11 Staff Report - Status Report for 2007/08ors N 0 MEETING DATE: 10/15/07
ITEM NO:
to°os COUNCIL/AGENCY AGENDA REPORT
s G aS
DATE: OCTOBER 15, 2007
TO: MAYOR AND TOWN COUNCIL/
CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY
FROM: PAMELA JACOBS, INTERIM TOWN MANAGER/EXECUTIVE DIRECTOR
SUBJECT: FISCAL YEAR 2007/08 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2007 - SEPTEMBER 30 2007
A. ACCEPT 2007/08 FIRST QUARTER BUDGET PERFORMANCE STATUS
REPORT.
B. AUTHORIZE BUDGET ADJUSTMENTS AS RECOMMENDED IN THE
ATTACHED FIRST QUARTER BUDGET PERFORMANCE REPORT.
RECOMMENDATION:
1. Accept Fiscal Year 2007/08 first quarter budget performance and status report.
2. Authorize budget adjustments as recommended in the attached first quarter budget
performance report.
PURPOSE:
The purpose of this report has three primary goals. First, the report informs the Town Council on
the status of the Town's FY 2007/08 Adopted Budget and status of the local economy at the first
quarter. Second, staff provides the Town Council an update on the preliminary General Fund
financial results (unaudited) as of June 30, 2007. Third, the report includes staffs most recent
five year budget forecast which informs the evolving budget status for FY 2008/09 and beyond.
BACKGROUND:
The attached Budget Performance Report covers the first three months of the fiscal year
begirming July 1, 2007 and ending September 30, 2007. The report presents analysis and
recommendations related to key General Fund revenues by category and expenditures by fund.
PREPARED BY: SiW""~ N~~ D NWAY
Finance and ministrative Services Director
N:AMGR\AdminWorkFi1es\2007 Council Reports\Town Council 1st Qtr Report 10-I i-07.doc
Reviewed by: Assistant Town Manager/Deputy Director ("Town Attorney/General
Counsel Clerk Administrator/Secretary -Finance
Community Development
PAGE 2
MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT
AGENCY
SUBJECT: FISCAL YEAR 2006/07 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2007 - SEPTEMBER 30, 2007
OCTOBER 15, 2007
Staff provides to Town Council periodic updates on the status of the current year's adopted
budget revenues and expenditures and the projected financial condition of Town funds,
concentrating on the Town's General Fund. Though financial results are limited to the first three
months, staff is able, to provide an update based on early revenue trends for the current fiscal
year, and to advise on potential future revenue and expenditure challenges which may
materialize during the fiscal year.
DISCUSSION:
The attached first quarter budget report reflects a mix of positive news about last year's fiscal
results, and a concern that the recovery in the Town's economically-sensitive operating revenues
such as the sales tax, transient occupancy tax, and property tax will be negatively impacted from
the effects of slowdowns in the local real estate market. In August 2007, the California
Association of Realtors reported existing home sales were down 27.8 % statewide from the prior
year. Average home prices decreased 5.1% from the year before. Economists point out that
declines in housing prices tend to have a dampening effect on consumer spending. Any
significant further rise in energy costs also has the potential to impact the Town's local
economically-sensitive revenue base. National economists predict that as fuel prices rise, the
buying power of consumers is eroded, leaving fewer dollars available for discretionary spending.
If this occurs, the moderate recovery which appeared to be materializing in the Town's operating
revenues last year and early this fiscal year may become stalled at some point.
Service delivery in FY 2007/08
In the FY 2007/08 "status quo" budget, staff conservatively forecasted continuing recoveries in
local revenues and incorporated modest revenue growth in economically-sensitive revenues such
as sales tax, franchise fees, business license and transient occupancy taxes. While avoiding
another consecutive year of service level reductions in FY 2007/08, the reductions carried over
from the prior year continue to have effects on operations overall. Holding vacancies and
reducing staffing and overtime result in the current workforce absorbing more of the workload,
thus affecting the capacity to deliver services and limiting the flexibility to respond to new ideas
and/or increased service demands. Response times associated with non-public safety requests
have increased. Parks and public works related maintenance cycles have been extended or
reduced, as well. Over the longer-term, staff's goal of achieving the highest quality of service
levels possible is constrained by available resources to fund them.
FY 2008/09 and Beyond: Continuing Challenges Ahead
Staff remains attentive to the goal of preserving the Town's economic vitality. The most recent
update to the Town's Five-Year Financial Plan presented on the following page continues to
project potential revenue shortfalls developing in future years. However, the current update
indicates two important points: The first is that the efforts the Town has accomplished in the
PAGE 3
MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT
AGENCY
SUBJECT: FISCAL YEAR 2006/07 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2007 - SEPTEMBER 30, 2007
OCTOBER 15, 2007
past four years have generated positive fiscal results in spite of a lingering soft local economy
and the closing of three automobile dealerships in the past two fiscal years. Second, if recoveries
continue in economically-sensitive revenues and service delivery costs are contained, the
projected shortfalls will be reduced accordingly. However, downward adjustments to the
Town's operating budget are expected to be necessary to avoid the future shortfalls forecast for
FY 2010/11.
The updated Five-Year Financial Plan is based upon estimated costs of labor and benefits which
represent approximately 70% of General Fund operating costs, and assumptions for modest
increases in revenues associated with a gradual economic recovery from the downturns
experienced in recent years. The plan currently projects revenue shortfalls ranging from
$574,000 to $LOM in future years that must be managed pro-actively by the Town. To address
this, the Town is continuing its multi-prong efforts to achieve operational efficiencies, cost
reductions, reductions in non-vital services, and revenue enhancement efforts. An analysis of
fees for cost recovery levels will also be undertaken as in years past. As the budget tightens each
fiscal year, the ability to reduce operational expenditures without service impacts becomes
increasingly challenging.
The Five-Year Forecast assumes that the State property tax swap or "back-fill" of approximately
$1.2 million in Car Tax for local property tax will continue to be implemented permanently in
each annual budget bill as promised by the State. Revenues are presented optimistically with
varying growth rates, 5% on average for tax revenues and 3% for charges for services.
Expenditures are derived from a database using actual costs and adjusting for future known
increases in labor costs if multi-year labor agreements are in effect, and actuarial updates for
retirement and other benefit costs as provided by PERS or other information sources available to
the Town.
Each of the years presented in the plan assume that adjustments made to the budget to eliminate
the revenue shortfall in FY 2007/08 and beyond are "permanent" adjustments, thereby reducing
the level of shortfall in the following fiscal years. It is possible to make some adjustments
through one-time solutions or prudent use of bridge funding on a year-to-year basis. The
Revenue Stabilization Reserve is available for this purpose. However, problems that are truly
structural should be addressed eventually with new revenue sources or reduced expenditures in
an ongoing way.
