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cos �Ajps COUNCIL AGENDA REPORT
DATE: December 13, 2012
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
MEETING DATE: 12/17//12
ITEM NO: 5
SUBJECT: FISCAL YEAR 2012/13 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2012 - SEPTEMBER 30, 2012
ACCEPT 2012 -13 FIRST QUARTER BUDGET PERFORMANCE STATUS
REPORT
RECOMMENDATION:
Accept Fiscal Year 2012/13 First Quarter Budget Performance and Status Report.
PURPOSE:
The purpose of this report has two primary goals. First, the report informs the Town Council on
the status of the Town's Fiscal Year 2012/13 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, 2012.
BACKGROUND:
The attached Quarterly Budget Report covers the first three months of the fiscal year beginning
July 1,2012 and ending September 30, 2012. The report presents analysis and recommendations
related to key General Fund revenues by category and expenditures by fund.
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.
PREPARED BY: Steph QAiiiistrative y
Fnnc Services Director
\ \leona \data\FINANCE\Qtdy Financial Reports\FY2013 \t st QuarteAlst qtr Budget Memo For Council (fnal).doc
Reviewed by: Assistant Town Manager D) ,Town Attorney ._inane
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: FISCAL YEAR 2012/13 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2012 - SEPTEMBER 30, 2012.
December 13, 2012
DISCUSSION:
The attached first quarter budget report includes a recap (prior to final audit) of last year's
General Fund fiscal results. The General Fund closed FY 2011/12 with approximately $800,000
of revenue over expenditures, primarily the result of budget savings and cost containment
strategies. Per Town policy these monies will be placed in the Capital reserve for future use.
An analysis of FY 2012/13 General Fund revenue confirms that the Town is tracking well
against budgeted revenues for the first quarter. Several key economic revenues such as franchise
fees, business license tax and transient occupancy tax have all experienced sight increases from
prior year first quarter results. However, it should be noted that the key revenue sources of sales
and property tax are trending slightly below that of the prior fiscal year's first quarter results.
This confirms that the Town is still facing a challenging economic climate and will continue to
identify appropriations to enhance revenues and reduce expenditures.
Library Operations
With the accelerated retirement of prior Library Director Linda Dydo at the start of the fiscal
year, the Town Manager appointed Library Managers Heidi Long and Henry Bankhead as
Interim Town Librarians and directed a thorough Library staffing review focused on maintaining
or improving customer service with no additional resources, despite at least 50% growth in
Library utilization as measured by customer door counts, circulation statistics, Library card
issuance and late fines. As Co- Librarians, Long and Bankhead report directly to the Town
Manager as part of the Town's Executive Team and work closely with the Assistant Town
Manager and Human Resources Director to ensure appropriate division of responsibilities and
coordination of operations.
The salary savings from the vacant Library Director position have been redeployed in four key
customer service areas:
* Library Clerks, responsible for front counter services, holds, check outs, and most
customer inquiries;
* Pages, responsible for shelving and re- shelving all Library collections;
* Increased Librarian support for the Teen area and History program; and
* Dedicated technology staffing given increase in equipment and services.
Some limited salary adjustments were also implemented to reflect changes in duties and
responsibilities.
Given the improved customer service to date and continuing review of the appropriate staff
structure for the new Library with increased customer volumes, the interim structure will be
continued through this fiscal year and likely recommended for next fiscal year given the budget
challenges anticipated for FY 2013/14. Changes to staff positions and appointments will be
made to effectuate the improved service delivery. Nonetheless, the Town Manager does not plan
the "co- management" of the Library to be a permanent management structure. As management
positions and structures in the Town are constantly evolving and changing, so will the Library, as
individual performance, service needs, and funding allows or dictates. Specifically, the Manager
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: FISCAL YEAR 2012/13 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2012 - SEPTEMBER 30, 2012.
December 13, 2012
does not intend to maintain the current co- management structure should either one of the
incumbents vacate his or her current position.
In addition, the Town Managers Office, Library managers and staff, and the Library Board will
continue to focus on customer service demands through 2013 and will initiate a long -term
planning process for future library services and operations through 2020.
The Town Manager reviewed the above information with the Library Board on Dec. 12`h, which
concurred with the focus on customer service and the reallocation of resources to maintain or
enhance customer service given rapidly rising customer utilization of the Library. Upon
recommendation of the Town Manager, the Library Board took the following action:
"The Library Board communicates to the Town Manager and Town Council the following:
1. The Library Board supports Heidi Long and Henry Bankhead as Co- Librarians of the Los
Gatos Library;
2. The Library Board does not recommend co- management as a permanent structure for the
Library; and
3. The Library Board supports the Town Manager's intention to provide additional
professional development and support to the Co- Librarians."
Motion made by Lyn Dougherty, seconded by Debbie Behrman and approved unanimously.
CONCLUSION:
Based on the preliminary first quarter data that is available and results from the prior fiscal year,
while the Town continues to face challenges and a difficult budget year, the continued
conservative fiscal planning and efforts to sustain the Town economically sensitive revenues
appear to be obtaining positive results. While the long -range outlook for the Town indicates
another challenging fiscal year ahead, staff will continue to examine revenue and expenditure
activity and work to identify opportunities to enhance revenue to support current and future
operating capital and service needs.
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 2012/13 financial outlook and a summary
of the performance of the Town's primary General Fund revenue sources.
ENVIRONMENTAL ASSESSMENT:
This budget report is not a project defined under CEQA, and no further action is required.
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: FISCAL YEAR 2012/13 FIRST QUARTER BUDGET PERFORMANCE AND
STATUS REPORT FOR THE PERIOD JULY 1, 2012 - SEPTEMBER 30, 2012.
