Commission review and
comment on Proposed FY 2024/25
Operating & Capital Budgets.
April
ATTACHMENT 2
General Fund 5-Year Forecast - Base Case
(in $ million)
Revenue Category FY 2022/23
Actuals
FY 2023/24
Adjusted
Budget
FY 2023/24
Estimates
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
Property Tax 18.2$ 18.6$ 19.0$ 18.6$ 19.5$ 20.4$ 21.3$ 22.3$
VLF Backfill Property Tax 4.6 4.7 4.9 4.9 5.2 5.4 5.7 6.0
Sales & Use Tax 7.5 7.9 7.0 7.0 7.2 7.2 7.3 7.5
Measure G District Sales Tax 1.3 1.3 1.2 1.3 1.3 1.4 1.4 1.4
Franchise Fees 3.1 2.1 3.3 3.4 3.5 3.6 3.7 3.8
Transient Occupancy Tax 2.2 2.4 2.3 2.3 2.4 2.5 2.5 2.6
Business License Tax 2.4 2.4 2.4 2.5 2.6 2.7 2.7 2.8
Licenses & Permits 3.3 2.9 3.3 2.9 3.0 3.1 3.2 3.3
Intergovernmental 1.6 1.2 1.4 0.9 0.9 1.0 0.9 0.9
Town Services 4.6 4.4 5.1 4.2 4.3 4.4 4.5 4.6
Fines & Forfeitures 0.4 0.2 0.4 0.4 0.4 0.4 0.4 0.4
Interest 0.6 1.0 1.6 1.7 1.6 1.5 1.4 1.3
Other Sources 8.1 3.9 4.1 3.1 3.1 3.2 3.3 3.2
Fund Transfers In 0.5 0.5 0.6 0.5 0.5 0.5 0.5 0.5
58.4$ 53.5$ 56.6$ 53.7$ 55.5$ 57.3$ 58.8$ 60.6$
Use of Capital/Special Projects Reserve 2.4 2.1 0.8 0.8 0.8 0.8 0.8 0.8
Use of Pension/OPEB Reserve 0.3 - 0.3 - - - - -
Use of Council Priorites - Economic Recovery - 1.6 1.5 - - - - -
61.1$ 57.2$ 59.2$ 54.5$ 56.3$ 58.1$ 59.6$ 61.4$
Expenditure Category FY 2022/23
Actuals
FY 2023/24
Adjusted
Budget
FY 2023/24
Estimates
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
Salary 20.4$ 21.3 21.5 23.2 23.7 24.2 24.8 25.3
Overtime 1.4 0.6 1.2 0.6 0.6 0.6 0.6 0.6
CalPERS Benefits 7.1 8.2 7.3 9.0 9.1 9.7 10.3 11.2
All Other Benefits 3.8 4.7 4.2 5.6 5.8 6.0 6.2 6.4
4.6% Salary and Benefits Savings - - - (1.8) (1.8) (1.9) (1.9) (2.0)
OPEB Pay as You Go 1.5 1.6 1.6 1.8 1.9 2.0 2.0 2.0
Operating Expenditures 11.7 10.0 10.9 8.7 8.8 9.2 9.4 9.7
Grants & Awards 0.6 0.9 0.9 0.4 0.3 0.3 0.3 0.3
Utilities 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.8
Internal Service Charges 2.6 3.4 3.3 4.0 4.2 4.4 4.6 4.8
Debt Service 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1
51.8$ 53.4$ 53.8$ 54.2$ 55.5$ 57.5$ 59.1$ 61.2$
Additional Discretionary Payment - Pension 0.7 0.4 0.7 0.4 0.4 0.4 0.4 0.4
52.5$ 53.8$ 54.5$ 54.6$ 55.9$ 57.9$ 59.5$ 61.6$
Capital Transfers Out to GFAR 2.4 1.6 1.6 1.1 1.1 1.1 1.1 1.1
Allocate ERAF Risk Reserve 0.7 0.7 0.8 - - - - -
Allocate to Pension Trust 0.7 0.4 0.7 0.4 0.4 0.4 0.4 0.4
56.2$ 57.2$ 57.5$ 56.8$ 58.1$ 60.1$ 61.7$ 63.8$
4.9$ -$ 1.7$ (2.3)$ (1.8)$ (2.0)$ (2.1)$ (2.4)$
* Due to rounding of individual categories FY 2022/23 Actual total revenues, and FY 2023/24 Estimated total expenditures includes $0.1 million.
