Attachment 3 MemoX
MEMORANDUM
FINANCE DEPARTMENT
To: Les White, Interim Town
From: Stephen Conway, Director of Financry
Subject: FOLLOW UP QUESTIONS FROM5, 20 15 SPECIAL MEETING
MONEY MATTERS & MORE
THE TOWN'S BUDGET: PAST, PRESENT AND PROSPECTIVE
Date: May 14, 2015
On May 5, 2015 a Special study was held to discuss and review the Town's budget. This study
session will be continued on May 19, 2015 as part of the proposed FY 2015/16 Budget hearing;
however after the May 5° presentation a number of additional questions were asked. Below are
the responses to the Council's questions on May 5, 2015.
1. What are some other revenue sources could the Town explore, possibly revenue measures
or increases to Franchise Fee's (i.e. utility fees)?
Answer. There are a variety of revenue measures the Town could explore more.
These include sales tax increases, adoption of a utility user tax (UUT), increased
Transient Occupancy Tax (TOT) which is often popular, as it taxes vistors rather
than residents. Bond and parcel taxes with designated purposes would require a
2 /3rds vote of the public for passage. Sales, UUT and TOT would require a simple
majority (50% plus 1) vote and have no spending restriction. This would be an
appropriate subject to bring back during the strategic goals discussion for analysis
during the fiscal year.
2. What are the cost - benefits ofpursuing a business licenses amnesty program and possible
business license audit?
Answer. Neighboring jurisdictions, including Cities of Saratoga, Campbell and San
Jose, have pursued increased business license audit and/or amnesty programs with
great success. The City of Saratoga contracts with MuniServices, the Town's sales
tax consultant, to conduct a Business License Compliance Audit. While there is an
initial fee for these services, this fee is reimbursed through collected fines. The City
of Saratoga reports significant increase in business licenses and fees collected
resulting from this audit. The City of Campbell hosted a Business License Amnesty
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program about six years ago that generated approximately 100 more licenses which
equated to a substantial amount of past due revenue.
Based on these responses, the Town asked both the Cities of Saratoga and Campbell
for the number of Business Licenses issued by each jurisdiction for FY 2013/14 and
FY 2014/15 to compare against the volume of activity in Los Gatos and rather an
amnesty program and /or audit would be beneficial. These figures are outlined in
the chart below:
Business Licenses Issued
FY 2013/14
FY 2014/15
Los Gatos
4,386
4,440
Saratoga
2,285
1,941
Campbell
785
640
Based on this information, it is evident that the Town of Los Gatos has significant
more exposure and thus potential for increased revenue by offering an amnesty
program and corresponding Business Licenses Compliance Audit. These one -time
revenue increases could be dedicate to one -time expenditures, including capital
projects. Therefore, staff recommends that the Town consider implementing a
similar type program for Town businesses. As a pilot program, Town staff could
conduct a smaller scale business license audit in which staff would randomly survey
business parks and information from the State agencies to determine if all
businesses had required licenses. Staff would utilize interns to perform these tasks
which may have a high potential for return for little cost.
3. What impacts will the North 40 project have on the budget — with the potential
population increase how much will that impact Town costs to provide services to those
new residents?
Answer: At this point we are unable to determine the exact impact of the North 40
project. Staff anticipates the impact would be minimal with the exception of
increased traffic that may be associated with daytime activity at the project site.
Staff does anticipate an increase in property tax revenue which would be available
to help fund any additional service costs.
4. What 31 Cities responded for the Benchmarking slide information provided during the
study session and What is the objective of the Benchmarldng materials?
Answer: As with most municipalities in California, the Los Gatos Finance
Department staff are members of the California Society of Municipal Finance
Officers (CSMFO). Members, of this organization frequently send out surveys on
finance- related topics and trends. The surveys are voluntary and member - driven.
