Attachment 1cA - 1
TOWN OF LOS GATOS
CIVIC CENTER 110 E. MAIN STREET LOS GATOS, CA 95030
May 4, 2018
Honorable Mayor and Town Council:
I am pleased to present to you a balanced Fiscal Year (FY) 2018/19 Proposed Operating Budget
for the Town of Los Gatos. The proposed budget addresses Council identified Strategic Priorities
and considers other areas of importance to our community, the Council, and the Town
organization. The FY 2018/19 Budget programs total revenues and reserve transfers of $48.3
million and expenditures and allocations of $47.6 million. The budget anticipates a surplus of
$700,000 and maintains existing service levels while recommending modest additions in
strategically important areas. This budget incorporates investments toward future equipment
replacement, additional annual discretionary pension payments, and increased capacity for the
Town’s burgeoning technology infrastructure.
CONTEXT
An important aspect of our budget development process is taking a multi-year approach.
Serving as the foundation of the budget planning process, the Town updates the Five-Year
Financial Plan beginning in the fall of each year. The Plan includes developing assumptions for
Town revenues and expenditures with the goal of defining the expenditure limitations for the
forthcoming budget year and forecast period. While we are fortunate to have surpluses
projected for this year and next, the remainder of the five year forecast shows very little room
for growth in service delivery. In addition as the table below illustrates, the Town organization
is vulnerable to any changes in forecasted economic conditions.
2018/19
Budget
2019/20
Forecast
2020/21
Forecast
2021/22
Forecast
2022/23
Forecast
2023/2024
Forecast
Total Revenues
&
Transfers
$46.8 $42.6 $42.9 $43.7 $44.7 $45.8
Total Expenses
&
Allocations
$46.2 $41.8 $42.9 $43.6 $44.4 $45.6
Net Revenues
Less Expenses
$0.7 $0.8 $0.0 $0.1 $0.3 $0.2
To better understand investment strategies for the Town organization’s future, it is important to
understand the strategic investments made to date. As the data below from the Town’s
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Comprehensive Annual Financial Reports (CAFR) illustrates, the Town’s conservative budgeting
practices has historically yielded ongoing and one-time revenues sufficient to cover ongoing and
one-time expenditures. The Town has consistently used excess revenues over the years to
enhance our infrastructure through capital projects and address other targeted priorities, such
as addressing increases in pension obligations.
In addition to the aforementioned conservative budgeting practices, the Town has also taken
significant action to address increases in our pension obligations. The Town of Los Gatos
provides a defined benefit pension plan for all full-time employees as part of their total
compensation package. The defined benefit pension has been a standard part of compensation
in governmental organizations and in Los Gatos is in lieu of participating in Social Security. The
Town’s plans over the past several decades, like all other CalPERS participants, have experienced
unfavorable investment returns, changes in actuarial assumptions, and demographic changes
which have outweighed any positive plan experiences. As illustrated in the table below, the
Town has provided $23.2 million to date in additional discretionary payments towards its
pension obligations.
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As noted above, the increase in pension obligations was due to factors beyond the Town’s
control and not the result of an organizational expansion. To address the projected budget
deficits resulting from the 2001 recession and the Great Recession of 2008, the Town had to
make significant expenditure reductions and lowered the number of employees providing
services by 20%. As the chart below illustrates, staffing levels continue to remain below those of
2009/2010.
Council Action Additional Discretionary Funding
The Town authorized payment of the entire approximate $4.5
million side fund liability associated with the Safety Plan (June
2014).
$4,500,000.
The Town Council established a General Fund reserve for
CalPERS/Other Post-Employment Benefits (OPEB) (May 2016).
Additional minimum of $300,000
funding annually
The Town authorized the creation of an irrevocable Internal
Revenue Code (IRS) Section 115 Trust for the Town’s pension
obligations (December 2017). The Town Council to date has
set aside $3.4 million towards additional Pension funding (115
Trust) and authorized an additional $1.0 million to be placed
into the CalPERS/OPEB Reserve in the adopted FY 17/18
budget.
