1B - Transmittal Letter A - 1 T OWN OF L OS G ATOS C IVIC C ENTER 110 E. M AIN S TREET P.O. B OX 949 L OS G ATOS , CA 95031 May 19, 2014 Honorable Mayor and Town Council: I am pleased to present to you the FY 20 1 4 /1 5 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 a ll Town financial activities for FY 201 4 /1 5 and Capital Improvement Program activities for the FY 201 4 /1 5 – 201 8 /1 9 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 effect s of the economic recession. The last six year s have required significant budget reductions in both expendi tures and revenues . W hile chall enging, the Town managed these six years well, with conservative budget propo sals and fo recasts, as well as creative approaches to workforce reduction s through att rition , re organization s, 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 six years. Looking forward, the FY 2014/15 budget has expanded , provid ing so me relief from workload pressure s that have built up during the past six years while maintaining Town core services with reduced staffing and budget cuts . However, conservative projections of future revenue growth and anticipated increases in pension and health care costs suggest that the following year or two may require further budget reductions. The proposed operating budget incorporates revenue enhancements and expense augmentations, reflective of the recovering economy . The FY 2014/15 balanced budge t is primarily the result of increased revenues stimulated by the economic recovery and end of the recession period. Some expenditure s are tied to revenue in terms of additional staff needed due to increased workload demands, specifically in t he Community Development Department . The Town has accounted for these situations and is budgeting affected expenditures accordingly as well as providing additional staffing augmentations, both limited one -time increases and permanent reclassifications , in order to pro vide some workload relief and address increasing service demands. T he Town has responded to workforce reductions by using creative reorganizations in the Library, Community Development Department (CDD) and Town Manager’s Office . These new structures have allowed staff to redeploy funding from management positions to front -line service delivery. The capital budget includes increased funding for basic infr astructure needs, including public parks and facilities , street repair and reconstruction, street sa fety projects, retaining walls, sidewalk, curb and gutter projects, and park projects. The completion of the Hillside R oad repair and resurfacing project , the Winchester Boulevard and Lark Avenue intersection street improvement and the Old L ibrary R e -use project are all expected in FY 20 1 4 /1 5 . Given the State’s elimination of Redevelopment and taking approximately $15 million from the Town, replacement funding for the next phase of Almond Grove street replacement has been included per Council direction a nd phase I is scheduled to begin during FY 2014/15 .
A - 2 Strategic Goals and Priorities In February 201 4 , the Town Council adopted new strategic goals and provided guidance to Town staff on workload prioritization. The Town Council reaffirmed its core v alues, including : Com munity Character , G ood Governance , F iscal Stability , Quality Public Infrastructure , Civic Enrichment , and Public Safety . For each core value, there are several corresponding strategic goals . Five Year Financial Plan and Framework f or Budget Development As a foundation of the budget process , the Town updates the Five -Ye ar Financial Plan beginning in the fall of each year. The plan includes updates to Town revenues and expenditures based on the latest economic information, proposed legislative changes, and the fiscal impact of any operational costs made in concert with the Town Council’s Strategic G oals and priorities. The first year of the forecast’s revenue estimates is the most critical in the process, as that will ultimately def ine the expenditure limitations for the forthcoming budget year. The multi -year Conservative revenue projections further refine the Town’s planning for current and future period expenditures based on future projections. The preliminary assumptions are used to forecast the Town’s fiscal capacity and provide the financial framework within which the proposed departmental service levels must be developed. They also serve as the basis to test the potential financial impacts of proposed policy and operational mo difications based upon the Town’s most recent ly adopted strategic goals. For the first time in six years, the five -year forecast identified over $500,000 in additional general fund monies in FY 2014/15 which are used to offset some of the workload pres sures that have built up over the last six years as well as eliminating unpaid furloughs for non -sworn and management staff and providing the first pay increases for management staff since 2007 and other non -sworn staff since 2009 . Forecasted FY 2014/15 r evenues 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. Provided below is a recap of the most recent Five -Year Financial Plan prepared in early May 2014. The updated Five -Year Financial Plan spans FY 201 4/15 - 2019/2020:
