Los Gatos City Council
February 21, 2023

TITLE: Investment Policy PAGE:
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POLICY NUMBER:
4-02
(1) Environmental, Social Responsibility and Governance Concerns Investments are encouraged in entities that support community well-being through safe and environmentally sound practices and fair labor practices. Investments are encouraged in entities that support equality of rights regardless of sex, race, age, disability or sexual orientation. All corporate securities within the portfolio will be monitored by an independent third-party who will provide the Town with an ESG (Environmental, Social Responsibility, and Governance) rating. The Town will prefer companies when appropriate that maintain a higher ESG rating as opposed to those companies that have a lower ESG Rating. (2) Community Investments
Investments are encouraged in entities that promote community economic development, and investments are discouraged in entities that finance high-cost check-cashing and deferred deposit (payday-lending) businesses. Investments are encouraged in entities that have a demonstrated involvement in the development or rehabilitation of low-income affordable housing and have a demonstrated commitment to reducing predatory mortgage lending and increasing the responsible servicing of mortgage loans. Securities investments are encouraged in financial institutions that have a Community Reinvestment Act (CRA) rating of either Satisfactory or Outstanding, as well as financial institutions that are designated as a Community Development Financial Institution (CDFI) by the United States Treasury Department, or otherwise demonstrate commitment to community economic development.

AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the Town shall be made in accordance with California Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant to California Government Code Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of the bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of these code sections will be assumed to be part of this Investment Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Investment Policy and past Town investment practices, the Town may delay adherence to the new requirements when it is deemed in the best interest of the Town to do so. In such instances, after consultation with the Town’s attorney, the Treasurer will present a recommended course of action to the Town Council for approval. All investment limits specified in the Policy are calculated at the time of investment.

The Town has further restricted the eligible types of securities and transactions as follows:

1. United States Treasury bills, notes, bonds, or certificates with a final maturity not exceeding five years from the date of trade settlement.

2. Federal Agency Obligations for which the faith and credit of the United States are pledged for the payment of principal and interest and which have a final maturity not exceeding five years from the date of trade settlement. There is no limit on the percentage of the

TITLE: Investment Policy PAGE:
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POLICY NUMBER:
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portfolio that can be invested in this category, however, no more than 20% of the town’s total portfolio shall be invested in the combination of Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) mortgage-backed securities.

3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes, callable securities, step-up securities, and mortgage-backed securities (including FNMA and FHLMC) with a final maturity not exceeding five years from the date of trade settlement.

There is no limit on the percentage of the portfolio that can be invested in this category, however, no more than 20% of the town’s total portfolio shall be invested in the combination of GNMA, FNMA, and FHLMC mortgage-backed securities.

4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade settlement with the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either sub-paragraph A. or sub-paragraph B. below:

A. The entity shall (1) be organized and operating in the United States as a general corporation, (2) have total assets in excess of five hundred million dollars ($500,000,000) and (3) Have debt other than commercial paper, if any, that is rated “A” or higher by a NRSRO.

B. The entity shall (1) be organized within the United States as a special purpose corporation, trust, or limited liability company, (2) have program wide credit enhancements, including, but not limited to, over collateralization, letters of credit or surety bond and (3) have commercial paper that is rated “A-1” or higher, or the equivalent, by a NRSRO.

Purchases of eligible commercial paper shall not exceed:
 10% of the outstanding commercial paper of any single corporate issuer,  5% of the Town’s total portfolio in the commercial paper of any one issuer, and  25% of the Town’s total portfolio.

5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of trade settlement, issued by a state or national bank with combined capital and surplus of at least $250 million, whose deposits are insured by the FDIC, and whose senior long-term debt is rated at least A or the equivalent by a NRSRO at the time of purchase. No more than 5% of the Town’s total portfolio shall be invested in banker’s acceptances of any one issuer, and the aggregate investment in banker’s acceptances shall not exceed 30% of the Town’s total portfolio.

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POLICY NUMBER:
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6. Medium Term Notes (Corporate Notes) issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States, with a final maturity not exceeding five years from the date of trade settlement and rated at least “A” or the equivalent by a NRSRO. No more than 5% of the Town’s total portfolio shall be invested in the medium-term notes of any one issuer and the aggregate investment in medium term notes shall not exceed 30% of the Town’s total portfolio.