$4,300,000
(accumulated to date)
The Town Council initiated systematic OPEB funding since
2009 for future benefits rather than remaining a pay as you go
system.
$14,500,000
(accumulated to date)
Additional discretionary pension/OPEB funding to date - $23,200,000
Number of Town Employees
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As we turn our sights towards the future, it will be essential to maintain the base level of
organizational capacity that we have today; however, to maintain and grow the high quality
service levels that the Los Gatos community deserves and has come to expect, additional
revenue sources must be identified. The Town Council is expected to place a Sales Tax measure
on the November 2018 ballot for voter consideration. If approved by a 50 percent plus one
majority of voters, this one-eight cent sales tax measure would provide an estimated $800,000
annually of revenue dedicated exclusively to Los Gatos priorities.
STRATEGIC GOALS AND PRIORITIES
In February 2018, the Town Council determined the Strategic Priorities for 2018-2020, providing
guidance to Town staff on workload prioritization. The Town Council reaffirmed its Core Goals,
including: Community Character, Good Governance, Fiscal Stability, Quality Public
Infrastructure, Civic Enrichment, and Public Safety.
Several Strategic Priorities are not one time projects, but rather are ongoing commitments.
These commitments include addressing the Town’s unfunded pension and other post-
employment benefits (OPEB) obligations; developing Measure B transportation projects so the
Town is positioned to receive its fair share of the funds; addressing cut-through traffic; fostering
emergency preparedness; and participating in regional communications infrastructure that will
be critical in the time of an emergency. Specifically for pension and OPEB obligations, the
Council expressed interest in the Council Finance Committee continuing to find approaches to
reduce the unfunded portion of the obligations.
In terms of capital projects, the Town Council affirmed its interest in completing the remaining
reconstruction of Almond Grove streets, investing in bicycle and pedestrian improvements, and
improving the condition of the Town’s streets. In addition, the Council identified new projects
which include preparing a comprehensive parking plan, exploring transportation demand
management (TDM) ideas (such as the prospect of a community shuttle), and piloting one-way
streets in downtown to help alleviate congestion.
Other Strategic Priorities position the Town for its future. The Council has launched the General
Plan Update to engage the community in land use planning and policies to guide development
for the next couple of decades. Other Priorities address legal mandates and enhance
community vitality.
The following illustrates the Strategic Priorities adopted for FY 2018-2020. Some of these
priorities were acted upon during FY 2017/18 and the remaining items are included in the
Proposed Operating and Capital Budget and Proposed Capital Improvement Program.
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UNDERSTANDING THE BUDGET DOCUMENT
The Operating Budget document includes Town-wide information as well as information specific
to each fund and each Department. The Town receives revenue from different sources, many of
which have restrictions on how they can be used. Separate funds are established to account for
the different types of revenues and allowable uses of those revenues.
The budget is prepared in accordance with Generally Accepted Accounting Principles. The
budget for governmental funds has been prepared on a modified accrual basis. The modified
accrual basis recognizes expenditures when the related fund liability is incurred. Revenues are
recognized when they become both measurable and available. “Measurable” means the
amount of the transaction can be determined and “available” means collectible within the
current period or soon enough thereafter to be used to pay liabilities of the current period.
FY 2018/19 FISCAL OUTLOOK
Overview
The workload and budgetary prioritization process took into account the Town’s current and
long term fiscal picture, as well as high priority service delivery needs. Key principles include:
Develop and recommend a balanced budget that maintains service levels;
Continue to make progress on Strategic Priorities identified by the Town Council; and
Identify opportunities to enhance service delivery through technology and open
government.
As shown in the chart below, the Proposed Budget is largely funded by the General Fund
(70.4%).
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A capital projects amount of $2,335,220 would be transferred to the General Fund Appropriated
Reserves (GFAR) to provide funding for the capital projects identified by the Town Council as
well as additional capital needs. For Council’s consideration, staff is recommending the
following allocations:
• Allocating $134,792 to the Budget Stabilization and Catastrophic Reserves to maintain the
required 25% funding level of the proposed operating budget.
