Mid Year Budget
PREPARED BY: STEPHEN CONWAY
Administrative Services and Finance Director
Reviewed by: Assistant Town Manager Town Attorney Finance
N:\MGR\AdminWorkFiles\2016 Council Reports\03-01-16\09 Mid-Year Budget\FINAL Mid Year Budget Staff Report.docx
MEETING DATE: 03/01/16
ITEM NO: 9
COUNCIL AGENDA REPORT
DATE: FEBRUARY 22, 2016
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: FISCAL YEAR (FY) 2015/16 MID-YEAR BUDGET PERFORMANCE AND
STATUS REPORT - SIX MONTHS ENDING DECEMBER 31, 2015
A. RECEIVE FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND
STATUS REPORT, INCLUDING FY 2015/16 YEAR-END
PROJECTIONS
B. CONSIDER AUTHORIZING BUDGET ADJUSTMENTS AS
RECOMMENDED IN THE ATTACHED SECOND QUARTER
BUDGET PERFORMANCE REPORT
C. APPROVE HIRE-AHEAD AUTHORITY
D. RECEIVE THE TOWN’S FIVE-YEAR FINANCIAL PROJECTION
FROM FY 2016/17 TO FY 2020/21
RECOMMENDATION:
1. Receive FY 2015/16 Mid-Year Budget Performance and Status Report including FY
2015/16 year-end projections.
2. Consider authorizing budget adjustments as recommended in the attached Second Quarter
Budget Performance Report (Attachment 1).
3. Approve hire-ahead authority
4. Receive the Town’s five-year financial projection from FY 2016/17 to FY 2020/21.
BACKGROUND:
The purpose of this report is to provide the Town Council with a status of the FY 2015/16
Adopted Operating Budget at the mid-year point, including an overview of revenue and
expenditure trends and financial projections for the current fiscal year. This report also includes
a brief discussion of the Town’s current year General Fund Reserve status along with table of
funding sources designated/reserved for the Almond Grove Street Rehabilitation project. An
update to the Town’s five-year financial projections (FY 2016/17 – FY 2020/21) is provided to
give context for the FY 2016/17 budget development process and recommended budget
approach.
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
DISCUSSION:
FY 2015/16 MID-YEAR BUDGET STATUS AND TRENDS
Budget Performance Report
The attached Budget Performance Report (Attachment 1) is a mid-year report covering a six-
month period beginning July 1, 2015 and ending December 31, 2015. The report provides
analysis and recommendations related to the current year’s adopted budget revenues and
expenditures and the projected financial condition of all Town funds.
General Fund Projected Year-End Balances June 30, 2016
Current fiscal year-end projections for FY 2015/16 reflects an anticipated $1,000,000 surplus of
operating revenues over expenditures. As discussed in Attachment 1, revenues are tracking
higher than budgeted and actual expenses typically occur lower than budgeted.
Operating Revenue Trends
Revenues from economically sensitive sources such as property tax, motor vehicle in lieu fee,
transient occupancy tax, and business licenses indicate that the economy continues to trend in a
positive direction. In addition, increased and deferred activity in the Community Development
Department led to higher revenues than projected.
The Town’s revenue forecast is dependent upon the stability of economically sensitive revenues,
including sales tax, property tax, transient occupancy tax, franchise fees, and interest income.
While many of these revenues are increasing, sales tax revenues are not meeting budget
projections at this time, with a small decrease recommended for the fiscal year. Staff continues
to monitor all of these revenue sources on a regular basis to ensure that projections are valid for
the budgeted fiscal year.
Operating Expenditure Trends
The FY 2015/16 budget provided some workload pressure relief, primarily using one-time
temporary funding measures due to the uncertainty with rising benefit and other costs. Staff
continues to be fiscally conservative and focus on reduction strategies when possible. This
prudence has helped to keep current departmental expenditures below the expected 50% of
budget level, which could result in expenditure savings at year-end.
Hire-Ahead Authority
During the annual adoption of the Town’s budget, the Town Council approves expenditure and
revenue budgets for the fiscal year as well as Full Time-Equivalent (FTE) positions for each
department. As part of the Town’s internal control process, no department is permitted to exceed
their budget approved FTE count. This has contributed to a several month delay in hiring and
filling positons, often leading to inadequate staffing levels in many departments. Consequently,
staff is recommending to pilot a Town-wide hire-ahead program, whereby within existing budget
authority the Town Manager would have authority to hire in advance of known separations, not
to exceed budgeted FTE’s by three FTE positions. With this approval, it is expected to reduce
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
DISCUSSION (Cont’d):
the delay in filling positions and provide ability for the separating employee to assist with
training the new employee. No budget adjustments are needed to fund this pilot program for the
remainder of the fiscal year. Staff will evaluate the effectiveness of this program for possible
inclusion in the proposed FY 2016/17 budget.
State Budget Impacts to Local Governments
The State of California Legislative Analyst’s Office reported in February that the State has
enjoyed remarkable economic growth over the past year. The Office went on to add the
cautionary note that the state may be reaching the peak of this long expansion. Responding to
this concern, the Governor’s January 2016-17 budget proposals included a mix of adding to
reserves (raising the State reserves to a target of more than $10 billion), one time spending
opportunities, and ongoing budget commitments based on state priorities. The Governor’s budget
allocates most other discretionary resources to one time infrastructure spending. Outside the
General Fund, the Governor plans to: (1) spend $3.1 billion cap–and–trade auction revenues,
(2) provide additional revenues for transportation, and (3) extend the managed care organization
(MCO) tax.
Regarding transportation revenues, the Governor’s proposed budget allocates about half of the
new transportation revenues to the state and half to local agencies to support various existing and
new programs. Specifically, the Governor proposes to allocate about $1.5 billion to rehabilitate
state highways, about $1.4 billion for local streets and roads, $400 million for transit, $200
million to improve trade corridors, and $120 million for state highway maintenance. If adopted,
this proposal would have the effect in FY 2016/17 of increasing fuel tax funding of local streets
and roads by about $324 million, with an estimated increase to the Town’s Gas Tax revenues of
approximately $160K next fiscal year. Under current law, the Town’s share of Gas Tax
revenues is proposed to be reduced again in FY 2016/17 by approximately $28,000 from FY
2015/16 to $630,000.
Town Pension Plan Unfunded Liabilities – Update
Recently the Town’s Finance Committee met to discuss strategies/options to address the
approximate $45.9 million “unfunded liability” related to the Town’s Miscellaneous and Safety
employees’ pension plans administered through the California Public Employees Retirement
System (CalPERS). The Committee asked staff to provide options for reducing liability
gradually over time. Options include a potential series of lump-sum payments or a re-
amortization (shortening the payback period from 29 to 20 years, much like refinancing a 30-
year home loan with a 15-year home loan) which is termed by CalPERS as a “fresh start.” Staff
intends on bringing suggested options including a “lump sum,” “fresh start,” or some
combination of both to the Finance Committee in March or early April so that a recommended
option from the Committee could be presented to the full Council during the FY 2016/17
proposed operating budget cycle.
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
DISCUSSION (Cont’d):
Pension Risk Developments at CalPERS
In November 2015 the CalPERS Board of Administration adopted a funding risk mitigation
policy to reduce volatility in the system by incrementally lowering the “discount rate” in years of
good investment returns. CalPERS stated goal for the new policy is to ensure the long term
sustainability of the pension fund. Lowering the discount rate creates stability because the
assumed returns of the fund over the long term are reduced. As an example, CalPERS currently
uses a rate of 7.5% for its assumed rate of return on its pension fund investments. Some
investments are made in assets such as bonds, with lower yields than stocks, but predictable
returns. Others, like stock, are less predictable, but can produce high returns. It is the mix of both
of these type of investments that historically has allowed CalPERS to achieve its current
assumed rate of return of 7.5%. CalPERS asserts that the new policy will lower risk to the
pension fund because in a year when CalPERS exceeds a 7.5% return on its investments, the
extra earnings will be saved and the discount rate will be lowered very slightly. Over time, this
strategy is expected to allow CalPERS to move away from riskier investments made to achieve
higher targets of discount rate, and place more funds and less risky investments with lower rates
of return.