December 13, 2012
FISCAL IMPACT:
The attached First Quarter Budget Performance Report provides an overview of the first quarter
budget performance. There are no recommended budget adjustments or fiscal impact at this
time.
Attachment:
Budget Performance Report for the Three Months Ended September 30, 2012
1 BUDGET PERFORMANCE REPORT — 1ST QUARTER FY 2012/13
/ INTRODUCTION
Purpose projections based on revenue performance and
other developments that may affect Town revenues
This is the first quarterly budget performance report in order to develop a more accurate picture of the
for the Fiscal Year 2012 -13, for the three month Town's anticipated year -end financial position.
period ending September 30, 2012. The purpose of
this quarterly public reporting is twofold. First, it
ensures that the Town is consistently monitoring its
revenues and expenditures so that it can proactively
respond to unanticipated changes or emerging
trends. Second, and equally important, these reports
increase the transparency of the Town's finances.
The Town is ultimately accountable to its residents
to use the revenue it brings in efficiently and
effectively to provide the highest quality services,
and quarterly public reporting provides taxpayers
with information that demonstrates the Town is
meeting this standard.
Content
This quarterly report presents an overview of the
Town's operating revenues and expenditures for the
quarter ending September 30, 2012, as compared to
previous years, and explains any notable aberrations
or trends in these numbers. This report also provides
information on any recommended budget
adjustments.
Timeframe and Limitations
The information in this report is the most accurate
and up -to -date information available at the time of
publication. However, this report is not an audited
financial statement and the numbers provided
herein are preliminary and subject to change as the
year progresses. No data on revenues and
expenditures is final until the Town has completed
its annual comprehensive audit and finalized its
Consolidated Annual Financial Report (CAFR), which
is released in the winter of each year for the prior
fiscal year.
With respect to revenues: The Town regularly
monitors and adjusts its year -end revenue
With respect to expenditures: The expenditure
information in this report is extracted directly from
the Town's financial management system, and
adjustments are made to account for certain known
payments, reimbursements, or transfers between
Town departments and funds that have not yet been
processed in the system at the time of publication. It
represents a snapshot of Town expenditures at a
certain point in time and does not reflect final
adjustments made to prepare the Town's CAFR.
BUDGET PERFORMANCE REPORT - 1ST QUARTER FY 2012/13
EXECUTIVE SUMMARY
Status of FY 2012/13 Adopted Budget for street lighting. Therefore and in accordance with
Town policy, approximately $800,000 will be added
First quarter revenue trends are relatively steady
when compared to the first quarter of Fiscal Year
2011/12. When adjustments are made to reflect
Deposits -in- Transit (DOT), revenues are down by
approximately 2%, primarily due to a significant
decline in Sales & Use Tax revenue due to the
business model changes for Nextflix and the local
impact of those changes. Licenses and Permit
revenue increased by 52% while revenues from
Charges for Services increased by 34% when
compared to the prior year's first quarter results.
Other economically sensitive revenues such as
franchise fees and transient occupancy tax show
slight growth; while others, such as interest have
declined.
General Fund expenditure totals for the first quarter
are trending favorably, with total operational
expenditures at the end of the first quarter at about
20% of budget. With only three months of data
available, however, it is difficult to predict revenues
and expenditures for the remainder of the year. In
light of this, staff continues to be cautiously
optimistic while monitoring fiscal developments very
closely.
Prior Fiscal Year Closing Results
The Fiscal Year 2011/12 closing financial results
affirm the positive effects of the Town's budgetary
actions taken in response to the continuing flat
revenue growth and prior downturns in key
operating revenues. In developing the 2012/13
budget, Town Council approved a combination of
budgetary initiatives that held the line of service
levels and also structurally reorganized positions and
departments. This strategy, coupled with ongoing
Town -wide expenditure reductions, generated a
favorable General Fund closing balance of
approximately $900,000 of available revenues over
expenditures at fiscal year -end, June 30, 2012, of
which, $97,500 was approved by the Town Council
to the Capital Reserve.
General Fund Reserve Status - 6/30/12
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. With the
dissolution of the RDA the Town no longer has
restricted reserves.
General Fund Reserves closed at a balance of
approximately $24.2 million at June 30, 2012 in
designated reserves which is in accordance with
Town financial policies and operating and capital
budget requirements, and includes a $4.7 million
dollar Catastrophic Reserve.
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The reserve for Capital and Special Projects, funded
from annual available General Fund budget savings,
serves as the primary source for replenishment to
the Town's Capital Improvement Fund (GFAR). As
such, it represents a limited 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
I authorized projects funded through the Town's
Five Year Capital Improvement Program (CIP).
The Budget Stabilization Reserve was established to
serve as a transitional "bridge" funding source to
mitigate or smooth out cyclical ups and downs in
locally generated revenues due to fluctuations in the
local economy or "one- time" revenue losses where
the revenue base is likely to be restored in the near
future.
These funds are referred to as Designated General
Fund reserves since these are established by Council
policy for their intended purpose. The availability of
approximately $24.2 million in Designated General
Fund reserves provides the Town with resources to
manage through current and /or future fiscal
challenges and opportunities.
Greater Economic Outlook
The Congressional Budget Office (CBO) expects the
economic recovery to continue at a modest pace for
the remainder of the calendar year, with real
(inflation- adjusted) GDP growing at an annual rate of
about 2.25% in the second half of the year,
compared with a rate of 1.75% in the first half. The
national unemployment rate dipped slightly to 7.8%
in September and is expected to remain steady or
slightly above 8% for the rest of the year. The CBO
also estimates that the rate of inflation in consumer
prices will remain low.