• Replenishing the Equipment Replacement Fund by transferring $450,000 to the fund.
General Fund
The General Fund pays for core services such as public safety, community development, parks
and public works, library, and other services. The revenue used to pay for these services comes
primarily from local taxes such as property tax, sales tax, transient occupancy tax, franchise fees,
licenses and permits, Town services, fines and forfeitures, and a variety of other sources. As
illustrated in the chart below, the majority of General Fund revenue supports the services
provided by Police, Parks and Public Works, Community Development, and Library.
General Fund revenue is estimated at $38.7 million in the FY 2018/19 Proposed Budget,
excluding debt service, fund transfers in, and $1.3 million General Plan Update deferred
revenue. This is an increase of $1.8 million (4.8%) when compared to the FY 2017/18 Adopted
Budget. While increased Property Tax accounts for the majority of the increase in revenue,
vehicle license fee (VLF) backfill property tax, transient occupancy tax, and business License tax
have also increased. Sales tax revenue is projected to decrease over the prior year.
The Town’s General Fund operating budget expenditures for FY 2018/19 have increased by $0.5
million or 1.4% compared to the prior year’s Adopted Budget (excluding fund transfers, debt
service, $3.2 million payment to the IRS 115 Pension Trust, and the $1.3 million General Plan
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Update expenses). These expenditures are comprised of six major categories of costs, including
salaries and benefits, grants and awards, internal service charges, operating expenses for
supplies and services, and debt service. The delivery of Town services is highly dependent on
labor, which makes up 57.2% of budgeted General Fund expenditures for FY 2018/19. The FY
2018/19 proposed budget does not include any increases in salaries since negotiations with the
Town’s unions are pending
Internal Service Funds
Internal Service Funds are used for areas where goods or services are provided to other Town
Departments. Internal Service Funds include funds and programs for Information Technology,
Liability Insurance, Workers’ Compensation, Facilities Maintenance, Equipment Replacement
and Vehicle Maintenance. Staff recommends transferring $450,000 to the Equipment
Replacement fund to gradually replenish the funding previously transferred to the General Fund
Almond Grove Reserve. The total Town-wide proposed expenditures for Internal Service
charges are $6.3 million, which is $27,425 or 0.4% higher than budgeted FY 2017/18 amounts.
All personnel that were previously funded in Internal Service Fund Programs are programmed in
the General Fund beginning in FY 2018/19, increasing total General Fund FTE counts and
decreasing the Internal Service Fund FTE Counts by the same amount.
Capital Projects Fund
The Capital Improvement Projects Fund is typically used to account for financial resources that
are used for the acquisition or construction of major capital infrastructure or to provide or
improve facilities for Town Departments as identified in the five-year Capital Improvement
Program (CIP).
The proposed FY 2018/19 Town-wide expenditures from the Capital Projects Funds is $8.6
million (excluding transfers out) which is inclusive of $3.8 million in General Fund Appropriated
Reserves for the Town’s CIP program.
Special Revenue Funds
Special Revenue Funds are a fund type used to account for the proceeds of specific revenue
sources that are legally restricted to expenditures for specific purposes. Special Revenue Funds
account for 1.0% of the Town-wide expenditure budget. The Town’s largest Special Revenue
Fund is the Urban Run-Off Source Fund. The Total proposed Budget for Special Revenue Funds
for FY 2018/19 is $672,312.
Trust and Agency Funds
Trust and Agency funds are used to account for assets held by the Town as a trustee agent for
individuals, private organizations, and other governments. The Town’s Trust and Agency Funds
are a comprised of four trusts established to provide for the servicing of donations and bequests
to the Town’s Library program. The FY 2018/19 budgeted expenditures in this trust fund total
$73,500.
Successor Agency to the Los Gatos RDA Funds
The Successor Agency to the Los Gatos Redevelopment Agency (RDA) is a private purpose trust
fund that accounts for the assets, liabilities, and operations transferred from the dissolution of
the Town’s RDA. These funds include Certificates of Participation issued to finance several
capital improvement projects throughout the Town and repayment of obligations incurred by
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the Town’s RDA prior to its dissolution. The FY 2018/19 budgeted expenditures in this trust fund
total $3.8 million.
