Staff Report with attachments
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: 05/17/2022 ITEM NO: 7
DATE: May 9, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Consider the Recommendations of the Finance Commission and Staff, and
Provide Direction on the Town of Los Gatos Proposed Operating and Capital
Budget for Fiscal Year (FY) 2022/23 and on the Proposed Capital Improvement
Program for FY 2022/23 – FY 2026/27; Including but Not Limited to:
a. Provide direction to Balance the FY 2022/23 Proposed Budget;
b. Provide Direction on the Proposed Operating Budget;
c. Provide Direction on the Proposed Capital Budget; and
d. Consider the FY 2022/23 List of Potential Donations Consistent with the
Town’s Donation Policy
RECOMMENDATION:
Staff recommends the Town Council consider the recommendations of the Finance Commission
and staff, and provide direction on the Town of Los Gatos Proposed Operating and Capital
Budgets for Fiscal Year 2022/23 and the Town of Los Gatos Proposed Capital Improvement
Program for Fiscal Years 2022/23 - 2026/27, including but not limited to:
a. Provide direction balancing the FY 2022/23 Proposed Budget;
b. Provide direction on the Proposed Operating Budget;
c. Provide direction on the Proposed Capital Budget; and
d. Consider the FY 2022/23 List of Potential Donations consistent with the Town’s
Donation Policy.
PAGE 2 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
BACKGROUND:
On April 18, 2022, the Town Manager’s Proposed FY 2022/23 Operating and Capital Budgets
were posted on the Town’s website for the public’s review and comment (see Attachments 1
and 2). Per Measure A, the Finance Commission received the Proposed Budgets 21 business
days before May 17, 2022, which is the first meeting at which the Proposed Budgets will be
considered by the Town Council. The transmittal letter in the Proposed FY 2022/23 Operating
Budget provides an executive summary of the budget, including the fiscal outlook, key budget
assumptions, and other information.
The Proposed Operating and Capital Budget for FY 2022/23 (Attachment 1) is the Town
Manager’s recommended comprehensive financial plan to provide services to the Town of Los
Gatos and address the priorities set by the Town Council. The Proposed FY 2022/23 – 2026/27
Capital Improvement Program (Attachment 2) is a five-year capital improvement plan which
identifies projects to construct and maintain the Town’s infrastructure. Please see the
transmittal letters contained in each Budget document for a detailed overview and summary.
Both budget documents were prepared with contributions from all Town Departments. Of
particular note, the Finance Department took the lead in developing revenue and expenditure
forecasts, ensuring that the most current information was used in the preparation of the
proposed budgets. In addition, the Department of Parks and Public Works identified high
priority projects for inclusion in the Capital Budget based on its familiarity with the Town’s
facilities, equipment, and infrastructure, and its work with various Town Commissions on these
assets.
The FY 2022/23 Budget endeavored to maintain essential public services while controlling
operational costs in light of the Five-Year Financial Forecast, which predicts operating shortfalls
in subsequent fiscal years. The loss of previously projected future growth in revenues in
conjunction with increasing expenses continues to illustrate persistent deficits in future years.
The deficits are on the order of approximately $2.0 to $3.0 million per year and can currently be
resolved through a combination of expenditure controls, revenues reverting to pre-pandemic
trends, and the use of one-time funds.
Even with areas of continued uncertainty, this Budget positions the organization well for
continued excellence in service delivery to the community. However, in the event pre-
pandemic revenue growth projections do not return and/or new revenue sources are not
identified, the current projected deficits may need to be addressed through service delivery
reductions or service outsourcing. If this occurs, the Council will need continued input from the
community to identify acceptable organizational changes and service levels. The recently
completed community survey provide useful insight into community prioritization of service
delivery.
PAGE 3 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
BACKGROUND (continued):
In addition to the Town Manager’s Proposed Budget, the Town Council is being asked to
consider the Finance Commission recommendations contained in Attachment 3. The Town
Council is also being asked to consider corrections based on additional review and analysis since
publication (Attachment 5). Any recommended changes and additional direction to the
Proposed Operating and/or Capital Budgets provided by Council at the May 17, 2022 budget
hearing will be incorporated into the implementing resolution to be presented for final Council
approval on June 7, 2022. Finally, the Council is asked to review the annual list of donations
(Attachment 8).
