1 - Transmittal Letter PROPOSED
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TOWN OF LOS GATOS
CIVIC CENTER
110 E. MAIN STREET
P.O. BOX 949
LOS GATOS, CA 95031
May 28, 2013
Honorable Mayor and Town Council:
I am pleased to present to you the FY 2013/14 Operating and Capital Budget for the Town of Los Gatos
and the Town of Los Gatos Successor Agency for the Redevelopment Agency. This document provides a
comprehensive recommendation and projection for all Town financial activities for FY 2013/14 and
Capital Improvement Program activities for the FY 2013/14 – 2018/19 planning period. This budget is a
numerical representation of the Town’s priorities and goals given economic and local
considerations.
Like most municipalities, the Town of Los Gatos has not been immune to the effects of the economic
recession. The last five years have required significant budget reductions in both expenditures and
revenues. While challenging, the Town managed these five years well, with conservative budget
proposals and forecasts, as well as creative approaches to workforce reductions through attrition, re-
organizations, and outsourcing. As a result of these solutions and the Town’s overall budget
management, the Town was able to add to reserves every year for the past five years. On a positive note,
based on five-year budgetary forecasts, staff is optimistic that budget shortfalls will start to improve by
FY 2015/16 and these are the last few years of projected budgetary cuts resulting from the recent
recession.
The proposed operating budget incorporates revenue enhancements and expense reductions totaling the
$800,000 necessary to balance this year’s budget. This balancing is primarily the result of increased
revenues stimulated by the economic recovery and end of the recession period. However, some
expenditures are tied to revenue in terms of additional staff time needed due to increased workload
demands, specifically in the Community Development Department (CDD). The Town has accounted for
these situations and is budgeting affected expenditures accordingly. Furthermore, the Town has
responded to workforce reductions by using creative interim structures, specifically in the Library and
Community Development Department (CDD). These interim structures have allowed staff to redeploy
funding from management positions to front-line service delivery.
The capital budget includes increased funding for basic infrastructure needs, including new public
facilities and parks, street repair and reconstruction, street safety projects, retaining walls, sidewalk, curb
and gutter projects, and park projects. The completion of hillside road repair and resurfacing project, the
Winchester Boulevard and Lark Avenue intersection street improvement and the old library reuse project
are all expected in FY 13/14. Given the State’s elimination of Redevelopment and taking approximately
$15 million from the Town already, replacement funding for the next phase of Almond Grove street
replacement has been included per Council direction.
Strategic Goals and Priorities
In February 2013, the Town Council reviewed the strategic goals and provided guidance to Town staff on
workload prioritization. Updated Strategic Goals will be presented as part of the public hearing process
for the budget. The Town Council reaffirmed its core values, including: Community Character, Good
Governance, Fiscal Stability, Quality Public Infrastructure, Civic Enrichment, and Public Safety. For
each core value, there are several corresponding strategic goals.
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Five Year Financial Plan and Framework for Budget Development
The updated Five-Year Financial Plan included in the budget staff report spans FY 2013/14 – 2018/19
and is an integral part of the budget development process. The forecast is used as an independent
financial tool that is based upon current costs and revenue forecasts, but is designed to be fluid in nature,
allowing staff to build various funding scenarios and test “what if” assumptions for expected increases in
operating costs and changes to operating revenues. Provisions for limited augmentations to critical
service areas including maintenance were also assumed in the forecast.
The five-year forecast identified the need for budget adjustments totaling $800,000 to balance the FY
2013/14 budget after eliminating a previously forecasted addition to operating reserves and assuming
continuation of prior budget balancing actions (e.g. unpaid furlough for non-sworn and management
staff). Forecasted FY 2013/14 revenues were projected with the current economic recovery in mind,
assuming varying growth rates, both for tax revenues and for fees for services, including overhead
charges. Expenditures were projected using a database of prior year actual costs adjusted for future known
increases in employee benefit costs, and actuarial updates for post-retirement benefits.
Budget Development Principles and Strategies
The mid-year five-year forecast projected a $800,000 budget gap for FY 2013/14 and continued operating
deficits for the next fiscal year. Keeping the Town’s strategic goals in mind, in February the Council
provided staff with direction on work load and budgetary priorities for the remainder of FY 2012/13 and
for FY 2013/14. Given this information, staff developed proposals reflecting over $800,000 in budget
adjustments.
The outcome of the workload and budgetary prioritization process and FY 2013/14 budget take into
account the Town’s current and long-term fiscal picture, as well as high priority service delivery needs.
Key principles include:
Develop and recommend a balanced budget that maintains service levels;
Continue to make progress on Council strategic goals identified by the Town Council;
Continue with interim organizational transitions to ensure cost-effective and efficient front-line
service delivery; and
Identify opportunities to enhance service delivery through technology and open government.
The following section reflects strategies used to balance the FY 2013/14 operating budget. In analyzing
these issues, staff considered the impacts on both current and future budgets and assessed alternative
approaches to meet service demands.
Staffing Adjustments and Salary Reductions
The FY 2013/14 proposed operating budget reflects several adjustments to better align staff resources
with work demands while achieving necessary reductions. The following section highlights
recommended staffing and salary changes with additional savings identified through operating
expenditure reductions.
Administrative Services – The Administrative Services budget remained stable with respect to
FTE’s, however as a result of organizational restructuring and staffing changes total salaries and
benefits were reduced by approximately $51,000 from the prior year’s adopted budget. Some of
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these changes include: the vacant Deputy Town Manager position was reduced to an Assistant to
the Town Manager position and full-time Economic Vitality Manager was reduced to a half-time
Economic Vitality Coordinator. In addition, the Assistant Budget/Finance Director position was
vacated and filled at the Finance & Budget Manager level resulting in additional cost savings to
the Town.
Police – The Police Department budget reflects the elimination of the remaining half of a
Sergeant position eliminated mid-way this fiscal year as part of last year’s budget approval. The
retired Sergeants duties have been re-assigned to County Fire, non-sworn staff, and the remaining
Sergeants.
Parks & Public Works (PPW) – The Parks and Public works budget reflects an increase of .50
FTE’s which includes the reclassification of the Parks and Facilities Superintendent position to a
Facilities and Environmental Services Manager position which is a lower level management
position. In addition, a .50 FTE Building Inspector position was restored to a 1.0 FTE
Engineering Inspector. The .50 FTE increase is a result of increased revenues from the West
Valley Solid Waste Management Authority’s administrative fees. The Engineering inspector will
primarily be monitoring stormwater compliance issues and performing inspections related to
private development construction projects.
Library- The Library budget reflects a comprehensive reorganization to realign staffing to meet
dramatically increased customer service use and demands at the new Library, yet still achieves
salary, benefit and operating expenditure savings of $30,000. Specifically, five legacy positions
and classifications are being eliminated, as well as 2.37 FTE’s of temporary staff, to create 10.30
FTE’s of permanent positions to improve customer service, staff scheduling, and continuity.