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One such survey was conducted last month (April 2015), regarding General Fund
Expenditures by Department. Thirty -one cities responded to the survey question
and given the timely nature of this survey, staff felt it would be useful to include the
data as background information, as a measure of how other cities in the state are
allocating budget resources. The responding cities ranged in population from 4,807
residents in Lakeport to 206,785 in the largest responding city of Modesto (obtained
from Department of Finance figures as of 1/1/2014) Responding cities are as follows:
Gridley
Santa Maria
Marysville
La Palma
Mission Viejo
Simi Valley
Sebastopol
Salinas
San Dimas*
Signal Hill
Sausalito
Truckee
Hemet
Red Bluff
Modesto
La Mesa
San Fernando
Corona
Westminster
Suisun City*
Santa Rosa
Auburn
Piedmont
Cloverdale
Lemon Grove*
Yuba City
Lakeport
Ojai
Orange
Willows
St. Helena
*Cities with populations between 25,000 and 35,000.
Staffs intention in providing the benchmarking materials included in the Money
Matters & More presentation was to be responsive to Council inquiries regarding
comparisons to our neighbors and comparable jurisdictions. Benchmarking is
difficult in public sector agencies as there is no common, standard basis for
comparison and each jurisdiction is unique in terms of funding and priorities.
While understanding that these comparisons are challenging, staff recognizes and
understands the need for some baseline measures to see how the Town is doing, or
allocating resources, as compared to our neighboring jurisdictions. Staff has
analyzed and reviewed comparable city budgets and smoothed out each cities bases'
to be the most neutral comparison as possible. This effort was made to provide
Council with a measure which would indicate how the Town compares to our
surrounding jurisdictions in terms of allocating resources and services provided.
5. There has been talk about the Town having unfunded road repairs of $40 million. Is this
a valid number, what document was this derived from, and how was that derived?
Answer: A comprehensive list of traffic and transportation improvements needed
to meet existing transportation system deficiencies and accommodate growth in
vehicle trips resulting from new jobs and housing as set forth in the Town's General
Plan was developed as part of the 2014 Traffic Impact Fee update. The total cost of
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these identified improvements is $47.95 million, and is one of the factors used for
calculating the Town's Traffic Impact Fees. Approximately $22.8 million of the
costs of these projects is anticipated to be funded from Traffic Impact Mitigation
Fees (collected over time with new development). The balance of the project costs
will need to come from other sources, including grants, special revenues (e.g., gas
tax) or general fund reserves.
6. Bring back to Council a plan to support local businesses and increase /generate sales tax
through the Town's Economic Vitality Program.
Answer: In order to give this the thought and attention it deserves to develop a
comprehensive plan, staff recommends this be discussed as a strategic goal at the
June 2, 2015 meeting.
7. What is the percentage of sales tax received from county pool for internet sales as well as
breakout of sales tax receipts by segment?
Answer: The Town's sales tax consultant, MuniServices, provides quarterly
updates to Town staff regarding Town sales tax performance for the prior quarter
as well as updated projections for the out years. The Town receives 1 cent for every
8.75% of sales tax paid per dollar for purchases made in Los Gatos. With the
growing popularity and trend towards on -line retail, the State implemented a
county pool sales tax sharing allocation for all on -line retail sales. Under this
methodology the Town receives a prorate share of all county on -line purchase
transactions. This share is based on the Town's overall sales tax percentage when
compared to the County as a whole. For instance, the four quarter period from
April 2014 through March 2015 Santa Clara County municipalities generated
$396,801,341 in sales tax revenue. During the same period The Town of Los Gatos
generated $8,266,057 in sales tax revenue, or 2.1% of the County total. The county
pool for on -line generated sales tax total $15,771,569 for the 4th quarter of 2014 and
therefore the Town received 2.1% or $325,766 of the pooled money.