To help the Council work through all of this material, staff recommends that the Council discuss
and make individual motions as appropriate on the items in the following order as presented in
this staff report:
• Five-Year Forecast (motions are welcome to change any of the assumptions in the
Forecast)
• Direction to Balance the Proposed FY 2022/23 Operating Budget
• Finance Commission’s four recommendations
• Consideration of any funding requests (as of the date of this report, the Town has not
received any)
• Any other direction on the Proposed FY 2022/23 Operating Budget
• Any other direction on the Proposed FY 2022/23 – 2026/27 Capital Budget
• Consideration the Proposed Donation List
DISCUSSION:
Overview of Proposed Operating Budget and Five-Year Forecast
The FY 2022/23 General Fund Budget programs total revenues and reserve transfers of $50.4
million, and expenditures and allocations of $50.4 million. The Budget currently anticipates no
significant new programming and does maintain existing service levels with modest staffing
additions. Even with the budgetary challenges of the last several years associated with the
COVID-19 pandemic, many of Council’s primary goals and priorities have been programmed in
the FY 2022/23 Operating and Capital Budgets. Specifically, the Council would like continued
progress on wildfire protection safety; emergency preparedness; semi-permanent parklets;
diversity, equity, and inclusion; community policing; parking study implementation; and the
General Plan and Housing Element updates.
The Five-Year Forecast takes a forward look at the Town's General Fund revenues and
expenditures and is updated regularly. Its purpose is to identify financial trends, potential
shortfalls, and other issues so the Town can proactively address them and budget accordingly.
It does so by projecting out into the future the fiscal results of continuing the Town's current
PAGE 4 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
service levels and policies. This process helps to provide a snapshot of what the future may
look like as a result of the decisions made to date. The economic ramifications of the pandemic
have created lower revenue bases than in prior years which reverberate throughout the
forecast period as future revenue growth is extrapolated from the lower initial base revenues.
Revenue forecasts for the current Budget (Attachment 4) have been developed in close
consultation with the Santa Clara County Assessor, Town Sales Tax consultant MuniServices,
and a review of national and regional hospitality research.
In addition to revenue growth projections, the Proposed Budget also forecasts anticipated
increases in the Town’s pension obligation payments and salaries as well as other expenditures
(Attachment 4). As a service delivery enterprise, the cost of salaries and benefits are a
significant portion of the budget. The delivery of Town services is highly dependent on
recruiting and retaining talent which comprises 66% of budgeted General Fund expenditures for
FY 2022/23. Given the high dependence on labor for service delivery, the Town has helped
manage salary escalation (and benefits) through the maintenance of lower staffing levels.
However, even with the Town reducing its full-time employees by 15.0% to 153 FTE employees
since 2001, pension benefit costs per employee continue to escalate as evidenced by an
average 11.9% increase per year versus a 3.3% average increase for regular salaries per year in
the past seven years.
Balancing the Proposed FY 2022/23 Operating Budget
For FY 2022/23 the Proposed Operating Budget was balanced utilizing two primary budget
balancing strategies. The first was direction to all Departments to develop a status quo budget.
To that end most Departments programmed existing resources by either maintaining current
structures or realigning operations to remain effective while staying within prior year budgets.
In addition, Departments were provided guidance to enhance capacity where necessary
through limit-dated, non-benefited personnel options and increases to temporary staffing
when possible.
The second strategy is the use of $1.0 million of the Town’s $7.2 million allocation from the
American Rescue Plan Act (ARPA) to replace lost revenue anticipated in FY 2022/23. This is
consistent with prior Council direction for the use of ARPA in FY 2020/21 ($1.4 million) and FY
2021/22 ($1.9 million). It’s important to note, that as the economically sensitive revenues of
sales tax and transient occupancy tax continue to revert toward pre-pandemic levels, no ARPA
funding was ultimately expensed for revenue loss replacement in FY 2020/21. At this time,
staff estimates that no ARPA funding will be needed at the close of FY 2021/22. The actual
surplus/shortfall will be determined upon the final close and audit of the fiscal year.
PAGE 5 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
Overview of Proposed Capital Budget
The FY 2022/23 – FY 2026/27 Capital Improvement Program (CIP) sets forth a five-year plan for
proposed streets, parks, and public facility projects. The transmittal letter contained in the CIP
provides a summary of the program including funding sources, recently completed projects,
and the proposed projects for FY 2022/23. The proposed $32.5 million in the first year of the
CIP is comprised of approximately $20.0 million in carryover funds from FY 2021/22 and
approximately $12.5 million in new funding. The $12.5 million of new funding is comprised of
$6.0 million in General Fund Appropriated Reserve (GFAR), $5.0 million in Grants and $1.5
million from other sources. Only the first year of the plan is formally adopted with funds
appropriated by the Town Council as part of the budget process.
The first year of the five-year CIP (FY 2022/23) continues funding for the Town Council Strategic
Priorities, including basic infrastructure needs. In January 2022, the Town Council established
the 2022-24 Strategic Priorities. In terms of capital projects, the Town Council stated its
priorities to begin phased implementation of the recommendations in the Comprehensive
Parking Study, continue mobility improvements for all transportation modes, manage the
vegetation on Town lands to protect against wildfire, and advance other needed
improvements.