A - 3 FY 1 FY 2 FY 3 FY 4 FY 5 Account Revenue Category 2012/13 Actuals 2013/14 Adopted 2013/14 Estimated 2014/15 Proposed 2015/16 Forecast 2016/17 Forecast 2017/18 Forecast 2018/19 Forecast 2019/20 Forecast 4100 Property Tax 8.3 $ 7.8 $ 8.1 $ 8.2 $ 8.4 $ 8.7 $ 8.9 $ 9.2 $ 9.5 $ 4110 VLF Backfill Property Tax 2.4 2.4 2.7 2.7 2.7 2.7 2.8 2.8 2.8 4200 Sales & Use Tax 8.8 7.8 7.9 8.3 8.5 8.8 9.2 9.6 9.5 4250 Franchise Fees 2.0 2.0 2.0 2.1 2.1 2.2 2.3 2.3 2.4 4251 Transient Occupancy Tax 1.3 1.0 1.2 1.3 1.3 1.3 1.4 1.4 1.5 4400 Business License Tax 1.2 1.4 1.4 1.4 1.5 1.5 1.5 1.5 1.5 4400 Licenses & Permits 3.1 2.6 2.8 2.9 3.0 3.1 3.2 3.3 3.4 4500 Intergovernmental 0.9 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.8 4600 Charge for Services 3.1 2.5 2.7 2.5 2.8 2.9 3.0 3.1 3.1 4700 Fines & Forfeitures 0.6 0.7 0.6 0.7 0.6 0.7 0.7 0.7 0.7 4800 Interest (0.2) 0.5 0.2 0.3 0.5 0.5 0.5 0.5 0.5 4850 Other Sources 3.6 3.4 3.5 4.4 4.3 4.4 4.4 4.5 4.6 4900 Fund Transfers In 0.6 0.8 0.6 0.6 0.3 0.3 0.3 0.3 0.3 TOTAL REVENUES 35.7 33.6 34.4 36.1 36.4 37.5 38.6 39.6 40.3 Use of Reserves/Deposits 1.9 2.7 2.7 7.0 0.8 0.1 - - - 37.6 $ 36.3 $ 37.1 $ 43.1 $ 37.2 $ 37.6 $ 38.6 $ 39.6 $ 40.3 $ Account Expenditure Category 2012/13 Actuals 2013/14 Proposed 2013/14 Estimated 2014/15 Proposed 2015/16 Forecast 2016/17 Forecast 2017/18 Forecast 2018/19 Forecast 2019/20 Forecast 5110 Salary 12.6 $ 13.0 $ 13.2 $ 13.7 $ 13.8 $ 13.8 $ 13.8 $ 13.8 $ 13.8 $ 5120 Furlough 0.0 - - - - - - 5130 Temporary Employees 0.9 0.6 0.6 0.6 0.8 0.8 0.8 0.8 0.8 5140 Overtime 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 5170 Other Salary 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 5200 Benefits 6.3 6.7 6.7 7.7 8.5 9.2 9.8 10.4 11.1 6000 Supplies, Materials, & Services 5.6 5.3 5.5 5.2 5.2 5.4 5.5 5.6 5.7 6000 Pass Through Expenditures 0.8 7200 Grants & Awards 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 7400 Utilities 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 7700 Fixed Assets - - - - - - - - - 8060 Internal Service Charges 3.3 3.4 3.4 3.4 3.6 3.7 3.8 3.9 4.0 8900 Debt Service 2.0 1.9 1.9 1.9 2.0 2.0 2.0 2.0 2.0 TOTAL EXPENDITURES 32.2 $ 32.3 $ 32.7 $ 34.7 $ 35.4 $ 36.4 $ 37.2 $ 38.0 $ 38.9 $ 9900 RDA Trust Fund 0.1 0.1 - - - - - - 9900 Operating Transfers Out - - - - - - 9900 Capital Transfers Out to GFAR 1.9 2.7 2.7 7.0 0.8 0.1 - - - 9900 GASB 45 Retiree Medical Actuarial 1.2 1.3 1.3 1.3 1.5 1.6 1.6 1.6 1.6 EXPENDITURES 35.3 36.4 36.8 43.0 37.7 38.1 38.8 39.6 40.5 9900 Legally Required Reserve Allocation 9900 Reserve - 0.1 - - - - - 9900 Transfer to Stabilization Reserve - - - - - - - 35.3 $ 36.4 $ 36.8 $ 43.1 $ 37.7 $ 38.1 $ 38.8 $ 39.6 $ 40.5 $ REVENUES LESS EXPENDITURES 2.3 $ (0.1)$ 0.3 $ -$ (0.5)$ (0.5)$ (0.2)$ 0.0 $ (0.2)$ ONGOING SHORTFALL MITIGATION -$ -$ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ NET REVENUES LESS EXPENDITURES 2.3 $ (0.1)$ 0.3 $ -$ 0.0 $ 0.0 $ 0.3 $ 0.5 $ 0.3 $ TOTAL REVENUES & TRANSFERS TOTAL EXPENDITURES & ALLOCATIONS Town of Los Gatos General Fund Updated Five-Year Financial Plan
A - 4 B udget Development Principles and Strategies The mid -year five -year forecast project ed $5 00,000 in additional general fund monies for FY 20 1 4 /1 5 and operating deficits for the next two fiscal years primarily due to unco ntrollable medical and Cal PERS retirement rate increases . Keeping the Town’s strategic goals in mind, staff collaborated to ide ntify the key functional areas to augment for workload pressure relief. The workload and budgetary prioritization process t oo k into account the Town’s current and long -term fiscal picture, as well as high pri ority service delivery needs. K ey principles include: D evelop and recommend a balanced budget that maintains service levels; Continue to mak e progress on strategic goals identified by the Town Council ; Continue with organizational changes 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 20 1 4 /1 5 operating budget. In analyzing these issues, s taff considered the impacts on both current and future budgets and assessed alternative approaches to meet service demands. Staffing Adjustments and Augmenta tions The FY 20 1 4 /1 5 proposed operating budget reflects several adjustments to better align staff resources with work demands while achieving some much needed workload pressure relief that has built up over the last six years of budget reductions . The fo llowing section highlights recommended staffing and salary changes and augmentations recommended to best meet the service needs of the community . Administrative Services – The Administrative Services budget decreased with respect to FTE’s; however , as a r esult of organizational restructuring, staffing changes, salary adjustments resulting from labor negotiations and benefit and rate increases, total salaries and benefits increased from the prior year ’s adopted budget. Some of these changes include: the co nsolidation of the Assistant Town Manager and Community Development Director positions into one Assistant Town Manager/Communi ty Development Director position, a half -time Administrative Technician position was increased to a full -time Analyst to serve as the Town’s Communications Coordinator, and