PAGE 4
MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT
AGENCY
SUBJECT: FISCAL YEAR 2006/07 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2007 - SEPTEMBER 30, 2007
OCTOBER 15, 2007
TOWN OF LOS GATOS-GENERAL FUND
Five-Year Financial Plan FY 2007/08 Through FY 2011/12
ACTUAL
ACTUAL
ACTUAL
ADOPTED
PROJECTED
PROJECTED
PROJECTED
PROJECTED
Revenue Summary
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Sales Tax
$1,904,129
$8,655,566
$9,253,891
$8,231,100
58,490,400
$8,7457100
$9,007,400
$9,277,600
Property Tax
5,302,061
5,831,822
$6,594,056
86,727,220
56,976,200
57,244,500
S7_513_900
$7,814,300
Charges for Services
2,920,356
3,006,634
$3,967,735
$3,371,470
$3,026,000
$3,060,300
$37097,100
$3,136,100
Business Licenses
1,056,814
1,019,386
$1,176,422
$1,920,400
$1,015,000
$1,030,200
$11045,700
$170617400
CarTax/VLFProp TaxSwap
1,554,932
2,096,704
$2,003,271
$2,030,360
$2,069,900
$2,111,300
$2,153,500
$2,218,100
Intergovernmental Rev.
27316,962
2,606,356
$2,252,682
$2,168,025
$2,234,085
$2,273,563
$2,319,650
$2,367,575
Other Lic, and Permits
1,360,390
1,584,662
$1,503,014
$1,050,000
$1,754,800
$1,788,500
$1,823 1,823,000
51,858,200
Investment Earnings
905,704
1,385,266
$2,576,062
$1,498,300
$1,639,900
$1,657,300
$1,674,800
51,692,500
Franchise Tax
942,648
1,130,190
$1,162,038
$1,603,180
$1,618,400
$17661,500
51,705,800
51,751,400
Hotel/MotelTax
868,908
1,028,664
$1,108257
$1,000,000
$1,030,000
$1,060,900
51,09'_,700
$1,125,500
Fines & Forfeitures
580,937
210,888
$214,565
$525,405
$465,300
$473,800
5482,500
5491500
Transfers & Use of Reserves
494,165
430,839
51 14,410
$400,500
$221,700
5223,200
$224,700
S226,200
Miscellaneous
247958
2,738,297
$599.015
$545100
$1406,450
$1406.450
$1206450
S1,206,450
Total Revenues
26,455,964
31,725,274
32,525,478
31,071,060
31,948,135
32,736,613
33,357,200
34,226,825
Town Expenditures
Salary
11,415,065
11,439,231
11,126,609
13,113,656
14,482,650
14,636,889
15,183,718
15,698356
Elected Officials
72,590
237340
23 340
23,200
23,340
23,340
23,340
23340
Temporary Employees
353,871
437,250
6747865
465,193
496,579
51.3,959
531,948
550,566
Overtime
494,170
542,624
663,992
4427900
436,476
451,753
467,564
483,916
Other Salary
572,258
571,011
755,638
396,899
201,591
206,955
213,414
218,968
Benefits
4,101,626
4,764,717
4,698,961
5,560,532
5,855,647
6,222 903
67626,042
7,094,757
Supplies, Materials, & Serv ices
3,256,678
3,287,777
4,763,774
5,107,209
4,278,725
4,402,850
4,564,200
4,739,000
Grants & Awards
1777578
178,359
184,329
150,326
116,410
176,410
176,410
176,410
Utilities
409,610
4287744
458,385
200,522
370,600
386,960
404,200
422,410
Fixed Assets
-
192,343
46,556
-
-
-
-
-
Internal Service Charges
2,820,428
2,849,969
3,091,387
3,312,300
3,347,500
3,447,925
3,551,363
3,657,904
Debt Service
930,710
932,122
931,078
930,790
931,850
931,100
929,050
932,100
Operating Transfers Out
182,876
67,673
230,827
-
610,000
610,000
610,000
610,000
GEAR Capital Transfers Out
75,000
475,000
4,194,094
989,370
650,000
650.000
650,000
650.000
Total Expenditures
24,812,461
26,190,160
31,843,835
30692,897
31,861,368
32,661,044
33,931,249
35,257,727
Net Revenues Less Expenditures
1,643 503
5,535j 14
681,643
378.163
86,767
75,569
7,11;-01
J10.9(;1 j
Special Consideration - Governmental Accounting Standards Board Statement #45
Effective FY 2008/09, the Town will be required to fully accrue its actuarial determined liability
for the Town's contribution to retiree health care premiums under the provisions of the
Governmental Accounting Standards Board (GASB) Statement #45-Other Post Employment
Benefits. The Town has historically budgeted and expensed these benefits on a "pay-as-you-go"
basis, a standard procedure for most local governments under generally accepted accounting
principles.
Under GASB's new accounting standard, the Town is required to accrue a liability for the cost of
post-retirement benefits, using actuarial methods to estimate expected future costs for a
calculated portion of the current workforce that will retire under the Town's retirement benefit
program. Assumptions will be made about the level of benefits and the number of eligible
employees who will eventually retire from the Town. This will be offset by future accrued
investment earnings expected to be earned in a separate irrevocable trust account that is usually
recommended by actuarial consultants to be established by local governments to provide a
funding account for these benefits.
PAGE 5
MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT
AGENCY
SUBJECT: FISCAL YEAR 2006/07 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2007 - SEPTEMBER 30, 2007
OCTOBER 15, 2007
Since the actuarial study is not yet completed, the Five-Year Financial Plan does not reflect these
benefit costs on an actuarially determined basis (the Town expects the study to be completed by
December 2007). With the understanding there would be potentially significant increases in
future years, a 25% annual retiree benefit cost increase was built into the Five-Year Forecast;
however, until the study is completed true liability estimates are unknown. Although accrued
expenses will increase, actual cash payments to retirees are expected to trend much as they have
in the "pay-as-you-go" basis. The difference between the accrued annual expense and the actual
cash payments made annually by the Town will likely be phased-in over a period of
approximately 10 to 20 years until the full annual actuarial accrual of this expense is achieved.
Until then, the difference between amounts set aside by the Town and the actuarial liability will
be booked at year-end either as a liability or asset on the Town's financial statements. As a
result of GASB 45, the future updates of the Five-Year Financial Plan will include potential
increases to the annual expenditures for cash payments made to the post retirement trust account
used to fund post retirement benefits.
Conclusion
The Town has managed very effectively through the budget challenges in recent years.
Shortfalls were dealt with, priority services maintained, and General Fund contingency reserves
are intact. However, with the most current update to the Town's Five-Year Financial Plan
indicating projected shortfalls beginning in FY 20010/11, the need to remain fiscally aware
continues to be a high priority for Town staff. Key goals are to minimize the impact on Town
services, maintain the community's quality of life, and remain a competitive employer while
sustaining the Town's fiscal health.
FORMAT OF THE REPORT
The attached Budget Performance Report includes a financial overview comprised of: a brief
discussion of the Town's financial condition; the FY 2007/08 financial outlook; a summary of
the performance of the Town's primary General Fund revenue sources and necessary budget
adjustments; and a look ahead at the FY 2008/09 budget process.
