Addendum
PREPARED BY: STEPHEN CONWAY
Finance Director
Reviewed by: Town Manager and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/06/2016
ITEM NO: 5
ADDENDUM
DATE: DECEMBER 5, 2016
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: ACCEPT THE COUNCIL FINANCE COMMITTEE’S RECOMMENDATION TO RECEIVE
THE FISCAL YEAR 2016/17 FIRST QUARTER BUDGET PERFORMANCE AND STATUS
REPORT FOR THE PERIOD JULY 1, 2016 – SEPTEMBER 30, 2016
REMARKS:
Below are responses to a Council Member’s inquiries for this agenda item.
1. How does the Town Council show its intent for committed and assigned fund reserve
classifications?
The Town’s fund reserves are classified either as restricted, committed, assigned , or
unassigned. Restricted means that use of the funds is restrained by external, enforceable
agreements. For instance, the Town’s Gas Tax funds are restricted fund balance f or street
purposes due to State law and this fund is separate from the General Fund. Currently, there are
no restricted reserves in the Town’s General Fund.
Committed fund balances are balances constrained by the governing body in a formal action ,
such as a resolution. For example, the Town’s Fund Reserve Policy specifies that 25 percent of
the current Fiscal Year General Fund operating budget expenditures be reserved for budget
stabilization and catastrophic events. Due to the specific amount described in the Policy, the
recommended categorization is labeled as committed fund balance.
Assigned fund balances are amounts constrained by the governing body’s intent to use them
for specific purposes. Assigned amounts require less formality and there are no specific dollar
targets established to consider them as committed. The Reserve for CalPERS is an example of
this subtle difference between assigned and committed reserves. According to the June action,
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SUBJECT: FISCAL YEAR 2016/17 FIRST QUARTER BUDGET PERFORMANCE AND STATUS
REPORT FOR THE PERIOD JULY 1, 2016 – SEPTEMBER 30, 2016
DATE: DECEMBER 6, 2016
S:\COUNCIL REPORTS\2016\12-06-16\05 FY 2016-17 First Quarter Budget Report\05 Addendum FINAL.docx 12/5/2016 3:37 PM SLL
REMARKS (Cont’d):
Council directed staff to establish a CalPERS Reserve of up to $2.5 million from FY 2014/15
revenues above expenditures. Because Council has expressed an intent for this reserve to be
established, but has not established a certain amount, staff recommends it be categorized as
assigned.
Unassigned fund balances represent amounts of excess reserves for which no specific int ent
has been established, and these balances are considered surplus amounts available for any
legal government purpose.
These assignments have been reviewed and confirmed with the Town’s third party auditor.
2. Please define “triple flip.”
In March 2004, California voters approved Proposition 57, the California Economic Recovery
Bond Act, which authorized the issuance of up to $15 billion in bonds to close the State’s
budget deficit. $10.9 billion of these bonds were issued in 2004 and the remainder in 2008.
To guarantee bond repayment, the State promulgated Revenue and Taxation Code Section
6201.5 which established an excise tax equal to one-quarter percent (0.25%) of the sales price
of property subject to the state’s sales and use tax and simultaneously lowered the Bradley -
Burns Uniform Sales Tax (1%) rate by one-quarter percent (0.25%) to three-fourths of one
percent (0.75%). The bonds are repaid from the 0.25% excise tax plus transfers from the
Budget Stabilization Account (BSA), a special reserve established in the State’s General Fund
approved by Proposition 58.
The quarter-percent reduction in local sales tax is recovered through a series of revenue
swapping procedures. These exchanges are referred to as the “triple flip.” The triple flip
continued until the Economic Recovery Bonds were recently retired. As a result of the
swapping of revenues, there was a final “catch-up” payment received by the Town in August
2016.
Attachments (previously received with December 6, 2016 Staff Report):
1. Budget Performance Report for the Three Months Ending September 30, 2016.
2. Public comment received before and after 11 a.m. on November 21, 2016
3. Staff Responses to Questions posed in Public Comments