The outlook for the national budget deficit, federal
debt, and the economy are especially uncertain now
because substantial changes to tax and spending
policies are scheduled to take effect in January 2013.
Many businesses are delaying hiring while they wait
to see whether they will face higher taxes and cuts in
government spending. Among the policy changes
that are due to occur in January under current law,
the following are expected to have the largest
impact on the budget and the economy:
• A host of significant provisions of the Tax
Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of
2012 are set to expire, including provisions
that extended reductions in tax rates and
expansions of tax credits and deductions
originally enacted in 2001, 2003 or 2009.
• Extensions of emergency unemployment
benefits and a reduction of 2 percentage
points in the payroll tax for Social Security
are scheduled to expire.
These tax cuts and stimulus measures are set to
expire on December 31, 2012, just as the deep cuts
in federal spending would be kicking in -- an event
that the CEO predicts will probably put the economy
back into recession.
On a more positive note, the Commerce Department
reported that home construction rose 15% (11% for
single - family) in September. In addition, national
sales of new homes were up nearly 28% in August
compared to the same month last year. Other
positive indicators include a rise in national median
home sale prices; consumer confidence is at a five
year high; and interest rates remain at all -time lows.
State Budget Update
Many of the same economic rebounds experienced
by the nation as a whole are holding true for the
State. Although the State's unemployment rate is
the third highest in the nation, it continues to show
improvement in recent months with the latest data
showing a rate of 10.2% in September Furthermore,
recent press articles are noting that Silicon Valley's
unemployment rate is lower than the statewide
average. Better job growth was largely the result of
recent improvements in sectors that were hit
hardest by the recession and have only recently
started to turn around. A rebound in travel and
tourism has lifted leisure and hospitality
employment. Rebounding real estate markets
helped construction and financial activities sectors.
A rebound in home values equates to higher
property tax revenues.
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
GENERAL FUND — KEY REVENUE ANALYSIS
The following disucssion provides a status of significant General Fund revenue sources as of the first quarter,
ending September 30, 2012. Staff monitors each revenue source closley and may recommend certain revenue
adjustments based on revenue actuals or state budget action.
Property Tax
Property tax is the largest revenue source for the Town's General Fund, accounting for 24.5% of budgeted General
Fund revenues in FY 2012/13. Property tax is levied by the Santa Clara County Assessor's Office at 1% of a
property's assessed value, of which the Town receives approximately 9.5 cents per dollar paid on property located
within the municipal limits of Los Gatos. In compliance with proposition 13, the assessed value of real property is
based on the 1975/76 assessment roll value, adjusted by 2% inflation factor thereafter. However, when property
changes hands or new construction occurs, property is reassessed at its current market value. Real property
values critically impact revenues. With the passage of Proposition 13, voters limited the tax rate that can be
imposed by the Town on property. With the limitation on rates, therefore, higher revenues are generated by a
higher aggregate property value.
Analysis — Property Tax distributions are largely received in the third and fourth quarters in the chart below. First
quarter receipts are down 1% when compared to the first quarter of the previous fiscal year. Property tax revenue
for FY 2012/13 was budgeted higher than previous year's actuals projecting an increase in real estate transactions.
Staff will continue to monitor these revenues through the mid -year to determine if a budget adjustment will be
recommended at that time.
$10,000,000
td
$8,000,000 zt
$6,000,000
$4,0001000
$2,000,000 4'
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Quarterly and Annual Revenues
5 -Year History
FY 08/09
Ist Quarter Actual Revenues
Fiscal Year Total Actual Revenues
Fiscal Year Budgeted Revenues
Ist Quarter Percent of Total
FY 09/10 FY 10 /11
FY 11/12 FY 12/13
014 Quarter Actual
Revenues
Visual Yeu Tota Actual
Rovcnues
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Revenues
FY 08/09
;F
FY 10 /11
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FY 12/13
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$ 57,225
$ 77,619
$ 76,842
$ 9,724,070
$ 9,809,365
$ 9,597,378
$ 7,445,902
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0.60%
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0.96%
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FY 08/09
Ist Quarter Actual Revenues
Fiscal Year Total Actual Revenues
Fiscal Year Budgeted Revenues
Ist Quarter Percent of Total
FY 09/10 FY 10 /11
FY 11/12 FY 12/13
014 Quarter Actual
Revenues
Visual Yeu Tota Actual
Rovcnues
BFiacel Ycarnudg ted
Revenues
FY 08/09
FY 09/10
FY 10 /11
FY 11/12
FY 12/13
$ 91,597
$ 65,628
$ 57,225
$ 77,619
$ 76,842
$ 9,724,070
$ 9,809,365
$ 9,597,378
$ 7,445,902
$ 8,021,117
0.94%
0.67%
0.60%
1.04%
0.96%
Recommended Budget Revision No Change
4
SOWN- OR
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
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Sales Tax
Sales tax is the second largest revenue source for the Town's General Fund, accounting for 24% of budgeted
General Fund revenues for FY 2012/13. The Town receives 1 cent for every 8.375 cents of sales tax paid per dollar
on retail sales and taxable services transacted within Los Gatos. Since the implementation of the mechanism
commonly known as the "triple flip," the State Board of Equalization retains 0.25 cents of the Town's 1 -cent share
and requires the Santa Clara County Auditor to replace it with an equal amount of property tax revenue. Revenues
are remitted from the State to the Town on a monthly basis, and from the County to the Town on a biannual basis.
These revenues are placed In the General Fund for unrestricted uses.
Analysis— First quarter receipts are trending behind those in the same period in the past fiscal year. This trend is
confirmed by the most recent Sales Tax and Economic Review update from Muni Services, the Town's sales tax
analysis consultant, which states that while sales tax receipts statewide grew by 6.8 %, Town of Los Gatos Sales Tax
revenues are down by 23.5 %. It should be noted that the Town anticipated lower sales tax revenue for the year
and budgeted revenues at 21% less than FY 2011/12.