GENERAL FUND RESERVES
The total General Fund Reserves are forecasted at a balance of approximately $20.8 million as of
June 30, 2019. As indicated in the next chart, the General Fund reserves are decreasing due to
programmed payments to the Town’s California Public Employees Retirement System (CalPERS)
side-fund payoff in June 2014 of $4.5 million dollars, transfers to the CIP program in FY 2016/17
($7.0 million), FY 2017/18 ($2.4 million), and FY 2018/19 ($2.4 million), and the $4.3 million
scheduled payment to the IRS 115 Pension Trust Fund.
6/30/2013
Actual
6/30/2014
Actual
6/30/2015
Actual
6/30/2016
Actual
6/30/2017
Actual
6/30/2018
Estimated
6/30/2019
Proposed
Commited to:
Budget Stabilization Reserve 5,450,000$ 5,450,000$ 5,450,000$ 6,621,808$ 4,969,847$ 4,969,847$ 5,037,243$
Catastrophic Reserves 5,450,000 5,450,000 5,450,000 4,637,406 4,969,847 4,969,847 5,037,243
Pension/OPEB Reserve - - - 300,000 3,388,913 3,188,913 -
Almond Grove Reserve - - - 8,459,973 1,801,318 - -
Assigned to:
Open Space Reserve 562,000 562,000 562,000 562,000 562,000 562,000 562,000
Sustainability 140,553 140,553 140,553 140,553
Strategy Reserve 2,600,000 2,600,000 263,882 129,090
Capital / Special Projects 12,427,161 10,218,579 9,511,527 4,222,405 8,273,124 7,881,738 5,096,518
Special Studies 490,000 490,000 490,000 - 34,852 34,852 34,852
Post Retirement Medical 400,000 - 400,000 - - - -
Vasona Land Sale 410,599 411,245 - - - - -
Compensated Absences 350,329 350,329 350,329
Other 787,294 297,294 339,837 99,284 3,670,447 4,486,166
Total General Fund Reserve 25,977,054$ 22,879,118$ 22,203,364$ 27,643,429$ 27,090,783$ 26,032,408$ 20,873,994$
General Fund Reserve
Catastrophic and Budget Stabilization Reserves
As per the Town’s Reserve Policy, the Catastrophic and Budget Stabilization Reserves are to be
maintained at combined minimum funding level of 25% of General Fund ongoing operating
expenditures. The funding requirement is equally divided between the Catastrophic Reserve
(12.5%) and the Budget Stabilization Reserve (12.5%). Fund balance in these reserves is used to
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fund future fluctuations in the economy, mitigating the cyclical changes in locally generated
revenues from temporary downturns in the local economy. Staff recommends transferring
$134,792 from available prior year-end saving to meet the required 25% funding level, or $10.1
million total for FY 2018/19.
Pension/OPEB Reserve
Committed fund balance in this reserve will be used to aid in funding pension and Other Post-
Employment Benefits (OPEB) unfunded liabilities. This reserve is primarily used to house
additional discretionary payments budgeted for deposit into the Town’s With Council direction,
upon the close of the fiscal year, the CalPERS/OPEB Reserve receives $300,000 of the available
year-end savings. For FY 2018/19 the Council has approved development of an additional
reserve policy programming $400,000 in additional annual discretionary payments to the IRS
115 Pension Trust Fund. The Council Finance Committee makes recommendations for the use of
these funds for future Town Council/Oversight Committee consideration.
Almond Grove Reserve
A reserve for Almond Grove Street Rehabilitation project was established in October 2015 to
provide funding for the ten streets identified in the project. The Town Council affirmed its
interest in completing the Phase II of the Almond Grove streets. Due to a favorable construction
bid to complete the project, there are $2.9 million in excess funds. The excess fund balance was
fully programmed at the FY 2018/19 budget.
Strategy Reserve
In early 2017, the Town Council established a General Fund Strategy Reserve in the amount of
$2.6 million from available FY 2015/16 operational savings. The portion of the General Fund
Strategy Reserve was programmed in the FY 2018/19 budget for capital projects and additional
pension funding.
