08 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 ● 406-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/18/2020
ITEM NO: 8
DESK ITEM
DATE: February 12, 2020
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Staff recommends that the Town Council:
a. Receive the Fiscal Year (FY) 2019/20 Mid-Year Budget Performance
Report - July 1, 2019 Through December 31, 2019; and
b. Authorize Budget Adjustments as Recommended in the Attached Budget
Performance Report.
REMARKS:
Attachment 3 contains public comments received after 11:01 a.m. February 14, 2020 and
before 11:00 a.m. February 18, 2020.
Below are staff responses to the public comments as requested by a Council Member.
Please advise as to how the differing methodologies of calculation impact "Surplus funds."
The public comment dated February 16, 2020 (item #1) appears to argue that the mid-year
budget presentation should not include the approximate $538K in budgeted operating transfers
as they are an “other financing source” in the Comprehensive Annual Financial Report (CAFR).
The amount of estimated surplus for budget purposes for the current fiscal year is
approximately $1.1 million as stated in the FY 19/20 Mid-Year Budget Report. As mentioned in
the public comment, the Town’s CAFR reports General Fund operating transfers classified as
“Other Financing Sources” as prescribed by governmental accounting standards. The CAFR
presents financial actuals against approved budget appropriations.
Municipal finance practice differentiates between a budget and a CAFR. For General Fund
budget purposes, staff analyzes the source of any operating transfer amount and carefully
examines whether it can be considered an ongoing source of revenue to include as part
PAGE 2 OF 4
SUBJECT: FY 2019/20 Mid-Year Budget Performance Report
DATE: February 18, 2020
REMARKS (continued):
of the budgeted General Fund revenues. The FY 19/20 Mid-Year Report, consistent with the
Adopted Budget, includes approximately $538,000 in operating transfers-in. These budgeted
transfers are derived from sources that are reasonably expected to provide annual funding on
an ongoing basis. For instance, the Town’s General Fund receives approximately $106,000 each
year from the Gas Tax funds for ongoing engineering support of the Town’s street
infrastructure. It also receives annual support from the Light ing and Landscape Districts. The
Town also receives operating transfers for engineering support for certain GFAR funded
projects over an expected multi-year time frame. If monies received are from one-time
sources, for budgeting and forecasting purposes, the Town would not consider them as viable
ongoing operating revenues suitable to project as available to fund future General Fund
operations.
Public Comment Dated February 16, 2020, Item #2
The public comment indicates potential savings of $2.0 million from step savings and vacancies.
The Mid-Year Budget Report provides some quantitative data on current year vacant positions
but is not intended to provide an estimate of expected savings. Staff projects year-end
expenditures in the Mid-Year Budget Report to ensure alignment with the Adopted Budget and
identify any potential concerning patterns. As part of the development of the FY 20/21
Proposed Budget, Finance staff meets with each Department in the March/April timeframe to
consider line Department staffing and to update estimated expenditures through June 30,
2020. This detailed process provides more accurate forecasts of potential year-end savings that
will be reported to Town Council as part of the FY 2020/21 Proposed Budget.
The Town will likely experience some amount of vacancy savings for the current budget year
and the actual amount is not determined until the year-end audit is completed.
Public Comment Dated February 16, 2020, Item #3
Staff projects year-end expenditures in the Mid-Year Budget Report to ensure alignment with
the Adopted Budget and identify any potential concerning patterns. As part of the
development of the FY 20/21 Proposed Budget, Finance staff meets with each Department in
the March/April timeframe to consider line Department staffing and to update estimated
expenditures through June 30, 2020. This detailed process provides a more accurate forecasts
of potential year- end savings that will be reported to Town Council as part of the FY 2020/21
Proposed Budget.
Public Comment Dated February 17, 2020
1. Operating revenues (as defined by the CAFR) increasing 1.6% over prior year actuals
2. Salary and Benefit expenditures increasing 15.4% over prior year actuals
3. All other operating expenses increasing 13% over prior year actuals.
PAGE 3 OF 4
SUBJECT: FY 2019/20 Mid-Year Budget Performance Report
DATE: February 18, 2020
REMARKS (continued):
The key issue is the problem of comparing prior year actual expenditures to current fiscal year
budgeted amounts. Regarding the mathematical calculations presented in the public
comments, staff has only minor rounding differences noted. However, the methodology used
for comparisons has inherent problems as noted in prior discussions. Comparing budget to
budget is a standard municipal finance practice when explaining changes to budgeted line items
that change between fiscal years.
Budget comparison information is usually more relevant. For instance, in comparing adopted
budgets, it is important to see the changes scheduled for salaries and benefits. For example
purposes, let us say a city has an adopted FY 2019/20 budget of $10,000,000 for salaries and
benefits in its current year. For the following fiscal year, the Council has approved an increase
of 2% for FY 2020/21 for a total of $10,200,000. This example indicates a 2% salary and benefit
increase for the next fiscal year as Council has approved.
If the Town were to compare actuals to actuals, then for the above example let us assume there
were unanticipated vacancies leading salary and benefit actuals for the year to finalize at
$9,700,000. Let us further assume that in the following FY 2020/21 only $100,000 of
unanticipated vacancies occur. Using the suggested approach above, the real raises would be
distorted. Comparing actuals to actuals would lead to following result:
• FY 19/20 Actuals: $9,700,0000 ($10M salary less vacancy savings)
• FY 20/21 Actuals: $10,100,000 ($10.2 M budgeted salary and benefits less $100K
vacancy savings)
As the above example illustrates, a $400,000 increase between fiscal years would result if
expressed as a percentage (4% increase from the prior year -double the actual increase). This
example also demonstrates using actuals indicates a 4% increase due to the vacancy savings
incurred each fiscal year when in fact the actual raises for FY 20/21 approved by the Council
amounted to a 2% increase from the prior year’s budgeted amount. This is confirmed by
comparing budgeted salaries and benefits for each fiscal year.
In comparing General Fund budgeted salaries and benefits for FY 2018/19 to FY 19/20 the
increase is more appropriately calculated as follows:
Town of Los Gatos General Fund FY 2018/19 FY 2019/20
Final Approved Adjusted
Budget Budget % Change
Salaries and Benefits 28,765,614.00$ 30,933,028.00$ 7.53%
PAGE 4 OF 4
SUBJECT: FY 2019/20 Mid-Year Budget Performance Report
DATE: February 18, 2020
REMARKS (continued):
Presenting budget to budget comparisons indicates a true growth of approximately 7.5% as
shown in the table above, as compared to the 15.4% increase as stated in the public comment.
This increase accurately reflects the approximate 3.0% cost of living salary increase approved by
Town Council in the FY 19/20 budget year, augmentations to staffing, an approximate 13%
increase in required safety pension contributions, and 8% increase in miscellaneous
classification pension contribution costs.
Attachments previously distributed with the Staff Report:
1. Budget Performance Report for the Six Months Ending December 31, 2019
2. Public Comments Received before Publishing the Staff Report
Attachment distributed with this Desk Item:
3. Public Comments Received between 11:01 a.m. February 14, 2020 and before 11:00 a.m.
February 18, 2020