GENERAL FUND RESERVE STATUS
As of June 30, 2015, the Town’s General Fund balance was approximately $22.1 million, all of
which is legally reserved or designated for special purposes by the Council. Included in this
amount are approximately $4.2 million in reserves for Economic Uncertainty, $9.5 million for
Capital and Special Projects, $6.6 million for Budget Stabilization, and $1.8 million in
designated reserves. These reserves will change at the mid-year point of FY 2015/16 to $16.1
million due to the October 2015 Council action of establishing the Almond Grove Street
Rehabilitation Reserve.
6/30/2015
(Audited)
12/31/2015
(Unaudited)
Designated for Capital and Special Projects $9.5 $6.0
Designated for Budget Stabilization $6.6 $4.4
Designated for Economic Uncertainty $4.2 $4.4
Designated for Open Space $0.6 $0.6
Designated for Special Studies/Incentives $0.5 $0.2
Designated for Retiree Medical Actuarial $0.4 $0.0
Designated for Manager's Contingency and Productivity $0.1 $0.1
Designated for Sustainability $0.1 $0.1
Designated Carryover $0.1 $0.1
Designated for Almond Grove From General Fund Reserve $6.0
Designated for Public Energy Choice JPA form FY 2014/15 Year End Saving $0.1
Total Designated General Fund Balance Reserve $22.1 $22.1
Amount
(Millions)Designated General Fund Reserves
PAGE 5
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
DISCUSSION (Cont’d):
The Almond Grove Street Rehabilitation Reserve Funding Sources are illustrated the table
below.
It is staff’s intent to move these funds to the Almond Grove Project for Council approval in May
2016.
FY 2016/17 BUDGET DEVELOPMENT PROCESS
Concurrent with the update of the Five-Year Financial Plan and in anticipation of status quo
budget, staff began budget development discussions in late January 2016. This process includes
the conceptual development of staffing changes, revenue enhancements, and adjustments to the
User Fee Schedule. Staff is currently working on preparing the FY 2016/17 budget which will
be presented to Council in May 2016. The FY 2016/17 budget will continue to fund essential
public services to ensure a status quo budget. Contractual obligations and unfunded mandates
will also be incorporated into the proposed budget.
FIVE-YEAR FINANCIAL PLAN UPDATE
The Five-Year Financial Plan is an independent financial tool used to forecast current and future
revenues and expenses. This tool is designed to be more fluid in nature to build various funding
scenarios and test “what if” assumptions, providing a range of budget strategies for
consideration.
The updated Plan for the current year projects a surplus of $1,100,000 for FY 2015/16 as well as
operating surpluses in the future years. A current and future projection in the Five-Year Plan are
based upon conservative revenue and expenditure growth rates and trends and does not anticipate
another downturn in the economy.
Almond Grove Street Rehabilitation
Amount
(Millions)
From General FundFY 2014/15 Year End Savings $2.0
From General Fund Excess ERAF $0.3
From General Fund Budget Stabilization & Economic Uncertainty Reserve $2.1
From General Fund Capital & Special Projects Reserve $0.9
From General Fund Retiree Medical Actuarial Reserve $0.4
From General Fund Special Studies Reserve $0.3
Total From General Fund Reserves $6.0
From Existing Project Balance $3.7
From Compensated Absences $0.6
From GFAR Fund Balance $0.4
From Equipment Replacement Fund Balance $1.5
Total Designated Almond Grove Street Rehabilitation Reserve $12.2
PAGE 6
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
DISCUSSION (Cont’d):
FY 1 FY 2 FY 3 FY 4 FY 5
Account Revenue Category
2015/16
Estimated
2016/17
Forecast
2017/18
Forecast
2018/19
Forecast
2019/20
Forecast
2020/21
Forecast
4100 Property Tax 10.1 $ 10.4 $ 10.7 $ 11.0 $ 11.4$ 11.7$
4110 VLF Backfill Property Tax 3.0 3.0 3.0 3.1 3.1 3.1
4200 Sales & Use Tax 8.1 8.3 8.6 9.0 9.3 9.7
4250 Franchise Fees 2.1 2.2 2.3 2.3 2.4 2.5
4251 Transient Occupancy Tax 1.8 1.9 1.9 2.0 2.0 2.1
4400 Business License Tax 1.3 1.3 1.3 1.3 1.3 1.3
4400 Licenses & Permits 3.1 3.1 3.2 3.3 3.4 3.5
4500 Intergovernmental 0.8 0.7 0.7 0.7 0.7 0.8
4600 Charge for Services 2.4 2.5 2.6 2.6 2.7 2.8
4700 Fines & Forfeitures 0.7 0.7 0.7 0.7 0.7 0.7
4800 Interest 0.3 0.3 0.3 0.4 0.4 0.4
4850 Other Sources 4.3 3.6 3.5 3.5 3.5 3.6
4900 Fund Transfers In 0.4 0.4 0.4 0.4 0.4 0.4
TOTAL REVENUES 38.4 38.4 39.2 40.3 41.3 42.6
Use of Reserves/Deposits 0.6 0.5 0.5 0.5 0.5 0.5
39.0 $ 38.9 $ 39.7 $ 40.8 $ 41.8$ 43.1$
Account Expenditure Category
2015/16
Estimated
2016/17
Forecast
2017/18
Forecast
2018/19
Forecast
2019/20
Forecast
2020/21
Forecast
5110 Salary 13.6 $ 14.5 $ 14.5 $ 14.5 $ 14.5$ 14.5$
5120 Furlough - - - - - -
5130 Temporary Employees 1.1 0.7 0.7 0.7 0.7 0.7
5140 Overtime 0.3 0.4 0.4 0.4 0.4 0.4
5170 Other Salary 0.7 0.1 0.1 0.1 0.1 0.1
5200 Benefits 7.5 8.0 8.4 9.0 9.5 9.8
6000 Supplies, Materials, & Services 6.0 5.9 5.9 6.0 6.1 6.3
6000 Pass Through Expenditures 0.6
7200 Grants & Awards 0.2 0.2 0.2 0.2 0.2 0.2
7400 Utilities 0.4 0.5 0.5 0.5 0.5 0.5
7700 Fixed Assets - - - - - -
8060 Internal Service Charges 3.6 3.9 4.0 4.1 4.2 4.3
8900 Debt Service 1.9 1.9 2.0 2.0 2.0 2.0
TOTAL EXPENDITURES 35.9 $ 36.1 $ 36.7 $ 37.5 $ 38.2$ 38.8$
9900 RDA Trust Fund - - - - - -
9900 Operating Transfers Out 0.1 0.1 0.1 0.1 0.1 0.1
9900 Capital Transfers Out to GFAR 0.4 0.4 0.4 0.4 0.4 0.4
9900 GASB 45 Retiree Medical Actuarial 1.5 1.6 1.6 1.6 1.6 1.6 TOTAL BUDGETED
EXPENDITURES 37.9 38.2 38.8 39.6 40.3 40.9
9900
Legally Required Reserve
Allocation
9900
Transfer to Capital and Future
Projects Reserve - - - - - -
9900 Transfer to Stabilization Reserve - - - - - -
37.9 $ 38.2 $ 38.8 $ 39.6 $ 40.3$ 40.9$
REVENUES LESS EXPENDITURES 1.1 $ 0.7 $ 0.9 $ 1.2 $ 1.5$ 2.2$
ONGOING SHORTFALL MITIGATION - $ - $ - $ - $ -$ - $
NET REVENUES LESS EXPENDITURES 1.1 $ 0.7 $ 0.9 $ 1.2 $ 1.5$ 2.2$
TOTAL REVENUES & TRANSFERS
TOTAL EXPENDITURES & ALLOCATIONS
Town of Los Gatos General Fund
Updated Five-Year Financial Plan
PAGE 7
MAYOR AND TOWN COUNCIL
SUBJECT: FY 2015/16 MID-YEAR BUDGET PERFORMANCE AND STATUS REPORT-
SIX MONTHS ENDING DECEMBER 31, 2015
FEBRUARY 22, 2016
CONCLUSION:
The Town’s outlook at mid-year is encouraging due to planned expenditure reductions and
increased revenues.