NET REVENUES , TRANSFERS IN, USE OF RESERVES
LESS EXPENDITURES, TRANSFERS IN, AND RESERVE
ALLOCATIONS
TOTAL REVENUES, TRANSFERS, AND USE OF
RESERVES
TOTAL EXPENDITURES & RESERVE ALLOCATIONS
TOTAL OPERATING REVENUES & TRANSFERS*
TOTAL OPERATING EXPENDITURES
TOTAL OPERATING & DISCRETIONARY
Revenue Baselines and Projection Factors
ATTACHMENT 3
Type of
Revenue
FY 2023/24
Estimates
Baseline
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
Property
Tax/VLF
Backfill
Current
baseline set by
SCC Assessor
Office February
2024 report
5.1% 5.1% 5.1% 5.1% 5.1%
Motor
Vehicle
License in
Lieu (VLF)
Current
baseline set by
SCC Assessor
Office February
2024 report
5.1% 5.1% 5.1% 5.1% 5.1%
ERAF
Current
baseline set
100% of SCC
Assessor Office
November
2023 report
Reserving 30%
to ERAF Risk
Reserve
$1.25 million $1.25 million $1.25 million $1.25 million $1.25 million
Sales Tax
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
Sales Tax -
Measure G
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
MuniServices
January 2024
Most Likely
Estimates
Franchise Fee
Current
baseline set by
FY 2023/24
Estimates
3% 3% 3% 3% 3%
Transient
Occupancy
Tax
Current
baseline set by
FY 2023/24
Estimates
3% 3% 3% 3% 3%
Business
License Tax
Current
baseline set by
FY 2023/24
Estimates
2% 2% 2% 2% 2%
License &
Permits
Current
baseline set by
FY 2023/24
Estimates
3% 3% 3% 3% 3%
Revenue Baselines and Projection Factors
ATTACHMENT 3
Type of
Revenue
FY 2023/24
Estimates
Baseline
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
Town
Services
Current
baseline set by
FY 2023/24
Estimates
3% 3% 3% 3% 3%
Fine &
Forfeitures
Current
baseline set by
FY 2023/24
Estimates
Varies Varies Varies Varies Varies
Interest
Current
baseline set by
FY 2023/24
Actuals
4% 4% 3% 3% 3%
Other Sources
Current
baseline set by
FY 2023/24
Estimates
Varies Varies Varies Varies Varies
ATTACHMENT 4
EXPENDITURE BASELINE AND PROJECTION FACTORS
Beginning in FY 2020/21, the Town started budgeting salaries at the actual salary plus a one-step increase. In
the Five-Year Forecast, positions are forecasted at the actual rate of pay including salaries and benefits as of
December 31, 2023. Beginning FY 2023/24 the total budget includes 4.6% vacancy factor.
*Salary increases are based on actual step increases and approved Memoranda of Understanding with the bargaining
units plus the Council’s assumption of 2% per year cost of living adjustment.
** Benefit increase estimates are provided by CalPERS/Public Employees’ Medical and
Hospital Care Act (PEMHCA)