$10,000.000
$8,000.000
$6.000.000
$4,000,000
$2,000,000
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Quatterly and Annual Revenues
5 -Ye ar Ris tort'
FY 08109 FY 09110 FY 10/11 FY 11112 FY 12713
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A¢wi Revcvues
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As indicated in the graph below, this reduction is primarily due to the local effect of Netflix's change in its business
model. As depicted in the graph there is a significant decrease in the sales tax revenue in the general retail
category. However, it should be noted that sales tax revenue has increased at least slightly in the other major
business groups when compared to same quarter results from the prior fiscal year.
5
FY08'09
FY09i10
FY 10!11
FY li.12
FY 12. -'13
1st QFwrter Actual Revenues
$1.508,479
51.67'.973
$1,58-2344
$ 1,184.526
s 601.716
Fiscal Year Total Actual Revenues
$8.487.000
$8317:17
59.971;409
$9.889,100
Fiscal Year Budgeted Revenues
5 7.859.000
1st Quarter Percent of Total
17;7%
20.11%
15.87%
11.98%
7.66%
Recommended Budget Re}ision
No Ch.."-
As indicated in the graph below, this reduction is primarily due to the local effect of Netflix's change in its business
model. As depicted in the graph there is a significant decrease in the sales tax revenue in the general retail
category. However, it should be noted that sales tax revenue has increased at least slightly in the other major
business groups when compared to same quarter results from the prior fiscal year.
5
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012
Sales Tax By Major Business Group
$1,400,000
$1,200,000
$1,000,000
$500,000
$600,000
$400,000
$200,000
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Staff will continue to monitor these revenues through the mid -year to determine if a budget adjustment will be
recommended at that time.
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BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
Franchise Fees
Franchise fees are collected by the Town for the privilege of operating a utility service within Los Gatos, and as a
fee in lieu of a business license tax. Franchise fees are currently received from Comcast for cable television, PG &E
for gas and electric services, West Valley Collection and Recycling for solid waste collection services, and AT &T and
Comcast for video services. Franchise fees represent 5.9% of budgeted General Fund revenues in FY 2012/13.
Analysis — Historically, franchise payments are not remitted equally throughout the fiscal year; therefore first
quarter receipts are not necessarily predictive. Total franchise fee revenues are trending approximately 2% ahead
of first quarter in FY 2011/12. Since West Valley Collection and Recycling accounts for approximately 62% of
franchise fee revenue, this improved trend can be attributed to the increased construction activity and addition of
new homes to the customer base. Staff will continue to monitor trending of this revenue source but no budget
adjustment is recommended at this time.
$2,000,000
$1,500,000
$1,000,000
$500,000
Quarterly and Annual Revenues
5 -Year History
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
0Id Qua rAcN.]
Revenues
urinal Year Tote] Actual
Revenues
®Fiscal Year Totat
audgded Revenues
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
1st Quarter Actual Revenues $ 196,630 $ 198,499 $ 224,256 $ 245,533 $ 251,349
Fiscal Year Total Actual Revenues $ 1,656,100 $ 1,699,840 $ 1,901,605 $ 1,952,488
Fiscal Year Total Budgeted Revenues $1,939,820
FY2010171 forward reflects revenue adjustments due to changes in the Garbage Franchise Agreement
1st Quarter Revenue Percent of Total 11.87% 11.68% 11.79% 12.58% 12.96%
Recommended Budget Revision No Change
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BUDGET PERFORMANCE REPORT - 1ST QUARTER FY 2012/13
Business License Tax
The Town requires all businesses located within Los Gatos, or those that operate within Los Gatos, to obtain a
business license. The amount of business license tax paid by each business is based on its business activity. Fees for
activities such as wholesale sales and manufacturing are charged on a sliding scale based on gross receipts, as is
retail, but only to a cap of $975. These activities account for approximately 25% of annual business licenses, while
the remaining 75% are flat fee business. Annual renewal payments are due on January 2 of each year. Payments
for new flat- fee -based businesses are pro -rated by quarter.
Analysis —As a result of the projected increase in economic activity, business license tax revenue for the current
fiscal year was budgeted at approximately 19% higher than prior year actuals. However, current year first quarter
revenues are trending at par with those of the previous year. It should be noted that a key factor in these figures is
that first quarter payments are primarily made up of adjustments to businesses' gross receipts for 2011, a year in
which many businesses started to experience only slight, if any, growth. However, annual business license tax
renewal revenue is primarily received in the second and third quarter of each year; therefore, first quarter
performance is not necessarily predictive. Staff will continue its auditing efforts this year to bring past due accounts
current and work with business to collect fees.
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Quarterly and Annual Revenues
5 -Year History
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FY 08/09 FY09 /10 FY10 /11 FY11 /12 FY12/13
n l st Quarter Actual
Revenues
DFiscal Year Total
Actual Revenues
®Fiscal Year Total
BudgeteriRevenues
FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13
1st Quarter Actual Revenues 65,830 74,890 69,782 43,969 43,984
Fiscal Year Total Actual Revenues $ 1,139,107 $ 1,220,802 $ 1,136,511 $ 1,077,620
Fiscal Year Total Budgeted Revenues $ 1,286,510
1 at Quarter Revenue Percent of Total 5.78% 6.13% 6.14% 4.08% 3.41%
Recommended Budget Revision No Change
9
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FY 08/09 FY09 /10 FY10 /11 FY11 /12 FY12/13
n l st Quarter Actual
Revenues
DFiscal Year Total
Actual Revenues
®Fiscal Year Total
BudgeteriRevenues
FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13
1st Quarter Actual Revenues 65,830 74,890 69,782 43,969 43,984
Fiscal Year Total Actual Revenues $ 1,139,107 $ 1,220,802 $ 1,136,511 $ 1,077,620
Fiscal Year Total Budgeted Revenues $ 1,286,510
1 at Quarter Revenue Percent of Total 5.78% 6.13% 6.14% 4.08% 3.41%
Recommended Budget Revision No Change
9
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BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
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Transient Occupancy Tax
The Town levies a 10% transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los
Gatos. This tax helps to fund Town services provided to transitory visitors to Los Gatos.