As part of the quarterly update, MuniServices provides updates as to how the
various business segments are performing with respect to sales tax revenue
generated. Per the most recent report provided to Town Staff for the calendar year
comparison of 2013 to 2014 (with comparable statistics for San Francisco Bay Area
and Statewide),the Town's Business Activity sales tax is as follows:
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Business Activity
Jan 13 -Dec 13 to Jan 14 -Dec 14
Los Gatos
SF Bay Area
Statewide
Miscellaneous
Retail*
-7.5%
3.4%
3.7%
Restaurants
3.2%
7.5%
6.9%
Auto Sales - New
2.1%
6.7%
8.1%
Service Stations
-1.9%
-2.8%
-2.3%
Food Markets
4.0%
3.2%
2.7%
Furniture/Appliances
3.8%
2.5%
3.8%
Apparel Stores
0.1%
1.9%
3.6%
Drug Stores
-1.4%
0.5%
-0.1%
Auto Parts/Repair
-3.0%
2.5%
3.2%
Bldg.Matls- Retail
8.1%
1.1%
3.1%
Light Industry **
30.8%
10.3%
4.0%
Leasing
3.2%
9.5%
13.0%
Business
Services * **
-20.1%
8.7%
5.9%
Office E ui ment
2.2%
1.1%
2.4%
*Includes Netflix
* *Medical equipment, including dental labs
** *Business to Business wholesale
As indicated in the chart above, the Town's restaurants, food markets and light
industry perform quite well, however miscellaneous retail is declining and behind
the local and state trends.
8. Who gets charged for which library is visited (some people go to county library and its
free some have to pay)?
Answer: The Los Gatos Library offers library cards and services free of charge to
all California residents. Until FY 2011/2012, the California Library Services Act
provided transaction -based reimbursement (TBR) funding to California libraries
throughout the state to encourage libraries to cooperate and offer library services to
all state residents. This collaboration created excellent resource sharing among
California libraries. Most California libraries have chosen to remain part of this
resource sharing model, even after the elimination of transaction based
reimbursement. Our Cooperative Library System, the Pacific Library Partnership,
requires that we be part of this universal borrowing to be eligible to participate in
grants and programs offered at the local level as well as the state level. It is through
this partnership that we are eligible for things such as the new high speed internet
service at a fraction of market rate, innovation grants that have funded eBook self -
publishing labs, as well as extensive staff training, development and networking
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opportunities.
Our neighboring Santa Clara County Library District, which includes Monte
Sereno, opted out of this universal borrowing during the economic downturn.
However, as of FY 2015/2016, they will stop charging non - residents for cards and
will once again be part of our universal borrowing network, allowing our residents
wider access to free library materials.
9. What is the objective of the Benchmarking materials provided in the May 51h budget study
session?
Answer: Staff's intention in providing the benchmarking materials included in the
Money Matters & More presentation was to be responsive to Council inquiries
regarding comparisons to our neighbors and comparable jurisdictions.
Benchmarking is difficult in public sector agencies as there is no common, standard
basis for comparison and each jurisdiction is unique in terms of funding and
priorities. While understanding that these comparisons are challenging, staff
recognizes and understands the need for some baseline measures to see how the
Town is doing, or allocating resources, as compared to our neighboring
jurisdictions. Staff has analyzed and reviewed comparable city budgets and
smoothed out each cities bases' to be the most neutral comparison as possible. This
effort was made to provide Council with a measure which would indicate how the
Town compares to our surrounding jurisdictions in terms of allocating resources
and services provided.
10. Please outline the Town's proposed budget training expenditures for FY 2015116 and
staff's plan to use training to mitigate on the job injuries as they impact workers
compensation?
Answer: With the assistance of a Safety Specialist and the Town's Employee Health
and Safety Committee (staffed by Parks and Public Works and Human Resources,
with representatives from all departments), the Town has completed an analysis of
OSHA - mandated, as well as best - practice safety training for each job classification.