ENVIRONMENTAL ASSESSMENT:
This budget report is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
The attached First Quarter Budget Performance Report includes a section providing a detailed
list of recommended expenditure and revenue budget adjustments recommended for the first
quarter of FY 2007/08. Upon approval of the recommended budget adjustments by Town
Council, the adopted appropriations for the fiscal year will be adjusted accordingly.
Attachments:
Budget Performance Report for the Three Months Ended September 30, 2007
TOWN OF LOS GATOS
BUDGET PERFORMANCE REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
October 15, 2007
FINANCIAL OVERVIEW - EXECUTIVE SUMMARY
Status of FY 2007/08 Adopted Budget:
First Quarter results are trending positively overall, with revenue collections on pace with
amounts collected the prior year. Despite the loss in recent years of three automobile dealerships,
sales tax receipts for the first quarter are trending slightly ahead of collections for the prior year.
The chief reasons for this are the continued success of one internet commerce retailer and a solar
energy retailer, whose continued growth has allowed the Town to sustain the loss of three of top
ten businesses in the Town's portfolio of sales tax generators. Another favorable trend is the
continued economic recovery of the downtown. Sales tax collections, excluding new car sales, for
the quarter ending June 30, 2007 (the most recent quarter available) were up approximately 1.5 %
for the prior year. Restaurant sales taxes for the period were the highest generated in the past two
years, up 6.5 % from the prior year.
Department expenditure totals for the first quarter FY 2007/08 are also trending favorably, with
spending at the end of the first quarter averaging 21% expended, or 4% below the 25%
benchmark level used for three months of 12 months operations. With only three months of data
available, it is difficult to predict revenues and expenditures for the whole year. The uncertainty
of the economic effects of potential rises in energy costs or a more dramatic downturn in the local
real estate market may impact consumer behavior. In light of this uncertainty and being fully
aware that the local economy's recovery remains vulnerable, staff continues to be cautiously
optimistic while monitoring fiscal developments very closely. Consequently, further adjustments
may be necessary during the fiscal year. Any mid-year course corrections or budget adjustments
necessary to balance operating revenue and expenditures will be brought to Town Council's
attention at the earliest opportunity.
State Budget Fiscal Impacts to Town for FY 2007/08:
Highlights from the FY 2007/08 state budget package are the following:
No Additional State Property Tax Shifts Enacted -Proposition IA and its Influence on the
State Budget Process -With the successful passage in November 2004 of Proposition IA
restrictions exist on future legislative authority to reduce or reallocate local revenues from the
sales tax, property tax, or vehicle license fee (VLF). Namely, the state is prevented from:
• Reducing local sales tax rates or altering the method of allocation
• Shifting property taxes from the Town to fund other state programs
• Decreasing VLF revenues without providing replacement funding
• Enforcing unreimbursed mandates (with certain exceptions)
Proposition IA prohibits further state revenue "takes" from local government as itemized
above. However, Proposition IA contains provisions for additional state revenue "takes."
Specifically, starting in FY 2008/09, in an emergency and by a vote of two-thirds of both
houses of the Legislature and the approval of the Governor, the Town's share of property tax
could be "taken" or shifted to state programs. It must be repaid, with interest, within three
years. The state could also approve voluntary exchanges of sales and property tax revenues
among local governments within a county. These transfers of taxes and funds would not need
voter approval. With this in mind, it is important to note that currently the State is facing a
projected $3.4 billion shortfall for FY 2008/09 and another $2.5 billion for FY 2009/10.
Property Taxes Shift to K-14 District - While the FY 2006/07 state budget bill ended the two
year $1.3 billion property tax shifts from cities, counties, special districts, and redevelopment
agencies to K-14 district schools for the fiscal benefit of the state, the FY 2007/08 budget was
balanced without a recommended property tax shift. The state continues to project future
budget deficits, so local government finance should never be considered immune from the
potential of future state revenue takes.
Status of Proposition 42 Transportation Funding - The FY 2007/08 state budget bill
provides no Proposition 42 funds for local streets and roads because cities received funding in
two prior fiscal years when other state transportation programs did not. On a positive note,
beginning in FY 2008/09, cities and counties will receive approximately double their
allocations if Proposition 42 is funded in the state budget. The Town's share is estimated to
be approximately $297,000 in FY 2008/09.
State Mandates -The FY 2007/08 does not include funding for mandated claims incurred by
the Town this fiscal year. However, a trailer bill was passed appropriating the full payable
amount in the annual state budget for mandates for which costs were incurred in the prior year.
Thus, claims for FY 2007/08 will be paid in the state FY 2008/09 budget. The cost
reimbursements are for Town costs related to state mandated activities such as certain public
safety regulations, investment reporting, and Open Meetings Act, among others.
Restores Booking Fee Authority and Reimbursements - The State budget bill appropriated
$35 million for county sheriffs, for local detention facilities and prohibits counties from
charging jail booking fees to cities or other local agencies. Counties will have the authority to
charge a new "jail access fee" for bookings in excess of an agency's three year average for
low-level offenses.
Effects of State Budget Package on FY 2007/08 Operating Revenues:
The changes to Town revenue structure first implemented as budget adjustments in FY 2004/05
are recapped below for purposes of clarification and comparison:
Sales Tax - The Sales Tax revenue estimate is $8.2 million for FY 2007/08. The state's
Economic Recovery Bonds, approved by the voters in March 2004, were secured by a pledge of
revenues from an increase in the state's share of the sales and use tax of one-quarter cent
beginning July 1, 2004. The Town's one per cent local share of the tax was reduced by one
quarter and, in exchange, the Town receives an equal amount of property shifted from state
property tax collections during the term the one-quarter cent is being used by the State to pay off
the bonds (estimated to be between 9 and 14 years). Effects on the current year budgeted amounts
are shown below:
FY 2007/08 Post State Budget
Revenue
FY 2007/08
After Implementation of "Triple Flip"
Type
Adopted
Effective 7/1/2004
Sales Tax
$5,920,200
Rate of 1% of 8.25% changed under budget bill
to (.75% of 8.25% sales tax rate) for a period of
between 9 and 14 ears.
Sales Tax
$2,310,900
(.25% of 8.25% sales tax rate) This amount now
Replaced
is dedicated to the state, but the "triple flip"
With
provisions of the state budget bill (SB 1096)
Property Tax
replaces the lost Town sales tax with additional
state property tax to make the Town "whole."
The amounts are paid twice annually by County
of Santa Clara with a final settlement paid in
August following the fiscal year.
Totals
$8,231,100
Total Sales Tax and Replacement Property
Motor Vehicle License Fees (VLF-"Car Tax" -The budget package permanently replaces the
Town's backfill revenues with an equal amount of property taxes paid out of the state General
Fund.
FY 2007/08 Post State Budget
Revenue
FY 2007/08
After Implementation of "Triple Flip"
Type
Bud eted
Effective 7/1/2004
Car Tax-
$163,200
Rate reduced legislatively to 1/3r of the former
Remaining
rate (2.0%). This tax is constitutionally dedicated
Town
to local government. The Town continues to
Share
receive the tax collected, but at the reduced 1/3 rd
level (.65%).