Furloughs. Unpaid furloughs for non-sworn employees are included in the proposed budget and
are expected to provide a savings of $200,000. To ensure minimal impact to Town services, the
furloughs will be implemented during the annual holiday closure in late December. Sworn
employees will not participate in FY 2013/14 furloughs as the Police Officers’ Association
(POA) has extended its prior union agreement which expressly excluded them from the furloughs.
Regional and Local Resources
The Proposed FY 2013/14 budget addresses immediate funding for two regional and one local issue that
will likely require significant additional resources in future years.
Non Point Source Discharge Elimination System (NPDES)
The purpose of the NPDES is to prevent debris and pollution from entering the Town’s storm drain
system. This is accomplished through street sweeping services on Town-owned public streets and
parking lots as required by the NPDES Municipal Storm Water permit. The West Valley Sanitation
District receives funding collected through Santa Clara County property tax receipts, which are then
distributed to local programs that support non-point source functions. In previous years, the Town-
managed NPDES program received sufficient pass-through revenues to manage the program. However,
due to more stringent permit requirements, the existing revenue source is no longer sufficient to meet
growing administrative and managerial costs. It is anticipated that in the near future, the NPDES program
will need to be supplemented with an additional revenue source to meet regulatory requirements.
NPDES funds are currently used to support the Town Street Sweeping program. Staff is actively working
with the West Valley Solid Waste Joint Powers Authority (JPA) on a proposal to include street sweeping
costs into commercial and residential garbage rates. If successfully implemented, there may be increased
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financial capacity within the NPDES program in FY 13/14 to meet the storm water permit requirements
for next year. Further expansion of and funding options to meet NPDES requirement will be presented to
Council in early 2014, as per the Mayor’s request.
Silicon Valley Regional Interoperability Project (SVRIP)
In FY 2010/11, SVRIP became a Joint Powers Authority and renamed SVRIA – Silicon Valley Regional
Interoperability Authority, resulting in the joint ownership and maintenance of the Santa Clara County
microwave communication system. As with other member agencies, the Town will continue to pay a
portion of ongoing annual system management and maintenance costs. Costs to implement enhancements
to regional communication systems may be needed in the future, and the regional authority is preparing
for presentation to all County jurisdictions later this year.
FY 2012/13 General Fund Operating Budget Overview
The proposed FY 2013/14 General Fund Budget is a balanced budget barring any other unanticipated
financial issues. Revenue estimates may change next year if there are unexpected negative local
economic downturns or unanticipated future State revenue take-aways. If any of these occur, adjustments
to the budget may be required early next fiscal year.
Overall, General Fund appropriated expenditures are proposed to increase by 1% from the FY 2012/13
Adopted Budget level of $31,416,317 million to $31,704,959 in FY 2013/14, excluding debt service and
capital transfers-out. This minimal increase is due to increased costs of materials and reflects the Town’s
efforts to contain costs. Internal Service Fund charges were adjusted because of increased maintenance
costs and equipment replacement needs. The FY 2013/14 General Fund reflects a balanced budget after
projecting an increase in revenues and reducing operating expenditures.
GENERAL FUND SOURCES
FY 2013/14
PROPOSED
BUDGET
Revenues
General Fund Operating Revenues
Sales & Use Tax7,797,615$
Property Taxes7,786,976$
Licenses & Permits2,577,413$
Charge for Services2,524,258$
All Others13,040,477$
Fund Balance Sources
Other Uses of Fund Balance
Capital / Special Project Reserve2,754,399$
Vasona Land Sale Reserve
TOTAL SOURCE36,481,138$
GENERAL FUND USES
General Fund Operating Expenditures31,704,959$
Debt Service Payments1,935,578$
General Fund Transfers2,754,399$
Fund Balance Allocation
Budget Stabilization Reserve
CIP Capital Projects-$
TOTAL USE36,394,936$
NET SOURCES LESS USES86,202$
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Operating Revenues
On a positive note, the economy is showing signs of improvement and recovery which has resulted in
staff proposing an increase in operating revenues of over $640,000. The FY 2013/14 budget reflects
approximately $32.9 million in total revenue, or a 2% increase compared to the prior year. This is mostly
due to forecasted increases in Vehicle License Fee (VLF) backfill property tax, franchise fee, business
licenses, licenses and permits and Town Service fees. Diversification remains a top priority for the Town
in terms of sales tax revenue. To that end, the Town will maintain its outreach and support of downtown
and local businesses through continued, although reduced, funding of the Economic Vitality Program.
Property tax receipts in Los Gatos are expected to decrease slightly from the budgeted FY 2012/13.
Property tax budget projections are based on valuations projected by the Santa Clara County Assessor’s
Office, given increased home sales, coupled with anticipated adjustments in property tax distribution due
to the dissolution of California redevelopment agencies. In FY 2012/13 the County overestimated
property tax receipts and therefore the 2013/14 budget projection reflects the revised base. Sales and Use
Tax is also projected to decrease slightly from FY 2012/13, however the outlook for sales tax is
promising as many business are reporting increased revenues. Licenses and Permits revenue has been
adjusted as a result of increased building activity. Overall, FY 2013/14 Town Services revenues are
projected to increase and take in account CPI adjustments adopted by Council in April 2013. All other
revenues were based on the latest information available from the State, recent revenue trend history, and
other information provided by Town departments that track particular revenue sources.
Operating Expenditures
The Town’s General Fund operating budget expenditures for FY 2013/14 have increased by $288,642 or
1% compared to the prior year’s adopted budget (excluding fund transfers and debt service). These
expenditures are comprised of six major categories of costs, including salaries and benefits, grants and
awards, internal service charges, operating expenses for supplies and services, and debt service. The
delivery of Town services is highly dependent on labor, which makes up 60% of budgeted General Fund
expenditures for FY 2013/14.
Despite strategic reductions made in staffing, overtime, and operating expenditures, salary and benefits
continue to be the largest portion of the Town costs. Compared to the prior year, salary and benefits
increased $256,000 or 1%, largely due to changes in benefits and PERS rates. Health care costs for active
and retired employees coupled with actuarial requirements also continue to grow, exacerbating the gap
between revenue and expenditures in the five-year forecast.