Analysis —Visit California, formerly the California Travel and Tourism Commission, reports that visitors to California
spent $102.3 billion, a 7.6% increase from 2011, as both State and national travel industries are recovering from the
recession. With a mixed economic outlook, the forecast for California visitation in 2012 is for modest growth,
increasing 2% in 2012 and 2.2% in 2013. First quarter TOT revenues are trending around the same as the first
quarter of 2011/12, when all deposits in transit are included, TOT revenues are up about 3 %. Given the slow
economic recovery, TOT revenue for the current year was budgeted at 6.4% less than prior year actuals. Staff will
continue to monitor this funding source closely to assess the need for future budget adjustments.
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
Quarterly and Annual Revenues
5 -Year History
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
1st Quarter Actual Revenues
Fiscal Year Total Actual Revenues
Fiscal Year Total Budgeted Revenues
1st Quarter Revenue Percent of Total .
El lst Quarter Actual
Revenues
]Fiscal Year Total Actual
Revenues
®Fiscal Year Total
Budgeted Revenues
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
$ 134,569 $ 99,179 $ 107,453 $ 161,567 $ 135,452
$ 966,638 $ 923,783 $ 1,004,659 $ 1,174,485
$ 1,099,860
13.92% 10.74% 10.70% 13.76% 12.32%
Recommended Budget Revision No Change
9
SO N OF
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
Charges for Services
Town Service revenues consist primarily of planning, building, inspections, and engineering fees assessed on local
building and development activity. Development fees and charges are assessed based on recovery formulas, which
reflect approximate costs of providing these regulatory services. FY 12/13 Charges for Service were budgeted at
24% less than FY 11/12 because of the loss of redevelopment reimbursement for administrative and housing
support.
Analysis— First quarter Town service revenues, specifically Charges for Services, are trending well ahead of first
quarter results from the previous fiscal year, with an increase of 27 %. This increase is the result of a change in how
certain fees are charged and an increase in development. Staff will continue to monitor this revenue source,
however, no budget revisions are recommended at this time.
$4,500,000
$4.000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500.000
$1,000,000
$500,000
Quarterly and Annual Revenues
5 -Year History
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
tat Quarter Actual Revenues
Fiscal Year Total Actual Revenues
Fiscal Year Total Budgeted Revenues
tat Quarter Revenue Percent of Total
Q,wt> AcWel Rwopoos
I— TOWIA..W
Voe TONIDVJgoWtl
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
$ 761,582 $ 938,223 $ 815,237 $ 907,005 $1,153,201
$ 2,370,748 3; 4,055,322 $ 3,570,110 $ 4,154,295
$3,174,074
32.12% 23.14% 22.84% 21.83% 36.33%
Recommended Budget Revision No Change
10
tpW N OF
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
!ps GASp9
Licenses and Permits
Licenses and permits consist mainly of Building Permit fees which are collected by the Town to offset administrative
costs associated with overseeing the proper licensing aspects of development. Licenses and Permit revenue was
budgeted at 11% less than FY11/12 in anticipation that development would remain slow.
Analysis— First quarter License and Permit revenue is trending well ahead of first quarter results from the previous
fiscal year, with an increase of 34 %. Staff will continue to monitor this revenue source, however, no budget
revisions are recommended at this time.
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
Quarterly and Annual Revenues
5 -Year History
FY 08/09 FY 09/10 FY 10 /11 FY 11/12 FY 12/13
_ -i
11
FY 09/09
FY 09/10
FY 10 /I1
FY 11/12
FY 12/13
1st Quarter Actual Revenues
$ 618,722
$ 428,946
$ 583,524
$ 550,905
$ 837,937
Fiscal Year Total Actual Revenues
$ 1,553,080
$ 1,756,397
$ 1,831,308
$ 2,164,728
Fiscal Year Total Budgeted Revenues
$1,931,410
1 st Quarter Revenue Percent of Total
39.84%
24.42%
31.86%
25.45%
43.38%
Recommended Budget Revision
No Change
11
,tpW N OF
(ps G;dS,�pS
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
Interest Income
The Town earns interest income by investing monies not immediately required for daily operations in a number of
money market instruments. These investments are made within the parameters stated in the Town Council's
Investment Policy. The Town's investment goal is to achieve a competitive rate of return while protecting the safety
of its funds. Interest income revenue is primarily dependent on two factors; first, the cash balance in the Town's
investment portfolio; and second, the yield on those funds.
Analysis e First quarter receipts are trending below those In the same period in the prior fiscal year. Financial
indicators throughout the market are mixed. For example, from September 2011 to September 2012 the LAIF yield
declined from 0.38 %to 0.35 %; however the three -moth Treasury increased from 0.02% to 0.10 %, the six-month
Treasury increased from 0.06% to 0.14 %, and the five -year Treasury declined from 0.87% to 0.62 %.