ENVIRONMENTAL ASSESSMENT:
This budget report is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
The Second Quarter Budget Performance Report includes a number of recommended budget
adjustments necessary for FY 2015/16. As discussed earlier in this report, staff is currently
engaged in the FY 2016/17 budget development process, which will continue with restricted
expenditures and revenue enhancements, contingent upon the performance of the local economy
and any budget actions taken by the State of California to balance its budget.
Attachments:
1. Budget Performance Report Second Quarter FY 2015/16 (ending December 31, 2015)
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
1
INTRODUCTION
Purpose
This is the second quarterly budget performance
report for the Fiscal Year (FY) 2015/16, for the six
month period ending December 31, 2015. The
purpose of this quarterly public reporting is twofold.
First, it ensures that the Town is consistently
monitoring its revenues and expenditures so that it
can proactively respond to unanticipated changes or
emerging trends. Second, and equally important,
these reports increase the transparency of the
Town’s finances. The Town is ultimately accountable
to its residents to use the revenue it brings in
efficiently and effectively to provide the highest
quality services, and quarterly public reporting
provides taxpayers with information that
demonstrates the Town is meeting this standard.
Content
This quarterly report presents an overview of the
Town’s operating revenues and expenditures for the
quarter ending December 31, 2015, as compared to
previous years, and explains any notable changes or
trends in these numbers. This report also provides
information on any recommended budget
adjustments.
Timeframe and Limitations
The information in this report is the most accurate
and up-to-date information available at the time of
publication. However, this report is not an audited
financial statement and the numbers provided
herein are preliminary and subject to change as the
year progresses. No data on revenues and
expenditures is final until the Town has completed
its annual comprehensive audit and finalized its
Consolidated Annual Financial Report (CAFR), which
is released in the winter of each year for the prior
fiscal year.
With respect to revenues: The Town regularly
monitors and adjusts its year-end revenue
projections based on revenue performance and
other developments that may affect Town revenues
in order to develop a more accurate picture of the
Town’s anticipated year-end financial position.
With respect to expenditures: The expenditure
information in this report is extracted directly from
the Town’s financial management system, and
adjustments are made to account for certain known
payments, reimbursements, or transfers between
Town departments and funds that have not yet been
processed in the system at the time of publication. It
represents a snapshot of Town expenditures at a
certain point in time and does not reflect final
adjustments made to prepare the Town’s CAFR.
Table of Contents
Introduction .............................................................. 1
Executive Summary .................................................. 2
Status of FY 2015/16 Adopted Budget ....... 2
General Fund Reserve Status ..................... 2
Greater Economic Outlook ......................... 3
State Budget Update .................................. 3
General Fund – Key Revenue Analysis ..................... 4
Property Tax ............................................... 4
Sales Tax ..................................................... 5
Franchise Fees ............................................ 6
Business License Tax ................................... 7
Transient Occupancy Tax ............................ 8
Interest Income .......................................... 9
Charges for Services ................................. 10
Licenses & Permits ................................... 11
FY 2015/16 Recommended Budget Adjustments ... 12
Summary of Key Recommended Adjustments ....... 14
Financial Summaries and Projections ..................... 17
General Fund ............................................ 17
Special Revenue Fund .............................. 18
Capital projects Funds .............................. 18
Internal Service Funds .............................. 19
Trust and Agency Funds ........................... 20
Redevelopment Agency ........................... 20
Conclusion .............................................................. 20
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
2
EXECUTIVE SUMMARY
Status of FY 2015/16 Adopted Budget
Overall second quarter General Fund revenues are
trending favorably when compared to the second
quarter of Fiscal Year 2014/15. Due to some
projected revenue increases, staff is recommending
a net General Fund increase of revenues, offset by
expenditure increases, of approximately $1,000,000
from adopted budgeted estimates. The current
forecast expects a substantial increase in Property
Tax, Motor Vehicle in Lieu, Transient Occupancy Tax
(TOT), and Business License Tax due to the continued
surge in the local economy as well as tourism within
the Bay Area. Revenues such as Licenses and
Permits and Franchise Fees are all trending
favorably, a strong indication that the economy
continues to rebound.
General Fund expenditure totals for the second
quarter are trending in accordance with forecasts,
with total operational expenditures at the end of the
second quarter at about 44% of budget. With six
months of data now available, staff can better
predict the next six months of expenditure trends,
although unexpected costs can occur. Should any
budget adjustments be necessary to balance
operating revenue and expenditures, staff will advise
the Council accordingly. Expenditure additions at
this time include mandatory well testing expenses,
increased waste management service costs, cut
through traffic expenses, medical examinations and
recruitment expenses due to increased hiring, and
training expenses due to required mandatory Town-
wide training
Providing services to the community in this and
future fiscal years will continue to require strong
performance by economically sensitive revenues to
offset benefit and other cost increases. The FY
2015/16 budget is the third budget in five years that
is not projected to be a deficit budget where cuts are
needed to balance. FY 2016/17 budget will continue
to fund essential public services to ensure a status
quo budget. However, contractual obligations and
unfunded mandates will be incorporated into the
proposed budget.
General Fund Reserve Status - 6/30/15
General Fund reserves closed at a balance of
approximately $22.1 million at June 30, 2015 in
designated reserves which is in accordance with
Town financial policies and operating and capital
budget requirements, and includes a $4.2 million
Economic Uncertainty Reserve.
General Fund reserves are classified into two
categories – Restricted and Designated. Restricted
reserves are those which are restricted in use by
accounting standards or legal agreements and are
not considered available for use for another
purpose. Designated reserves are established by
Council Policy for an intended purpose. With the
dissolution of the RDA, the Town no longer has
restricted reserves.
The reserve for Capital and Special Projects, funded
from annual available General Fund budget savings,
serves as the primary source for replenishment to
the Town’s Capital Improvement Fund (GFAR). As
such, it represents a limited source for a large
number of unfunded needs identified during the
annual capital improvement plan process. This
reserve also functions as a potential funding source
for new capital projects or augmentations to
authorized projects funded through the Town’s Five-
Year Capital Improvement Program (CIP).
The Budget Stabilization Reserve was established to
serve as a transitional “bridge” funding source to
mitigate or smooth out cyclical ups and downs in
locally generated revenues due to fluctuations in the
local economy or “one-time” revenue losses where
the revenue base is likely to be restored in the near
future.
Designated General Fund Reserves
Amount
(Millions)
Designated for Capital and Special Projects $9.5
Designated for Budget Stabilization $6.6
Designated for Economic Uncertainty $4.2
Designated for Open Space $0.6
Designated for Special Studies/Incentives $0.5
Designated for Retiree Medical Actuarial $0.4
Designated for Manager's Contingency and Productivity $0.1
Designated for Sustainability $0.1
Designated Carryover $0.1
Total Designated General Fund Balance Reserve $22.1
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
3
These funds are referred to as Designated General
Fund reserves since these are established by Council
policy for their intended purpose. The availability of
approximately $22.1 million in Designated General
Fund reserves provides the Town with resources to
manage through current and/or future fiscal
challenges and opportunities.
