Loading...
Desk Item PREPARED BY: STEPHEN CONWAY Finance Director Reviewed by: Town Manager, Assistant 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: 06/05/2018 ITEM NO: 5 DESK ITEM DATE: JUNE 5, 2018 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGER SUBJECT: ADOPT A RESOLUTION APPROVING THE TOWN OF LOS GATOS FISCAL YEAR (FY) 2018/19 OPERATING BUDGET AND FY 2018/19 – 2022/23 CAPITAL IMPROVEMENT PROGRAM (CIP), NEW APPROPRIATIONS, OTHER APPROVED ADJUSTMENTS, MINOR CORRECTIONS, AND CARRY-FORWARD APPROPRIATIONS REMARKS: Below are responses to public inquiries regarding the proposed budget documents. Issue 1: The budget proposes the largest reduction in fund balances ($9,730,814) in recent history. Do you fully understand what this is and is it your judgment that this is the best use of the Town’s fund balances? Staff response Pages C-25 and C-26 of the Proposed Budget identify and summarize the changes in fund balances. The planned expenditures address needed infrastructure, information technology, pension, and other investments. These investments will be realized through increases in Town asset values and pension trust assets. The planned reduction in fund balances for FY 18/19 for all funds, as detailed in the Proposed Budget, are further explained in the table on the next page. Please note that some reserves and fund balances are expected to increase, and that the table reflects only scheduled decreases or use of reserves or fund balance as detailed in the Proposed FY 18/19 Budget of approximately $10.4 million. The net effect of combining the proposed PAGE 2 OF 5 SUBJECT: OPERATING AND CAPITAL BUDGETS JUNE 4, 2018 S:\COUNCIL REPORTS\2018\06-05-18\05 BUDGET\Desk Item.FINAL.docx 6/5/2018 12:14 PM REMARKS (cont’d): increases would be added to the decreases to arrive at the net use of approximat ely $9.7 million of fund balances/reserves proposed for the FY 18/19 budget year. FUND NAME ESTIMATED AMOUNT OF FUND BALANCE USE General Fund Pension/OPEB Reserve $3,188,913 budgeted to be paid to PARS Pension Trust. (Fund balance reduction with an identical increase in pension trust assets.) Capital and Special Projects Reserve $2,785,220 transferred to the Town’s GFAR fund per the Town’s Capital Improvement Program (CIP). (GF Fund Balance Reserve reduction with an identical increase to investment in Town infrastructure assets and $450,000 repaid to Town’s Equipment Replacement fund from Almond Grove Phase 1 project savings.) Capital Projects Funds GFAR $4K net use of fund balance for capital infrastructure increasing Town asset values. CIP Grant and Storm Drain Funds $426K net use of fund balance for planned CIP infrastructure improvements increasing Town infrastructure asset values. Construction Tax -Utility Undergrounding Fund $2,173,690 net use of fund balance to fund planned CIP infrastructure improvements increasing Town infrastructure assets values. Internal Service Funds ABAG/Workers Compensation Funds $339,816 reduction due to recent adverse claims experience (cyclical in nature). Management Information Systems (Information Technology) $877,297 use proposed for key technology investments including IT disaster recovery improvements ($200K), system upgrades ($100K), Emergency Operations Center equipment ($51K), replacement servers/other IT equipment, the IT Master Plan ($150K), among others. Equipment Replacement Fund $502,945 use of fund balance to provide for scheduled replacement of Town fleet equipment for which monies are set aside in the fund. One large new item includes Police Records Management System and Computer Aided Dispatch replacement of $300K. Fund balance use equals increase in Town fleet equipment assets. Special Revenue Funds Blackwell/Kennedy Meadows/Gemini/Santa Rosa Vasona/Hillbrook Special Assess. Districts Total of $73,150 use of reserves accumulated from annual collection of special assessments to fund planned infrastructure improvements in each specific Assessment District. PAGE 3 OF 5 SUBJECT: OPERATING AND CAPITAL BUDGETS JUNE 4, 2018 S:\COUNCIL REPORTS\2018\06-05-18\05 BUDGET\Desk Item.FINAL.docx 6/5/2018 12:14 PM REMARKS (cont’d): Issue 2: The budget is proposing an increase of $2,646,811 in salaries and benefits over the FY 2018 estimated level while total headcount is flat from prior year. This represents a 11% increase in salaries and benefits to the staff. Do you understand why this is and do you agree with the proposed 11% increase in salaries and benefits? Staff response When comparing budgeted salaries between fiscal years, staff recommends comparing adopted budgeted amounts in the prior year to the proposed adopted budget for the upcoming fiscal year. Comparing estimated actual salaries and benefits for the current year to the adopted budget can be insightful