State Budget Impacts
Details on the State of California Proposed FY 2013/14 budget will be available as part of the Governor’s
May Budget Revise. Based on a preliminary review of the State’s proposed budget, the League of
California Cities has identified the following budget proposal that will impact cities:
CAlPERS Raises Employer Rates Significantly to Stabilize Fund: In April 2013 the CalPERS
Pension and Health Benefits Committee adopted recommendations to modify both the smoothing
and amortization policies and implement these changes going forward with an impact to
employer rates beginning in FY 2015/16. As a result of this change, the smoothing period will
change from a 15-year rolling period to a five-year direct smoothing rate. The amortization
period will go from a 30-year rolling period to a 30-year fixed rate. These changes will require
the Town to pay significantly more into the system. Estimates indicate that these changes will
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result in the Town paying 34% more in 10 years than it is currently costing the Town today. The
Town will see the highest increase in the first year of implementation (FY 2015/16), with slight
increases in year seven and 10. These increased rates will remain at those levels from 2020 on
for decades. In addition to these changes, CalPERS is considering discount rate changes and
actuarial assumption changes relating to mortality assumptions. While these changes are still
under consideration, if adopted, they would be on top of the smoothing and amortization policy
changes.
Forecasted General Fund Reserve Status - June 30, 2013
The total General Fund Reserves are forecasted to close at a balance of approximately $21.7 million at
June 30, 2013 (excluding $2.5 million in funds set aside to pay accrued compensated absences). Despite
challenging budget years, the Town has been able to add to reserves every year. The Council’s specified
Emergency and Budget Stabilization Reserves are both fully funded at 12.5% of the operating budget,
with an additional $10.8 million reserve for future one-time expenses.
Overview of the FY 2013/14 Capital Budget
Of vital importance is the Town’s continued investment in infrastructure preservation and the addition of
new capital assets to benefit the community. The FY 2013/14 proposed budget funds the first year of the
Town’s Five-Year Capital Improvement Plan (CIP). Total appropriations for FY 2013/14 are $10.5
million, consisting of $5 million in carryover funding from the prior year and $5.5 million in new funding
dedicated for new and/or additions to existing projects. Notable street, park and public facility projects in
FY 013/14 include:
Street Program Projects:
Almond Grove Street rehabilitation project, including the design and next phase of reconstruction
of neighborhood streets after non-redevelopment funding has been allocated.
Highway 9/University Avenue intersection traffic system improvements, including dedicated left
turn lanes, new traffic signal and sidewalks, and ADA improvements.
Winchester Boulevard and Lark Avenue intersection improvement projects, specifically the
project design and development phase which upon project completion will add a northbound
receiving lane on Winchester Boulevard from Lark Avenue to Wimbledon Drive.
Winchester Boulevard and Knowles intersection improvement project with an additional turning
lane, new sidewalks and traffic signal improvements.
Parks Projects:
Town Park lighting project, including installation of new outdoor lighting in three Town Parks –
Blossom Hill Park, Howe’s Play Lot and Live Oak Manor Park.
Pedestrian Bridge to the sports park, specifically the design and development phase for the
potential construction of a pedestrian bridge from Los Gatos Creek Trail to the Creekside Sports
Park, subject to public review and Council approval.
Open space trail upgrades, with the design and development phase being initiated in FY 13/14 to
reconstruct a section of Los Gatos Creek Trail along Charter Oaks Drive.
Public Facilities Projects:
Old Library Reuse project, which consists of replacing the elevator, ADA related improvements
to the restroom, and HVAC replacement.
Parks and Public Works (PPW) Administration Building improvements to enhance the front
entrance of the PPW Administration Office to improve customer service workflow and delivery.
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Pavement Condition Index (PCI)
Increased funding for local street maintenance is discussed within the Five-Year Capital Program, with a
proposed increase to Street Program Projects to meet basic infrastructure needs and rising community
expectations and demands for improved neighborhood street maintenance. Approximately 79% of the
proposed FY 2013/14 CIP funding is allocated to street reconstruction and related projects, reflecting the
Council’s priority to address street maintenance needs. The Town’s 2012 Pavement Condition Index
(PCI) for 2012 is 71 (100 being the highest rating possible). While the current PCI is slightly above the
Town’s goal of 70, the FY 2013/14 CIP includes street infrastructure projects that will maintain the
Town’s current PCI level.
Conclusion
While the global, national, and local economy appears to be in recovery, the Town anticipates at least one
more year of fiscal challenges and uncertainties. Based on the Council directions on workload and
budgetary priorities, approximately $800,000 in revenue enhancements and service delivery adjustments
have been identified for the proposed FY 2013/14 budget.
In light of anticipated deficit projections, opportunities to enhance service delivery, while lowering
operating costs through resource and workload redeployments and organizational restructuring continue
to be explored. Developments at the local and state level, including unanticipated changes in major
revenue sources or unforeseen State revenue “takes” will be brought to Town Council’s attention in a
timely manner so that an appropriate action can be taken.
I wish to thank all of the departments, in particular, Department Directors and the members of their
management and support staff, who worked diligently on the preparation of this budget document as well
as the following staff members:
Stephen Conway, Finance and Administrative Services Director
Pamela Jacobs, Assistant Town Manager
Rumi Portillio, HR Director
Jennifer Callaway, Finance & Budget Manager
Gayle Barr, Payroll Specialist
Krysten Lee, Accountant
Nicole Tram, Account Technician
Gitta Ungvari, Administrative Technician
Linda Isherwood, Analyst
Respectfully submitted,
Greg Larson
Town Manager
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The Government Finance Officers Association of the United States and Canada (GFOA) has presented a
Distinguished Budget Presentation Award to the Town of Los Gatos, California for its annual budget since the
fiscal year beginning July 1, 2003. In order to receive this award, a government unit must publish a budget
document that meets program criteria as a policy document, as an operations guide, as a financial plan, and as
a communications device.
This award is valid for a period of one year only. We believe our current budget continues to conform to
program requirements, and we are submitting it to GFOA to determine its eligibility for another award.
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CORE VALUES
To be provided with the Council agenda staff report and incorporated following Council review.
FUND DESCRIPTIONS
The basic accounting and reporting entity for the Town is a fund. A fund is "an independent fiscal and
accounting entity used to record all financial transactions related to the specific purpose for which the
fund was created." Funds are established for the purpose of carrying on specific activities or attaining
certain objectives in accordance with special regulations, restrictions, or limitations.
Funds used in government are classified into three broad categories: governmental, proprietary, and
fiduciary. Governmental funds include activities usually associated with a typical state or local
government's operations (public safety, general government activities, etc.). Proprietary funds are used in
governments to account for activities often found in the private sector (utilities, stadiums, and golf
courses are prime examples). Trust and Agency funds are utilized in situations where the government is
acting in a fiduciary capacity as a trustee or agent. The various funds are grouped in fund types and
categories as follow:
MAJOR AND NON-MAJOR GOVERNMENTAL FUNDS
Include activities usually associated with the governmental entities' operation (police, fire, and general
governmental functions).
General Fund
Special Revenue
Funds
The General Fund is a Major Fund and is the chief operating fund of the
Town. All general tax revenues and other receipts not allocated by law or some
other contractual agreement to other funds are accounted for in the General
Fund. Expenditures of this fund include the general operating expenses
traditionally associated with governments such as administration, engineering,
and public safety.