In October 2015 the Town Council approved funding
of up to $12.2 million for the Almond Grove Street
Rehabilitation Project. It is staff’s intention to allocate
this funding in the proposed FY 2016/17 Capital
Improvement Program (CIP) budget. Doing so will
reduce these reserve levels.
Greater Economic Outlook
The Congressional Budget Office (CBO) anticipates
that the economy will expand at a solid pace over
the next few years. Real Gross Domestic Product
(GDP) is anticipated to grow by about 2.7% in 2016
and by 2.5% in 2017. By the CBO’s projections,
increased hiring will reduce the unemployment rate
from 5.7% in the fourth quarter of 2014 to 5.3% in
the fourth quarter of 2017, which is close to the
expected natural rate of unemployment. That
increased hiring will also encourage more people to
enter or stay in the labor force. The CBO also
estimates that the rate of inflation will move up
gradually to the Federal Reserve’s goal of 2%, hitting
that mark in 2017 and beyond.
The CBO expects that the interest rates on Treasury
securities, which have been exceptionally low since
the recession, will rise in the next few years, but
remain lower on average, than in previous decades.
In addition, federal lawmakers still face the longer-
term issues posed by the large projected national
debt and the implementation of rising health care
cost and the aging population.
The US Department of Commerce reported that
home construction rose 8.2% since last year. In
addition, national sales of new homes were up
nearly 14.5% in December compared to the same
month last year.
State Budget Update
Many of the same economic rebounds experienced
by the nation as a whole are holding true for
California. Although the State’s unemployment rate
is among the highest in the nation, it continues to
show improvement in recent months with the latest
data showing a rate of 5.8% in December 2015.
Based on current laws and the State economic
forecast, General Fund revenues are forecasted to
grow moderately, providing about $1.2 billion into
the state's rainy day fund and an additional $1.2
billion to pay off state debts, by the end of the year.
Furthermore, recent press articles are noting that
Silicon Valley’s unemployment rate is lower than the
statewide average due to job growth in the areas of
health services and government sectors. Strong real
estate markets help construction and financial
activities sectors. The Town’s real estate values
remain strong and show positive growth.
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
4
GENERAL FUND – KEY REVENUE ANALYSIS
The following discussion provides a status of significant General Fund revenue sources as of the second quarter,
ending December 31, 2015. Staff monitors each revenue source closely and may recommend certain revenue
adjustments based on revenue actuals or state budget action.
Property Tax
Property tax is the largest revenue source for the Town’s General Fund, accounting for 24% of budgeted General
Fund revenues in FY 2014/15. Property tax is levied by the Santa Clara County Assessor’s Office at 1% of a
property’s assessed value, of which the Town receives approximately 9.3 cents per dollar paid on property located
within the municipal limits of Los Gatos. In compliance with Proposition 13, the assessed value of real property is
based on the 1975/76 assessment roll value, adjusted by 2% inflation factor thereafter. However, when property
changes hands or new construction occurs, property is reassessed at its current market value. Real property
values critically impact revenues. With the passage of Proposition 13, voters limited the tax rate that can be
imposed by the Town on property. With the limitation on rates, therefore, higher revenues are generated by a
higher aggregate property value.
Analysis – Property Tax distributions are largely received in the third and fourth quarters. Property tax budget
projections are based on valuation projected by the Santa Clara County Assessor’s Office, given increased home
sales, coupled with anticipated adjustments in property tax distribution due to the dissolution of California
Redevelopment Agencies. Second quarter receipts are trending higher than those received during the second
quarter of the previous fiscal year and are at 40% of budgeted totals. Based on these trends and the County
projections staff recommend a $1,125,097 increase in General Property Tax.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 3,155,476$ 3,753,004$ 3,462,424$ 3,690,329$ 3,986,841$
Fiscal Year Total Actual Revenues 7,532,073$ 9,477,043$ 9,031,871$ 10,113,287$
Fiscal Year Total Budgeted Revenues 9,127,537$
2nd Quarter Percent of Total 41.89% 39.60% 38.34% 36.49% 43.68%
Recommended Budget Revision 1,125,100$
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual Revenues
Fiscal Year Total Actual
Revenues
Fiscal Year Total Budgeted
Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
5
Sales Tax
Sales tax is the second largest revenue source for the Town’s General Fund, accounting for 22% of budgeted
General Fund revenues for FY 2015/16. The Town receives 1 cent for every 8.75 cents of sales tax paid per dollar
on retail sales and taxable services transacted within Los Gatos. Since the implementation of the mechanism
commonly known as the “triple flip,” the State Board of Equalization retains 0.25 cents of the Town’s 1-cent share
and requires the Santa Clara County Auditor to replace it with an equal amount of property tax revenue. Revenues
are remitted from the State to the Town on a monthly basis, and from the County to the Town on a biannual basis.
These revenues are placed in the General Fund for unrestricted uses.
Analysis – The most recent Sales Tax and Economic review update from MuniServices, the Town’s sales tax
analysis consultant, states that while sales tax receipts statewide grew by 2.4%, Town of Los Gatos Sales Tax
revenues decreased by 4.7% over the same period. Second quarter receipts are trending behind those in the same
period last fiscal year. The negative impact associated with the Netflix change in business model continues to
impact the Town as is the trend of increased on-line retail versus local brick and mortar shopping compounded by
lower gasoline prices. Staff recommends a $210,770 budget decrease.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 3,667,071$ 2,975,082$ 2,825,414 $ 2,532,086 $ 2,397,533 $
Fiscal Year Total Actual Revenues 9,889,100$ 8,757,428$ 8,029,571 $ 8,202,678 $
Fiscal Year Total Budgeted Revenues 8,337,029 $
2nd Quarter Percent of Total 37.08% 33.97% 35.19% 30.87% 28.76%
Recommended Budget Revision (210,720)$
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5 -Year History
2nd Quarter Actual
Revenues
Fiscal Year Total Actual
Revenues
Fiscal Year Total
Budgeted Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
6
Franchise Fees
Franchise fees are collected by the Town for the privilege of operating a utility service within Los Gatos, and as a
fee in lieu of a business license tax. Franchise fees are currently received from Comcast for cable television, PG&E
for gas and electric services, West Valley Collection and Recycling for solid waste collection services, and AT&T and
Comcast for video services. Franchise fees represent 6% of budgeted General Fund revenues in FY 2015/16.
Analysis – Historically, franchise payments are not remitted equally throughout the fiscal year; therefore second
quarter receipts are not necessarily predictive. Total franchise fee revenues are trending slightly higher than those
of the second quarter in FY 2015/16. No budget adjustment recommended this time.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 669,186 $ 685,308 $ 681,431$ 735,550$ 755,411$
Fiscal Year Total Actual Revenues 1,952,488 $ 2,028,903 $ 2,063,756$ 2,215,430$
Fiscal Year Total Budgeted Revenues 2,127,660$
2nd Quarter Percent of Total 34.27% 33.78% 33.02% 33.20% 35.50%
Recommended Budget Revision -$
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Total
Actual Revenues
Fiscal Year Total
Budgeted Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
7
Business License Tax
The Town requires all businesses located within Los Gatos and/or those that operate within Los Gatos, to obtain a
business license. The amount of business license tax paid by each business is based on its business activity. Fees for
activities such as wholesale sales and manufacturing are charged on a sliding scale based on gross receipts, as is
retail, but retail is capped at $975. These activities account for approximately 25% of annual business licenses,
while the remaining 75% are flat fee business es. Annual renewal payments are due on January 2 of each year.
Payments for new flat-fee-based businesses are pro-rated by quarter.