Capital / Special Projects
With Council direction, upon the close of the fiscal year, the Capital Projects Reserve receives
the Town's annual revenues above operating expenditures after funding all legally restricted
reserves at their required levels. Fund balance is assigned for the acquisition and construction
of capital facilities. It is anticipated the reserve will have approximately $5.0 million as of June
30, 2019.
Other
The Town has several other smaller reserves that have been classified as other. These reserves
include an open space reserve which may be used to make selective open space acquisitions and
a sustainability reserve which will be used to fund projects that enhance the community
environment. Please refer to the Financial Summaries section (C-1) for additional information.
KEY BUDGET ASSUMPTIONS
Revenues
The FY 2018/19 Budget assumes continued economic growth, with the General Fund revenues
(excluding debt payments and fund transfers in) expecting to increase by 3.6% to $36.8 million.
Revenue projections for each category were based upon estimates provided to the Town by
Santa Clara County, the Town’s sales tax consultant, and careful examination of revenue trends
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and patterns. The economy remains generally positive which has resulted in staff proposing an
increase in operating revenues of $0.5 million. This is mostly due to forecasted increases in
revenues such as property tax, transient occupancy tax and business license tax. Sales tax
revenue is projected to decrease slightly from the prior year.
Staffing
All personnel that were previously funded in Internal Service Fund Programs are programmed in
the General Fund beginning in FY 2018/19, increasing total General Fund FTE counts and
decreasing the Internal Service Fund FTE Counts by the same amount.
The FY 2018/19 Operating Budget has 159.19 budgeted FTEs, including temporary staff. This
reflects a decrease of 1.23 FTEs compared to the prior year. The recommended FY 2018/19
staffing levels also reflect the following changes from the prior year’s adopted budget:
Administrative Services and Town Offices –The FY 2018/19 budget includes a deletion of 0.5
FTE one time Administrative Analyst in the Human Resources program. The budget also
includes an increase of 0.125 FTE to the Deputy Town Attorney position to assist with the
workload in the Town Attorney’s Office. In addition, the budget reflects the addition of a
newly created IT Analyst position to provide critical support to the burgeoning technology
infrastructure necessary to support modern governance throughout out the Town.
Police –A recent retirement at the Lieutenant rank and senior leadership transition in the
Police Department during FY 2017/18 allowed an opportunity to re-evaluate the
Department’s organizational effectiveness. As a result of these assessments, the Police
Department’s FY 2018/19 budget includes the elimination of the Lieutenant rank (2.0 FTE
positions). Defunding the Lieutenant rank position allows the Department to return to the
two Captain organizational model. The command re-structure also provides for the addition
of an Administrative Sergeant position (6.0 FTE Sergeants to 7.0 FTE Sergeants) ensuring an
equitable distribution of the Lieutenant’s responsibilities. In addition, the FY 2018/19
budget reflects a reclassification of 1.00 FTE from Administrative Analyst to Senior
Administrative Analyst.
Community Development Department (CDD) – The FY 2018/19 budget reflects a
reclassification of 1.00 FTE from Building Inspector to Senior Building Inspector. In addition,
the nighttime Code Compliance Community Service Officer is funded completely in CDD
with this budget.
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Parks and Public Works (PPW) – The FY 18/19 budget includes multiple personnel
adjustments that partially affect the Administration Program. The 0.5 FTE Office Assistant
increased to 0.75 FTE overall, and was reclassified as an Administrative Assistant due to the
actual duties of this position. In addition, the 1.0 FTE Administrative Assistant was reduced
to 0.75 FTE to align the position with the allocated budget. Also, the Administrative Analyst
was upgraded to a Senior Administrative Analyst to provide a career ladder for the
Administrative job series in a management role and to reflect the complexity of the duties
assigned to the position. The FY 18/19 budget reflects several personnel changes that
partially affect the Engineering Program. The Town Engineer classification was upgraded to
Assistant Parks and Public Works Director/Town Engineer as approved by the Town Council.