Street maintenance remains a high Council priority as the Town is making efforts to improve its
Pavement Condition Index (PCI), a standard rating of street conditions. The Town utilizes
funding from the Metropolitan Transportation Commission (MTC) to hire a consultant to
conduct a regular assessment of pavement condition with a full assessment occurring every
three years. The recent assessment concluded that after completion of FY 2021/22 street
pavement projects, PCI is anticipated to jump to 75 or 76. The assessment indicated that the
Town can maintain a PCI of 75 with an annual funding of $3.3M for the next five years.
While this is welcome news, the Town will need to identify dedicated ongoing sources of
revenue for future deferred and routine capital maintenance.
Town staff go through a rigorous process to evaluate all previously funded projects and
potential new projects when preparing the CIP. There are more needs than available funding,
and staff recommends high priority projects that are consistent with the Strategic Priorities.
This year, due to limited available funds, the proposed CIP concentrates on funding key ongoing
maintenance commitments (e.g., street paving), projects that have grant funding and a FY
2022/23 schedule obligation, and supplementing projects that are underway to ensure they are
completed. These funding priorities leave funds for only one additional project. As a result, the
CIP documents several unfunded projects within the respective programs. On April 27, 2022,
the Planning Commission reviewed the proposed CIP, found it consistent with the General Plan,
and recommended its adoption by the Town Council.
PAGE 6 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
Finance Commission Recommendations
As previously mentioned, the newly constituted Finance Commission is tasked with a thorough
review of the FY 2022/23 Proposed Operating and Capital Budgets. The Finance Commission
recommended approval of the Proposed Budgets predicated on four recommended changes to
the Proposed Budget (see Attachment 3).
The Commission’s deliberations coalesced around the following goals and observations:
• The Commission’s interest for continued enhancement of transparency in budget
development, budget assumptions, and budget presentation.
• The Proposed Budget continues to restrict capital expenditures relative to historic
allocations.
• The Proposed Capital Improvement Program (CIP) continues to be challenged by a lack
of dedicated funding.
• The higher percentage increases in the primary expenditures of Salary and Benefits
relative to revenues is constraining other investments.
• The Forecast projects deficits throughout the forecast period.
• The Commission’s continued review of the Town’s Internal Service Funds.
The Finance Commission (FC) made two recommendations for additional funding allocations to
the General Fund Appropriated Reserve (GFAR). The Council should consider the
recommendations in relation to other budgetary priorities. For each FC recommendation,
potential impacts are identified.
FC Recommendation: Recommend to Council the allocation of $3.77 million to the General
Fund Appropriated Reserve (GFAR) for FY 2022/23 for capital budgeting purposes as
determined by the Town Council’s priorities. (This amount is based on an historic average of
8.28% from 2005/06 through 2022/23 of operating revenues transferred to the Capital
program.)
Potential Impacts: The recommendation would increase the FY 2022/23 operating deficit by
approximately $700k. The Finance Commission did not make a recommendation as to how to
close this new deficit. If the Council moves forward with this recommendation, the Town
Council would need to identify modifications to the Operating Budget to maintain a balanced
budget. For example, the Council may wish to allocate $700,000 from the unallocated
American Rescue Plan Act (ARPA) monies.
FC Recommendation: Recommend to Council the allocation of approximately $3.7 million of
unallocated ARPA funds to the General Fund Appropriated Reserve (GFAR) for FY 2022/23 for
capital budgeting purposes as determined by the Town Council’s priorities.
PAGE 7 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
Potential Impacts: ARPA funds would become unavailable for other uses.
If Council wishes to proceed with one or both of these recommendations, staff suggests that
the Council consider potential modifications to the CIP and specific projects in August. At that
time, staff will be prepared to identify priority improvements within existing staff limitations
that constrain the Town’s ability to deliver a large Capital program.
The Finance Commission (FC) made one recommendation regarding the Town’s existing
Internal Service Fund structure.
FC Recommendation: Recommend to Council the dissolution of the Workers Compensation and
Self-Insurance Internal Service Funds starting in FY 2022/23 with remaining balances being
transferred to the General Fund.
Potential Impacts:
Workers Compensation and Self-Insurance are considered “risk financing” due to their
associated liabilities. The use of the Internal Service funds (ISFs) is one of the only two types of
funds permitted by the Governmental Accounting Standards Board (GASB) to be used for the
accounting for risk financing, the other being the General Fund. The pros and cons of closing
the Workers Compensation and Self-Insurance Internal Service Funds are discussed below.