*** Based on historical trends.
Type of
Expenditure
FY 2023/24
Budget
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2024/25
Forecast
Salaries*(TEA,
Conf, Temp) 3% 2% 2% 2% 2% 2%
Salaries *(POA) 3% 2% 2% 2% 2% 2%
Salaries*(AFSCME)
3% 2% 2% 2% 2% 2%
Salaries *
(Management) 3% 2% 2% 2% 2% 2%
Benefit -
Medical** 7% 7% 7% 7% 7% 7%
Operating
Expenditures*** 3% 3% 3% 3% 3% 3%
Grants & Awards 0% 0% 0% 0% 0% 0%
Utilities*** Varies 3% 3% 3% 3% 3%
Workers Comp
Charges
Based on
projected
payroll
Additional
$0.5 M to the
base
3% 3% 3% 3%
General Liability
Charges
Based on
projected
payroll
Additional
$0.45 M to
the base
3% 3% 3% 3%
Other Internal
Service
Charges***
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Debt Service Debt Service Schedules
ATTACHMENT 4
The Town’s required employer contribution rate estimates were developed using data provided by each
plan’s most recent CalPERS actuarial valuation. The employer contribution rates reflect percentages of
covered payroll. Rates shown for FY 2023/24 are actual rates as prescribed by CalPERS. Forecasted rates
for FY 2024/25 and subsequent years are based on the most recent CalPERS actuarial valuation Reports
as adjusted by the impact related to the FY 2022/23 CalPERS 6.1% investment return and forecasted
payroll.
Beginning in FY 2021/22, the estimates of employer contributions were credited with an anticipated
reductions associated with the approximate $4.8 million additional discretionary payment (ADP) toward
the 2016 unfunded amortization base paid off in October 2019 and the total of approximately $5.8 million
in ADPs toward unfunded 2013 and 2015 amortization bases that were paid off in FY 2020/21.
Type of
Expenditure
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY2028/29
Forecast
Safety
POA 81.31% 96% 98.7% 102.3% 106.1% 116.0%
Safety
Management
POA
84.31% 99% 101.7% 105.3% 109.1% 118%
Safety
POA - PEPRA 14.5% 15.6% 15.6% 15.7% 16.0% 16.0%
Miscellaneous
TEA/AFSCME/Con
fidential/
Management
29.97% 30.6% 296% 31.0% 32.3% 33.8%
Miscellaneous
TEA/AFSCME/Con
fidential/
Management
PEPRA
Separate PEPRA
rate for
Miscellaneous has
not been
established yet by
CalPERS.
29.97% 30.6% 296% 31.0% 32.3% 33.8%
ATTACHMENT 5
The Town has been monitoring and providing periodic update to the Finance Commission and
to the Town Council on the 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. Santa Clara County provided an update on the Excess ERAF at its
September property tax meeting. The Third District Court of Appeal has affirmed the Trial
Court decision in the California School Boards Association (CSBA) case, ruling that CSBA did not
establish that charter schools are entitled to ERAF. However, in January the Santa Clara County
advised the Town that the FY 2024/25 State Budget Governor proposes legislation allocating
ERAF to charter schools, potentially reversing the recent appellate decision the County and
State Controller’s Office obtained holding that charter schools do not get ERAF. Annual negative
impact on local jurisdiction’s Excess ERAF is approximately 8 % which may fluctuate annually.
Proposing In August 2023, the State Controller’s Office (SCO) issued a negative audit finding to
Marin County regarding inclusion of the redevelopment dissolution revenue in the Excess ERAF
calculation, asserting that this violated Health & Safety Code section 34188(d). Excess ERAF
counties do not agree with this finding and are currently working to find a resolution. The
annual at-risk percentage is now at about 22% of the distribution both on an ongoing basis and
going back to the distribution in Fiscal Year 2020/21. The County filed a lawsuit against the
State Controller’s Office on this matter in late December. The County also provided the
updated projection for FY 2023/24 Excess ERAF distribution ($2,500,000) based on the latest
State-released information. The amounts provided are before any provision to account for the
State Controller’s audit finding or other annual adjustments in the calculation. The County will
provide an updated estimates for the FY 2023/24 excess ERAF distribution and estimates for FY
2024/25 excess ERAF distribution in March 2024.
The following table illustrates the potential at-risk amount from FY 2020/21.
With the adoption of the FY 2023/24 budget, Council directed a 30% ERAF Risk Reserve. The
ERAF Risk Reserve is estimated at $1,439,607 and the at-risk amount from FY 2020/21 is
estimated at $2,027,079.
Los Gatos
Bradley Burns 1% Sales & Use Tax Forecast Comparison Summary
As of 01/18/2024
A Revenue forecast was provided on 10/13/23 based on 2023Q2 Sales Tax data.
A Revenue forecast was provided on 01/03/24 based on 2023Q3 Sales Tax data.