a half -time Hum an Resource Specialist position was increase d to full -time to address increased service demands. In addition, the half -time Clerk Administrator and half -time Administrative Technician positions hav e been consolidated into one full -time Administrative Analyst position to serve as the Clerk Administrator. Finally, a .75 FTE IT Technician position was increased to full -time to meet increase d service needs. Police – The Police Department budget re flects the reclassification of the Police Administrative Services Manager, two vacant Community Service Officers, a .5 0 FTE Dispatch position and .5 0 FTE Co mmunity Service Intern position to a Records and Evidence Manager, two Records Specialists and an Ad ministrative Analyst. The reclassifications had min imal budgetary impact and best meet s the needs of the community and department. In addition, one on going sworn Officer position as well as a temporary Patrol hire ahead position were added to the Police budget to address staffing needs , vacancies and avoid overtime and service impacts. Finally, temporary employee funding was added as a one -time support to assist in reducing work load pressure, respond to expected fluctuations in the work force and addres s specific critical needs. Community Development Department (CDD ) – The Community Development budget reflects a net increase of two FTE positions . During the budget development process staff identified several key areas within CDD that could benefit fr om staffing augmentations and realignments. As previously noted, with the retirement of the CDD Director, this position has been consolidated
A - 5 into an Assistant Town Manager/Community Development Director position to strengthen the linkage between the Town Manager’s Office and land use issues. The Assistant Community Development Director, previously unfunded, has been removed and the Town’s Code Enforcement program has been reinstated with the addition of a full -time Code Compliance Officer and the elimina tion of the contractual code compliance services previously utilized. One full -time Planning Technician was added as a one -year, provisional position while a previously funded .5 0 FTE Planning Technician was increased to full -time to address increased ser vice demands. In addition, a full -time Assistant Planner position was added and the .50 FTE Economic Vitality Coordinator Position (charged to both CDD and the Town Manag er’s Office) increased to a .625 FTE to support CDD and assist businesses in the deve lopment review process. Parks & Public Works (PPW) – The Parks and Public works budget reflects an increase of .5 0 FTE’s and temporary staff hours. The half -time Environmental Service Coordinator will be a full -time position to focus on the implementat ion of various environmental issues, such as sustainability, air quality permit compliance, Growing Greener, the Green Business program, and other environmental responsibilities. Temporary staff hours have been increased to address operational needs in sp ecific program areas such as Streets & Signals, Vehicle Maintenance, and Administration • Library - The Library budget reflects the reclassification of a half -time Library Assistant to a full -time Librarian to meet the rising demands of the youth services d epartment and the permanent addition of a .5 0 FTE Community Service Intern , which was piloted in FY 2013/14 . In addition, the Library budget reflects the restoration of the Adult Services collection budget which had been previously supplemented by library trust funds. Salary Increases and Elimination of Furloughs . Non -sworn staff received a 2% pay increase as a result of contract negotiations with labor unions. These are the first increases for management staff since 2007 and other non -sworn staff sin ce 2009 . In addition, the Town rescinded unpaid furloughs previously budgeted for and scheduled for FY 2013/14 and has not included furloughs in either the FY 2014/15 budget or the five -year forecast. Regional and Local Resources The Proposed FY 201 3 /1 4 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 V alley Sanitation District receive s 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 s ufficient pass -through revenues to mana ge 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 supp lemented 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 J oint Powers Authority (J PA ) on a proposal to include street sweeping costs into commercial and residential garbage rates. If successfully implemented, there may be increased financial capacity within the NPDES program in FY 20 1 4 /1 5 to meet the storm water permit requirements
