Loading...
1 - Transmittal Letter PROPOSED A - 1 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. PROPOSED A - 2 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 PROPOSED A - 3 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 PROPOSED A - 4 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$ PROPOSED A - 5 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 PROPOSED A - 6 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. PROPOSED A - 7 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 PROPOSED A - 8 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. PROPOSED A - 9 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. PROPOSED A – 10  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. PROPOSED A - 11  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. PROPOSED A - 12  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. PROPOSED A – 13 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. PROPOSED A - 14  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 PROPOSED A – 15  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. PROPOSED A – 16 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