The strategy for the foreseeable future continues to be to remain fairly short -term and to invest in callable agency
bonds in order to attempt to pick up a few basis points over non - callable agencies and treasuries. Treasuries are
being added into the mix of investments to attempt to keep the portfolio somewhat balanced, even though this has
the effect of lowering the overall rate of return. The Town also attempts to find good solid corporate bonds when
possible. There are no recommended changes to this revenue source.
$1.800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
Quarterly and Annual Revenues
5 -Year History
FY 08/09 FY 09/10 FY 10 /11 FY 11112 FY 12/13
I at Quarter Actual Revenues
Fiscal Year Revenues
Fiscal Year Total Budgeted Revenues
tat Quarter Revenue Percent of Total
Olst Quarter Actual
Revenues
Wiscal Year Revenues
®Fiscal Year Total
Budgeted Revenues
FY 08/09
FY 09/10
FY 10 /11
FY 11/12
FY 12113
$ 461,985
$ 461,985
$ 215,378 $
91011 e�
iixw��`lrr�5 t'm 7 >5' ,i
$ 1,627,727
$ 1,627,727
$ 942,977 $
734,722
�o:��+��"�it
fray
$ 892,990
28.4%
28.4%
22.8%
25.9%
13.0%
4ib il`�
FY 08/09 FY 09/10 FY 10 /11 FY 11112 FY 12/13
I at Quarter Actual Revenues
Fiscal Year Revenues
Fiscal Year Total Budgeted Revenues
tat Quarter Revenue Percent of Total
Olst Quarter Actual
Revenues
Wiscal Year Revenues
®Fiscal Year Total
Budgeted Revenues
FY 08/09
FY 09/10
FY 10 /11
FY 11/12
FY 12113
$ 461,985
$ 461,985
$ 215,378 $
190,387
$ 111,401
$ 1,627,727
$ 1,627,727
$ 942,977 $
734,722
$ 892,990
28.4%
28.4%
22.8%
25.9%
13.0%
Recommended Budeet Revision No Change
12
A`pS
0.W N �F
r
l� "' >, BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
!ps G
FINANCIAL SUMMARIES, PROJECTIONS AND RECOMMENDATIONS
General Fund
The following table is the Schedule of General Fund Operating Revenues. Vs. Operating Expenditures for the first
quarter of FY 2012/13, which includes comparison information from the prior year. In the last column are
projections of final balances for the current fiscal year based upon the early trends observed through the first
quarter.
Torn of Les Gatos
Schedule of General Fund
Operating Revenues vs. Operating Ezpeuditures
For the period ended Septernber30, 2012
U named
FV11 112 M1112 MI /12 "11112 0012113 0012113 NY12/13 4Y12113 FY12113
Fain Adlested Ist Qtr % AduMed Adjusted 1atQtr k Fnanee
Do... Budget Actual. YID Budget Budget Actual. VM Projection
Mw
Mayor &COUncB
General PsapedY Tex
S 7,445,902 S
],432,4]0 S
72,619
1% S
8,021,117 $
8,021,117 S
76842
1% 5
8,021,117
Prop Tax CarTnxwelSll
15,238
141,210
15,238
228,388
142,620
I4ZG20
15,790
11% S
142,620
Sales &Use Tice
9,889100
111602,000
1,184,526
Wth
7,859,000
7,859,003
601,716
8% $
7,859,090
Franchise Fees
1,952,488
1,910,610
245,533
13%
1,939,820
1,939,820
251,349
13% S
1,939,820
Transient Oct7r-
1,174,485
1.000,003
131,567
13%
1,009,860
I'oen's 0
135,452
12% $
1,099,860
Business License Tav
1,07],620
1,085,003
43,969
4Ye
1'586510
1,286,510
43,984
3% $
1,286510
Uc...cs&Naita
2,16!,7211
1,]57,030
550,A75
31%
1,931,410
1,931,410
83],93]
43% S
1,931,410
Motor Vehicle In Ucu
2,353,158
2,256,W0
-
0%
2,272,820
2,272,820
-
W. S
2,27$820
Inlagovemnnntul
763,020
1183,240
]6775
9%
658,552
658,552
]8,76]
12% S
658,552
Orntges for Services
4,154,20
3,64I,736
907,005
25%
3,1]4,0]4
3,174,004
1,153,201
367. S
3,174,074
Fines &Forfeitures
809,461
671,5%
165,380
25%
698,410
698,440
104,]83
15% S
698,440
Intent
695,748
865,960
183,979
21%
892,990
8W.non
111,401
12% S
89ZM
OASB mveseent to rmrdel Per audit
(347,218)
(261,979)
-
(284,424)
(284,424)
-
5
(284,424)
MiscelWeouslOther
2,359,0
7.548.302
249$19
IM
2,580,288
2,580288
271,611
11% S
2,580,288
Frnrd TrensRrs
1311723
416,920
32,005
8%
516,9ID
516,920
21,934
S
5169ID
Tn<NRevenuer
34,759,416
32,959,045
3,863,720
12%
32,789997
32,789997
3,704,767
11%
32,789,007
Use ofolhnr Pbeaft, sources:
use orRes.,.- Contest propels
eso.
700,000
700,010
7K"
Use of Reserves - Special Studies
-
Vncona Wrd Set. Restive
2,709000
1,200,000
1,200,000
1,200,000
Fund Balance Reallocations
-
C4uryfomeardAeocati0ns
'
PBBS Whig, Account
30),000
-
Use arinlcnralSaviceReserves
490,000
490,000
490,1100
Total Other FUnding it-rees
-
3,659003
2,390,002
;399003
-
2,39D,IX0
Total%mnoee pIua Rerenee
S 34,759416 S
36605.0,55 S
3.863,720
S
35.179,007 S
35,1]9,93] S
3]00]67
S
35,1]9,59]
EpznNturee (IntluMr tlf M1urnu enNm6runae)
Mayor &COUncB
188.334
207,655
43,542
21%
213,057
213,057
43,347
213,057
AttomeY
215,]91
223,861
47,181
21%
228,388
43,170
MA
228,803
AdnstanDmlivu5ervices
1,635,545
2,847,550
536666
19%
2,913,388
913,199
2,913,388
580,016
29.