Special Revenues Funds are used to account for specific revenues that are
legally restricted to expenditure for particular purposes. The following funds are
Non-Major Special Revenue Funds:
Non-Point Source Maintenance Fund - budgets and accounts for
environmental services such as storm water management.
Community Development Block Grant Fund - budgets and accounts for
federal Community Development Block Grant monies.
Landscape and Lighting Special Assessment District Funds - to budget
and account for revenues and expenditures within special districts. The
Town provides maintenance of the trees, landscaping, irrigation systems,
lighting, sound wall and fences for improvements in the public right-of-way,
within specific district boundaries.
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FUND DESCRIPTIONS
Capital Project
Funds
Capital Project Funds are used to account for the acquisition, construction, and
improvement of capital facilities other than those financed by proprietary funds.
The Town accounts for the following Major Capital Project Funds:
General Fund Appropriated Reserve – established to provide resources
for capital projects not fully funded from other sources.
The Town also accounts for the following Non-Major Capital Project Funds:
Storm Drain Basin Project Funds – were established to account for fees
paid in conjunction with the development in specified drainage areas.
Construction Tax Funds – were established to levy a tax based upon
building additions or alterations. The types of taxes imposed include
Capital Improvement, Utility Underground, and Parks.
Gas Tax Fund - budgets and accounts for revenues and expenditures
pertaining to the maintenance and construction of Town streets.
NON-MAJOR PROPRIETARY FUNDS
There are two classifications of Proprietary Funds: Enterprise Funds and Internal Service Funds.
Enterprise Funds are used to account for activities that are operated in a manner similar to a private
business enterprise, where the cost of the goods or services are to be financed or recovered primarily
through user charges. The Town does not currently utilize Enterprise Funds.
Internal Service
Funds
Used to account for the revenues and expenditures of services provided to Town
departments. The Town has several Non-Major Internal Service Funds:
Equipment Replacement Fund – This is a special fund established to
accumulate monies for the replacement of major Town equipment and
vehicles. When vehicles and equipment are acquired at a cost greater
than $10,000, a normal life span is calculated and replacement costs are
charged directly to the departments over that life span with funds accruing
to the Equipment Reserve Fund.
Vehicle Maintenance Fund - budgets and accounts for the cost of
operating, maintaining and replacing automotive equipment used by other
Town departments.
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FUND DESCRIPTIONS
Office Stores Fund - Photocopy equipment, postage and bulk meter
expenses are controlled at one source point and expended to the departments
as they requisition the goods or services. Photocopies are charged to
departments at $.05/copy.
Workers’ Compensation Fund - budgets and accounts for revenues
derived from charges made to operating departments at rates based on the
State Compensation Fund, annually adjusted to ensure an adequate reserve
for future claims. This fund is charged for administrative costs of settling
claims as well as material and other costs of job-related illness or injury.
ABAG Self-insurance Fund - established to ensure an adequate reserve for
future claims related to employee long-term disability.
FIDUCIARY FUNDS
Fiduciary Funds are used to account for assets held by the Town acting in a fiduciary capacity for other
entities and individuals. Such funds are operated to carry out the specific actions of trust agreements,
ordinances and other governing regulations. There are two categories of fiduciary funds, Trust and
Agency.
Trust Funds
Accounts for assets held by the Town in a trustee capacity under formal trust
agreement. The Town currently administers the following funds:
Library Trust Fund - accounts for assets held in trust, through receipt of
donations and bequests. Funds received from individuals, services
organizations, and a library specific non-profit organization.
Clelles Ness Trust – accounts for a specific bequest subject to an agreement
made for its use.
History Project Trust Fund – - accounts for assets held in trust, through
receipt of donations and bequests. Funds received from individuals,
services organizations, and a library specific non-profit organization for to
create, disseminate and maintain a searchable database about the history of
Los Gatos.
Susan McClendon Trust – accounts for a specific bequest subject to an
agreement made for its use.
Barbara Jones Cassin Trust – accounts for a specific bequest subject to an
agreement made for its use.
RDA Successor Agency Private Purpose Trust Fund – established to
account for the assets and liabilities transferred from the dissolution of the
Town’s former Redevelopment Agency and the continuing operations
related to the existing Redevelopment Agency obligations.
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FUND DESCRIPTIONS
Agency Funds
Accounts for assets held by the Town in the capacity of an agent for individuals,
governmental entities and non-public organizations. The Town currently
administers one of these funds:
Downtown Parking District Assessment Fund – used to account for the
resources held by the Town on behalf of the property owners in this Parking
Assessment District. Assessment revenues from this fund will cease in
September 2013 due to the completion and cessation of the Parking
Assessment District.
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FINANCIAL POLICIES
REVENUE
BUDGETING
and
EXPENDITURE
The Town will encourage a diversified growing revenue base that is locally
generated to shelter the community from fluctuations in any one-revenue
source.
The Town will follow an aggressive policy of auditing and collecting all
locally generated taxes.
The Town will establish and maintain all user charges and fees based on
the cost of providing services.
The Town Council will adopt an annual balanced budget effective from
July 1st to June 30th of the following calendar year. A balanced budget
requires current year operating expenses to be fully funded by current year
revenues and identified undesignated/unreserved fund balance.
Fund Balance Reserves will be used only for non-recurring “one-time” and
capital projects and not for on-going operations.
Long-term debt will be confined to capital improvements or special
projects that cannot be financed from current revenues.
The Town Manager is authorized to implement the programs as approved
in the adopted budget. Within a specific fund the Town Manager may
transfer appropriations between categories, departments, projects, and
programs as needed to implement the adopted budget.
With the approval of the Town Manager, unexpected appropriations may
be carried forward to the next fiscal year provided funds have been
previously encumbered for a specific purpose.
The annual budget will include a $100,000 Designated Contingency for
non-recurring, unanticipated expenditures. The Town Manager may
approve expenditures from this contingency if needed during the fiscal
year.
A capital outlay (fixed asset) purchase will be any single item or piece of
equipment which costs more than $10,000 and has an expected useful life
exceeding one year.
Quarterly budget reports will be submitted to the Town Council to provide
information on the status of the Town’s financial condition.
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FINANCIAL POLICIES
FUND BALANCE
RESERVES
CAPITAL
IMPROVEMENT
Reserves will be established, dedicated, and maintained annually to meet
known and estimated unknown future liabilities.
The specific Fund Balance reserve accounts include but are not limited to a
restricted reserve for:
A fully funded workers’ compensation and unemployment insurance
Liability insurance including one year’s premium payment to the
insurance carrier or pool
A reserve will be maintained annually to fund all vested hours of vacation
earnings.
Reserves will be will be maintained at a minimum of 25% of General Fund
ongoing operating expenditures, equally divided between the Catastrophic
Reserve (12.5%) and the Budget Stabilization Reserve (12.5%).
When either fund is used, Town Council will develop a 1 to 5 year reserve
replenishment plan to meet the minimum threshold of 25% of General
Fund ongoing, operating expenditures, excluding one-time expenditures.