Car Tax
$2,030,360
The budget package permanently replaces the
Backfiil
Town's VLF backfill revenues with an equal
Eliminated
amount of property taxes paid "in lieu" of car tax
and Replaced
revenue out of the property taxes forwarded by
By an Equal
the County to the State's General Fund.
Amount of
Property Tax
Totals
$2,193,560
Total VLF and Replacement Property Tax
Prior Fiscal Year Closing Results:
The FY 2006/07 closing financial results continue to affirm the positive effects of the Town's
pro-active budgetary actions taken in response to the continuing flat revenue growth or downturns
in key operating revenues the Town experienced since FY 2001/02. In developing the FY
2006/07 "status quo" budget, Town Council approved a combination of budgetary initiatives that
held the line on service level delivery coupled with revenue adjustments in the Town's "Charges
for Services" category. The bulk of these fees are to recover costs related to private development
activity aligning fees charged for services with the current cost incurred by the Town. This
strategy coupled with the effect of Town-wide expenditure reduction strategies continued from
prior years and other revenue gains like continued strong performance by Netflix sales tax
generated a favorable General Fund closing balance of approximately $4.8 million of available
revenues over expenditures at fiscal year end June 30, 2007. This balance was reduced by
approximately $4.2 million to provide funding for approved capital projects, resulting in excess
revenue above expenditures for FY 2006/07 of approximately $680,000.
The Town's General Fund reserves closed the year (unaudited) at a total of approximately $19.0
million (including the Town's Reserve for Economic Uncertainty intact at $3,678,000), compared
to $18.1 million balance upon the close of the prior year, an increase of approximately $900K in
total General Fund reserves.
The following factors were key in contributing to the $4.8 million in General Fund revenues
above expenditures for the fiscal year, before this amount was reduced by $4.2 million to fund
approved capital projects:
• Sales tax revenue final collections exceeded mid-year estimates by approximately $1.1
million due primarily to stronger than expected performance by Netflix.
• Plan check and building permit fees were approximately $795,000 above estimates made
at mid-year FY2006/07. Revenues collected last year for work to be performed in this
fiscal year were recorded as unearned revenue, earmarked as such in the General Fund,
and accordingly were not included in the determination of revenues available for reserve
designation at fiscal year end.
• Investment earnings exceeded mid-year estimates by approximately $935,000 largely due
to increases in the overall interest yield market.
• General fund expenditures were approximately $530,000 below the approved adjusted
budget levels for FY 2006/07.
• Property taxes collected exceeded mid-year estimates by approximately $125,000 due to
continued turnover of Town properties and their attendant new valuations.
It should be emphasized that operating revenues for FY 2006/07 included $300,000 in funds
which had accumulated as a liability from prior years but were not used for PERS costs. These
revenues were used to offset the large PERS increases which have occurred during the recent
downturn in the economy. Currently the Town's strategy is to use these accumulated PERS
rebate funds to establish a cost/revenue smoothing effect over the next 5 to 10 years.
In each fiscal year it is likely that the Town's cost of services will be impacted by scheduled labor
and benefit cost increases and other operating expenditure increases. It is reasonable to anticipate
these costs to trend upward in the future if for no other reason than inflationary pressures. This
reality will continue to require strong performance in the Town's economically-sensitive
revenues to offset the cost increases likely to occur. The Town's efforts over the past five years,
including expenditure reductions, alignment of user fees to cost of service delivery, operational
reviews and service level adjustments, along with ongoing efficiency efforts have allowed the
Town's revenue base to keep pace with the cost of providing services and provide funding for
much needed capital improvements such as road resurfacing, sidewalk repairs, retaining walls,
and trail and park facility refurbishments.
General Fund Reserve Status - June 30, 2007
General Fund reserves are classified into two categories - Restricted and Designated. Restricted
reserves are those which are restricted in use by accounting standards or legal agreements and are
not considered as available for use for another purpose. Designated reserves are established by
Council policy for an intended purpose. Currently Restricted Reserves in the General Fund are
approximately $4.7 million as presented below.
Restricted General Fund Reserves Amount
Reserved for RDA Loan $4,220,000
Reserved for LT Notes Receivable 512,394
Reserved for Grant Funds & Carryovers (5,818)
Total Restricted General Fund Reserves $4,726,576
As stated earlier the total General Fund Reserves closed at a balance of approximately $19.0
million at June 30, 2007. In addition to the approximate $4.7 million of General Fund Reserves
set aside for restricted purposes, the Town has approximately $14.3 million in designated reserves
established in accordance with Town financial policies and operating and capital budget
requirements. The Designated Reserves presented below include the newly established Revenue
Stabilization Reserve created by the Town upon the adoption of the FY 2005106 budget.
Designated Reserves:
Designated for Revenue Stabilization $4,817,445
Designated for Capital & Special Projects 4,325,011
Designated for Economic Uncertainty 3,678,001
Designated for Civic Center Improvements 663,086
Designated for Open Space 562,000
Designated for Mgr's Contingency & Prod. 200,000
Designated for Authorized Carryforwards 31,910
Total Designated Reserves $14,277,453
The Reserve for Capital and Special projects, whose source is derived from half of the annual
availableGeneral Fund budget savings, serves as the primary source for replenishment to the
Town's Capital Improvement Fund (GEAR) in addition to the annual budgeted transfer from the
General Fund's operations of $150,000. As such, it represents the source for a large number of
unfunded needs identified during the annual capital improvement plan process. This reserve also
functions as a potential funding source for new capital projects or augmentations to authorized
projects funded through the Town's Five Year Capital Improvement Program (CIP). The "Town
continues to be challenged in identifying an ongoing source of funds to meet the annual $1.5
million recommended for the street repair and maintenance program and other priority
infrastructure improvements such as sidewalk repair and replacement.
The Revenue Stabilization Reserve was established to serve as a transitional or "bridge" funding
source that could be used to mitigate or smooth out cyclical ups and downs in locally generated
revenues due to temporary downturns in the local economy or "one-time" revenue losses where
recovery of the revenue base is deemed likely to be restored in the near future.
In its public communications, staff refers to the $14.3 million in Designated General Fund
reserves as the Town's "reserves" since these are established by Council policy for their intended
purpose. The availability of approximately $14.3 million in Designated General Fund reserves
provides the Town with resources to manage through future fiscal challenges and opportunities,
mindful of the many competing priorities for resource allocation, ranging from restoration of core
services to the community to a large amount of unfunded capital improvements.
5
GENERAL FUND - KEY REVENUE ANALYSIS FY 2007/08
The following provides the status of significant General Fund revenue sources as of the first
quarter ending September 30, 2007. Staff monitors each revenue source closely and at this time
recommends certain revenue adjustments based on revenue actuals or state budget actions.
Adjustments necessary (if any) will be brought forward to Town Council for approval at mid-year
(approximately February 2008), when more revenue data is available.
6
FINANCIAL OUTLOOK FY 2007/08
♦ Saes Tax Revenue
Los Gatos Sales Tax Revenue receipts are a result of
a formula that allocates 1.0 cent of the 8.25 cents of
local sales tax collected per $1 dollar of sales by
merchants on retail sales and taxable services
transacted within the Town of Los Gatos.