especially in terms of understanding how actual costs can differ from the year’s adopted budgeted amounts. The estimated amounts for the current fiscal year can often be significantly lower than the adopted budget for a variety of reasons, including staff vacancy savings, the actual benefit costs (such as health premiums) being lower than expected at the time of budget development, or other factors. Focusing on staff vacancies, the Proposed FY 18/19 Budget follows the Town’s longstanding practice of budgeting currently vacant positions at the highest step/benefits level for the position. Historically due to this conservative practice , the Town has experienced salaries and benefits savings when the eventual new hire is appointed at an initial lower salary step or the budgeted position remains vacant for longer than expected periods. To more accurately compare changes to salary and benefits, it is best to focus on the changes in the Adopted and Proposed Budget amounts as detailed below: Salaries and Benefits Proposed FY 18/19 $27,347,094 Source: Town of LG Proposed Budget Page C-15 Salaries and Benefits Adopted Budget FY 17/18 $27,005,920 Source: Town of LG Adopted Budget page C-15 Increase to Salary & Benefits $341,174 As demonstrated above, the increase in the salaries and benefits is $341,174, reflecting moderate increases related to anticipated step increases, and healthcare and pension costs. Issue 3: The budget is proposing an increase of $4,170,412 in operating expenditures. Of this increase, $3,100,000 is the payment to the Town’s Pension and OPEB Trust. Netting this payment out, there is still a $1,070,412 increase in operating expenditures which was never discussed in the Town Manager’s transmittal letter. Do you understand why this is and do you agree with the proposed increase? PAGE 4 OF 5 SUBJECT: OPERATING AND CAPITAL BUDGETS JUNE 4, 2018 S:\COUNCIL REPORTS\2018\06-05-18\05 BUDGET\Desk Item.FINAL.docx 6/5/2018 12:14 PM REMARKS (cont’d): Staff response Staff does not recommend comparing estimated actual FY 17/18 expenditures to the Proposed FY 18/19 Operating Budget. Staff recommends comparing the Adopted FY 17/18 Budget to the Proposed FY 18/19 Budget as presented in the following table: FY 18/19 Proposed All Funds Operating Expenditures $17,719,817 Source: Town of LG Proposed Budget Page C-9 FY 17/18 Adopted All Funds Operating Expenditures $12,770,115 Source: Town of LG Adopted Budget Page C-9 Net increase $4,949,702 As the questioner noted, there is an increase recommended for Proposed FY 18/19 Operating Budget related to the major new items identified in the table below. The remaining expenses include increases to contracts due to Consumer Price Index increases and other items. Major New Items FY 18/19 Proposed Budget Payment from GF Pension/OPEB Reserve to PARS Pension Trust $3,100,000 General Plan Update $1,250,000 One-time tree trimming $100,000 Total $4,450,000 Issue 4: The budget is proposing an increase of $835,568 in fixed assets which is a 87% increase over the prior year. It also represents approximately 346% increase over FY 2017 levels. The transmittal letter never discussed what fixed assets were being acquired. Do you understand what is being acquired and do you agree that this level of expenditure is necessary in FY 2019? Staff response Fixed asset additions of note that increased from the FY 2017/18 Adopted Budget include the following:  Police Communications Center upgrades $375,000 (Upgrade to Police Computer Aided Dispatch and Emergency Operations Center communications equipment)  Parks and Public Works fleet and other equipment replacements, including two dump trucks and backhoe totaling approximately $400,000. These assets have quite long useful lives, hence when they are replaced fifteen or more years later, that particular years equipment purchase amounts are likely to spike because of the infrequent nature of replacement. PAGE 5 OF 5 SUBJECT: OPERATING AND CAPITAL BUDGETS JUNE 4, 2018 S:\COUNCIL REPORTS\2018\06-05-18\05 BUDGET\Desk Item.FINAL.docx 6/5/2018 12:14 PM REMARKS (cont’d): Attachment 5 contains public comments received prior to 11 a.m. this morning. Attachments provided with the Report: 1. Resolution of the Town Council Approving FY 2018/19 Operating Budget and FY 2018/19 - 2022/23 Capital Improvement Program (with Exhibit A) 2. Resolution of the Town Council of the Town of Los Gatos Approving Commitments of Fund Balance under GASB 54 Attachments provided with the Addendum: 3. Correction of Exhibit A to Attachment 1. 4. Public Comments received between 11:00 a.m., Friday, May 25, 2018 and 11:00 a.m., Monday, June 4, 2018. Attachments provided with this Desk Item: 5. Public Comments received between 11:01 a.m. on June 4 and 11:00 a.m. on June 5, 2018.