A reserve will be maintained for the depreciation and replacement of
equipment.
A reserve will be maintained for the maintenance of buildings.
Capital Improvement Projects will be funded by the following revenue sources:
Available General Fund Reserves
Gas Taxes
Construction Fund Fees
Utility
Capital
Parks
Storm Drain Basin Fees
Grant Funding
Other state and federal funding sources as they become available
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FINANCIAL POLICIES
multi-year plan for capital improvements to be updated annually. Future
capital expenditures will be projected annually for a 5-year period based on
changes in the community or replacement of the infrastructure.
The annual Capital Improvement Plan will be based on the multi-year
Capital Improvement Program.
The Town will coordinate development of the Capital Improvement Plan
with the development of the Operating Budget.
The Town will identify the estimated costs and potential funding sources for
each capital project proposed prior to its submittal to the Town Council for
approval.
Capital projects financed by issuing bonds will be paid back within a period
not to exceed the useful life of the project.
The Town Manager is authorized to implement the projects as approved in
the adopted Capital Improvement Plan. Within a specific fund, the Town
Manager may transfer appropriations between projects as needed to
implement the adopted Capital Improvement Plan.
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LONG-TERM DEBT POLICY
The following long-term debt policy sets the considerations for issuing debt and provides guidance in the
timing and structuring of long-term debt commitments.
General Practices:
1. The Town will seek to maintain and improve the current bond rating in order to minimize
borrowing costs and preserve access to credit.
2. Bond issue proposals are to be accompanied by an analysis defining how the new issue, combined
with current debt, impacts the Town’s debt capacity and conformance with Town debt policies.
3. Debt Service costs (GO, COP, Revenue Bond, and Contractual Debt) are not to exceed 25% of
the Town’s operating revenue.
4. A ratio of current assets to current liabilities of at least 2/1 will be maintained to ensure the
Town’s ability to pay short-term obligations.
The Town will consider the issuance of long-term obligations under the following conditions:
1. The Town will use debt financing only for one-time capital improvement projects and unusual
equipment purchases, and only under the following circumstances:
a. When the project is included in the Town’s five-year capital improvement program and is
in conformance with the Town’s general plan.
b. When the project is not included in the Town five-year capital improvement plan, but it is
an emerging critical need whose timing was not anticipated in the five-year capital
improvement program, or it is a project mandated immediately by State or Federal
requirements.
c. When the project’s useful life, or the projected service life of the equipment, will be
equal to or exceed the term of the financing.
d. When there are designated revenues sufficient to service the debt, whether from project
revenues, other specified and reserved resources, or infrastructure cost-sharing revenues.
e. Debt financing (other than tax and revenue anticipation notes) is not considered
appropriate for any recurring purpose such as current operating and maintenance
expenditures.
2. The costs of developing and maintaining a redevelopment agency long-term debt policy will be
borne by the redevelopment agency and will be developed in conjunction with amendments to
existing redevelopment project area plans and/or new proposals to issue debt by the
redevelopment agency.
3. The Town will follow all State and Federal regulations and requirements regarding bond
provisions, issuance, taxation and disclosure.
4. Costs incurred by the Town, such as bond counsel and financial advisor fees, printing,
underwriters’ discount, and project design and construction costs, will be charged to the bond
issue to the extent allowable by law.
5. The Town will monitor compliance with bond covenants and adhere to federal arbitrage and
disclosure regulations.
PROPOSED
A – 16
INVESTMENT POLICY
I. SCOPE
This investment policy applies to all of the Town’s short term operating funds. These funds are described
in the Town's annual financial report and include, but are not limited to:
General Fund
Special Revenue Funds
Capital Project Funds
Debt Service Funds
Enterprise Fund
Internal Service Funds
Fiduciary Funds
Specifically excluded from this policy are amounts which are held by a trustee or fiscal agent and pledged
as payment or security for bonds or other indebtedness, obligations under a lease, or obligations under
certificates of participation. Such funds are invested in accordance with statutory provisions, ordinance,
resolution, or indenture governing the issuance of the obligations. In addition, this investment policy is
not applicable to the Town's Deferred Compensation Plan. These investments are directed by each
employee participant in accordance with the rules of the Deferred Compensation Plan.
II. INVESTMENT OBJECTIVES
1. The primary investment objectives, in prioritized order, shall be safety, liquidity, and yield:
a. Safety - Safety of principal is the foremost objective of the investment program. Investments
of the Town shall be made in a manner that seeks to ensure the preservation of capital in the
overall portfolio. To attain this objective, the Town will diversify its investments by security
type and institution. With the exception of US Treasury securities and the California Local
Agency Investment Fund (LAIF), no more than 50% of the Town=s total investment
portfolio will be invested in a single security type, or with a single financial institution.
b. Liquidity – The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. However, since all possible cash demands
cannot be anticipated, the portfolio should consist largely of securities with active secondary
or resale markets. In addition, a portion of the portfolio should be placed in money market
mutual funds or the Local Agency Investment Fund that offer same day liquidity.
c. Yield - The investment portfolio shall be designed with the objective of attaining a market
rate of return throughout budgetary and economic cycles, taking into account the investment
risk constraints and liquidity needs. Return on investment is of secondary importance
compared to the safety and liquidity objectives described above. The investments are limited
to relatively low risk securities in anticipation of earning a fair return relative to the risk being
assumed.
PROPOSED
A – 16
INVESTMENT POLICY
2. The Town shall pursue a passive "buy and hold" investment strategy rather than a more
aggressive active management strategy. In general, securities shall not be sold prior to maturity
with the following exceptions:
a. A security with declining credit may be sold early to minimize loss of principal.
b. Liquidity needs of the portfolio require that the security be sold.
III. STANDARDS OF CARE
1. Prudence - The standard of care to be used by investment officials shall be the “prudent person”
and/or “prudent investor” standard and shall be applied in the context of managing an overall
portfolio. Investment officers acting in accordance with written procedures and this investment
policy and exercising due diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from expectations are reported
in a timely fashion and the liquidity and the sale of securities are carried out in accordance with
the terms of this policy.
Investments shall be made with judgment and care, under circumstances then prevailing, which
persons of prudence, discretion and intelligence exercise in the management of their own affairs,
not for speculation, but for investment, considering the probable safety of principal as well as the
probable income to be derived.
2. Ethics and Conflicts of Interest - Officers and employees involved in the investment process
shall refrain from personal business activity that could conflict with the proper execution and
management of the investment program, or that could impair their ability to make impartial
decisions. Employees and investment officials shall disclose any material interests in financial
institutions with which they conduct business. They shall further disclose any personal financial
relationships or personal investment positions that could be related to the performance of the
investment portfolio. Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with which business is conducted on behalf of the Town.
