10 Desk Item
PREPARED BY: Arn Andrews
Assistant Town manager
Reviewed by: Town Manager, Town Attorney, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/15/2020 ITEM NO: 10 DESK ITEM
DATE: December 14, 2020
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive a Fiscal Year (FY) 2020/21 Revenue and Expense Update
REMARKS:
Attachment 1 contains public comments received after the distribution of the staff report and
before 11:01 a.m. Tuesday, December 15, 2020.
The public comments contain a couple of errors which should be corrected for the record. This
Desk Item does not comment on the efficacy of other aspects of the constituent analysis.
• The referenced MuniServices estimate of $7.3 million consists of estimates for the 1%
local sales and use tax ($6.4M) and the 1/8 district tax ($900K). The constituent did not
include the district tax receipts in their analysis.
• The $789K RDA residual property tax reduction should be omitted from the constituent
analysis because, as stated in the staff report, the $18.4M County estimate already
reflects this reduction.
In addition to these specific corrections, staff would like to highlight the Comprehensive Annual
Financial Report (CAFR) note 15 from Agenda Item #9. Among other things, this note identified
that the Adopted FY 2020/21 Budget includes a contingency of $1.2M from a property sale
which the Council could allocate in the event of a revenue shortfall.
In addition, the $18.4M County estimate does not include all items that are subject to property
tax. There are additional property tax elements for which estimates are not provided (e.g.,
property transfer tax, prior year secured, retirement residence, and penalties and late fees)
which total an estimated additional $500K.
PAGE 2 OF 2 SUBJECT: FY 2020/21 Revenue and Expense Update DATE: December 14, 2020
Attachment (distributed with this Addendum):
1. Public Comments Received after the Distribution of the Staff Report and before 11:01
a.m. Tuesday, December 15, 2020.
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Subject: Agenda Item #10 - A different perspective
From: jvannada@
Sent: Saturday, December 12, 2020 10:55 AM
To: Laurel Prevetti <LPrevetti@losgatosca.gov>; Arn Andrews <aandrews@losgatosca.gov>
Subject: Fwd: Agenda Item #10 ‐ A different perspective
Dear Laurel and Arn
This is for the Town Council meeting of 12-15-20
Item 10
Dear Council members,
We would like to offer a different perspective than the conclusion presented in the Staff Report on Agenda Item #10 for
your consideration and review.
Based on the information presented in the Staff report, the best estimate of the FY 21 revenue shortfall between the
adopted budget and projected revenues can be summarized as follows (all numbers in 000’s of dollars):
Property Tax (300)
RDA claw back (789)
ERAF claw back (433)
Sales Tax (700)
TOT (1,000)
Total (3,222)
The above analysis does not include other non‐tax revenues which were disclosed in the FY 20 CAFR as being impacted
by Covid‐19, which were permits and fees and business licenses. In FY 20 these two revenue sources combined for a
negative variance from the original FY 20 adopted budget of $(619,000) and totaled $4.0 million. The FY 21 adopted
budget calls for $4.4 million in revenue, which is an increase of $400,000 (10%) from the prior year’s actual results.
Given the extended impact of COVID 19 in FY 21, it is difficult to imagine that the Town will see an increase in these fees
in FY 21 and therefore is exposed. Our best estimate is that there is a potential for $400,000 variance from the FY 21
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adopted budget since it is reasonable to assume FY 21 will track FY 20 actuals. If we include this in the above total, the
Town is potentially looking at a FY 21 revenue shortfall of $3,622,000.
In addition, the Staff report discloses that Q1 departmental and non‐departmental expenses annualized totaled
$43,932,000. If this holds, that spending level exceeds the adopted budget of $43,518,821 by $413,000. This potential
over spending variance when combined with the potential revenue shortfall indicates that the Town is facing a budget
hole of $4,035,000 ($3,622,000 plus the $413,000).
The Council should be reminded that while the Town adopted a “balance budget” which projected a $11,905 “surplus”
on paper, this was achieved by using $769,308 from the General Fund Capital/Special Projects reserve to fund tree
services, code compliance officer, engineering consultants, etc. Assuming the Staff is contemplating tapping the General
Fund Capital/Special Projects Reserve to fund the $4,035,000 projected budget hole, that means the Town would use
$4,804,308 of that reserve in FY 21. Per the FY 20 CAFR, the balance in that reserve as of June 30, 2020 is $8,787,958.
Stated another way, if this scenario occurs, the Capital/Special Project Reserve would experience a 54% reduction –
which is a material decrease. We want to draw the Council’s attention to this potential.
We believe that the Town is facing some very difficult choices resulting from the continued impact of the pandemic and
the conscious decision not to take any action regarding adjusting the FY 21 expenditure budget. When the Staff sends
the Council the mid‐year review in mid‐February there will be only 4.5 months left in the current fiscal year. This gives
the Council little time to make a material change in spending plans.
We would encourage the Council to fully involve the new Finance Commission to work with the Staff to generate fiscally
responsible recommendations for the Council to consider. Allowing $4.8m of the Capital/Special Project Reserve to be
consumed because we took no action would be hard to understand.
Thank you.
Jak Van Nada
Los Gatos Community Alliance.