A - 6 for next year . D uri ng FY 2014/15, as a result of a recalculation of JPA monies, the Town has budgeted for an increase in JPA fees which is being used to support the downtown and offset the staffing augmentations addressed above. Silicon Valley Regional Interoperability Pro ject (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 o ther 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. Parking Assessment District On December 5, 1998, the Town issued 25 -year Limited Obligation Bonds in the amount of approximately $1.6 million. The net proceeds of the bonds were used to fina nce the following parking improvement projects: the construction of a surface lot known as Parking Lot No.3, construction of surface Lot No. 4, and funding a portion of the construction costs of a two -level parking structure on Parking Lot No. 4. The Pa rking Assessment District expired in 2013 with the September 2013 bond principal being the final payment on the bond. With the expiration of this Assessment District, staff has work ed with Santa Clara County and will refund property owne rs any excess fund s as well as assist any business driven effort to re -establish the parking distric t or an alternative district and facilitate any privately -led efforts to address options for Downtown parking in accordance with the Town Council’s strategic goals. FY 2 014/15 General Fund Operating Budget Overview T he p roposed FY 201 4 /1 5 General Fund Budget is a balanced budget barring any other unanticipated financial issues . R evenue estimates may change next year if there are unexpected negative local economic downtu rns 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 7 % from the FY 201 3 /1 4 Adopted Bud get level of $3 1 ,834 ,947 million to $3 4 ,145,198 in FY 201 4 /1 5 , excluding debt service and capital transfers -out. This increase is due to one -time and permanent staffing augmentations, the first non -sworn pay increase since FY 2009/10 and uncontrollable Ca l PERS and ben e fit rate increases. T he FY 201 4 /1 5 General Fund reflects a balanced budget after projecting an increase in revenues due to the economic recovery and a corresponding increase in operating expenditures .
A - 7 GENERAL FUND SOURCES FY 2014/15 PROPOSED BUDGET Revenues General Fund Operating Revenues Sales & Use Tax 8,303,962 $ Property Taxes 8,212,610 $ Licenses & Permits 2,909,666 $ Charge for Services 2,539,802 $ All Others 14,163,685 $ Fund Balance Sources Other Uses of Fund Balance Capital / Special Project Reserve 6,670,543 $ Vasona Land Sale Reserve 320,948 $ TOTAL SOURCE 43,121,216 $ GENERAL FUND USES General Fund Operating Expenditures 34,143,798 $ Debt Service Payments 1,928,056 $ General Fund Transfers 7,041,691 $ Fund Balance Allocation Budget Stabilization Reserve CIP Capital Projects TOTAL USE 43,113,545 $ NET SOURCES LESS USES 7,671 $ O perating Revenues On a posit ive note, the economy continues to show signs of improvement which has resulted in staff proposing an increase in operating revenues of over $2.5 million . T he FY 201 4 /1 5 budget reflect s approximately $35.5 million in total revenue, or a 7 % increase compar ed to the prior year. This is mostly due to forecasted increases in economically sensitive revenues such as sales tax, property tax, V ehicle L icense F ee (VLF) backfill property tax, Transient Occupancy tax , business licenses, licenses and permits and othe r sources . D iversification 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 business es through continued , and increased , funding of the Economic Vitality Program . Property tax receipts in Los Gatos are expected to increase from the budgeted FY 2013/14 receipts . Property tax budget projections are based on valuations projected by the Santa Clara County Assessor’s Office, given increased home sales, couple d with anticipated adjustments in property tax distribution due to the dissolution of C alifornia redevelopment agencies. In FY 2012/13 the County overestimated property tax receipts and therefore the FY 2013/14 budget reflected a lower revised base . Howe ver, given the improving economic recovery and increase in homes sales , the expectation is that property tax receipts will continue to rise as has been trending throughout FY 2013/14 . S ales and Use Tax is also projected to increase as many business es are reporting increased revenues . Licenses and Permits revenue has been adjusted as a result of increased building activity , as well as Transient Occupanc y Tax as travel and tourism have increased with the improved economy . Overall, FY 20 1 4 /1 5 Town Service s for building and development activity revenue s are projected to increase slightly and take in account CPI adjustments
A - 8 adopted by Council in April 20 1 4 . All other revenues were based on the latest information available from the S tate , 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 201 4 /1 5 have increased by $2.3 million or 7 % compared to the prior y ear’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 5 3 % of budgeted Gener al Fund expenditures for FY 2014/15 . Despite strategic reductions made in staffing, overtime, and operating expenditures, salary and benef its continue to be the largest portion of the Town costs. Compared to the prior year, salary and benefits increased $1.6 million or 7 %. This increase is partially due to negotiated salary increases for non -sworn staff, the first increases for these emplo yees since FY 2009/10, as well as the removal of unpaid furloughs that staff incurred for during the FY 2012/13. In addition, the FY 2014/15 salaries and benefits budget includes over $450,000 in one -time funding to provide some workload pressure relief o n a temporary basis while being cognizant of future projected budget shortfalls. T he increases are also largely due to changes in benefits and PERS rates. Health care costs for active and retired employees coupled with actuarial requirements also continu e to grow, exacerbating the gap between revenue and expenditures in the five -year forecast. S tate Budget Impacts Details on the State of California Proposed FY 201 4 /1 5 budget will be available as part of the Governor’s May Budget Revise. Based on a p reliminary 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 late 2013 the CalPERS Pension and Hea lth 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 i ndicate that these changes will 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 te n . 