3. Delegation of Authority - Under Los Gatos Town Code Section 2.30 025(c) the Town Council is
responsible for the delegation of authority for management of the Town's investment program.
This authority is hereby delegated to the Town Treasurer, who shall develop and act in
accordance with established written procedures and internal controls for the operation of the
investment program consistent with this investment policy. Procedures should include references
to: safekeeping, delivery vs. payment, investment accounting, wire transfer agreements, and
collateral/depository agreements. No person may engage in an investment transaction except as
provided under the terms of this policy and the procedures established by the Town Treasurer.
The Town Treasurer shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of any subordinate officials.
PROPOSED
A – 16
INVESTMENT POLICY
IV. SAFEKEEPING AND CUSTODY
1. Authorized Financial Dealers and Institutions
Broker/Dealers - In order to do business with the Town, a securities dealer/ brokerage firm must
be designated as a primary government dealer by the Federal Reserve Bank or meet one of the
other requirements of California Government Code Sec. 53601.5. The institution must have assets
of at least $1 billion. All financial institutions and broker/dealers who desire to become qualified
for investment transactions must also supply the following:
Audited financial statements (to be submitted annually)
Proof of National Association of Securities Dealers registration
Proof of state registration
Certification of having read the Town=s investment policy, including a statement that the
dealer shall make a good faith effort to conform to this policy.
Financial Institutions - The Town shall maintain demand deposits and time deposits only with
commercial banks and savings banks that meet exceptionally high standards for safety and
soundness. Specifically, all banks that accept deposits from the Town shall meet standards with
regard to capital strength, assets, earnings, and liquidity which allow them to earn the highest
rating rank (blue/three stars) from the bank rating company Veribanc, Inc. In addition, the
institution must have an office in California and that office must perform all transactions with the
Town.
2. Internal Controls - The Town Treasurer, in conjunction with the Town's Finance Director shall
establish and maintain an internal control structure designed to ensure that the invested assets of
the Town are protected from loss, theft or misuse. The internal control structure shall be designed
to provide reasonable assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be
derived and (2) the valuation of costs and benefits requires estimates and judgments by
management. Accordingly, the Town Treasurer shall facilitate an annual independent review by
an external auditor to assure compliance with policies and procedures. The internal controls shall
address the following points:
Separation of transaction authority from accounting and record keeping functions
Custodial safekeeping
Avoidance of physical delivery of securities
Clear delegation of authority to subordinate staff members
Written confirmation of transactions for investments and wire transfers
3. Delivery vs. Payment - All securities trades where applicable will be executed by delivery vs.
payment (DVP) to ensure that securities are delivered into safekeeping with the Town's third party
custodian prior to the release of funds. The Town's third-party custodian will be independent from
the broker/dealer handling the security transaction to ensure proper, timely delivery and payment.
PROPOSED
A – 16
INVESTMENT POLICY
4. Collateralization - Collateralization is required on all Certificates of Deposits and deposits in
excess of FDIC insurance limits. Per Government Code Section 53652, the required
collateralization level is 110% of market value of principal and accrued interest for government
securities pledged as collateral, or 150% for first deeds of trust pledged as collateral. Such
collateral will be held by an independent third party custodian.
V. SUITABLE AND AUTHORIZED INVESTMENTS
1. Investment Types - California Government Code Sections 53601, 53631.5 and 53635 place
limitations on allowable investments by local governments. This investment policy further
restricts allowable investments. The following investments will be permitted by this policy:
MaximumMaximum %Quality
Investment TypeMaturityof PortfolioRequirements
US Treasury Obligations5 yearsNoneN/A
US Agency Obligations5 yearsNoneActive Market (1)
Bankers Acceptances180 days15%
Commercial Paper180 days15%See below (2)
Medium term notes3 yrs/ 5 yrs15%AA/ AAA
Collateralized CD=s5 yrs15%See below (3)
CA LAIFN/A65%N/A
Money Market FundsN/A15%See below (4)
(1) Limited to US Agency Obligations with liquid markets and readily determinable
fair market value, including obligations issued by the Federal Home Loan Bank
(FHLB), the Federal National Mortgage Association (FNMA), the Federal Home
Loan Mortgage Association (Freddie Mac), the Federal Farm Credit Bank
(FFCB), the Federal Land Bank, and the Tennessee Valley Authority (TVA)
(2) Commercial paper must be Aprime@ quality of the highest ranking as provided
by Moody=s or S & P and is limited to corporations with assets of at least $500
million. Purchases may not represent more than 10% of the outstanding
commercial paper of the issuer.
(3) Must be collateralized per the requirements of this investment policy section IV
(4) and the institution must meet the Veribanc blue/three stars rating.
(4) Money market funds must be registered with the SEC under the Investment
Company Act of 1940, must have assets under management in excess of $500
million, have retained an investment advisor registered with the SEC (or exempt
from registration) with not less than 5 years’ experience managing money market
mutual funds, and have attained the highest ranking provided by not less than two
nationally recognized statistical rating organizations.
PROPOSED
A – 16
INVESTMENT POLICY
2. Prohibited Investments - Prohibited investments are any investments not specifically identified
above, including but not limited to:
Derivatives of the above instruments repurchase agreements
Reverse repurchase agreements negotiable certificates of deposit
Inverse floaters
Range notes
Interest only strips
Any security which could result in zero interest accrual if held to maturity
VI. REPORTING
1. Methods - The Town Treasurer shall prepare a quarterly investment report, including a
management summary that provides an analysis of the status of the current investment portfolio.
This management summary will be prepared in a manner that will allow the Town to ascertain
whether investment activities during the reporting period have conformed to the investment policy.
The report should be submitted to the Town Clerk within 30 days after the end of each quarter for
inclusion as an agenda item at the next scheduled Town Council meeting. The report shall include
the following:
Detailed listing of individual securities held at the end of the reporting period including,
issuer, purchase date, maturity date, and yield to maturity
Realized and unrealized gains or losses resulting from appreciation or depreciation by listing
the amortized cost and market value of each security
Average weighted yield to maturity of the portfolio
Weighted Average Maturity of the portfolio and percentage breakdown of the total portfolio by
maturity (e.g., % less dun 1 year, 1 - 2 years, 3 - 5 years)
Summary of interest income for the month and fiscal year to date
A statement of compliance with the Investment Policy
A statement regarding the adequacy of cash flows for the next six months
2. Marking to Market - When "marking the portfolio to market" (i.e., calculating the market value of
the portfolio), the Treasurer shall obtain independent valuation of the portfolio from the Town's
safekeeping or custody service. Investments in LAIF shall be valued as shown on the month-end
statements received from the California State Treasurer. Due to a lack of reliable market value
data, investments in Certificates of Deposit shall be shown at cost provided that the fair market
value of the Certificates of Deposit are not significantly affected by the impairment of the credit
standing of the issuer.