This analysis compares those forecasts.
COMPARISON:
FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29 FY 29 - 30
Previous Forecast 7,452,000 7,284,000 7,364,000 7,490,000 7,605,000 7,709,000 7,802,000 7,884,000
Current Forecast 7,452,000 6,961,000 7,041,000 7,152,000 7,256,000 7,349,000 7,433,000 7,508,000
Change 0 (323,000)(323,000)(338,000)(349,000)(360,000)(369,000)(376,000)
% Change 0.0%-4.4%-4.4%-4.5%-4.6%-4.7%-4.7%-4.8%
% COMPARISON:
FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29 FY 29 - 30
Previous Forecast 4.6%-2.3%1.1%1.7%1.5%1.4%1.2%1.1%
Current Forecast 4.6%-6.6%1.1%1.6%1.5%1.3%1.1%1.0%
% Change 0.0%-4.3%0.1%-0.1%-0.1%-0.1%-0.1%0.0%
The current forecast is lower in all forecast years. Overall Growth Rates vary, due to the anticipation when and to what extent inflation will begin to decline.
The current forecast incorporates a Disinflation Scenario, with the CPI-U hitting a target of 2.8% by the middle of 2025.
Category FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26
General Retail (110,000)(144,000)(160,000) Category declined by -9.4% QTR over QTR in 2023Q3, grew by +10.5% in 2023Q2
County Pool (143,000)(160,000)(161,000) Category declined by -28.4% QTR over QTR in 2023Q3, grew by +2.2% in 2023Q2
-$1.4 million in corrections caused a -$2.1 million swing in 2023Q3 Santa Clara Countywide
Pool Revenues
All (70,000)(19,000)(17,000) Various other factors
-$ (323,000)$ (323,000)$ (338,000)$ Total Forecast Change
NON-CONFIDENTIAL 1 of 1 Avenu Insights & Analytics
ATTACHMENT 6
Los Gatos
Bradley Burns 1% Sales & Use Tax Forecast Comparison Summary
As of 10/16/2023
A Revenue forecast was provided on 06/28/23 based on 2023Q1 Sales Tax data.
A Revenue forecast was provided on 10/13/23 based on 2023Q2 Sales Tax data.
This analysis compares those forecasts.
COMPARISON:
FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29 FY 29 - 30
Previous Forecast 7,396,000 7,379,000 7,609,000 7,829,000 8,034,000 8,223,000 8,397,000
Current Forecast 7,452,000 7,284,000 7,364,000 7,490,000 7,605,000 7,709,000 7,802,000 7,884,000
Change 56,000 (95,000)(245,000)(339,000)(429,000)(514,000)(595,000)
% Change 0.8%-1.3%-3.2%-4.3%-5.3%-6.3%-7.1%
% COMPARISON:
FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29 FY 29 - 30
Previous Forecast 3.8%-0.2%3.1%2.9%2.6%2.4%2.1%
Current Forecast 4.6%-2.3%1.1%1.7%1.5%1.4%1.2%1.1%
% Change 0.8%-2.0%-2.0%-1.2%-1.1%-1.0%-0.9%
The current forecast is lower in all forecast years. Overall Growth Rates vary, due to the anticipation when and to what extent inflation will begin to decline.
The current forecast incorporates a Recession Inflation Scenario, with the CPI-U hitting a target of 2.2% at the end of 2024.
Category FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26
General Retail 70,000 Category grew by +9.4% QTR over QTR in 2023Q2, declined by -11.3% in 2023Q1, better than
expected. Apple Stores, (23.9% of General Retail), grew by +132.4% QTR over QTR
in 2023Q2, by +31.7% in 2023Q1.
Transportation (30,000)(75,000)(100,000)(160,000) Category declined by -15.6% QTR over QTR in 2023Q2, -14.8% in 2023Q1.
Zero Emission Vehicles (ZEVs) comprised 24.3% of the sales of new light vehicles in CA
for the first six months of 2023. Forecast includes a -40% reduction of Service Station Sales
Tax Revenues by 2030, -75% reduction by 2035 and a -90% reduction by 2040.