Also, an Assistant Engineer is being added for increased capital program support. The Senior
Public Works Inspector will be reallocated to another Program to reflect the actual job
duties, and a vacant Public Works Inspector position will be deleted to offset the addition of
an Assistant Engineer
Library - The FY 2018/19 Library budget includes some changes in personnel which overall
represent no net change in FTE staffing from FY 17/18. These changes defund a Customer
Service Supervisor position (1.00 FTE) and a Library Assistant position (1.00 FTE) allowing the
creation of a Library Technician position (1.00 FTE) and Library Technology Specialist
position (1.00 FTE) which better represent changing workloads and job duties of the
organization. In addition, the budget modifies one already fully-benefited Customer Service
Specialist position from a 0.75 FTE to a 1.00 FTE which is offset by reducing part-time
staffing hours, discontinuing the need for one-time funding to cover on-call part-time
staffing, and budgeting a significant portion of on-call part-time staffing to a lower paying
classification that better aligns with actual job duties.
Non-Personnel Operating Expenditures
Non-Personnel expenditure budgets were developed based on actual expenditures in prior
years, adjusted for FY 2018/19 funding needs. In light of limited available resources, the FY
2018/19 proposed budgeted non-personnel expenditures are conservative, with additions
primarily limited to non-discretionary, contractually obligated, or mandated increases.
FIVE-YEAR FINANCIAL PLAN
Serving as a foundation of the budget planning process, the Town updates the Five-Year
Financial Plan beginning in the fall of each year. The plan includes updates to Town revenues
and expenditures with the first year of the forecast’s revenue estimates being the most critical
in the process, as that will ultimately define the expenditure limitations for the forthcoming
budget year. The multi-year conservative revenue projections further refine the Town’s
planning for current and future expenditures based on future projections. The preliminary
assumptions are used to forecast the Town’s fiscal capacity and provide the financial framework
within which the proposed Department service levels must be developed. They also serve as
the basis to test the potential impacts of proposed policy and operational modifications based
upon the Town Council’s most recently adopted Strategic Priorities.
Indicative of the continued improvement in the local economy, the Five-Year forecast provides
some limited opportunities to fund non-discretionary increases related to various costs such as
contractually obligated increases and unavoidable increases in certain employee benefit costs
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such as pension and health care. The forecast includes General Fund one time uses for both
salaries and benefits for temporary employees to provide help with special projects, temporary
workload relief, and mandated costs.
The table below summarizes the most recent Five-Year Financial Plan prepared in early May
2018. The updated Five-Year Financial Plan spans FY 2018/19 – 2023/24.
Account Revenue Category
2018/19
Budget
2019/20
Forecast
2020/21
Forecast
2021/22
Forecast
2022/23
Forecast
2023/24
Forecast
4100 Property Tax 12.5$ 12.7$ 13.0$ 13.4$ 13.8$ 14.2$
4110 VLF Backfill Property Tax 3.5 3.5 3.6 3.6 3.6 3.7
4200 Sales & Use Tax 7.7 7.8 8.0 8.2 8.4 8.4
4250 Franchise Fees 2.4 2.5 2.5 2.6 2.7 2.8
4251 Transient Occupancy Tax 2.3 2.3 2.3 2.3 2.4 2.4
4400 Business License Tax 1.7 1.7 1.7 1.7 1.7 1.8
4400 Licenses & Permits 3.3 3.4 3.0 3.1 3.2 3.3
4500 Intergovernmental 0.6 0.7 0.7 0.7 0.7 0.7