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 u nder consideration, if adopted , they would be in addition to the smoothing and amortization policy changes.
A - 9 Forecasted General Fund Reserve Status - June 30, 20 1 4 The total General Fund Reserves are forecasted to close at a balance of approximat ely $25.3 million at June 30, 201 4 (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. Adopted Council policy specifies Emergency and Bud get Stabilization reserves of 12.5% each, or $9 million total for next fiscal year. Those combined reserves currently total $10.9 million , or 30 % of next year’s proposed operating budget. In addition, the Town currently has approximately $10.5 million fo r future one -time or capital projects. Overview of the FY 20 1 4 /1 5 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 20 1 4 /1 5 pr oposed budget funds the first year of the Town’s Five -Year Capital Improvement Plan (CIP). Total appropriations for FY 20 1 4 /1 5 are $16 million, consisting of $7.4 million in carryover funding from the prior year and $8.6 million in new funding dedicated f or new and/or additions to existing projects . N otable street, park and public facility projects in FY 2 01 4 /1 5 include: Street Program Projects: Almond Grove Street Rehabilitation Project, including the design and first phase of reconstruction of neighbor hood streets. Winchester Boulevard/Highway 85 sidewalk project to construct new sidewalk, curb and gutter along the east side of Winchester Boulevards between the Albright Development and existing Netflix Campus utilizing developer funding. Funding of appr oximately $1.3 million for residential street repair and rehabilitation. Funding of $250,000 for curb, gutter, and sidewalk repairs throughout the Town. Funding allocation of $100,000 for a pilot Complete Streets project. Funding allocation of $100,000 for retaining wall repairs. Funding allocation of $75,000 for electric speed signs. Funding of $70,000 for public access infrastructure improvement s . $25,000 additional funding for annual street restriping. Parks Projects: Park Plaza Improvements. Planning for a Highway 9 pathway and bridge connection to Los Gatos Creek Trail. Park Rehabilitation – Bachman Park . Blossom Hill Park Pathway Improvements. Public Facilities Projects: Regional communications and interoperability for both Police and Parks and Publ ic Works. Design for building replacement at the Corporation Yard. Civic Center building energy efficiency measures. Completion of the old library reuse improvements. Pavement Condition Index (PCI) Increased funding for local street maintenance is discus sed 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 7 4 % of the proposed F Y 201 4 /1 5 CIP funding is allocated to street reconstruction and related projects, reflecting the Council’s priority to address street maintenance needs , specifically in the Almond Grove district . The
A - 10 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 201 4 /1 5 CIP includes street infrastructure projects that will maintain the Town’s current PCI level. Conclusion While the global, nation al, and local economy appears to be in recover y , the Town anticipates that future years may present budgetary challenges and reprioritizations. However, the FY 2014/15 budget does provide for some much needed workload pressure relief, relying on one -time funding for temporary and provisional assignments, as well as reinstatement of key town priorities such as Code Compliance. In light of future projections, opportunities to enhance service delivery , while lowering operating costs through resource and wo rkload re deployments and organizational restructuring continue to be explored . D evelopments at the local and state level, including unanticipated changes in major revenue sources or un foreseen State revenue “takes” will be brought to Town Council’s attent ion in a timely manner so that an appropriate action can be taken. I wish to thank all of the departments, in particular, Department Dire ctors and the members of their management and s upport 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 Portill o, HR Director Jennifer Callaway , Finance & Budget Manager Krysten Lee, Accountant Gitta Ungv ari, Administrative Technician Nicole Tram, Account Technician Bernadette O’Donnell, Account Technician Linda Isherwood, Analyst Respectfully submitted, Greg Larson Town Manager
A - 11 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 a ward, 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 it s eligibility for another award.