Under the "triple flip" allocation now in effect, the
State Board of Equalization reallocates .25 cents of
the 1.0 cents share Los Gatos receives, and replaces
it with an equal amount of property tax revenue.
Sales Tax revenues are remitted to the Town on a
monthly basis and placed in the General Fund for
use in general operations.
Quarterly Analysis
According to California's Department of Finance,
California's economy is showing signs of slowing
with the cooling of the housing market. A fall-off in
real estate activity is expected to trickle down to
decreases in the State's related labor and retail
markets. In addition, the decrease in gasoline prices
since August is reflected in lower than expected
receipts for the State. More data will become
available as the fiscal year progresses.
First quarter Sales Tax revenues are slightly above
last year's 1" quarter receipts, however as revenue
timing is inconsistent from year to year, 1` quarter
receipts do not provide sufficient data for annual
revenue analysis. Because of strong performance by
other tax generators like Netflix, this revenue
category has absorbed the loss of three automobile
dealers in recent years. However, this revenue
continues to be vulnerable to the loss of other large
Sales Tax generating businesses located in the
Town.
To offset the vulnerability resulting from one vendor
responsible for a sizeable portion of the Sales Tax
Revenue, the Town should continue to seek a more
balanced portfolio of business sectors to generate
sales tax.
Quarterly and Annual Revenues
5-Year History
$10,000,000
$8,000,000
$6,000,000
54,000,000
$2,000,000
l st Quarter
Actual Revenues
O Fiscal Year Total
Actual Revenues
■ Fiscal Year
Budgeted j
Revenues
i
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
1 st Quarter Actual Revenues $ 1,515,570 $ 1,514,045 $ 1,392,150 $ 1,407,997 $ 1,568,805
Fiscal Year Total Actual Revenues $ 6,914,526 $ 7,904,130 $ 8,655,565 $ 9,253,891
Fiscal Year Budgeted Revenues $ 8,231,100
FY 2004/05 forward will reflect the Sales Tax In Lieu paid by Santa Clara County
1 st Quarter Percent of Total 21.92% 19.16% 16.08% 15.22% 19.06%
Recommended Budget Revision No Change
7
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
M
FINANCIAL OUTLOOK FY 2007/08
♦ Property Tax Revenue
Property Tax Revenue accounts for 21.7% of the
Town's budgeted General Fund revenues for FY
2007/08. As Property Tax distributions are largely
received in the third and fourth quarters of a fiscal
year, the revenue receipts are not reflected
proportionately in the chart below, by quarter.
The passage of California's Proposition 13 in 1978
limited both the tax rate that can be levied on
property to 1% rate of a property's assessed value
(plus voter approved bonds, service fees,
improvement bonds, and special assessments) and
established a property's original tax base as its
1975/76 assessed value. The assessed value is
subsequently adjusted by no more than a two percent
inflation factor thereafter until the property changes
hands or new construction occurs:
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
The Town currently receives approximately 9.5
cents of each dollar paid to the Assessor's Office.
Once ownership changes, property is reassessed to
its current market value, meaning real property
values critically impact revenues.
Quarterly Analysis
First quarter tax receipts do not provide enough data
for analysis as the majority of property tax revenues
are received later in the fiscal year. Of note
however, is that the Santa Clara County Assessor
continues to provide a positive growth outlook in its
FY2007/08 Annual Report, even with the
expectation that the housing market is cooling. All
cities continued to show positive growth over the
last year, with Los Gatos experiencing an overall 8%
increase in assessed value in FY 2006/7
Quarterly and Annual Revenues
5-Year History
■ 1 st Quarter Actual
Revenues
O Fiscal Year Total
Actual Revenues
■ Fiscal Year
Budgeted Revenues
FY 03/04
FY 04/05
FY 05/06
FY 06/07
FY 07/08
1st Quarter Actual Revenues
$ 86,045
$ 102,035
$ 105,271
$ 75,831
$ 138,916
Fiscal Year Total Actual Revenues
$ 5,207,381
$ 6,856,993
$ 7,755,200
$ 8,584,612
Fiscal Year Budgeted Revenues
$ 8,757,580
FY 2004/05 forward will reflect an increase in Property Tax due to "Permanent" Realignm
ent of VLF
1 st Quarter Percent of Total
1.65%
1.49%
1.36%
0.88%
1.59%
Recommended Budget Revision No Change
8
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
FINANCIAL OUTLOOK FY 2007/08
♦ Transient Occupancy Tax
The Town of Los Gatos levies a 10 per cent
Transient Occupancy Tax (TOT) on hotel/motel
rooms within Town limits as a funding source for
Town services and infrastructure provided to
transitory lodgers and visitors.
Quarterly Analysis
FY 2007/08 budget projections were decreased from
the prior year due to the closure of two hoteliers in
recent years (Village Inn and Villa Felice). Staff
expects that TOT revenues will meet budgeted levels
by year end. FY 2006/07 year end results supports
recent market research that both business and leisure
travel continue to recover in California. Research
data suggests high gas prices led more Californians
to vacation closer to home during the summer
months.
For the remainder of the fiscal year, the Town
expects occupancy rates to remain as projected in
line with seasonal changes.
Quarterly and Annual Revenues
5-Year History
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
■ 1 st Quarter Actual
Revenues
0 Fiscal Year Total
Actual Revenues
■ Fiscal Year Total
Budgeted Revenues
FY 03/04
FY 04/05
FY 05/06
FY 06/07
FY 07/08
1 st Quarter Actual Revenues
$ 91,170
$ 87,668
$ 107,529
S 116,118
$ 90,367
Fiscal Year Total Actual Revenues
$ 829,025
$ 868,908
S 1,028,664
$ 1,108,257
Fiscal Year Total Budgeted Revenues
S 1,000,000
1st Quarter Revenue Percent of Total
11.00%
10.09%
10.45%
10.48%
9.04%
Recommended Budget Revision
No Change
9
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
FINANCIAL OUTLOOK FY 2007/08
♦ Interest Income Revenue
The Town earns interest revenue through the
investment of cash not immediately required for
daily operations in various money market
instruments. Investments are overseen by the
Elected Town Treasurer, within parameters as stated
in the Investment Policy approved by the Town
Council. The Town's goal is to achieve a
competitive rate of return while protecting the safety
of those funds.
The Town's Interest Income revenue is primarily
dependent upon two factors: the cash balance in the
Town's investment portfolio, and the yield received
on those funds.
Quarterly Analysis
Interest Income earnings have been impacted
positively in recent years by both a significant
increase in the Town's cash balances, and a general
improvement in interest rates from investments.
Current year interest revenues reflect significantly
higher first quarter earnings than in previous years
due to increases in investment returns and the Local
Agency Investment Fund (LAIF) rate. LAIF yields
have risen to an average yield of 5.231% in
September 2007, from 5.023% in September of last
year, and from its record low of 1.42% in May 2004.