PROPOSED
A – 16
INVESTMENT POLICY
VII. Policy Considerations
1. Exemption – Any investment currently held that does not meet the guidelines of this policy shall
be exempted from the requirements of this policy. At maturity or liquidation, such monies shall
be reinvested only as provided by this policy.
2. Adoption – The Town's investment policy shall be adopted by resolution of the Town Council at
a public meeting.
3. Amendments - This policy shall be reviewed on an annual basis. Any changes must be approved
by the Town Treasurer and the Town Council.
PROPOSED
A – 16
BUDGET PROCESS OVERVIEW
he Town of Los Gatos adopts an annual
Operating and Capital Budget and an
annual budget update of the five-year
Capital Improvement Plan for the Town of Los
Gatos and the Successor Agency to the Town of
Los Gatos Redevelopment Agency (Successor
Agency). The budgets contain summary level
information for revenue and expenditure
appropriations for the fiscal year beginning July
1st and ending June 30th. The budget documents
are prepared in accordance with generally
accepted accounting principles (GAAP).
Budget Purpose
The Operating and Capital Summary Budget and
the Capital Improvement Plan serve as the
Town’s financial plan, as well as a policy
document, a communications tool, and an
operations guide. Developed with an emphasis
on long range planning, service delivery, and
program management, a fundamental purpose of
these documents is to provide a linkage between
the services and projects the Town and
Redevelopment Agency intends to accomplish,
and the resources committed to get the work
done.
The format of the budget facilitates this linkage
by clearly identifying program purpose, key
projects, and workplan goals, in relation to
revenue and expenditures appropriations.
Basis of Budgeting and Accounting
Developed on a program basis with fund level
authority, the operating and capital budgets
represent services and functions provided by the
Town in alignment with the resources allocated
during the fiscal year.
The Town’s Governmental Funds consist of the
General Fund, Special Revenue Funds, Debt
Service Funds, and Capital Project Funds for
both the Town and the Successor Agency.
Basis of Accounting and Budget refers to the
timing factor concept in recognizing transactions.
This basis is a key component of the overall
financial system because the budget determines
the accounting system. For example, if the
budget anticipates revenues on a cash basis, the
accounting system must record only cash
revenues as receipts. If the budget uses an
accrual basis, accounting must do likewise. The
Town’s budgeting and accounting systems both
use a combination of modified accrual and full
accrual basis in the accounting and budget
systems.
Governmental Fund types and Successor Agency
fund budgets are developed using the modified
accrual basis of accounting. Under this basis,
revenues are estimated for the period if they are
susceptible to accrual, e.g. amounts can be
determined and will be collected within the
current period. Principal and interest on general
long-term debt are budgeted as expenditures
when due, whereas other expenditures are
budgeted for liabilities expected to be incurred
during the current period.
Proprietary fund budgets are adopted using the
full accrual basis of accounting whereby revenue
budget projections are developed recognizing
revenues expected to be earned during the period,
and expenditures are developed for expenses
anticipated to be incurred in the fiscal year. The
Town maintains one type of proprietary fund:
Internal Service Funds.
The Town’s fiduciary funds are also budgeted
under the modified accrual basis. The Town
administers four trust funds and one agency fund.
Trust funds are subject to trust agreement
guidelines, and the Agency Fund is held in a
purely custodial capacity involving only the
receipt, temporary investment, and remittance of
resources
.
Summary of Budget Development
The Town develops it budgets with a team-based
budgeting approach. Town Management and the
Finance Department guide the process through
budget development; however program budgets
and workplans are developed with each
department’s Director, Analyst and Program
T
PROPOSED
A - 27
Manager’s oversight and expertise. This
approach allows for hands-on planning and
creates a clearer understanding for both
management and staff of a program’s goals and
functions to be accomplished in the next budget
year.
The Development Process
Typically both the Operating and Capital Budget
and Capital Improvement Plan (CIP) processes
begin in the fall with the Town Council and
Town Manager’s cooperative development and
refinement of initiatives and directives for the
upcoming budget year. The CIP is reviewed
during this time to determine funding
capabilities, project priorities, and to refine
project work plans. Although the CIP budget
document is prepared separately from the
Operating and Capital Budget, CIP program
information is incorporated into the Operating
and Capital Summary Budget document through
the resulting financial appropriations and service
level requirements.
In January the budget preparation process begins
officially for staff with a budget kickoff meeting.
Budget assumptions, directives and initiatives
developed by Town Council and Management
are provided to set the Town’s overall objectives
and goals. Department and agency staff identify
and analyze program revenue and expenditure
projections in coordination with Finance/Budget
staff and Town management. Capital
improvement projects are assessed and refined,
and CIP funding and appropriation requirements
are finalized.
Through rounds of budget briefings and
revisions, staff’s final program budget and work
plans are developed by the end of April;
operational and capital work plans are finalized,
and the Finance/Budget staff prepares financial
summary information for Town Council review
in addition to departmental budgets and work
plans.
Budget Adoption
During the month of May, the Town Council
reviews the proposed Operating and Capital
Summary Budget, and the Capital Improvement
Plan for the five year period in a public hearing.
Notice of the hearing is published in a local
newspaper at least ten days prior to the Council’s
public hearing date. The public is invited to
participate and copies of the proposed budgets
are available for review in the Town Clerk’s
office and at the budget hearing.
Under requirements established in Section 65401
of the State Government Code, the Town’s
Planning Commission also reviews the proposed
Capital Improvement Plan and reports back to the
Town Council as to the conformity of the plan
with the Town’s Adopted General Plan or part
thereof.
Final council-directed revisions to the proposed
budget are made and the budget documents are
resubmitted to the Town Council for adoption,
again in a publicized public hearing prior to the
beginning of the fiscal year.
Section 2.30.295(b) of the Los Gatos Town Code
requires the Town Manager to annually prepare
and submit a budget to the Town Council. This
is accomplished in June, when the final proposed
budget is formally submitted to the Town
Council in the subsequent public hearing.
The approved resolutions to adopt the CIP and
operating budgets and the appropriation
limitation (aka Gann Limit) follow this section.
Budget Amendments
During the course of the fiscal year, work plan
changes and unanticipated needs will necessitate
adjustments to the adopted budgets. The Town
Manager is authorized to transfer appropriations
between categories, departments, projects, and
programs within a fund in the adopted budget,
whereas the Town Council holds the authority for
budget increases and decreases and transfers
between funds.