Analysis – As a result of the projected increase in economic activity business license tax revenue for the current
fiscal year was budgeted higher than prior year actuals. FY 2014/15 actual revenues reflected below includes a one-
time prior year adjustment for business license tax collection from Netflix. This adjustment was due to a
reclassification that happened in the first quarter of FY 2014/15. Current year second quarter revenues are trending
significantly higher than those of the previous year, consistent with the improved economic outlook. Therefore,
staff recommends a budget increase of $50,000.
As directed by Town Council in September, staff will continue its auditing efforts and will issue a request for
proposal (RFP) for business license audit services. Staff will bring forth to Council the result of the RFP and
recommendation to enter into agreement for business license audit services and offering a business license
amnesty program in late 2016.
FY 11/12 FY 12/13 FY 13/14 FY 2014/15* FY 2015/16**
2nd Quarter Actual Revenues 209,377 327,237 352,049 $945,846 $870,249
Fiscal Year Total Actual Revenues 1,077,620$ 1,151,579$ 1,130,020 $ 1,779,407 $
Fiscal Year Total Budgeted Revenues 1,250,000 $
2nd Quarter Percent of Total 19.43% 28.42% 31.15% 53.16% 69.62%
Recommended Budget Revision 50,000$
* Includes one-time prior years adjustments due to Netflix reclassification to e-commerce business
** Includes 2014 Netflix's actual gross receipt adjustment for the first time
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
FY 11/12 FY 12/13 FY 13/14 FY 2014/15* FY 2015/16**
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Total
Actual Revenues
Fiscal Year Total
Budgeted Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
8
Transient Occupancy Tax
The Town levies a 10% transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los
Gatos. This tax helps to fund Town services provided to visitors to Los Gatos.
Analysis – Visit California, formerly the California Travel and Tourism Commission, reports that the total number of
visitors to California grew 3.5% in 2014 as both State and national travel industries are booming. The forecast for
California visitation is projected to grow by 2.1% in 2015 and by 2.3% in 2016. Personal and business related travel
is gaining strength. Second quarter TOT revenues are trending higher than those of the second quarter of 2014/15,
and as a result staff is recommending a budget increase of $300,000.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 422,059 $ 434,419 $ 562,906$ 882,406$ 735,550$
Fiscal Year Total Actual Revenues 1,174,485 $ 1,295,887 $ 1,512,846$ 1,896,721$
Fiscal Year Total Budgeted Revenues 1,500,000$
2nd Quarter Percent of Total 35.94% 33.52% 37.21% 46.52% 49.04%
Recommended Budget Revision 300,000$
$- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Total
Actual Revenues
Fiscal Year Total
Budgeted Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
9
Interest Income
The Town earns interest income by investing monies not immediately required for daily operations in a number of
money market instruments. These investments are made within the parameters stated in the Town Council’s
Investment Policy. The Town’s investment goal is to achieve a competitive rate of return while protecting the safety
of its funds. Interest income revenue is primarily dependent on two factors: the cash balance in the Town’s
investment portfolio and the yield on those funds.
Analysis – Second quarter receipts are trending above those in the same period in the prior fiscal year. Financial
indicators throughout the market are predicting a slight increase. The increase of the interest earnings experienced
this fiscal year are reflective of the Town’s total portfolio yield increasing from 0.68% as of September 30, 2014 to
the current yield of 0.71% as of September 30, 2015.
The strategy for the foreseeable future continues to be to remain fairly short-term and to invest in callable agency
bonds in order to attempt to pick up a few basis points over non-callable agencies and treasuries. Treasuries are
being added into the mix of investments to attempt to keep the portfolio somewhat balanced, even though this has
the effect of lowering the overall rate of return. The Town also attempts to find good solid corporate bonds when
possible. No budget adjustment is recommended this time.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 476,653$ 303,305$ 251,835$ 161,825$ 193,959$
Fiscal Year Revenues 606,454$ 424,669$ 321,555$ 430,476$
Fiscal Year Total Budgeted Revenues 319,590$
2nd Quarter Percent of Total 78.6% 71.4% 78.3% 37.6% 60.7%
Recommended Budget Revision -$
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Revenues
Fiscal Year Total
Budgeted Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
10
Charges for Services
Town Service revenues consist primarily of planning, building, inspections, and engineering fees assessed on local
building and development activity. Development fees and charges are assessed based on recovery formulas, which
reflect approximate costs of providing these regulatory services.
Analysis – Second quarter Town service revenues, specifically Charges for Services, are trending higher in the
second quarter compared to the previous fiscal year, with 83% of budgeted revenues already received. The
increase is largely the result of an increase in building activity and development. Typically development fees are
collected in advance for projects and recognized as revenue in the fiscal year the work is performed. There is no
budget revision recommended this time
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 1,717,490 $ 1,362,841 $ 1,398,426$ 1,341,401$ 1,390,695$
Fiscal Year Total Actual Revenues 2,829,124 $ 3,070,127 $ 2,684,126$ 2,643,276$
Fiscal Year Total Budgeted Revenues 2,369,224$
2nd Quarter Percent of Total 60.71% 44.39% 52.10% 50.75% 58.70%
Recommended Budget Revision -$
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Total Actual
Revenues
Fiscal Year Total Budgeted
Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
11
Licenses and Permits
Licenses and permits consist mainly of Building Permit fees which are collected by the Town to offset administrative
costs associated with evaluating development proposals to ensure compliance with codes and policies. Licenses
and Permit revenue was budgeted slightly higher than FY 2014/15 in anticipation of increased development activity.
Analysis – Second quarter License and Permit revenue is trending well ahead of second quarter results from the
previous fiscal year. Second quarter revenues include approximately $300,000 deferred revenues from FY 2014/15
as some of the big-scale development projects started last year were not completed in FY 2014/15. Therefore, staff
recommends a budget revenue increase of $91,500.