A - 12 C ORE V ALUES General Plan Implementation: Revise the grading policy (General Plan Action CD-15.2) and adopt grading ordinance Update the Town website to provide timely, easy to access and important information for the public.Consider employee benefit cost containment and service impact fees Undertake Phase I of project to improve condition of streets in the Almond Grove district Partner with the Veterans Committee to develop a Veterans Memorial in Los Gatos Implement migration to regional communications and interoperability Consider regulating polystyrene, and leaf blowers Adopt the use of tools to increase communication with the public including social media and citizen engagement technology.Review and revise Town policy related to the service of alcohol & entertainment Explore and present funding mechanisms to provide ongoing funding for street maintenance Develop plan to enhance the aesthetics and use of the Civic Center as a community resource In conjunction with County Fire, implement evacuation plans for areas subject to flooding and fires Complete Specific Plan and EIR for the North 40 Develop public CUP database and monitoring program Facilitate privately-led effort to address options for Downtown parking supply Update Heritage Tree definition and 25% trim regulations in Tree Ordinance Develop a strategic plan for the new library Conduct mid-contract review and update of contract with Monte Sereno for police services to reflect needs and resources Update the Housing Element per State law Develop technology priorities plan and implement digital Council packet process Develop a policy to ensure the continued diversity of independent and national businesses in the downtown Develop implementation plan for "Complete Streets Policy" that supports a balanced, multimodal transportation Review senior services needs assessment information gathered by the Community and Senior Services Commission Increase installation and use of traffic speed monitoring signs to improve traffic safety Review policies and practices related to Community Benefit and Planned Developments Consider the sale or lease of town properties to create one-time or ongoing funding Increase the availability of electric vehicle charging stations to meet the growing demand.Expand community partnerships for crime prevention and response Amend zoning ordinance for Home Occupation Permits Engage with schools to explore options to address traffic & parking issues Review role of Consulting Architect Increase regulation of on-street vehicular sales & advertising Police Library Parks & Trails Streets & Parking Youth & Senior Services Ongoing Core Services (representing roughly 80% of Town resources) Economic Vitality Planning & Building Arts & Special Events Environmental Services Emergency Preparedness 2014 – 2016 Strategic Goals
A - 13 F UND D ESCRIPTIONS 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 fund s 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 of ten found in the private sector (util ities, 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 partic ular purposes. The following funds are Non -Major Special Revenue Funds : • Non -Point Source Maintenance F und - budgets and accounts for environmental services such as storm water management. • Community Development Block Grant Fund - budge ts and accounts for federal Community Development B lock 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, land scaping, irrigation systems, lighting, sound wall and fences for improvements in the public right -of -way, within specific district boundaries.
A – 10 FUND DESCRIPTIONS Capital Project Funds Capital Project Funds are used to accou nt 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 resour ces 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 Fund s – established to account for fees paid in conjunction with the development in specifie d drainage areas. • Construction Tax Funds – 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 activit ies 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 F unds 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 fo r 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.
A – 2 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 F und - 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 s ettling 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 us ed 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 categori es 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 ma de 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 orga nization for to create, disseminat e 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.
A - 12 • 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 R edevelopment Agency obligations. 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 th ese funds:
A - 1 4 F INANCIAL P OLICIES 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 b alanced budget effective from July 1 st to June 30 th 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 R eserves 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 appro val 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, un anticipated 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 e xpected 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.
A – 1 5 FINANCIAL POLICIES FUND BALANCE RESERVES CAPITAL IMPROVEMENT • Reserves will be established, 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 worker s ’ 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 va cation earnings. • Reserves 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 drops below the minim um , Town Council will develop a 1 to 5 year s 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 replacemen t 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 Dra in Basin Fees • Grant Funding • Other s tate and f ederal funding s ources as they become available
A – 1 6 FINANCIAL POLICIES • M ulti -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 P lan will be based on the multi -year C apital I mprovement Program. • The Town will coordinate developme nt of the Capital Improvement Plan with the development of the O perating B udget. • 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 f inanced 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 P lan . Within a specific fund, the Town Manage r may transfer appropriations between projects as needed to implement the adopted Capital Improvement P lan .