4600 Charge for Services 4.5 3.3 3.4 3.4 3.5 3.6
4700 Fines & Forfeitures 0.6 0.7 0.7 0.7 0.7 0.7
4800 Interest 0.3 0.3 0.3 0.3 0.3 0.3
4850 Other Sources 2.5 2.3 2.4 2.4 2.4 2.5
4900 Fund Transfers In 0.5 0.5 0.5 0.5 0.5 0.5
TOTAL REVENUES 42.4$ 41.7$ 42.1$ 42.9$ 43.9$ 44.9$
Use of Capital Reserve 2.3 0.6 0.6 0.6 0.6 0.6
Use of Pension/OPEB Reserve 3.1 0 0 0 0 0
Use of Reserve 0.5 0.4 0.4 0.4 0.4 0.5
48.3$ 42.7$ 43.1$ 43.9$ 44.9$ 46.0$
Account Expenditure Category
2018/19
Budget
2019/20
Forecast
2020/21
Forecast
2021/22
Forecast
2022/23
Forecast
2022/23
Forecast
5110 Salary 17.6$ 17.9$ 18.0$ 18.0$ 18.1$ 18.1$
5200 Benefits 9.5 10.3 11.0 11.4 11.8 12.1
6000 Operating Expenditures 7.9 6.3 6.5 6.7 6.9 7.1
7200 Grants & Awards 0.2 0.2 0.2 0.2 0.2 0.3
7400 Utilities 0.6 0.6 0.6 0.6 0.6 0.7
8060 Internal Service Charges 2.5 2.6 2.7 2.8 2.9 3.1
8900 Debt Service 1.9 1.9 1.9 1.9 1.9 2.0
TOTAL EXPENDITURES 40.2$ 39.8$ 40.9$ 41.6$ 42.4$ 43.4$
9900 Capital Transfers Out to GFAR 2.3 0.6 0.6 0.6 0.6 0.6
9900 Reserve to Internal Service Funds 0.5 0 0 0 0 0
9900 GASB 45 Retiree Medical Actuarial 1.1 1.1 1.2 1.2 1.2 1.3
9900 Pension/OPEB Transfer to PARS 3.1 0 0 0 0 0
9900 Pension Pre-funding to PARS 0.4 0.4 0.4 0.4 0.4 0.5
TOTAL BUDGETED EXPENDITURES 47.6$ 41.9$ 43.1$ 43.8$ 44.6$ 45.8$
47.6$ 41.9$ 43.1$ 43.8$ 44.6$ 45.8$
0.7$ 0.8$ -$ 0.1$ 0.3$ 0.2$
TOTAL REVENUES & RESERVE TRANSFERS
TOTAL EXPENDITURES & ALLOCATIONS
Town of Los Gatos General Fund
(in $ millions)
NET REVENUES & RESERVE TRANSFERS LESS
EXPENDITURES & ALLOCATIONS
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STATE BUDGET IMPACTS
Details on the State of California FY 2018/19 Proposed Budget will be available as part of the
Governor’s May Revised Budget and it is not expected to be materially different from the
Governor’s FY 2018/19 Proposed Budget released in January 2018.
Regarding transportation revenues, the Governor allocated about $206 million for local road
maintenance and repairs, $485 million for transit, $358 million to improve trade corridors, and
$120 million for State highway maintenance. The estimated Gas Tax revenue totals
approximately $1,2 million for FY 2018/19 due to the recently enacted Road Recovery and
Repair Act of 2017 (SB1). These funds can only be used for new construction and reconstruction
of Town streets.
ONGOING BUDGET ISSUES:
Fire Protection Services
Fire Protection Services for the Town of Los Gatos are provided by the Santa Clara County
Central Fire Protection District. These services have been provided under an annexation
agreement effective March 18, 1970 in which the tax rate then in effect for Town’s fire
protection services was essentially transferred to the County’s Central Fire Protection District.
Based upon the latest assessed valuation reports provided by the County of Santa Clara, the
property tax collected from Los Gatos residents for FY 2017/18 and remitted to the Santa Clara
County Central Fire Protection District for fire protection services is estimated to be
approximately $14.3 million.
Unfunded Other Post-Employment Benefits (OPEB) and Pension Liabilities
The Town’s pension unfunded actuarial liability (UAL) as of June 30, 2016 (the “date of value”
for our most up to date actuarial valuation from the California Public Employees Retirement
System or “PERS”) is approximately $51.8 million. The Town’s unfunded actuarial OPEB
liabilities are projected to total approximately $11.2 million. In December 2016, the CalPERS
Board approved a gradual reduction in the assumed earnings of its pension fund referred to the
“discount rate” which is expected to add stability to the pension trust fund and will also impact
the Town’s employer contribution rates and increase the unfunded liability calculation.
