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
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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.
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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?
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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.
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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.