A - 17 L ONG -T ERM D EBT P OLICY The following long -term debt policy sets the considerations for issuing debt and provides guidance i n 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 accompani ed 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 operati ng 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 mandate d 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, wh ether 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 develop e d in conjunction with amendments to existing redevelopment project area pla ns 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 an d 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 arbitrag e and disclosure regulations.
A - 18 I NVESTMENT P OLICY 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 Re v enue 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 ob ligations. 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 OBJECT IVES 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 m ay 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 ma rket 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 t he 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.
A - 19 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 ma turity 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. S TANDARDS OF CARE 1. Prudence - The standard of care to be use d by inve stment 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 fo r 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 institu tions 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 unde rtaking 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 authori ty 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 cons istent 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 subordinat e officials.
A - 20 INVESTMENT POLICY IV. S AFEKEEPING AND CUSTODY 1. Authorized Fin ancial 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 de aler 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 i nvestment 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 Directo r 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 obje ctives 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 reco rd keeping functions • Cu stodial safekeeping • Avoidance of physical delivery of securities • Clear delegation of authority to subordinate staff members • W ritten confirmation of transactions for investments and wire transfers 3. Delivery vs. Payment - All securiti es 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 fr om the broker/dealer handling the security transaction to ensure proper, timely delivery and payment.
A - 21 INVESTMENT POLICY 4. Collateralization - Collateralization is required on all Certificates of Deposits and deposits in excess of FDIC insurance li mits. 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 collater al will be held by an independent third par t y custodian. V. S UITABLE AND AUTHORIZED INVESTMENTS 1. Investment Types - California Government Code Sections 53601, 53631.5 and 53635 place limitations on allowable investments by local governments. This inve stment policy further restricts allowable investments. The following investments will be permitted by this policy: Maximum Maximum %Quality Investment Type Maturity of Portfolio Requirements US Treasury Obligations 5 years None N/A US Agency Obligations 5 years None Active Market (1)Bankers Acceptances 180 days 15%Commercial Paper 180 days 15%See below (2)Medium term notes 3 yrs/ 5 yrs 15%AA/ AAA Collateralized CD =s 5 yrs 15%See below (3)CA LAIF N/A 65%N/A Money Market Funds N/A 15%See below (4) (1) Limited to US Agency Obligations with liquid markets and readily determinable fair market value, including obligations issued by the Fe deral 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 m ust be A prime @ 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 collate ralized 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 m anagement 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.
A - 22 INVESTMENT POLICY 2. Prohibited Investments - Prohibited investments are any investments not specifically identified above, including but not limited to: • Deriva tives of the above instruments r epurchase agreements • Reverse repurchase agreements n egotiable certificates of deposit • Inverse floaters • R ange notes • Interest only strips • Any security which could result in zero interest accrual if held to maturity VI. R EPORTING 1. Methods - The Town Treasurer shall prepare a quarterly investment report, including a managemen t summary that provides an analysis of the status of the current inve stment portfolio. This management summary will be prepared in a manner that will allow the Town to as certain 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: • D etailed listing of individual securities held at the end of the reporting period including, issuer, purchase date, matur ity date, and yield to maturity • Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the amortized cost an d 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 complian ce with the Investment Policy • A statement regarding the adequacy of cas h flows for the next six months 2. Ma rking 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.
A - 23 INVESTMENT POLICY VII. Policy Considerations 1. Exemption – Any in vestment currently held that does not meet the guidelines of this policy shall be exem pted 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. Amend ments - This policy shall be reviewed on an annual basis. Any changes must be approved by the Town Treasurer and the Town Council.