Some training courses have been implemented or is in progress (e.g., CPR/First Aid,
hazardous materials, hearing conversation). The Health and Safety Committee is in
the process of prioritizing the remaining training to address the high risk areas,
subject to available funding. The Town also continues to explore ways to leverage
web based training to reduce cost where possible. The Proposed FY 2015/16 budget
includes a General Fund allocation of $75,000 for employee training, which is a
9.4% increase over the budgeted amount for FY 2014/15. In addition to safety -
related training, the $75,000 also funds general training, including technical, skills -
based, state - mandated and other related training (e.g., computer skills, written /oral
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communication, anti - harassment and workplace violence protection). Presently, the
identified training needs for safety and general training exceed the budgeted
amount.
11. What is the Town's total unfunded Pension Liability if we are currently 72 %funded?
Answer: The Town's latest actuarial valuation, dated June 2013, indicates the
following status for the Town's safety and miscellaneous plans:
Description
PERS Safety
Plan
PERS
Miscellaneous
Plan
Market Value of Plan Assets
$47.6M
$58.6M
Total Liability
$66.3M
$81.2M
Unfunded Liability (Liability minus Assets)
$18.7M
$22.6M
The total unfunded pension liability for both plans totals approximately $41.3
million.
The funded ratio is obtained by dividing the market value of plan assets by the total
liability for the plan.
Description
PERS Safety Plan
PERS Miscellaneous Plan
Market Value of Plan
Assets
$47.6M
$58.6M
Total Liability
$66.3M
$81.2M
Funded Ratio
71.8%
72.2%
12. What has the vector been for unfunded liabilities — are we doing better or worse in terms
of funding?
Answer: As discussed during the May 5, 2015 study session, the Town's unfunded
liability is subject to market volatility and CalPERS rates of return on investments.
As illustrated in the chart below, over the last three years the Town's unfunded
pension liability has fluctuated with a variance of $7.8 million dollars.
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$50A0,000,00
$45,(X)0,000 00
$00,000,000.00
$35,000,000.00
$30,000,000.00
$25,000,000.00
$20,W0,000.00
$15,000,000.00
$10,W0,000.00
$5,OW,WO.00
TOWN OF LOS GATOS THREE YEAR UNFUNDED PENSION LIABILITY
$4;,651 655
$37,826,750
2011 2012
$41,2 79,836
-M
2013
Total Safety
all Total Miscellaneous
Also, as discussed during the study session, it is important to consider funded ratio
along with the unfunded liability amounts. As is with the unfunded Liability, the
unfunded ratios are subject to the same market volatility as illustrated in the chart
below:
TOWN OF LOS GATOS THREE YEAR FUNDED RATIO
20]3
67.6%
2012
71.7%
201t
65.0% 66.0% 6].0% 680% 69.0% 70.0% 71.0% 72.0% 739%
13. What amount of our pension payment is for Police?
. Funded Ratio Safety
■ Funded Ratio MISC
Answer: The Town's total employer PERS costs for FY 2015/16 are budgeted at
$4,097,808. Of that amount, 40.5% or $1,657,759 is for public safety employees.
14. Why have the calls.for service in PD gone up?
Answer: As illustrated in the chart below, Los Gatos is not unique in experiencing
an increase in calls for service. While Los Altos reported a significant decline in
calls for service, both Morgan Hill and Campbell experienced a similar increase in
calls for service over the five year period sampled (FY 2010/11 — FY 2014/15).
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While the exact cause for the increase in calls for service or incidents is not clear,
there have been various legislative changes and state mandated reporting issues that
are believed to be contributing factors. The Public Policy Institute of California
recently reported that as a result of the 2011 prison realignment (AB109), state -wide
property crimes increased 15% and an additional 24,000 stolen vehicles were
reported in the latest comprehensive statistics available (2012). Additionally, and
most recently, with the enactment of Proposition 47, numerous felonies have been
reclassified to misdemeanors, resulting in an increased street presence of individuals
who would have previously been incarcerated as felons.