PROPOSED
A - 28
BUDGET CALENDAR
October /
November /
December
January
February
CIP and RDA work plan proposals and development
Determine project priority
Prepare upcoming work plan, timing schedules
Prepare cost estimates
Determine revenue sources
Determine and refine initiatives and directives for upcoming budget year
Update User Fee Schedule
Prepare Internal Service and Equipment Replacement Fund analyses and
schedules, finalize internal service rates
Budget Kick-off Meeting – General information to staff on:
State of the Town
Budget assumptions, directives, initiatives, and goals
Development of department and program work plans
Asset/Internal Services/Staffing request procedures
1st Draft revenue projections due to Budget Office
Analyze budget projections and review with Town Manager
1st Draft staffing requests due to Budget Office
Review and finalize staffing positions and requests
1st Draft asset, internal service requests, and expenditure requests due
1st Draft CIP and RDA Budget due to Budget Office
Review Internal Service requests with responsible Program Managers
1st Draft Internal Service budgets due to Budget Office
Incorporate approved staffing, assets, internal services and program expenditure
requests into a 1st Draft budget
PROPOSED
A - 29
March
April
May
May/
June
July/
August/
September
Review and analyze 1st Draft budget, briefing with Town Manager
1st Draft CIP / RDA budget briefing – determine program revisions
1st Draft budget briefings with Town Manager, Department Heads, and Analysts
– determine department / program revisions
2nd Draft budget revisions and work plans due to Budget Office
2nd Draft briefing and revisions with Town Manager, departments
Program narratives, financial and supplemental schedules, financial summaries,
and charts prepared
Grant distribution finalized
Budget revisions finalized and proposed budgets assembled
Public Hearings for proposed User Fee Schedule
Proposed budget briefing with Town Manager
Distribute Proposed Operating and CIP budgets to Town Council
Public Hearings for proposed Operating and Capital, CIP, and RDA Budgets
Town Council revisions incorporated into budget documents
Public hearings for final adoption of the User Fee Schedule, Gann Appropriation
Limit, Operating and Capital Budget, and 5 year CIP and RDA Budgets
Final document preparation of financial and supplemental schedules, charts,
reference materials, etc.
Adopted Operating and CIP Budget documents finalized, printed and distributed
PROPOSED
A - 30
GANN APPROPRIATION LIMIT
n November 6, 1979 California voters approved Proposition 4, commonly known as the
Gann Spending Limitation Initiative, establishing Article XIIIB of the State
Constitution. This proposition, which became effective in Fiscal Year 1980/81,
mandated an appropriations (spending) limit on the amount of tax revenues that the State and
most local government jurisdictions may appropriate within a fiscal year. This limit grows
annually by a population and cost-of-living factor.
The State Appropriation Limit was since modified by two subsequent initiatives – Proposition 98
in 1988 and Proposition 111 in 1990. Proposition 98 established the return of tax revenues
exceeding appropriation limit levels to the State or citizens through a process of refunds, rebates,
or other means. Proposition 111 allowed more flexibility in the appropriation calculation factors.
Only tax proceeds are subject to this limit. Charges for services, fees, grants, loans, donations
and other non-tax proceeds are excluded. Exemptions are also made for voter-approved debt,
debt which existed prior to January 1, 1979, and for the cost of compliance with court or Federal
government mandates.
The Town Council adopts an annual resolution establishing an appropriations limit for the
following fiscal year using population and per capita personal income data provided by the State
of California’s Department of Finance. Each year’s limit is based on the amount of tax proceeds
that were authorized to be spent in fiscal year 1978/79, with inflationary adjustments made
annually to reflect increases in population and the cost of living.
APPROPRIATION LIMIT CALCULATION
The following schedule reflects historical appropriation factors for the prior ten years, and the
calculation for FY 2013/14:
For BeginningCountyTownPerEnding%
YEPopulationPopulationCapitaLimit
LimitFactorFactorIncomeLimitIncrease
200521,397,082 1.00721.00041.032822,258,018 4.02%
200622,258,018 1.01121.00261.052623,691,192 6.44%
200723,691,192 1.01181.00441.039624,919,990 5.19%
200824,919,990 1.01521.01001.044226,416,980 6.01%
200926,416,980 1.01721.03181.042928,426,367 7.61%
201028,426,367 1.01561.01081.006229,048,811 2.19%
201129,048,811 1.01261.01010.974628,667,689 -1.31%
201228,667,689 1.00891.00961.025129,669,366 3.49%
201329,669,366 1.01241.00811.037731,169,671 5.06%
201431,169,671 1.01571.01471.051233,279,977 6.77%
APPROPRIATION LIMIT FACTORS
AppropriationAppropriation
June 30
O
PROPOSED
A - 31
GANN APPROPRIATION LIMIT
The Town of Los Gatos’ appropriation limit for fiscal year 2013/14 is calculated as follows:
% Increase inChange in 2012/132013/14
County Per CapitaAppropriationAppropriationAppropriation
PopulationIncomeFactorLimitLimit
1.0157X1.0512=1.06770384X31,169,671$ =33,279,977$
FY 2013/14 Calculation
As illustrated above, the total amount of tax revenues appropriated to the Town in FY 2013/14 is
not to exceed $33,279,977. The FY 2013/14 budget anticipates $20,917,770 in tax revenues
which equates to $12,362,207 less than, or approximately 63% of, the appropriation limit for FY
2013/14. Therefore, the Town’s tax revenues fall substantially below the appropriation limit.
APPROPIATION TREND
Located in the Silicon Valley, Los Gatos has seen a significant increase in the county’s
population in recent years. A picturesque and charming town, Los Gatos is a desirable
community known for its hometown feel and excellent schools, which is reflected in the steady
increases in property values. Together, these factors contribute to a stable appropriation limit
while maintaining a comfortable margin between tax revenues received and the revenue
limitation established under the Gann Proposition. With a conservative forecast for an annual 5%
revenue growth and 5% appropriation growth (based on prior year averages), there remains a
strong expectation for an ongoing level of comfort in future year’s appropriation margins.
Actuals
2008/09
Actuals
2009/10
Actual
2010/11
Actual
2011/12
Estimated
2012/13
Budgeted
2013/14
Est
2014/15
Est
2015/16
Est
2016/17
Est
2017/18
21,137,960 21,047,171 22,749,291 22,908,718 20,632,423 20,917,770 20,917,770 21,207,063 21,207,063 21,500,358
28,426,367 29,048,811 28,667,689 29,669,366 31,169,671 33,279,977 33,990,920 34,717,051 35,458,694 36,216,180
74%72%79%77%66%63%62%61%60%59%
Tax Revenues to Appropriation Limit
10 Year Trend
Tax Revenues
Appropriation Limit
Revenue to Limit %
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
Actuals
2008/09
Actuals
2009/10
Actual
2010/11
Actual
2011/12
Estimated
2012/13
Budgeted
2013/14
Est
2014/15
Est
2015/16
Est
2016/17
Est
2017/18
APPROPRIATION LIMIT ADOPTION
The resolution to adopt the appropriation limit of $33,279,977 will be presented to Council on
June 3, 2013 for adoption.
PROPOSED
A - 32
PROPOSED
A - 33
GANN APPROPRIATION RESOLUTION
PROPOSED
A - 34
TOWN OF LOS GATOS
ANNUAL BUDGET RESOLUTION
PROPOSED
A - 35