Pros of Closing Internal Service Funds and Merging into the General Fund
• Because of the fees charged to the user Departments, there is an unavoidable doubling
of costs in the budget which increases the total expenditures when looking at a financial
summary of expenditures for all Town funds. This occurs because allocated costs for
Workers Compensation is budgeted in the front-line program receiving workers
compensation services such as public safety and the full cost of workers compensation is
also budgeted in the home base Internal Service Fund where the costs are centralized
leading to a “doubling up” of expenses. This “doubling up” leads to what some critics
describe as an unnecessary artificial increase of revenue and expenditure budget totals.
Recognizing this anomaly, GASB requires that for the Annual Comprehensive Annual
Financial Report, the “doubling up” of expenses is eliminated.
• Frees up current ISF balances for any General Fund purpose desired by the Council.
• Operating Departments often desire to be informed and educated to fully understand
the rationale for the internal service costs being allocated to their Departments and
absorbed in their budgets in the form of user charges. Staff time required for users of
the service and administrators of the Internal Service funds to provide the required
analysis for rate setting of user charges including the development of sustainable
PAGE 8 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
ongoing user fee charges that can be absorbed in future operating budgets may be
better allocated to other activities.
• Net position balances can be viewed by some as excessive if believed to be above the
amounts necessary to achieve a balance of revenues and expenses over the long term.
Because of the unpredictability of claims, it is difficult to be definitive over the adequacy
of net position at a given point in time
Cons of Closing Internal Service Funds and Merging into the General Fund
• Loss of the ability to assess reasonable user charges to increase/decrease the net
position of the fund to provide resources for unanticipated catastrophic losses, the
estimation of future anticipated losses and known hazards, or amounts derived from
actuarial studies.
• Less disruption to the adopted budget process. ISF balances allow for the smoothing of
variability associated with these risk-financing expense categories.
• Use of these funds allows for full accrual accounting and full cost of providing risk
financing services as provided in the Internal Service Fund.
• Long term Self-Insurance/General Liability and Workers Compensation claims liabilities
not paid from “expendable and available resources” (short term) will not be reported on
the General Fund balance sheet. Instead, they will be reported as a long-term liability in
Government Wide Statement of Net Position.
If the Council wishes to eliminate these two ISFs, staff recommends that full implementation
occur with the Council’s consideration of the Mid-Year Review of the FY 2022/23 Budget
(February 2023). Staff needs time to close the ISFs, recalculate the user fees for each
Department, distribute the funds to the General Fund, and ensure all accounts are properly
managed. All of this work is not feasible prior to the July 1, 2022 start of the fiscal year.
The Finance Commission (FC) made one recommendation regarding projected deficits in the
current Five-Year Forecast.
FC Recommendation: Recommend to Council that the Commission believes that a “Structural
Financial Deficit” currently exists and for Council to acknowledge the Commission’s finding and
direct the Commission to work with Town management to confirm the actual amount of the
PAGE 9 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
DISCUSSION (continued):
deficits that the Town is facing and come back to the Council with suggestions/ideas on how we
can fix this “Structural Financial Deficit” and fund capital projects.
Potential Impacts: The recommendation has no direct impact on the Proposed Operating
Budget for this fiscal year.
If the Council agrees with this recommendation, then staff would work with the Commission on
refined projections of revenues and costs; identification of potential revenue enhancements
and cost cutting strategies; and determination of other balancing mechanisms that would
ultimately be forwarded to the Town Council for its consideration.
Consideration of Any Funding Requests
If there are individual requests for new spending, the Council should consider these requests in
the context of the Proposed Operating Budget and identify the source(s) of funding for the(se)
item(s). At the time of the preparation of this report, no requests have been submitted to the
Town. On May 4, 2021, the Council approved “Principles for Considering Future Funding
Requests” (Attachment 6), which the Council may find helpful.
Donation Opportunities - FY 2022/23 List of Town Needs
As part of the budget development process, the List of Town Needs is updated annually per
Town Council Donation Policy (Attachment 7) to reflect goods, services, and other contributions
that would help enhance Town services, programs, and events (Attachment 8).
CONCLUSION AND NEXT STEPS:
At its May 17, 2022 meeting, the Council will have an opportunity to listen to public testimony,
ask questions, consider the Finance Commission’s recommendations, deliberate, and direct
changes to the Proposed Operating and/or Capital Improvement Program Budgets. Any
changes to the Proposed Operating and/or Capital Budgets directed by Council or identified by
staff (see Attachment 5.) will be included for Council consideration in the resolution formally
adopting the Budgets to be considered by Council on June 7.
During and after the Budget adoption, staff continues to monitor revenues and expenditures
closely and will report to the Town Council actual revenues and expenditures later in the year
as the data become available. Any modifications needed will be brought back to the Council as
Budget Adjustments.