Quarterly and Annual Revenues
5-Year History
$2,000,000
$1,500,000
$1,000,000
6500,000
S-
■ 1st Quarter Actual
Revenues
O Fiscal Year
Revenues
■ Fiscal Year Total
Budgeted Revenues
FY 03/04
FY 04/05
FY 05/06
FY 06/07
FY 07/08
1st Quarter Actual Revenues S
242,485 S
276,278 S
272,325
S 489,730
S 461,635
Fiscal Year Revenues S
795,488 S
884,203 S
1,439,685
S 1,977,233
Fiscal Year Total Budgeted Revenues
S 1,348,300
1st Quarter Revenue Percent of Total
30.5%
31.2%
18.9%
24.8%
34.2%
Recommended Budget Revision
No Change
10
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
FINANCIAL OUTLOOK FY 2007/08
♦ Business License Tax Revenue
The Town of Los Gatos requires businesses to pay
an annual Business License Tax if a business is
located within Town limits, or if an agent of a
business conducts operations within Town limits.
The Business License Tax fees are based on the type
of business activity. Retail sales, wholesale, and
manufacturing businesses are charged on a sliding
scale based on their annual gross receipts, and
comprise approximately 40% of the Business
License Tax revenue. Other businesses, such as
contractors, professionals, and services, are based on
flat fees as set forth in the Town Code, and make up
the remaining 60% of revenue.
Annual business license renewals are due and
payable in advance on January 2°d of each year.
New business license applications for flat-fee
based businesses are pro-rated by quarter, from the
date of application to the end of the year.
Quarterly Analysis
The Business License Tax revenue received in the
first quarter is largely comprised of prorated tax fees
charged on new businesses, and assessments
stemming from business tax audits. The majority of
the business tax revenue comes from the annual
renewals, which are primarily received in the second
and third quarters of the fiscal year.
First quarter receipts are tracking comparably with
the same period in the prior year. No significant
deviations from annual projections are expected at
this point.
Quarterly and Annual Revenues
5-Year History
1,200,000
1,000,000
800,000
600,000
400,000
200,000
■ I st Quarter
Actual Revenues
10 Fiscal Year Total
Actual Revenues
■ Fiscal Year Total
Budgeted
Revenues
FY 03/04
FY 04/05
FY 05/06
FY 06/07
FY 07/08
1st Quarter Actual Revenues
45,619
56,632
42,402
63,057
55,900
Fiscal Year Total Actual Revenues
S 1,041,865 S
1,056,814 S
1,019,386 S
1,176,422
Fiscal Year Total Budgeted Revenues
S 1,050,000
Ist Quarter Revenue Percent of Total
4.38%
5.36%
4.16%
5.36%
5.32%
Recommended Budget Revision
No Change
11
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
FINANCIAL OUTLOOK FY 2007/08
♦ Franchise Fee
The Town collects franchise fees on privately owned
utility companies for the privilege of using Town
streets and right-of-ways, and as a fee in lieu of the
business license tax. Franchise Fees are currently
received from Comcast for cable television services,
PG&E for gas and electric service, and Green Valley
for solid waste collection services.
Quarterly Analysis
Franchise Fees revenues are received at varying
times throughout the year. PG&E pays an annual
fee in the 4`I' quarter, Comcast pays quarterly, with
actual receipts received following quarter end, and
Green Valley is scheduled to pay monthly. Receipts
shown in this report are for the first two months,
July and August and the September remittances will
be received during October.
First quarter receipts reflect 11% increase over the
same period last year. This increase is a result of a
rate change for garbage. This increase was built in
at the time the budget was developed. It does not
represent additional or incremental revenue.
Future cable television franchise fees may be
impacted as a result of the adoption of AB 2987, the
Digital Infrastructure and Video Competition Act of
2006, This bill allows telephone and cable
companies to enter into state franchise agreements in
lieu of local agreements. Currently, local agencies
are authorized to charge a local franchise fee of up to
5% of the cable operator's gross revenues as rent for
the commercial use of the public right-of-way. AB
2897 replaces this local franchise fee with what is
essentially a state tax that will be paid to local
agencies (at least for the time being). The Town is
working with AT&T who now has a small cable
customer base in Town. The revenue from this
segment is not expected to be significant in the short
term. Comcast who is the Town's cable provider is
yet to apply to the Public Utilities Commission for
state franchise. Staff estimates that once a state
franchise agreement is reached between the state and
Comcast, the Town's franchise receipts will be
reduced by at least $30,000.
Quarterly and Annual Revenues
5-Year History
$2,000,000
$1,500,000
$1,000,000
$500,000
' ■ l st Quarter Actual
Revenues
~ I
O Fiscal Year Total
Actual Revenues
•Fiscal Year Total
Budgeted Revenues Iii,
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
I st Quarter Actual Revenues $ 66,174 $ 74,273 $ 22,702 $ 28,661 $ 215,985
Fiscal Year Total Actual Revenues $ 930,997 $ 942,647 $ 1,030,189 $ 1,162,037
Fiscal Year Total Budgeted Revenues $ 1,603,180
FY 2005/06 Total Actual Revenues reflect increased revenue based on Audit for Prior Years performed by Town
1st Quarter Revenue Percent of Total 7.11% 7.88% 2.20% 2.47% 13.47%
Recommended Budget Revision No Change
12
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08
RECOMMENDED BUDGET ADJUSTMENTS
FY 2007/08 Expenditure Appropriations Adjustments
Budget adjustments are recommended for the following revenues and expenditures at the first
quarter as described below:
Financial Systems Upgrade Project (GFAR Fund) - $50, 000
Staff is anticipating a spring 2008 implementation of a significant part of the Town's new
financial system (Pentamation Plus). The project had been suspended during the vacancy of the
Finance Manager position, but now is ready to begin again. To better serve the Town's
customers, one of the primary goals is to provide a mechanism for e-business through the web.
To facilitate this goal, Pentamation has advised staff to upgrade its current Pentamation servers.
This upgrade was not a part of the original project budget. The recommended budget adjustment
will be funded through a $50,000 transfer of available fund balance in the Town's MIS fund.
Finance Department: Finance System Upgrade Temporary Delp (General Fund) - $10,000
To assist the implementation goals of this project, staff recommends an increase in temporary
staff dollars to provide assistance during the financial system conversion. Temporary support
will be utilized to provide a variety of support tasks, including counter coverage during staff
training sessions on the new system, database setup, data conversion, and user training.
FY 2007/08 Estimated Revenues Recommended Adjustments:
Grants Fund Program (Grants Fund) - $4,444
Staff recommends grant revenues and the related grant expenditure budget be increased to
recognize additional federal Homeland Security Grant Funds made available to the Town in FY
2007/08.
FINANCIAL SUMMARIES, PROJECTIONS AND RECOMMENDATIONS
General Fund
The following page presents the Schedule of FY 07108 General Fund Operating Revenues vs.
Operating Expenditures for the first quarter and comparison information from the prior year. In
the last column, the Finance Department projects final balances for the fiscal year based upon the
early trends observed through the first quarter.