A - 24 B UDGET P ROCESS O VERVIEW he Town of Los Gatos adopts an annual Operating and Capital Budget and an annual budget upd ate of the five -year Capital Improvement P lan 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 1 st and ending June 30 th . 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 ser ve 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 prov ide a linkage between the services and projects the Town and R edevelopment 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 projec ts, 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 o perating and c apital b udget s represent services and functions provided by th e 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 b asis 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 duri ng 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 expe nses anticipated to be incu rred 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 accrua l basis. The Town administers four trust funds and one ag ency 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 a nd 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
A - 25 Manager’s ov ersight 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 th e Operating and Capital Budget and Capital Improvement Plan (CIP) process es 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 d uring this time to determine funding capabilities , project priorit ies , and to refine project work plans. Although the CIP budget document is prepared separately from the Operating and Capital Budget, CIP program inform ation is incorporated into the O perat ing and Capital Summary B udget d ocument 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. During this period the Town Council updates its Strategic Goals for a two -year timeframe. Department and agency staff identify and analy ze 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 br iefings 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 Co uncil 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 th e 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 budget s 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 Adopt ed 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 subsequ ent 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 ne eds will necessitate adjustments to the adopted budget s . 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 fo r budget increases and decreases and transfers between funds.
A - 26 B UDGET C ALENDAR October / November / December January February CIP 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 a nd schedules, finalize internal service rates Budget Kick -off Meeting – General information to staff on: • State of the Town /Town Council Strategic Goals • Budget assumptions, directives, initiatives, and goals • Development of department and program work plans • Asset/Internal Services/Staffing request procedures 1 st Draft revenue projections due to Budget Office Analyze budget projections and review with Town Manager 1 st Draft staffing requests due to Budget Office Review and finalize staffing positions an d requests 1 st Draft asset, internal service requests, and expenditure requests due 1 st Draft CIP Budget due to Budget Office Review Internal Service requests with responsible Program Managers 1 st Draft Internal Service budgets due to Budget Office I ncorporate approved staffing, assets, internal services and program expenditure requests into a 1 st Draft budget
A – 27 March April May May/ June July / August/ September Review and analyze 1 st Draft budget, briefing with T own Manager 1 st Draft CIP budget briefing – determine program revisions 1 st Draft budget briefings with Town Manager, Department Heads, and Analysts – determine department / program revisions 2 nd Draft budget revisions and work plans due to Budget Offi ce 2 nd 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 assembl ed 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 revision s 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
A - 28 G ANN A PPROPRIATION L IMIT n November 6, 1979 California voters approved Proposition 4, commonly known as the Gann Spending Limitat ion 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 juris dictions 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. Prop osition 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. On ly 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 co mpliance 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. APPROPR IATION LIMIT CALCULATION The following schedule reflects historical appropriation factors for the prior ten years, an d the calculation for FY 201 3 /1 4 : For Beginning County Town Per Ending %YE Population Population Capita Limit Limit Factor Factor Income Limit Increase 2005 21,397,082 1.0072 1.0004 1.0328 22,258,018 4.02%2006 22,258,018 1.0112 1.0026 1.0526 23,691,192 6.44%2007 23,691,192 1.0118 1.0044 1.0396 24,919,990 5.19%2008 24,919,990 1.0152 1.0100 1.0442 26,416,980 6.01%2009 26,416,980 1.0172 1.0318 1.0429 28,426,367 7.61%2010 28,426,367 1.0156 1.0108 1.0062 29,048,811 2.19%2011 29,048,811 1.0126 1.0101 0.9746 28,667,689 -1.31%2012 28,667,689 1.0089 1.0096 1.0251 29,669,366 3.49%2013 29,669,366 1.0124 1.0081 1.0377 31,169,671 5.06%2014 31,169,671 1.0157 1.0147 1.0512 33,279,977 6.77%APPROPRIATION LIMIT FACTORS Appropriation Appropriation June 30 O
A - 29 GANN APPROPRIATION LIMIT The Town of Los Gatos’ appropriation limi t for fiscal year 201 3 /1 4 is calculated as follows: % Increase in Change in 2012/13 2013/14 County Per Capita Appropriation Appropriation Appropriation Population Income Factor Limit Limit 1.0157 X 1.0512 =1.06770384 X 31,169,671 $ =33,279,977 $ FY 2013/14 Calculation As illustrated above, the total amount of tax revenues appropriated to the Town in FY 201 3 /1 4 is not to exceed $33,279,977 . The FY 201 3 /1 4 budget anticipates $20,917,770 in t ax revenues which equates to $12,362,207 less tha n, or approximately 6 3 % of, th e appropriation limit for FY 201 3 /1 4 . Therefore , the Town’s tax revenues fall substantially below the appropriation limit. APPROPIATION TREND L ocated in the Silicon Valley, Los Gatos has seen a significant increase in th e 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. T ogether, t hese factors c ontribut e 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 gro wth (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 ap propriation limit of $33,279,977 will be present ed to Council on June 3, 2013 for adoption.
A - 30 G ANN A PPROPRIATION R ESOLUTION
A - 31 T OWN OF L OS G ATOS A NNUAL B UDGET R ESOLUTION
A - 32