Public comment received after the Finance Commission meetings and before 11 a.m. on May
12, 2022 is contained in Attachment 9.
PAGE 10 OF 10 SUBJECT: FY 2022/23 Proposed Operating and Capital Budgets DATE: May 10, 2022
COORDINATION:
The preparation of the budget documents involved the participation of all Town Departments.
The Finance Commission deliberated and provided its recommendations to the Council as
discussed in this report.
FISCAL IMPACT:
Under State law, the Town Council is required to enact a balanced budget. The Proposed
Operating and Capital Budgets are balanced and as the Council directs changes, the outcome
must be a balanced fiscal plan.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments Provided to the Council Prior to the Distribution of this Report:
1. FY 2022/23 Proposed Operating and Capital Budget
https://www.losgatosca.gov/DocumentCenter/View/30442/FY-2022-23-Proposed-Budget
2. FY 2022/23 – 2026/27 Proposed Capital Improvement Program Budget
https://www.losgatosca.gov/DocumentCenter/View/30428/FY-2022-23-Capital-Budget
Attachments Provided with this Report:
3. FY 2022/23 Finance Commission Operating and Capital Budget Recommendations
4. Revenue and Expense Forecast Assumptions
5. List of proposed changes related to corrections and adding clarifications
6. Council’s Principles for Considering Funding Requests (Approved May 4, 2021)
7. Town of Los Gatos Donation Policy
8. Town of Los Gatos Donation Opportunities: FY 2022/23
9. Public Comment Received Before 11 a.m. on May 12, 2022
ATTACHMENT 1
The FY 2022/23 Proposed Operating and Capital Budget can be found here:
https://www.losgatosca.gov/DocumentCenter/View/30442/FY-2022-23-Proposed-Budget
ATTACHMENT 2
The FY 2022/23 – 2026/27 Proposed Capital Improvement Program Budget can be found here:
https://www.losgatosca.gov/DocumentCenter/View/30428/FY-2022-23-Capital-Budget
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
ATTACHMENT 3
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 05/17/2022 ITEM NO:
DATE: May 10, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager on behalf of the Finance Commission
SUBJECT: Receive Fiscal Year (FY) 2022/23 Proposed Operating and Capital Budget
Recommendations from the Town Finance Commission per Measure A
RECOMMENDATION:
Receive Fiscal Year (FY) 2022/23 Proposed Operating and Capital Budget recommendations
from the Town Finance Commission per Measure A.
BACKGROUND:
On April 18, 2022, the Town Manager’s Proposed FY 2022/23 Operating and Capital Budgets
were posted on the Town’s website for the public’s review and comment. The Proposed
Budgets were published 21 business days before May 17, 2022 (Council’s public hearing on the
Budgets), in accordance with Measure A.
With the passage of Measure A, the Finance Commission has been tasked with several
mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. –
Duties states that:
(a) The Finance Commission shall:
(2) Review the Town Manager's annual proposed budget prepared in accordance with
section 2.30.295(6) of the Town Code. and provide written comments and
recommendations to the Town Council.
(A) The Finance Commission's comments and recommendations shall include a
recommendation about whether the Town Council should approve or disapprove
the proposed budget. The Finance Commission may make a recommendation of
PAGE 2 OF 4 SUBJECT: Finance Commission FY 2022/23 Budget Recommendations DATE: May 10, 2022
approval of the budget conditional upon the Town Council's acceptance of one or
more of the Finance Commission's recommendations.
(B) The Town Manager must provide a proposed budget to the Finance Commission at
least twenty (20) business days before the first meeting at which the proposed
budget is considered by the Town Council.
The Finance Commission established the following schedule to discuss and provide comments
on the Proposed Budgets and Measure G allocation (meeting Agenda and Minutes link
provided):
• April 25, 2022 – Special Finance Commission meeting
• May 2, 2022 – Special Finance Commission meeting
• May 9, 2022 – Regular Finance Commission meeting
https://losgatos-ca.municodemeetings.com/
In addition, the meeting schedule provided ample opportunities for the public to engage in the
process either through written comment or verbal comment through Zoom.
The discussion section of this report details the deliberations of the Finance Commission and its
recommendations to the Town Council.
DISCUSSION:
Finance Commission Current Budget Cycle Deliberations
Over the course of the Commission’s budget proceedings, the Commission received
presentations on the Proposed Operating and Capital Budgets, evolution of forecasted budget
deficits, allocated/unallocated American Rescue Plan Act (ARPA) funding, historic base salary,
and benefit expenditures, historic Capital Improvement Program (CIP) expenditures, employee
vacancies, and a summary of the Community Survey results. In addition, staff provided
responses to Commission and public inquiries throughout the process.