13
Town of Los Gatos
Schedule of General Fund
Operating Revenues vs. Operating Expenditures
For the period ended September 30, 2007
Unaudited
FY06/07
FY06107
FY06/07
FY06/07
F1 07/08
FY07(O8
FY07/08
FY07/08
FY07/08
Final
Adjusted
Ist Qtr
%
Adopted
Adjusted
1st Our
%
Finance
Balance
Budget
Actuals
YTD
Budget
Budget
Actuals
YTD
Projection
Revenues
General Property "Tax
S 6,594.058
S 6.469,900
S 75,830
1 %
S 6,727.220
S 6.727,220
$ 138,91 7
2-o
S 6.727220
Prop Tax Car Tax Backfill
1,990.555
1,990,550
-
2.030,360
2.030,360
-
0 o
S 2_.030.360
Sales &UseTax
9253.891
8,100,140
1.407.996
17%
8,231.100
8,231,100
1.568.805
19°o
$ 8,231,100
Franchise Fees
1.162,038
1238,940
28.661
2.
1.603.180
1,603,180
215,985
131
S 1.603.180
Transient Occ Tax
1.108.257
1,000.000
116.118
12%
1,000,000
1,000.000
90,368
9°,o
S 1,000.000
Business License Tax
1,176,442
1.000.000
62.705
6%
1,050,000
1,050.000
55,900
5 /
S 1.050.000
Licenses & Permits
1,541,302
1.616.000
959,973
59%
1.930,400
1.930 400
928,493
48%
$ 1.930.400
Motor Vehicle In Lieu
194,104
152,700
80,110
52°% n
163.200
163.200
42.577
26%
S 163.200
Intergovernmental
2.058.576
1062.432
305.127
15%
2,004,825
2.004-825
320.168
16%
S 2,004,825
Charges for Services
3,967,735
3.221.390
770.093
24%
3,371,470
3371470
675,772
20%
S 3371,470
Fines & Forfeitures
561.665
455,900
96.280
21 %
525.405
525,405
66,107
13°,o
S 525,405
Interest
2,127,234
1.705.700
467,731
27%
1.498,300
1.498300
461.635
31%
S 1.498300
GASB investment to market per audit
448,828
-
MiscellaneouslGiber
320.614
206,800
148,272
72%
267.230
267,230
164,953
61%
267.230
Fund Transfers
114,471
221,850
44,515
20%
184.110
184,110
37.793
184.110
Total Revenues
32,619,770
29,442,302
4,563,411
15%
30.586.800
30,586,800
4,767,472
161o
30.586,800
Use of Other Funding Sources:
Reserves
4,179,094
318,710
525,000
525.000
525.000
525.000
PERS Liability Account
?00.000
300,000
300.000
300.000
300,000
300,000
300.000
Use of Internal Service Reserves - Yr 3
-
-
-
Total Other Funding Sources
4,479.094
300,000
618,710
825.000
825,000
825.000
825.000
- Total Revenues plus Reserves
S 37,098,864
$ 29,742,302
$ 5182,121
$ 31,411.800
$ 31,411,800
$ 5.592,472
S 31.411.800
Expenditures (includes of but no encumbrances)
Mayor & Council
150,379
161,130
33.311
21%
169,500
169.500
34.541
20%
169500
Treasurer
102,713
98,150
17,222
18%
106.650
106,650
20,735
19%
106.650
Attorney
234,828
245.450
52,972
22%
257.750
257,750
48,388
19%
257.750
Administrative Services
2,307,354
2,338,010
552,573
24%
2,442300
2,442,300
542.155
22%
2A42.300
Comm Development
2.936,351
3,246,500
796.875
25%
3,656.585
3,656,585
574,651
16%
3,656,585
Police
11,628,108
11,625.576
2.836,257
24%
11,958,720
11966.180
2.678.313
22%
11.966.180
Parks & Public Works
4988,746
4,967.350
1.342,078
27%
5255,750
5,255 ,750
1,118,653
21%
5.255.750
Community Services
1,943.843
982.065
190,213
19%
1.032.772
1,032,772
216.561
21".
1.032,772
Library
1,914,247
1,989,660
499,401
25%
2,056,810
2,066,260
460,138
22%
2,066,260
Total Dept Expense,
S 26,206,569
$ 25,653,891
S6,320,901
25%
S 26,936,837
S 26,953,747
S 5,694,135
21%
S 26,953,747
Non-Dept Expenditures and other uses
General Government
6,031,556
6.659,148
812,085
12%
3,571.800
3,586,800
843550
241o
3.586.800
Total Non-Dept Expenses
S 6,031,556
S 6,659,148
$ 812,085
12%
$ 3.571,800
$ 3,586,800
$ 843,550
24%
S 3.586,800
Total Operating Expenditures
S 32,238,125
$ 32,313,039
$ 7,132 986
22%
$ 30,508,637
S 30,540.547
$ 6,537,685
21%
S 30,540.547
Net Operating Revenues Before Capital Trsfrs
& Budgeted Beg Fund Balance
S 4,860,739
$ (2,570,737)
$ (1,950,865)
$ 903,163
$ 871,253
S (945 213)
N/A
S 871,253
Authorized Use of Reserves
Capital Projects
4,179,094
318,710
525.000
525.000
525,000
525.000
'Total Budgeted Use of Reserves
4,179,094
-
318.710
525,000
525.000
525.000
525.000
Net Surplus or (Use) of Reserves 681,645 (2,570,737) (2,269,575) 378.163 346,253 (1,470,213) 346,253
Guide to Presentation:
Each of the following groups of financial summaries present data by governmental fund type - the
types are Special Revenue Funds, Capital Projects Funds, Internal Service Funds, and
Redevelopment Agency Funds. In each of the following projections a similar format is presented.
The fund information starts with beginning fund balances and adds current year revenues and
subtracts current year expenditures resulting in ending fund balance. Budget amounts are also
provided for revenues and expenditures, usefild for comparing actual amounts received or spent
to date versus budget for FY 2007/08.
14
Special Revenue Fund - Special Revenue Funds, which account for the proceeds derived from
specific revenue sources that are legally restricted or assigned to special purposes including the
Town's Parking Fund, Solid Waste Fund, Community Development Block Grant Fund, Non
Point Source Fund, Landscaping and Lighting District Funds, and the Operating Grants Fund.
Of special note, here is the Parking Fund, which continues to indicate revenue shortfalls wherein
costs of parking administration and enforcement are exceeding citation revenues. Citation
revenues have been reduced due to personnel injuries, other public safety support priorities which
have pulled staffing off parking enforcement, and an unanticipated length of time to successfully
fill a Parking Control Officer vacancy. The department expects revenue citation revenue to be
restored to more normal levels in the near future. The budgeted General Fund subsidy for this
program for the fiscal year is $184,260 to balance operating revenues with operating
expenditures. Staff is continuing to evaluate this program, as any shortfall in this fund must be
covered at year-end with a transfer from the Town's General Fund.