In addition to prior efforts by the Town to annually appropriate and pre-fund OPEB liabilities and
to pay off the pension plan side fund ($4.5 million in 2014), the Town Council recently approved
an additional $1 million-dollar lump sum payment to be made in FY 2016/17 to further reduce
the unfunded OPEB liabilities (see the discussion regarding OPEB on the next page). In March
2017, the Town appointed three residents with financial expertise as non-voting members to
the Town Council Finance Committee. The Committee is providing valuable guidance to the
Town Council and staff in the development of long term strategies to pay down and manage
OPEB and pension liabilities. As a result of the Committee’s work on this issue, Council
established an Internal Revenue Service Code Section 115 Pension Trust that is set up to be
dedicated to fund future pension costs. The Trust provides opportunities to set aside dollars
specifically to address the unfunded liabilities and more flexibility in terms of investment
allocations and a prudent investment strategy.
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Other Post-Employment Benefits (OPEB)
The FY 2018/19 Proposed Budget includes an allocation of approximately $1,200,000 in “pay-as-
you-go” payments for retiree medical employer contributions. In addition, the proposed budget
also includes a $1,100,000 payment to the Town’s California Employee Retirement Benefit Trust
(CERBT). The Trust was established on June 30, 2007 to address the unfunded liability that
resulted from the implementation of a new accounting standard for post-employment benefits.
The Town makes annual contributions to the CERBT, a multiple-employer defined benefit health
care plan administered by CalPERS. The purpose of the CERBT Fund is to provide local
governments with a trust through which they may pre-fund retiree medical costs and other
post-employment benefits. In addition, in FY 2016/17 the Town Council dedicated an additional
$1,000,000 payment to the fund based on the Council Finance Committee recommendation. To
date the retiree health benefits have been paid entirely out of current operating budgets and no
withdrawals have been made from the Town’s CERBT “pre-funding” account. The current
balance in this account is approximately $14.5 million as of April 2018.
To help reduce costs related to post-employment benefits, the Town proactively bargained an
agreement wherein effective for employees retiring after February 1, 2016 the annuitant of
Medicare eligible age is reimbursed to a maximum amount of benefit matching “Kaiser North”
Employee or Employee plus One. It is estimated this cap on reimbursement will achieve
approximately $200,000 per year in actuarially required contributions to the OPEB plan.
CONCLUSION
While the global, national, state, and local economy appears to remain positive, it is likely that
the economy will weaken within the next couple of years. For this reason, the FY 2018/19
budget proposes to maintain the status quo of the Town’s high service levels with minimal
staffing additions, while also addressing the Town Council’s priorities.
In light of future projections, opportunities to enhance service delivery, while lowering
operating costs through resource and workload redeployments and organizational restructuring
continue to be explored. Developments at the local and State level, including unanticipated
changes in major revenue sources or unforeseen State revenue “takes,” will be brought to Town
Council’s attention in a timely manner so that an appropriate action can be taken.
Building on the progress of the past we are cautiously programming for the future. With this
budget we continue to fund important priorities including; bicycle and pedestrian road
improvements, allocate additional discretionary funds toward pension obligations, enhance
emergency preparedness, and address aging equipment and facilities. In addition we initiate
funding for Council adopted new strategic priorities including; comprehensive parking study,
potential community shuttle, and downtown one-way street pilot.
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I wish to thank all of the departments, in particular, Department Directors and the members of
their management, analytical, and support staff, who worked diligently on the preparation of
this budget document. Specifically, I would like to recognize the efforts of:
Stephen Conway, Finance Director
Gitta Ungvari, Finance and Budget Manager
Mark Gaeta, Accountant
Melissa Ynegas, Administrative Analyst
Diane Howard, Payroll Specialist
Kenneth Stiles, Administrative Technician
Arn Andrews, Assistant Town Manager
Respectfully submitted,
Laurel Prevetti
Town Manager