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
2nd Quarter Actual Revenues 1,218,432 $ 1,566,216 $ 1,950,393$ 2,274,129$ 1,885,896$
Fiscal Year Total Actual Revenues 2,361,510 $ 3,060,948 $ 3,235,122$ 3,687,393$
Fiscal Year Total Budgeted Revenues 2,987,662$
2nd Quarter Percent of Total 51.60% 51.17% 60.29% 61.67% 63.12%
Recommended Budget Revision 91,500$
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16
Quarterly and Annual Revenues
5-Y ear History
2nd Quarter Actual
Revenues
Fiscal Year Total Actual
Revenues
Fiscal Year Total Budgeted
Revenues
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
12
FY 2015/16 Recommended Budget Adjustments
Budget adjustments are recommended for the following revenues and expenditures at the second quarter as
described above:
Fund Program Account
111 1201 411XX Property Tax 974,850
111 1201 43311 Motor Vehicle In Lieu Fee 150,250
111 1201 41211 Sales & Use Tax (210,720)
111 1201 41311 Transient Occupancy Tax 300,000
111 1201 43341 State Mandated Costs 51,000
111 2301 41411 Business License Tax 50,000
111 3201 42413 Planning Permit 50,000
111 3202 44418 North 40 TLG Reimbursement (21,960)
111 3501 45921 108 Sierra Linda Purchase 362,080
111 4301 44213 Special Event - Less Special Events (6,000)
111 4301 44541 Avoid the 13 Campaigns - Less Avoid the 13 Campaigns (4,000)
111 4302 42618 Taxicab License - Less Taxicab Registration (3,000)
111 4303 44515 School Resource officer from School District (50,680)
111 5202 42514 Encroachment Permit 41,500
111 5301 45421 Bench Donation 2,570
111 5302 43522 AB939 Beverage Container Grant 8,300
111 7201 43901 PLP Innovation Grant - Electric Book Mobile 4,520
111 7204 43901 PLP Innovation Grant - Electric Book Mobile 7,710
111 7201 49711 Per New Friends of Library Bookstore Lease (5,620)
111 7202 49711 Per New Friends of Library Bookstore Lease (8,040)
111 7204 49711 Per New Friends of Library Bookstore Lease (6,340)
TOTAL GENERAL FUND REVENUES 1,686,420$
Fund Program Account
111 1201 63213 Director Recruitment Services 39,300
111 1201 64121 Townwide Training 4,800
111 1301 51111 Staff Salary (Town Attorney) per Agreement 7,910
111 1301 51111 Deputy Town Attorney from 0.5FTE to 0.625 FTE 4,100
111 2201 63213 Recruitment Services 7,000
111 2201 63214 Labor Services 30,000
111 2201 64111 Training Conferences 5,000
111 2201 64431 Medical Examinations 14,700
111 2401 62316 Advertisements 3,500
111 3202 62322 Special Noticing 2,000
111 3301 62632 Wireless Service 450
111 3401 61111 Special Forms Created for Administrative Warnings & Citations 700
111 3401 61114 More Administrative Warnings and Citations - Postage 200
111 3401 61213 Maintenance Uniform 200
111 3401 62632 Wireless Service 450
111 3501 63370 108 Sierra Linda Purchase - Home Association Fees 1,200
111 3501 82202 108 Sierra Linda Purchase 360,880
111 4301 51410 Cut Through Traffic Overtime 7,050
111 4302 61243 Uniforms 6,000
111 5101 62318 Appraisal Services 7,500
111 5101 64292 Employee TEA Educational Reimbursement 1,500
111 5201 63234 Cut Through Traffic Consultants 25,000
111 5202 63356 Mandated Locate Services 5,000
111 5301 61244 Park Benches 6,340
111 5301 61224 Blossom Hill - Fix Park Lower Deck 11,580
111 5301 81208 Stage 15,300
111 5302 63367 Waste Management Contract 33,690
111 5302 63219 Special Studies SCC Mandated Additional Well Testing and Monitoring 35,000
111 5302 61225 Additional Recycling Bin Purchase for FY 2015/16 6,340
111 5401 62143 Membership and Dues 1,000
111 5401 62363 Cut Through Traffic - Message Board 8,350
111 5401 63364 Traffic Signal Maintenance 26,430
111 7201 51310 PLP Innovation Grant - Electric Book Mobile ( Staff)4,520
111 7204 61218 PLP Innovation Grant - Electric Book Mobile ( Bike)6,400
111 7204 61132 PLP Innovation Grant - Electric Book Mobile ( Supplies)1,310
TOTAL GENERAL FUND EXPENDITURES 690,700$
General Fund Revenues
General Fund Expenditures
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
13
Fund Program Account -
411
411 411-811-9903 43329 Increase in VTA Measure B - Pavement Rehab Crack Seal 25,050
25,050$
711
711 7301 45452 Per Friends of the Library Contract 15,750
15,750$
TOTAL OTHER FUNDS REVENUES 40,800$
Fund Program Account
222
222 5203 62369 West Valley Water Management Program 39,440
39,440$
411
411 411-811-9903 82405 Increase in VTA Measure B - Pavement and Rehab Crack Seal 25,050
25,050$
611
611 1302 51111 Staff Salary (Town Attorney) per Agreement 4,610
1302 51111 Deputy Town Attorney from 0.5FTE to 0.625 FTE 4,100
8,710$
612
612 2202 51111 Staff Salary (Town Attorney) per Agreement 660
2202 62332 Ergonomic Evaluation 5,000
2202 63323 Required Safety Training 22,000
27,660$
621
621 2501 63332 Accela Contract for FY 2016/17 48,720
48,720$
622
622 2302 61241 Folding Machine 1,220
1,220$
631
633 5402 81212 Message Boards 5,020
5,020$
633
633 5404 62379 Additiona Book Drop - Library Automatic Handling System 6,330
5404 62376 Preventive Maintenance - Bug Outbreak 2,100
5404 62379 New Museum Elevator Fire Detection 9,810
5404 62379 Civic Center Shades 25,000
43,240$
711 Library Trust Fund
711 7301 99111 To Library Administration (20,000)
(20,000)$
TOTAL OTHER FUNDS EXPENDITURES 179,060$
Other Fund Revenues
GFAR
Library Trust Fund
Other Fund Expenditures
Non Point Sources
GFAR
Facilities Maintenance
ABAG Self Insurance
Workers Compensation
Management Information Systems
Office Strores
Equipment Replacement
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
14
SUMMARY OF KEY RECOMMENDED BUDGET ADJUSTMENTS
General Fund Revenues
General Property Tax and Motor Vehicle in Lieu Fee: Staff recommends an increase in projected revenues
of approximately $974,850 in General Property Tax and $150,250 Motor Vehicle in Lieu fee which are in
line with the estimates and forecasts provided to the Town from Santa Clara County.
Transient Occupancy Tax: Actual receipts and Visit California forecasts indicate a steady growth in travel
and therefore, staff recommends recognizing a revenue increase of $300,000.
Business License: Staff recommends a revenue increase of $50,000 as a result of an increase in business
license activity received during the period.
Licenses and Permits: Staff recommends $91,500 increase in permit revenues due to increased planning
($50,000) and encroachment ($41,000) permit activities.
Due to the purchase of a Below Market Price (BMP) housing unit staff recommends a revenue budget
increase of $362,080. Funding for the purchase is from the Town’s BMP in lieu deposit account.
PLP Innovation Grant: The Town received $12,230 grant from Pacific Library Partnership to fund electric
bicycle powered book mobile and outreach efforts. Staff recommends a budget increase of $12,230.
CalRecycle Beverage Container Grant: Staff recommends a budget adjustment of $8,300 to recognize
grant funds from the State of California that are restricted for beverage container recycling purposes. The
goal of this program is to reach and maintain an 80 percent recycling rate for all California Refund Value
(CRV) beverage containers--aluminum, glass, plastic, and bi-metal.
Staff recommends a budget adjustment of $2,570 to align the budget with actual bench donations
received to date.
Staff recommends a $20,000 budget decrease to align revenue received from the Friend of the Library
Book Store amended rental agreement.
North 40 Reimbursement: Staff recommends a budget decrease of $21,960 since North 40 Specific Plan
is completed.
Sales and Use Tax: Staff recommends a budget decrease of approximately $210,720 as a result of the
most recent economic outlook provided by MuniServices, The Town Sales Tax advisor.
General Fund and Other Funds Expenditures
Due to the purchase of a Below Market Price (BMP) housing unit, staff is recommending an expenditure
budget increase of $362,080. Funding for the purchase is from the Town’s BMP in lieu deposit account.
Software Maintenance Services: The Town has received a 2% discount on the Town’s FY 2016/17
planning and permit management software (Accela) license and maintenance fees, if the fees are paid
before the next fiscal year. Staff recommends a $48,720 budget adjustment for FY 2015/16 to use the
discount.
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
15
Cut-Through Traffic: In addition to a cross departmental effort to manage cut-through traffic, the Town
contracted with a consultant to conduct a Highway Cut-Through Traffic Study to help identify solutions to
deter cut-through traffic from adjacent freeways away from local streets within the Town during periods
when there is freeway congestion. Staff recommends a budget adjustment of $45,420 to recognize the
consultant, overtime, equipment rental, and purchase cost.
Recruitment Services: Due to increased Town-wide hiring, staff recommends a $40,300 budget
adjustment for additional recruitment services.
Downtown Waste and Recycling Collection Services and Additional Recycling Bins: Staff recommends an
adjustment of $33,690 for weekend collection services, weekly cleaning of the cans, and an additional
recycling pick up on Wednesdays in the Downtown area. Staff also recommends an adjustment of $6,340
for additional recycling bin purchases.