21
3913'5811
Vdoprrcnl
3,235,635
3,173,694
641,229
21%
3,528,55!
3,525,55)
]4],050
21%
3,529,554
Police
Police
13,441,193
13,631,1120
3,058,408
22%
13,388,959
13.388.959
2,]53855
21%
13,388,959
Parts &Public Works
5,440,8m
1,168,413
5,778,817
5,]]8,81]
817
1251,693
12%
5,]]6,69)
Ubrery
1.813853
1,08.357
1,0011,35]
NI11,10]
B%
23%
2,100,600
2,192,690
55],)89
23 °u
2,192,695
Tend Dept htn-.
S 26,972,519 $
22655,834 S
5,963,546
22% S
28,236,274 S
28236274 3
593420
21% S
28,n6 74
Na -Dept EFenditness and otheruses
General (iVermmnt
6,W.573
8.824.781
419,261
5%
71089,265
7.089,265
1.225313
17%
7,089,265
To1el Non- Dept Expects
S 6.86.573 S
8,824,781 $
419.261
5% $
] 089265 S
7,089,265 S
1225.315
17% S
7,089245
Total Operall., lkpeuffeercr
S 33,837,032 S
36,480,615 3
6382807
17% S
35,325,539 $
35,325,539 S
7,148,735
20% S
35,325,539
Net Opernllog Re,sru -, Before Cupllel T..
&Budg,ed Begaina Balance $ 922,324 S 128,430 S (2,519,087) S (145,542) S (145,542) $ (3,443,958) $ (145,542)
The groups of financial summaries on the following pages present data by governmental fund type: Special
Revenue Funds, Capital Project Funds, Internal Service Funds, and Trust and Agency Funds. For each, the fund
information starts with a beginning fund balance, adds current year revenues, and subtracts current year
expenditures, resulting in an ending fund balance. Adopted budget amounts are provided as a basis for
comparison of actuals to date.
it]
!ps =G =ptpS
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
Special Revenue Fund
Special Revenue Funds account for the proceeds derived from specific revenue sources that are legally restricted or
assigned to special purposes. The Town's Special Revenue Funds are Community Development Block Grant Fund,
Housing Conservation Program Fund, Urban Runoff Source Fund, and several landscaping and Lighting District
Funds. As indicated in the chart below, Non Point Source fund balance is negative. This is because the Town has
not yet received a payment which is to be credited to this fund. It is anticipated that this payment will be received
and updated during the mid -year budget report.
Special Revenue Fonds
Budget to Actuals Comparisons
Beginning Fund Balance (Pre- audit)
Budgeted Revenues
Total Actual Revenues - 1st Qtr
Budgeted Expenditures
Total Actual Expenditures - 1s1, Qtr
1st Quarter Ending Fund Bulance
Capital Proiects Funds
CDBG
Non Point
Traffic
Grants
Source
LIDS
216,523
76,536
129,918
279,308
502,000
39,348
1,578
Tax
288
273,985
338,798
33,943
-
131,090
3,735
218,101 (54,554) 126,471
Capital Projects Funds account for resources used for the acquisition and construction of capital facilities by the
Town. Funds in this category are the GFAR (General Fund Appropriated Reserve) Fund, Traffic Mitigation Fund,
Grant Funded CIP Projects Fund, Utility Underground Fund, Gas Tax Fund, and three Storm Drain Funds. Capital
Projects Funds are generally tracking in accordance with the FY 2012/13 adopted budget. Traffic Mitigation
expenditures are at 30% of budgeted expenditures and Gas Tax is at 86% of budgeted expenditures. It is expected
that Gas Tax expenditures would be high during the first and second quarters. Staff will continue to monitor these
expenditures throughout the remainder of the year.
Capital Project Funds
Budget to Actuals Comparisons
14
GEAR
Traffic
Grant Fund
Storm
Utility
Gas
Fund
Mitigation
CUP's
Drains
Undergd
Tax
Beginning Fund Balance
7,211,987
3,191,626
(671,281)
1,116,633
2,450,322
193,300
Budgeted Revenues
4,371,593
1,936,474
2,241,471
102,540
51,250
834,560
Total Actual Revenues - 1st Qtr
1,129,033
-
162,712
43,938
17,212
169,663
Budgeted Expenditures
14,815,245
1,983,274
1,655,593
284,560
-
756,000
Total Actual Expenditures - 1st Qtr
1,415,418
592,991
63,046
-
-
650,000
1st Quarter Ending Fund Balance
6,925,602
2,598,635
(571,615)
1,160,571
2,467,534
(287,037)
14
" + BUDGET PERFORMANCE REPORT —1ST QUARTER FY 2012/13 iiia
Og OAt�
Internal Service Funds
Internal Service Funds finance and account for special activities and services performed by a designated Town
department for other Town departments on a cost reimbursement basis. Included in this fund type are the
Equipment Replacement Fund, Workers' Compensation Fund, ABAG Self Insurance Fund, Office Stores Fund,
Management Information Systems Fund, Vehicle Maintenance Fund, and the Facilities Maintenance Fund.
Internal Service Funds are generally tracking in accordance with the FY 2012 -13 adopted budget, although
expenditures in the Workers' Compensation and Self- Insurance Liability Funds are trending slightly higher due to
adjustments in insurance premiums and claim activity. No revisions to adopted revenues or expenditures are
required at this time.