In addition to legislative changes at the State level, the complexity of crime has
increased over time. Technology crimes involving the internet and fraud have
increased regionally. Locally, mental health calls, which are often highly time and
resource intensive, are trending upward. Changes in mandated reporting and the
use of more sophisticated data collection systems has also increased the number of
documented incidents (on -line reporting, enhancements in data collection and
through Computer Automated Dispatching Systems (CAD)). Within the last 10
years, the town has upgraded the CAD system twice, each time improving the
documentation of incidents and calls for service.
Another factor is that the Los Gatos Monte Sereno Police Department provides
extensive community engagement, outreach and education, which is in alignment
with the principles of effective community policing and a model of best- practices. By
design, this approach to policing increases the reporting of lower -level crimes with a
desired effect of reducing or preventing higher -level crimes. Thus, it is expected that
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calls for service would increase as community engagement and awareness increases.
In summary, it is believed that legislative changes in crime laws, the increasing
complexity of criminal activity and the policing model of community engagement,
education and awareness contribute to the increased calls for service and
corresponding increased workload.
15. The current FY 2014115 budget added staff. How did that go? Was the staff
adds /changes in FY 14115 effective? If we aren't continuing it, does that mean that it
didn't work out?
Answer: The Adopted FY 2014/15 budget incorporated a myriad of staffing
augmentations and reorganizations. Two one -time staffing augmentations were
eliminated from the Proposed FY 2015/16 budget due to limited available resources
to maintain on -going funding, however other augmentations and reorganizations
remain funded at the FY 2014 /15 level. Below is a brief synopsis of the
reorganization and augmentations adopted in the FY 2014/15 budget and the
funding or elimination of these changes in the Proposed FY 2015/16 budget.
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SUMMARY OF FY 2014 /15 BUDGET STAFFING CHANGES
F'Y2014 /15
Eva luallonofAugmentadon /Reorganization's
FY 2015/16
Budget Augmentation /Reorganization
Funded
The consolidated position puts a strain on staffing and
needs to be assessed for feasibility and sustainability.
This consolidated funding leaves only one Director level
position funded and therefore a second Director level
position may be brought forth to Council consideration
Yes - Funded at Consolidated
Consolidation ofthe ATM /CDD
during the year.
level
The Town temporar* reassigned staffto fill this position
and has identified a body of work sufficient to continue
Communication Coordinator
funding.
Yes
The HR Department continues to face increased service
demands and has found this reorganization/consolidation
Human Resource Specialist
successful
Yes
Clerk Admuvstrator
Successfid reorganizationiconsolidation of positions
Yes
Successfiil increase in staffing howl as the Town
continues to face increased Infonnation Technology
IT Technician Position
service demands
Yes
Police Department reclassification of
vacant positions to a Records and
Evidence Manager, 2.0 FTE Records
Specialist and 1.0 FTE Administrative
Analyst
Successful reorganization/consolidation ofpositions
Yes
Entry Level Police Officer
Successful staffing augmentation
Yes
During the FY 2015/16 budget process the Department
requested this position be permanently faded as entry
level Officer. Due to continued vacancies with Workers'
Compensation and retirements this position remained
Patrol hire-ahead position
unfilled.
No
Code Compliance Officer
SuccessfW staffing augmentation
Yes
This position was filled in March 2015 and therefore
staffhas proposed to extend funding of this position
through December 2016 at which time staff will assess
Yes - Funded through
Part-time Community Service Officer
the effectiveness of the program
December 2016
During the FY 2015/16 budget process the Department
requested this position be permanently funded as the
Department continues to face workload demands with
Planning Technician
the positive economy.
No
Assistant Planner
Successful reorganbation /consolidationofpositions
Yes
Increased Economic Vitality Position
Successful staffing augmentation
Yes
Environmenwl Service Coordinator
SuccessfW staffing augmentation
Yes
Lbrar:n
Successful reorganization/consolidation of positions
Yes
Community Service Intem- Library
Successful staffing augmentation
Yes
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