Special Revenue Funds
Budget to Actuals Comparisons
Parking
Solid
CDBG
Non Point
Operating
Fund
Waste
Grants
Source
LIDS
Grants
Beginning Fund Balance (Pre-audit)
-
338,850
802,076
108,289
97,491
(5,818)
Budgeted Revenues
555,860
346,384
210,643
172,010
36,170
-
Actual Revenues - 1st Qtr
23,009
15,000
6,890
166,660
33,557
4,445
Budgeted Expenditures
555,860
396,384
421,293
180,940
43,290
-
Total Actual Expenditures - 1st Qtr
92,927
34,906
3,281
61,072
12,071
-
1st Quarter Ending Fund Balance
(69,918)
318,943
805,685
213,878
118,977
(1,373)
Capital Projects Funds - Capital Projects Funds are utilized to account for resources used for
acquisition and construction of capital facilities by the Town. Funds included in this category are
the GFAR Fund (General Fund Appropriated Reserve), Traffic Mitigation Fees Fund, Grant
Funded CIF's Fund, Storm Drains Fund, Utility Undergrounding Fund, and the Gas Tax Fund.
Capital Project Funds are tracking in accordance with the FY 2007/08 adopted budget. Staff is
recommending no changes at this time.
If operating revenues will support it, the FY 2007/08 budget includes a General Fund's current
year transfer of designated Future Year's Capital & Special Projects reserves in the amount of
$525,000 in support of the first year of the Town's adopted Five-Year Capital Improvement Plan.
The Grant Funded CIP fund displays a deficit balance because this grant fund expends Town
dollars first, then provides documentation of these expenditures to the State of California or other
granting agencies and is reimbursed for those costs, which eventually should result with the fund
"breaking even" or a zero, fund balance (Dollars expended equal dollars received back in grant
reimbursements).
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Capital Project Funds
Budget to Actuals Comparisons
Beginning Fund Balance
Budgeted Revenues
Actual Revenues - 1st Qtr
Budgeted Expenditures
Total Actual Expenditures - 1st Qtr
1st Quarter Ending Fund Balance
GFAR Traffic Grant Fund Storm Utility Gas
Fund Mitigation CIP's Drains Undergd Tax
6,245,816 93,491 (141,453) 805,284 2,269,147 903,833
1,210,240 50,000 3,864,244
679,111 - -
8,853,060 50,000 3,956,895
2,195,809 9,683 68,702
132,470 140,220 565,710
45,908 12,929 98,044
301,930 1,057,447
- 21,139
4,729,117 83,808 (210,155) 851,192 2,282,076 980,738
Internal Service Funds - Internal Service Funds are used to finance and account for special
activities and services performed by a designated Town department for other departments on a
cost reimbursement basis. Included in this fund type are the Equipment Replacement Fund,
Worker's Compensation Fund, General Liability Self Insurance Fund, Stores Fund, Management
Information Systems Fund, Vehicle Maintenance Fund, and the Building Maintenance Fund.
Internal Service Funds are tracking in accordance with the adopted FY 2007/08 adopted budget.
No revision to adopted revenues or expenditures is required at this time. Staff believes there is
stilt some potential for further operating transfers in future years, if needed, from these funds as
excess balances exist in amounts needed for funding in a number of these funds.
Internal Service Funds
Budget to Actuals Comparisons
Equipment Workers Self Office Mmgt Info Vehicle Building
Replacemt Comp Insurance Stores Systems Maint. Maint.
Beginning Fund Balance 3,161,526 2,393,460 2,125,032 241,342 2,085,760 190,878 738,656
Budgeted Revenues 414,100 613,500 506,800 86,000 925,530 611,600 1,189,500
Actual Revenues - 1st Qtr 101,740 165,447 145,078 14,498 228,656 152,900 292,699
Budgeted Expenditures 641,910 604,440 541,400 84,600 1,381,800 597,050 1,179,600
Total Actual Expenditures - 1st Qtr 161,089 185,743 328,750 12,482 230,463 117,533 205,237
1st Quarter Ending Fund Balance 3,102,176 2,373,165 1,941,359 243,359 2,083,953 226,245 826,118
Trust and Agency Funds - Town Trust and Agency Funds have fund balances as of June 30,
2007 of $319,716 for Parking District #88 and $313,424 in the Library Trust Funds. No budget
revisions are contemplated at this time for these funds.
Redevelopment Agency - The Agency's FY 07/08 and FY 2007-12 Capital Improvement Plan
adopted budgets are incorporated into the Redevelopment Agency's financial statements and
year-to-date actuals as presented below. The Capital Projects Fund balances include
approximately $372,000 dollars of remaining unexpended funds at September 30, 2007 from the
Agency's $10.7 million dollar 2002 COP issue. Approximately $98,000 of the remaining
proceeds are encumbered to be spent on the Elm Street Reconstruction project, and $80,000 for
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Almond Grove Concrete Rehabilitation Pilot project. The other remaining funds of
approximately $194,000 (including accrued interest earnings) are available for their planned
purpose including eligible capital projects in the downtown project area such as the Santa Cruz
Avenue/Wood Road Gateway design ($65,000) and the North Santa Cruz Lighting Project
($55,000).
Redevelopment Agency Funds
Budget to Actuals Comparisons
Capital
Debt
Low/Mod
Total
Projects
Service
Housing
RDA Funds
Beginning Fund Balance
4,316,921
4,307,048
6,556,978
15,180,947
Budgeted Revenues
600,000
6,597,990
1,676,800
8,874,790
Actual Revenues - 1st Qtr
10,113
180,677
7,540
198,330
Budgeted Expenditures
3,658,091
5,034,400
497,420
9,189,911
Total Actual Expenditures - 1st Qtr
1,156,195
752,120
19,655
1,927,970
1st Quarter Ending Fund Balance
3,170,839
3,735,605
6,544,863
13,451,307
Since 1992 redevelopment agencies across the state have been required to make Educational
Revenue Augmentation Fund (ERAF) payments to the State. Last year's State budget In
accordance with the State budget agreement, the ERAF payment was increased $303,000 for FY
2004/05 & FY 2005/06. Since passage of the FY 2006/07 state budget, the increased ERAF
payments have not been approved by the legislature, allowing the Agency to retain this amount of
tax increments to be used for important future Agency projects.
Proposition IA approved in 2004 does not contain specific protections for redevelopment
agencies. They were not included because there are existing legal opinions that conclude that
redevelopment agency tax increment revenue is constitutionally protected from state revenue
takes.
It is important that the Town continue to monitor developments regarding Redevelopment
Agencies to discourage the legislature from further State takes from Redevelopment Agency Tax
Increment. Protecting Redevelopment Agency funds for all cities is also a strategic priority for
the League of California cities. It is essential to preserve the Agency's tax increment revenue as
any take from this source will reduce the annual revenue stream. If a larger revenue take is
enacted, the lowered revenue stream will reduce the total amount of bonds the Agency can issue
in the future.
CONCLUSION
The financial results from the prior fiscal year coupled with the FY 2007/08 first quarter data
point towards a cautious optimism that the Town's economically-sensitive revenues will continue
their positive trends. This is especially important in light of the loss of three top ten sales tax
providers in the past two years. Though the Five-Year Financial Plan continues to project future
revenue shortfall challenges, these challenges will be made less so if the Town's economically-
sensitive revenues can sustain their momentum and the cost core service delivery can be kept in
check.
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