The Commission’s deliberations coalesced around the following goals and observations:
• The Commission’s interest for continued enhancement of transparency in budget
development, budget assumptions, and budget presentation.
• The Proposed Budget continues to restrict capital expenditures relative to historic
allocations.
• The Proposed Capital Improvement Program (CIP) continues to be challenged by a lack
of dedicated funding.
PAGE 3 OF 4 SUBJECT: Finance Commission FY 2022/23 Budget Recommendations DATE: May 10, 2022
• The higher percentage increases in the primary expenditures of Salary and Benefits
relative to revenues is constraining other investments.
• The Forecast projects deficits throughout the forecast period.
• The Commission’s continued review of the Town’s Internal Service Funds.
Based on the aforementioned areas of emphasis, the Commission ultimately made four
recommendations to the Town Council. In addition, the Commission made a recommendation
to approve both the Proposed Operating and Capital Budgets based on acceptance of the
following four recommendations:
Capital Improvement Program Recommendations
As previously mentioned, Commissioners expressed that the Town needed to plan and budget
proactively for its capital needs and find reliable funding source(s). The Commission agreed
that the previous approach that created year-end surpluses was inadequate. As such, the
Commission recommended that additional funding be programmed to ensure continued
investment in critical Town infrastructure.
Motion by Commissioner Rick Tinsley to recommend to Council the allocation of
$3.77 million to the General Fund Appropriated Reserve (GFAR) for FY 2022/23.
Seconded by Chair Ron Dickel.
Motion passed unanimously
Motion by Chair Ron Dickel to recommend to Council the allocation of approximately
$3.7 million of unallocated ARPA funds to the GFAR for FY 2022/23. Seconded by Vice
Chair Kyle Park.
Motion passed unanimously
Operating Budget Recommendations
As previously mentioned, Commissioners expressed interest in the Town’s current use of
Internal Service Funds and concerns about projected deficits.
Motion by Chair Ron Dickel to recommend to Council the dissolution of the Workers
Compensation and Self Insurance Internal Service Funds starting in FY 2022/23 with
remaining balances being transferred to the General Fund. Seconded by
Commissioner Loreen Huddleston.
Motion passed unanimously
Motion by Commissioner Kyle Park to inform Council the Commission believes that a
“Structural Financial Deficit” currently exists and for Council to acknowledge the
Commission’s finding and direct the Commission to work with Town management to
PAGE 4 OF 4 SUBJECT: Finance Commission FY 2022/23 Budget Recommendations DATE: May 10, 2022
confirm the actual amount of the deficits that the Town is facing and come back to the
Council with suggestions/ideas on how we can fix this “Structural Financial Deficit” and
fund capital projects. Seconded by Chair Ron Dickel.
Motion passed unanimously
CONCLUSION:
Per Measure A, this report provides written comments and recommendations to the Town
Council regarding the Commission’s review of the Proposed FY 2022/23 Operating and Capital
Budgets.
COORDINATION:
This staff report was coordinated with the Town Manager, Town Attorney, Director of Finance,
and Finance Commission Chair.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
FORECAST ASSUMPTIONS
REVENUE BASELINE AND PROJECTION FACTORS
Type of
Revenue Base
Line Estimate
FY 2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Property
Tax/VLF
Backfill
SCC Assessor
Office January
2022 report.
3% 3% 3% 3% 3% 3%
North 40
Property
Sales
Starting in FY
2021/22
North 40 Sales 3% 3% 3% 3% 3%
ERAF
SCC Assessor
Office March
2022 report
SCCA
recommend
70% of FY
2021/22
anticipated
proceeds
$400K $400K $400K $400K $400K
Sales Tax
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
Sales Tax -
Measure G
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
MuniServices
3/16/2022
Most Likely
Estimates
Franchise Fee
Current
baseline set
by FY 2021/22
Year End
Estimates
Current
baseline set
by FY 2021/22
Year End
Estimates
3% 3% 3% 3% 3%
Transient
Occupancy
Tax
Current
baseline set
by FY 2021/22
Year End
Estimates
Current
baseline set
by FY 2021/22
Year End
Estimates
5% 5% 3% 3% 3%
ATTACHMENT 4
FORECAST ASSUMPTIONS
REVENUE BASELINE AND PROJECTION FACTORS
Type of Revenue
Base Line
Estimates
FY
2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Business License
Tax
Current baseline
set by FY
2021/22 Year End
Estimates
3% 3% 3% 0% 0% 0%
License &
Permits
Current baseline
set by FY
2021/22 Year End
Estimates
3% 3% 3% 3% 3% 3%
Town Services
Current baseline
set by FY
2021/22 Year End
Estimates
3% 3% 0% 3% 3% 3%
Fine &
Forfeitures
Current baseline
set by FY
2021/22 Year End
Estimates
3% Varies Varies Varies Varies Varies
Interest
Current baseline
set by FY
2021/22 Year End
Estimates
Varies
based on
portfolio
Varies based
on portfolio
Varies based
on portfolio
Varies based
on portfolio
Varies based
on portfolio
Varies based
on portfolio
Other Sources
Current baseline
set by FY
2021/22 Year End
Estimates
Varies Varies Varies Varies Varies Varies
FORECAST ASSUMPTIONS
EXPENDITURE BASELINE AND PROJECTION FACTORS
Beginning in FY 2020/21, the Town is budgeting salaries at the actual salary plus a one-step increase.