West Valley Clean Water Program: Staff recommends an adjustment of $39,440 for higher than
anticipated West Valley Clean Water Program fees.
Mandated Well Testing and Monitoring: Staff recommends an adjustment of $35,000 for well testing and
monitoring required by the County of Santa Clara. Before 1990, an underground oil tank leaked into the
surrounding soil. The Town began cleanup operations but did not complete the ongoing monitoring
element. Town staff began testing in 2014-2015, and as a result, more testing and samples were required
by the County. The County has required that this project be closed out.
Labor Services: Due to the expiration of all three bargaining unit contracts, staff recommends a $30,000
budget adjustment for additional legal and negotiation services.
Street Signal Maintenance: Staff recommends an adjustment of $26,430 for additional contractual
obligations.
Pavement Rehabilitation and Crack Seal: Due to increased Santa Clara Valley Trasportation Authority
(VTA) Measure B (2008) revenues, staff recommends a budget increase of $25,050 to the capital project
for pavement rehabilitation.
Town Hall Shades: Staff recommends an adjustment of $25,000 to improve working conditions at the
Town Hall for various departments. The funding will be used for new shades throughout Town Hall.
Mandated Occupational Safety and Health Administration (OSHA) Training: Staff recommends an
expenditure budget adjustment of $22,000 for mandatory OSHA training.
Stage: Staff identified that the stage own by the Town, used for the Music in the Park and other events
has to be replaced. Staff recommends a $15,300 expenditure budget adjustment.
Medical Examinations: Due to increased Town wide hiring staff recommends a $14,700 budget
adjustment for additional medical examinations for new hires.
Town Attorney Contract: To reflect the recent Town Attorney Contract, staff recommends an expenditure
budget adjustment of $13,180 for salaries.
Miscellaneous Operating Expenditures: Staff recommends $12,500 combined expenditure budget
increase to cover non anticipated cross departmental operational expenditures.
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
16
PLP Innovation Grant: The Town received $12,230 grant from Pacific Library Partnership to fund electric
bicycle powered book mobile and outreach efforts as mentioned under General Fund Revenues. Staff
recommends an expenditure increase of $12,230.
Blossom Hill Park Playground Deck: Staff recommends an expenditure budget increase of $11,580 to fund
the purchase of a replacement playground deck at Blossom Hill Park.
New Museum Los Gatos (NUMU) Elevator Fire Detection: Funding of $9,810 is recommended for the
installation of an elevator recall panel and the associated smoke alarms.
Training Services: Staff recommends a $9,800 budget increase to fulfill Town-wide mandatory training
requirements.
Deputy Town Attorney from 0.5 Full Time Equivalent (FTE) to 0.625 FTE: To better meet Town Attorney
department workload staff recommends to raise the Deputy Town Attorney hours from 0.5FTE to 0. 625
FTE and requesting expenditure budget adjustments of $8,200 for salaries.
Automated Material Handling System Modification: Staff recommends an adjustment of $6,330 which
was necessary to modify the original Library book drop, and also add a second book drop.
Park Benches: Staff recommends an increase of $6,340 to purchase two park benches, which is offset by
donations as mentioned above.
Property Appraisal: Due to an appraisal of the Town-owned property at 20 Dittos Lane, staff recommends
an increase of $7,500.
Mandated Utility Location Services: Due to increased mandated utility location service, largely as a result
of increased encroachment permit activity, staff recommends an adjustment of $5,000.
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
17
FINANCIAL SUMMARIES, PROJECTIONS AND RECOMMENDATIONS
General Fund
The following table is the Schedule of General Fund Operating Revenues. Vs. Operating Expenditures for the second
quarter of FY 2015/16 this includes comparison information from the prior year. In the last column are projections
of final balances for the current fiscal year based upon the early trends observed through the second quarter.
FY 2014/15 FY 2014/15
Q2 % of
FY 2014/15
Q2 % of
FY 2015/16 FY 2015/16 FY 2015/16
FY 2015/16
Finance
Actuals Q2 Actuals Adopted Q2 Adopted Projection
Revenues
Sales & Use Tax 8,202,678$ 2,532,086$ 30.9% 28.8%2,397,533$ 8,337,029$ 8,126,309$
Property Tax 10,113,287 3,690,329 36.5% 43.7%3,986,841 9,127,537 10,102,387
VLF Backfill Property Tax 2,818,316 - 0.0% 0.0%- 2,833,750 2,984,000
Franchise Fees 2,215,430 735,550 33.2% 19.0%404,169 2,127,660 2,127,660
Transient Occupancy Tax 1,896,721 882,406 46.5% 51.1%766,651 1,500,000 1,800,000
Other Taxes 1,809,620 949,798 52.5% 69.5%873,144 1,257,000 1,307,000
Licenses & Permits 3,687,393 2,282,444 61.9% 63.1%1,885,896 2,987,662 3,079,162
Intergovernmental 1,004,661 219,254 21.8% 36.3%284,168 782,724 854,254
Town Services 2,643,276 1,341,401 50.7% 58.7%1,390,695 2,369,224 2,283,584
Fines & Forfeitures 839,670 361,158 43.0% 43.6%288,910 663,300 663,300
Interest 430,476 539,280 125.3% 60.7%193,959 319,590 319,590
Other Sources 4,961,656 2,611,153 52.6% 34.3%1,609,638 4,694,257 5,058,907
Fund Transfer In 311,810 54,033 17.3% 8.0%38,072 474,218 454,218
Total Revenues & Transfers In 40,934,994$ 16,198,892$ 40% 38%14,119,676$ 37,473,951$ 39,160,371$
Use of Other Funding Sources:
Use of Reserves- Capital Projects 7,271,491$ -$ 400,000$ 400,000$ 400,000$
Use of Reserve- Authorized Carryforwards - - - 2,421 2,421
CAFR GAAP Adjustment (347,494) - - - -
Total Other Funding Sources 6,923,997$ - $ 400,000$ 402,421$ 402,421$
Total Revenues and Use of Reserves 47,858,991$ 16,198,892$ 34% 38%14,519,676$ 37,876,372$ 39,562,792$
Expenditures
Salary & Benefits 20,658,173$ 9,719,150$ 47.0% 45.8%10,619,704$ 23,179,753$ 23,203,333$
Operating Expenses 8,440,136 2,507,785 29.7% 24.3%2,067,771 8,492,583 8,797,623
Fixed Assets 75,442 35,425 47.0%360,877 - 362,080
Grants & Awards 197,074 53,056 26.9% 26.3%51,087 194,600 194,600
Debt Service 1,928,056 - 0.0% 0.0%- 1,922,398 1,922,398
Internal Service Charges 3,325,373 1,659,358 49.9% 46.8%1,682,918 3,595,875 3,595,875
Transfers to GFAR 7,271,491 280,000 3.9%- 400,000 400,000
Transfers to Non Point Source 100,000 - 0.0%- 50,000 50,000
Transfer to Equipment Replacement 15,000 - 0.0%- - -
Transfer to SA Housing - - 0.0%- 41,163 41,163
Total Expenditures & Transfers Out 42,010,745$ 14,254,774$ 34% 39%14,782,357$ 37,876,372$ 38,567,072$
Net Operating Revenues 5,848,246$ 1,944,118$ (262,681)$ *-$ 995,720$
* FY 2015/16 Q2 Net Operating Revenues are negative because some revenues budgeted for the entire fiscal year will be received in the third or fourth quarters.
General Fund
Fund 111
SUMMARY OF REVENUES AND EXPENDITURES
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
18
The groups of financial summaries on the following pages present data by governmental, proprietary and fiduciary
fund types. For each, the fund information starts with a beginning fund balance, adds current year revenues, and
subtracts current year expenditures, resulting in an ending fund balance. Adopted budget amounts are provided
as a basis for comparison of actuals to date.