All 16,000 (20,000)(145,000)(179,000) Various other factors
56,000$ (95,000)$ (245,000)$ (339,000)$ Total Forecast Change
NON-CONFIDENTIAL 1 of 1 Avenu Insights & Analytics
Los Gatos
Bradley Burns 1% Sales & Use Tax Forecast Comparison Summary
As of 08/16/2023
A Revenue forecast was provided on 03/13/23 based on 2022Q4 Sales Tax data.
A Revenue forecast was provided on 06/28/23 based on 2023Q1 Sales Tax data.
This analysis compares those forecasts.
COMPARISON:
FY 21 - 22 FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29
Previous Forecast 7,125,000 7,684,000 7,876,000 8,128,000 8,410,000 8,685,000 8,950,000 9,207,000
Current Forecast 7,125,000 7,396,000 7,379,000 7,609,000 7,829,000 8,034,000 8,223,000 8,397,000
Change 0 (288,000)(497,000)(519,000)(581,000)(651,000)(727,000)(810,000)
% Change 0.0%-3.7%-6.3%-6.4%-6.9%-7.5%-8.1%-8.8%
% COMPARISON:
FY 21 - 22 FY 22 - 23 FY 23 - 24 FY 24 - 25 FY 25 - 26 FY 26 - 27 FY 27 - 28 FY 28 - 29
Previous Forecast 5.9%7.8%2.5%3.2%3.5%3.3%3.1%2.9%
Current Forecast 5.9%3.8%-0.2%3.1%2.9%2.6%2.4%2.1%
% Change 0.0%-4.0%-2.7%-0.1%-0.6%-0.7%-0.7%-0.8%
The current forecast is lower in all forecast years. Overall Growth Rates vary, due to the anticipation when and to what extent inflation will begin to decline.
The current forecast incorporates a Recession Inflation Scenario, with the CPI-U hitting a target of 2.2% at the end of 2024.
Category FY 21 - 22 FY 22 - 23 FY 23 - 24 FY 24 - 25
General Retail (65,000)(195,000)(227,500) Category declined by -12.4% QTR over QTR in 2023Q1, grew by 6.2% in 2022Q4.
Miscellaneous Retail, (38% of this category), declined by -11.5% QTR over QTR in 2023Q1
Furniture / Appliance, (23% of this category), declined by -12.8% QTR over QTR in 2023Q1
Drug Stores, (12% of this category), declined by -11.6% QTR over QTR in 2023Q1
Transportation (70,000)(210,000)(245,000) Category declined by -15.9% QTR over QTR in 2023Q1, grew by +7.6% in 2022Q4.
Prices for gasoline have plummeted from $6.20 in June 20222 to $4.27 in January 2023.
Auto Sales declined by -19.0% QTR over QTR in 2023Q1, grew by +10.7% in 2022Q4.
All (153,000)(92,000)(46,500) Various other factors, including using a Recession Inflation Scenario with 2.2% target
-$ (288,000)$ (497,000)$ (519,000)$ Total Forecast Change
NON-CONFIDENTIAL 1 of 1 Avenu Insights & Analytics
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From:Phil Koen
To:Laurel Prevetti; Gitta Ungvari
Cc:Linda Reiners; Mary Badame
Subject:Refund of ERAF funds
Date:Tuesday, February 13, 2024 8:28:08 AM
[EXTERNAL SENDER]
Hello Laurel,
At last nights FC meeting when Andrew Howard asked staff if the Town had ever refunded ERAF money you statedthat we had done that one time in the past.
You then explained that it was tied to the end of the redevelopment agency (?) and that the refund was over a threeyear period. Frankly I didn’t fully understand the explanation and I am sure a number of the Commissioners alsodidn’t understand.
Given the amount of time we spent discussing the ERAF revenue, and Staff’s concern about the possibility of aclawback of funds, would you please provide a more detail explanation of what actually occurred in the past so theFC can access those facts and make an informed decision regarding the likelihood of there being a claw back giventhe current facts. In my mind what occurred in the past had a very different set of facts than the issue today andtherefore perhaps a different outcome.
Thank you,
Phil KoenSent from my iPhone
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