68% of the workforce is already at top step or one step below top step. In the Five-Year Forecast,
positions are forecasted at the actual rate of pay including salaries and benefits as of April 1, 2022 and
rate is increasing in the actual anniversary date.
*Salary increases are based on actual step increases and approved Memoranda of Understanding with the
bargaining units.
**Benefit increase estimates are provided by CalPERS/Public Employees’ Medical and
Hospital Care Act (PEMHCA).
***Based on historical trends.
The Town’s required employer contribution rate estimates were developed using data provided by each
plan’s most recent CalPERS actuarial valuation. The employer contribution rates reflect percentages of
covered payroll. Rates shown for FY 2022/23 are actual rates as prescribed by CalPERS. Forecasted
rates for FY 2023/24 and subsequent years are based on the most recent CalPERS actuarial valuation
reports and staff assumptions regarding staff’s current estimate of returns for FY 2021/22 which are
presently expected to below the 6.8% discount rate.
Type of
Expenditure
FY 2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Salaries* 2% 2% 2% 2% 2% 2%
Benefit -
Medical** 7% 7% 7% 7% 7% 7%
Operating
Expenditures*** Varies 3% 3% 3% 3% 3%
Grants & Awards 0% 0% 0% 0% 0% 0%
Utilities*** Varies 3% 3% 3% 3% 3%
Internal Service
Charges***
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Debt Service Debt Service Schedules
FORECAST ASSUMPTIONS
Beginning in FY 2021/22, the estimates of employer contributions were credited with an anticipated
reductions associated with the approximate $4.8 million additional discretionary payment (ADP) toward
the 2016 unfunded amortization base paid off in October 2019 and the total of approximately $5.8
million in ADPs toward unfunded 2013 and 2015 amortization bases that were paid off in FY 2020/21.
Employer contribution rate projections also include small percentage increases reflecting the
anticipation of CalPERS gradually lowering its discount rate over the Five-Year Forecast period in
accordance with the CalPERS adopted risk mitigation strategy, and the lowering of the discount rate to
the present rate of 6.8% as of 6/30/2022. Estimates were also informed by recent rate estimates
developed by the Town’s actuary using the most recent actuarial valuation updated with current year
projections of covered payrolls by plan type.
Type of
Expenditure
FY 2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Safety
POA 69.44% 72.01% 74.61% 75.68% 76.69% 76.66%
Safety
Management
POA
72.44% 75.01% 77.61% 78.68% 79.69% 79.66%
Safety
POA - PEPRA 14.62% 14.65% 13.78% 13.75% 13.76% 13.76%
Miscellaneous
TEA/Confidential/
Management
29.92% 30.04% 30.64% 28.45% 28.73% 28.42%
Miscellaneous
TEA/Confidential/
Management
PEPRA
Separate PEPRA
rate for
Miscellaneous has
not been
established yet by
CalPERS.
29.92% 30.04% 30.64% 28.45% 28.73% 28.42%
*Safety Classic Rate reflects 3% decrease in employer's contribution rate to reflect 3% contribution as
negotiated with the Town's POA during the collective bargaining process effective FY 2019/20.
Updates to the Proposed FY 2022/23 Budget Documents
ATTACHMENT 5
Based on additional staff review, the following updates are recommended to include in the final
FY 2022/23 Operating and Capital Budget documents:
Proposed Operating & Capital Summary Budget FY 2022/23
Page A – 5 – correct the Town’s reported total ARPA allocation value of $5.7 million to $7.2
million.
Page C - 40 - staff found that FY 2021/22 estimated salaries and benefits for the Street and
Signals program 5401 were erroneously not included in the summary tables in the Proposed FY
2022/23 Operating Budget. While implementing the correction for this table, staff will take the
opportunity to also update estimated salaries based on newly available information regarding
employee final leave cash outs.