Internal Service Funds
Budget to Actuals Comparisons
Trust and Agency Funds
Town Trust and Agency Funds have fund balances as of July 1, 2012 of $45,154 for Parking District #88 and $859,231
for the Library Trust Funds. No budget revisions are contemplated at this time for these funds.
Successor Aeencv to the Redevelopment Agency
During the first quarter, the Successor Agency Board and staff worked diligently to satisfy the many requirements
and deadlines established by the state through AB1x26 and AB1484. ABlx26 is the "Dissolution Bill" that eliminated
the Town's Redevelopment Agency effective February 1, 2012. AB 1484 is the "clean -up" bill that revised and
attempted to clarify AB1x26. In accordance with the law, the Successor Agency continues to wind down the affairs
and operations of the former Redevelopment Agency by implementing programs and activities in accordance with
the State - approved Recognized Obligation payment Schedule (ROPS). Overall the activities of the Successor Agency
are within budget and on target.
15
Equipment
Workers
Self
Office
Mmgt info
Vehicle
Building
Replacemt
Comp
insurance
Stores
Systems
Maint
Maim.
Beginning fund Balance
3,133,400
2,300,638
1,595,140
206,571
2,473,342
521,709
1,020,686
Budlisted Revenues
439,532
659,429
501,292
127,500
1,020,673
5443325
1,138,086
Total Actual Revenues - 1st Qtr
109,886
147,670
112,517
. 18,117
241,743
134,375
291,688
Bud @3ted Expenditures
714,201
742,411
652,249
143,050
1,370,665
540,532
1,715,544
Total Actual Expenditures -1st Qtr
21,738
290,503
473,334
24,242
185,823
82,489
221,014
1st Quarter Ending Fund Balance
3,221,548
2,157,805
1,234,323
200,446
2,529,262
573,595
1,091,360
Trust and Agency Funds
Town Trust and Agency Funds have fund balances as of July 1, 2012 of $45,154 for Parking District #88 and $859,231
for the Library Trust Funds. No budget revisions are contemplated at this time for these funds.
Successor Aeencv to the Redevelopment Agency
During the first quarter, the Successor Agency Board and staff worked diligently to satisfy the many requirements
and deadlines established by the state through AB1x26 and AB1484. ABlx26 is the "Dissolution Bill" that eliminated
the Town's Redevelopment Agency effective February 1, 2012. AB 1484 is the "clean -up" bill that revised and
attempted to clarify AB1x26. In accordance with the law, the Successor Agency continues to wind down the affairs
and operations of the former Redevelopment Agency by implementing programs and activities in accordance with
the State - approved Recognized Obligation payment Schedule (ROPS). Overall the activities of the Successor Agency
are within budget and on target.
15
BUDGET PERFORMANCE REPORT -1ST QUARTER FY 2012/13
Redevelopment Agency Funds
Budget to Actuals Comparisons
Due Diligence Review (Housing Funds) —As required by AB 1484, a Due Diligence Review was completed of the Low
and Moderate Income Housing Set -aside Fund to determine the amount of uncommitted housing funds available
for disbursement to county taxing entities. Uncommitted funds were verified and approved by the Department of
Finance and funds were transferred immediately to the County for distribution to the taxing entities. Another due
diligence review of non - housing funds is scheduled during the second quarter of the fiscal year.
CONCLUSION
The financial results from the prior fiscal year, coupled with the FY 2012/13 first quarter data, confirms the Town's
continued conservative fiscal planning and efforts to sustain its economically sensitive revenues. This is especially
important in light of the ongoing loss of Netflix sales tax revenue and other key sales tax projections. The long -
range outlook for the Town indicates another challenging fiscal year ahead with a slow turn - around projected to
being in Fiscal Year 2014/15. Therefore, staff will continue to examine revenue and expenditure activity and work
to identify opportunities to enhance revenue to support current and future operating capital needs. Equally
important is to ensure that the Town's current limited resources are allocated to meet the priority service needs of
the community.
16
Capital
Debt
Low/Mod
Total
Projects
Service
Housing
RDAFunds
Beginning Fund Balance
1,224,356
1,952,503
131,306
3,308,165
Budgeted Revenues
255,000
3,910,142
-
4,165,142
Total Actual Revenues -1st Qtr
1,102
20,546
2,824
24,472
Budgeted Expenditures
304,470
3,910,142
-
4,214,612
Total Actual Expenditures - 1st Qtr
14,971
1,783,434
-
1,798,405
1st Quarter Ending Fund Balance
1,210,487
189,615
134,130
1,534,232
Due Diligence Review (Housing Funds) —As required by AB 1484, a Due Diligence Review was completed of the Low
and Moderate Income Housing Set -aside Fund to determine the amount of uncommitted housing funds available
for disbursement to county taxing entities. Uncommitted funds were verified and approved by the Department of
Finance and funds were transferred immediately to the County for distribution to the taxing entities. Another due
diligence review of non - housing funds is scheduled during the second quarter of the fiscal year.
CONCLUSION
The financial results from the prior fiscal year, coupled with the FY 2012/13 first quarter data, confirms the Town's
continued conservative fiscal planning and efforts to sustain its economically sensitive revenues. This is especially
important in light of the ongoing loss of Netflix sales tax revenue and other key sales tax projections. The long -
range outlook for the Town indicates another challenging fiscal year ahead with a slow turn - around projected to
being in Fiscal Year 2014/15. Therefore, staff will continue to examine revenue and expenditure activity and work
to identify opportunities to enhance revenue to support current and future operating capital needs. Equally
important is to ensure that the Town's current limited resources are allocated to meet the priority service needs of
the community.
16