Addendum.FiveYearForecast
PREPARED BY: Gitta Ungvari
Interim Finance Director
Reviewed by: Town Manager, Town Attorney, and Assistant Town Manager
110 E. Main Street Los Gatos, CA 95030 ● (408)354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 08/11/2022 ITEM NO: 1 ADDENDUM
DATE: August 10, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Updated Five-Year Financial Forecast to Reflect the Town’s New
Labor Agreements
REMARKS:
Attachment 1 contains correspondence received after publication of the agenda on August 9,
2022 and before 11:00 a.m. on August 10, 2022.
Attachment Provided with this Addendum:
1. Public Comment
From: Phil Koen
Sent: Wednesday, August 10, 2022 7:41 AM
To: Rob Rennie <RRennie@losgatosca.gov>; Maria Ristow <MRistow@losgatosca.gov>; Marico Sayoc
<MSayoc@losgatosca.gov>; Mary Badame <MBadame@losgatosca.gov>; Matthew Hudes
<MHudes@losgatosca.gov>
Cc: Laurel Prevetti <LPrevetti@losgatosca.gov>; Arn Andrews <aandrews@losgatosca.gov>; Gabrielle
Whelan <GWhelan@losgatosca.gov>; jvannada; Rick Van Hoesen Lee Fagot
Subject: Impact of Operating Deficits on General Fund Balance - Agenda Item #1 Special Meeting August
11, 2022
EXTERNAL SENDER
Dear Mayor and Council Members,
I have attached an additional spreadsheet which shows two important pieces of information for your
consideration as you receive the updated Five-Year Financial Forecast.
First, the updated forecast projects that the Town’s General Fund Balance, which as of June 30, 2021,
had a balance of $23,914,618 will be essentially liquidated by the end of fiscal year 2028 assuming no
further changes. Based on this revised forecast, which does not include realistic increases for further
salary increases for Staff beginning in FY 25, the General Fund balance will be approximately $1.1 million
at the end of FY 28 .
The forecast assumes that all of the budget stabilization and catastrophic reserves will be consumed to
fund the operating deficits and only restricted and non- spendable reserve balances totaling $1.1 million
will remain. Receiving this forecast as is, should not be taken lightly and hopefully the weakened
projected financial condition of the Town is not lost on this Council. Additionally, I am unsure of the legal
ramifications of liquidating all of the rainy-day funds since these are committed reserves controlled by
the Council.
Secondly, I have added the projected surplus that was shown on the FY 18/19 budget book as a separate
line item. I realize that this was pre- Covid and obviously the Town’s finances have been impacted to
some degree by Covid. As you can see, for FY 24 the FY 19 forecast was projecting a surplus of $.2
million which has now been revised downward to a $3.8m deficit. That is a $4 million turn around in the
FY 24 forecast, which is only two years away. Substantially all of this decrease can be directly attributed
to a $4.9 million increase in salary expenditures for FY 24 when comparing the two forecasts. One simply
cannot blame the Town’s dramatic financial reversal solely on the impact of Covid while ignoring
financial decisions that have been made by this Council.
Let me close by saying, these forecasts have been produced by the Staff. Presumably, the forecasts are
accurate based on all known data and are a fair representation of the Town’s financial future. It might
have been helpful for the Staff to include the impact on the General Fund in their work product and to
show the forecasted impact of an increase in business license taxes on the General Fund Balance.
Obviously if enacted, the incremental revenue will help, but it will not be sufficient to prevent the
liquidation of the General Fund Balance as shown. It will only delay the timing of when the General Fund
is exhausted.
Thank you.
Los Gatos Community Alliance
ATTACHMENT 1
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PAGE 2 OF 3
SUBJECT: Updated Five-Year Forecast to reflect the Town’s new Labor Agreements
DATE: August 8, 2022
DISCUSSION (continued):
meeting utilizing additional funding from the OPEB 115 Trust to fund retiree pay-go medical
payments directly and allocating the remaining residual Measure G balance to the General Fund
for FY 2022/23.
Given the recent budget adoption, the Forecast on the following page has been updated to
reflect only the adjustments to salary and benefit costs.
Staff anticipates updating revenues and other elements of the Forecast in the coming months
as part of the normal Mid-Year Budget and Forecast development cycle.
The following table illustrates the previous projected deficits relative to the updated Forecast.
Original 5 Year Forecast 2023/24
Forecast
($M)
2024/25
Forecast
($M)
2024/25
Forecast
($M)
2024/25
Forecast
($M)
2024/25
Forecast
($M)
Original Surplus/Deficit ($2.2) ($2.9) ($2.3) ($2.5) ($2.6)
Updated Surplus/Deficit ($3.8) ($4.3) ($3.7) ($4.0) (4.0)
This information was presented to the Finance Commission at its August 8, 2022 meeting. The
Commission did not provide any specific comments on the updated Forecast. Rather, the
Forecast provided a starting point for the Commission to identify the types of information it will
need to evaluate costs and revenues and recommend deficit reduction options pursuant to
Town Council direction.
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Original 5 Year Forecast FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28
Surplus/Deficit
FY 19/20 0.1 0.3 0.2
FY 22/23 original 0.6 0 -2.2 -2.9 -2.3 -2.5 -2.6
FY 22/23 revised 0.6 0 -3.8 -4.3 -3.7 -4 -4
Projected GF Balance - ending 22.9 20.9 17.1 12.8 9.1 5.1 1.1