On June 7, 2022, staff will bring for Council consideration budget adjustments to the Adopted
FY 2021/22 Operating Budget regarding other updated revenue and expenditure items. As is
the Town’s practice, staff will update the FY 2021/22 year-end estimated numbers in the final
published adopted FY 2022/23 Operating Budget, including these budget adjustments. The
aforementioned corrections and the proposed adjustments to FY 2021/22 do not impact the
proposed FY 2022/23 revenues and expenditures; however, estimated year-end fund balances
will change based on the new estimates.
Town Council Principles for Considering Future Funding Requests
Approved May 4, 2021
ATTACHMENT 6
1. Allocate funds in an equitable and objective manner to benefit all residents and all areas of
Town;
2. Enthusiastically support events from all community partners in a flexible manner and avoid
high traffic times, using available Town resources and/or ARPA funds, pending further
guidance from staff;
3. Utilize the Community Grant process, including the equitable allocation, and consider the
total budget for the Grants and moving the process timeline along as quickly as practical;
4. Include destination marketing and use it to improve the branding of Los Gatos with its
historic heritage and iconic structures, and do so with a clear definition of the scope of work
with assistance from staff;
5. Encourage opportunities and events to build synergy between the Town's office/tech
companies and the local retail/restaurant business work force; and
6. Avoid any conflicts of interest in the public/private partnership with the Chamber of
Commerce.
ATTACHMENT 7
ATTACHMENT 8
TOWN OF LOS GATOS DONATION OPPORTUNITIES
FY 2022/23 LIST OF TOWN NEEDS
To ensure that all donations and contributions are sought and accepted in an ethical manner, the Council
established a Donation and Solicitation Policy. A list of Town needs was developed to identify goods, services,
and other contributions to enhance Town services, programs, and events. The recommended needs for FY
2022/23:
PUBLIC SAFETY
Volunteer Program Materials and Equipment
Specialized Public Safety Equipment and Supplies, including Support for Canine Program
Training Support for Public Safety Staff and Volunteers
Equipment, Supplies and Materials to support Police Operations
Community Outreach Program Supplies
LIBRARY SERVICES
Children, Youth, and Adult Program Collections, Supplies and Services
Library Books, media items and other items for public circulation
Funding to Support Technological Enhancements, including Digital Services
Equipment and Services to Support Historical Preservation Efforts
Resource support for Collection Development and Reference, Local History, and Library Policy
SENIOR SERVICES
Home emergency kits geared towards the needs of seniors
Senior Service Committee seeks targeted solicitations for community engagement per the Town
Solicitation and Donation Policy.
COMMUNITY EVENTS
Supplies, Materials, and Services for Special Community and Volunteer Events and Activities
Funding for the realization of Public Art projects or Donations of Public Art subject to Public Art
Selection Policy
TOWN PARKS AND FACILITIES
Beautification Materials and Services for Town Parks, Open Space, and Infrastructure; Land for Parks
and Open Space
Contributions that Support Recreation or Expansion of Athletic Fields
Contributions that support multi-modal transportation.
SUSTAINABILITY
Contributions to Help Minimize Impacts on Local, Regional, and Global Ecosystems through
Conservation, Reduced Pollution, Increased Efficiency, and Protection of Wildlife, Vegetation, and
other Ecosystems.
TECHNOLOGY
Equipment, Software and Services to Enhance Communication with the Public and Organizational
Productivity
ATTACHMENT 9
Town of Los Gatos Council
The Honorable Mayor Rennie, Vice Mayor Ristow, and Council Members Badame, Hudes, and Sayoc
110 E. Main St.
Los Gatos, CA 95030
May 11, 2022
Dear Mayor Rennie, Vice Mayor Ristow, and Council Members Badame, Hudes, and Sayoc,
I am writing today to thank the Council for continuing rent forgiveness for NUMU in FY23.
Thank you for including another year of rent forgiveness for FY 2022/23 as shown in the In Kind Donations FY 2022
Summary in the Proposed Town FY 2022/23 Operating Budget: “....rent forgiveness is recommended for NUMU in FY
2022/23 with backfilling this revenue loss with the ARPA funds.” This is in line with the Council’s priority to use part of
American Recovery Act (ARPA) funds to provide rent forgiveness to non-profit organizations.
The Town’s rent forgiveness has been a true lifeline for all of our efforts to support the Town’s Strategic Priorities, and is a
testament for what we can achieve together. Please approve rent forgiveness in FY 2022/23 for 106 E. Main Street to
support NUMU’s ongoing responsibility to maintain and steward the Town of Los Gatos’ history collection and provide
arts, history, and cultural educational services to the Los Gatos community and support NUMU’s critical role in
maintaining–and expanding–the Town’s cultural footprint.
NUMU’s relationship with the Town of Los Gatos is vital to us and our ongoing ability to serve our community. We look
forward to further conversations about our partnership. Thank you from all of us for your continued support.
In partnership,
Ami Davis | Executive Director