Special Revenue Funds (Governmental Fund Type)
Special Revenue Funds account for the proceeds derived from specific revenue sources that are legally restricted or
assigned to special purposes. The Town’s Special Revenue Funds are Community Developm ent Block Grant Fund,
Housing Conservation Program Fund, Urban Runoff Source Fund (Non-Point Source), and several landscaping and
Lighting District Funds. The revenue from the Non-Point Source Program fund continues to lag the expenses. This
largely results from increased requirements associated with the Town’s storm water permit, including increased
inspections and monitoring, trash reduction requirements, and administrative costs. Staff will develop a plan to
move the program toward a sustainable cost recovery model as part of the FY 2016/17 budget process. As indicated
in the chart below, Non-Point Source fund balance is negative. It is anticipated that revenues for the Non-Point
Source program will be received by the end of the fiscal year and therefore no budget adjustment is being
recommended at this time. Staff will continue to monitor these revenue funds to ensure payments are received.
Capital Projects Funds (Governmental Fund Type)
Capital Projects Funds account for resources used for the acquisition and construction of capital facilities by the
Town. Funds in this category are the GFAR (General Fund Appropriated Reserve) Fund, Traffic Mitigation Fund,
Grant Funded CIP Projects Fund, Utility Underground Fund, Gas Tax Fund, and three Storm Drain Funds. Capital
Projects Funds are generally tracking in accordance with the FY 2015/16 adopted budget. Staff recommends
increasing GFAR revenue and expenditure budget by $25,050 to match Santa Clara Valley Transportation Authority
(VTA) Measure B (1996) revenues available to spend this fiscal year. Staff will continue to monitor these
expenditures throughout the remainder of the year. The Grant Funded CIP fund displays a deficit balance because
this grant fund expends Town dollars first, then provides documentation of these expenditures to the State of
California or other granting agencies and is reimbursed for those costs. The reimbursements eventually result with
the fund “breaking even” or a zero fund balance.
CDBG Non Point
Grants Source LLDs
Beginning Fund Balance (Pre-audit)63,932 142,943 180,207
Budgeted Revenues 70,000 416,684 28,399
Total Actual Revenues - 2nd Qtr (9,213) - -
Budgeted Expenditures 70,000 499,053 22,811
Total Actual Expenditures - 2nd Qtr - 263,188 8,859
2nd Quarter Ending Fund Balance 54,719 (120,245) 171,348
Special Revenue Funds
Budget to Actuals Comparisons
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
19
Internal Service Funds (Proprietary Fund Type)
Internal Service Funds finance and account for special activities and services performed by a designated Town
department for other Town departments on a cost reimbursement basis. Included in this fund type are the
Equipment Replacement Fund, Workers’ Compensation Fund, Association of Bay Area Governments (ABAG) Self
Insurance Fund, Office Stores Fund, Management Information Systems Fund, Vehicle Maintenance Fund, and the
Facilities Maintenance Fund.
Some of the internal service funds are funded at a higher level than required (Vehicle Maintenance and Equipment
Replacement). Other funds are at less than recommended funding levels (Workers Compensation and ABAG Self
Insurance and Facility Maintenance). To begin restoring these funds, the FY 2015/16 adopted Budget incorporated a
1.5% increase in Workers’ Compensation rates for all employees and a budget transfer of $500,000 from the Town’s
Vehicle Maintenance Fund to the ABAG Self Insurance Fund. Facility Maintenance fund decreased below the
desired fund level of $1,000,000 due to the work required in the Old Library Building. The Council reallocated
$1,488,687 from the Equipment Replacement Fund to the Almond Grove Street Rehabilitation Reserve. Internal
Service Funds are generally tracking in accordance with the FY 2015/16 adopted budget. Staff will continue to
monitor expenditures and propose revised cost allocation during FY 2016/17 budget preparation.
.
GFAR Traffic Grant Fund Storm Utility Gas
Fund Mitigation CIP's Drains Undergd Tax
Beginning Fund Balance 15,531,606 3,139,715 (369,988) 1,592,794 2,814,351 1,075,828
Budgeted Revenues 1,825,798 605,000 462,813 105,120 60,000 658,623
Total Actual Revenues - 2nd Qtr 162,061 - - 36,741 13,027 348,095
Budgeted Expenditures 13,496,546 1,685,012 411,038 150,000 28,000 1,495,214
Total Actual Expenditures - 2nd Qtr 893,132 495,569 139,403 94,270 - 52
2nd Quarter Ending Fund Balance 14,800,535 2,644,146 (509,391) 1,535,265 2,827,378 1,423,871
Capital Project Funds
Budget to Actuals Comparisons
Equipment Workers Self Office Mmgt Info Vehicle Facilities
Replacemt Comp Insurance Stores Systems Maintenance Maintenance
Beginning Fund Balance 3,675,029 1,514,857 1,567,161 187,956 2,833,159 322,865 484,030
Budgeted Revenues 490,826 926,884 529,575 95,000 1,084,080 571,670 1,265,218
Total Actual Revenues - 2nd Qtr 255,683 447,632 246,838 16,822 547,196 285,838 611,184
Budgeted Expenditures 825,104 1,367,951 790,094 127,150 1,314,254 571,670 1,531,278
Actual 2nd Q Expenditures 168,014 513,675 530,478 44,800 520,502 227,076 517,159
Trasnfer to Almond Grove Reserve 1,488,687
Total Actual Expenditures - 2nd Qtr 1,656,791 513,675 530,478 44,880 520,502 227,076 517,159
2nd Quarter Ending Fund Balance 2,273,921 1,448,814 1,283,521 159,898 2,859,853 381,627 578,055
Internal Service Funds
Budget to Actuals Comparisons
BUDGET PERFORMANCE REPORT – 2ND QUARTER FY 2015/16
20
Trust and Agency Funds (Fiduciary Fund Type)
Town Trust and Agency Funds have fund balances as of December 31, 2015 of $665,154 for the Library Trust Funds
and $2,070,649 for the SA Trust Fund. No budget revisions are contemplated at this time for these funds.
Successor Agency to the Redevelopment Agency
During the second quarter, the Successor Agency Board and staff continued to work diligently to satisfy the many
requirements and deadlines established by the state through AB1x26 and AB1484. AB1x26 is the “Dissolution Bill”
that eliminated the Town’s Redevelopment Agency effective February 1, 2012. AB 1484 is the “clean -up” bill that
revised and attempted to clarify AB1x26. In accordance with the law, the Successor Agency continues to wind down
the affairs and operations of the former Redevelopment Agency by implementing programs and activities in
accordance with the State-approved Recognized Obligation payment Schedule (ROPS). The Successor Agency
monies are now accounted for in a Private Purpose Trust fund and no longer part of the Town’s Financial
Statements.
CONCLUSION
The financial results from the prior fiscal year, coupled with the FY 2015/16 second quarter data, confirm that the
second quarter financial results are stable and improving. Staff is cautiously optimistic as the five-year financial
plan projects that Town’s financial outlook in future years is improved with no shortfalls forecasted in the next five
years. Therefore, as staff is actively engaged in the 2016/17 budget process, the primary focus will continue to be
on ensuring that the available Town resources are allocated to meet the priority service needs of the community.
Library SA Trust Fund
Trusts
Beginning Fund Balance 642,246 3,613,726
Budgeted Revenues 59,911 3,989,479
Total Actual Revenues - 2nd Qtr 36,084 35
Budgeted Expenditures 294,775 3,992,425
Total Actual Expenditures - 2nd Qtr 14,176 1,543,112
2nd Quarter Ending Fund Balance 664,154 2,070,649
Trust & Agency Funds
Budget to Actuals Comparisons