7. Municipal & State Obligations:

A. Municipal bonds including registered notes or bonds of any of the 50 states, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the 50 states.

B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any local agency in California, including bonds payable solely out of the revenues from a revenueproducing property owned, controlled, operated by the local agency, or by a department, board, agency, or authority of the local agency.

Municipal bonds must be rated at least “A” or the equivalent by a NRSRO with maturities not exceeding five years from the date of the trade settlement. No more than 5% of the Town’s total portfolio shall be invested in “A” rated bonds or in the bonds of any one municipality. In addition, the aggregate investment in municipal bonds may not exceed 30% of the total portfolio.

8. Certificates of Deposit with a final maturity not exceeding five years from the date of trade settlement. The aggregate investment in certificates of deposit shall not exceed 30% of the Town’s portfolio, and no more than 5% of the portfolio shall be held in any one deposit or allocated to any one issuer. Certificates of Deposit shall be issued by a nationally or statechartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank or by a federally licensed branch of a foreign bank provided that the senior debt obligations of the issuing institution are rated at least “A” or the equivalent by a NRSRO.

Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposits are subject to the limitations of Section 53601(i), shall be fully insured by the FDIC with a corresponding FDIC certification number, and shall be delivered through the Depository Trust Company.

Non-Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of non-negotiable certificates of deposit are subject to the limitations of Sections 53601(n) and 53638 and shall be fully insured by the FDIC with a corresponding FDIC certification number.

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POLICY NUMBER:
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Private sector entities may be used to place certificates of deposit subject to the limitations of Section 53601.8.

9. State of California’s Local Agency Investment Fund (LAIF), pursuant to California Government Code Section 16429.1. The aggregate amount invested in LAIF shall not exceed the maximum allowed by the fund.

10. Money Market Funds registered under the Investment Company Act of 1940 that (1) are “no-load” (meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a constant net asset value per share of $1.00; (3) invest only in government securities, and (4) have a rating of at least AAA or the equivalent by at least two NRSROs.

No more than 10% of the Town’s total portfolio shall be invested in money market funds of any one issuer, and the aggregate investment in money market funds shall not exceed 20% of the Town’s total portfolio.

Securities that have been downgraded to a level that is below the minimum ratings described herein may be sold or held at the Town’s discretion. The portfolio will be brought back into compliance with Investment Policy guidelines as soon as is practical.

The foregoing list of authorized securities and transactions shall be strictly interpreted. Any deviation from it must be preapproved by resolution of the Town Council.

PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. The Town will not invest in securities maturing more than five years from the date of trade settlement, unless the Town Council has by resolution granted authority to make such an investment at least three months prior to the date of investment.

SELECTION OF BROKER/DEALERS
The Treasurer shall maintain a list of broker/dealers approved for investment purposes, and it shall be the policy of the Town to purchase securities only from those authorized firms. To be eligible, a firm must meet at least one of the following criteria:
 Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a primary dealer within their holding company structure; or  Report voluntarily to the Federal Reserve Bank of New York; or  Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net Capital Rule).

In addition, authorized broker/dealers must be licensed by the State of California as a broker/dealer as defined in Section 25004 of the California Corporations Code.

The Town may engage the services of investment advisory firms to assist in the management of the portfolio and investment advisors may utilize their own list of approved broker/dealers.

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POLICY NUMBER:
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Such broker/dealers will comply with the selection criteria above and the list of approved firms shall be provided to the Town on an annual basis or upon request.

In the event that an external investment advisor is not used in the process of recommending a particular transaction in the Town’s portfolio, authorized broker/dealers shall attest in writing that they have received and reviewed a copy of the this Investment Policy and shall be required to submit and annually update a Town approved Broker/Dealer Information request form, which includes the firm’s most recent financial statements.

The Town may purchase commercial paper from direct issuers even though they are not on the approved broker/dealer list as long as they meet the criteria outlined in Item 4 of the Authorized Securities and Transactions section of this Investment Policy.

COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with authorized broker/dealers.

At least three broker/dealers shall be contacted for each transaction and their bid and offering prices shall be recorded.

If the Town is offered a security for which there is no other readily available competitive offering, the Treasurer will document quotations for comparable or alternative securities.

SELECTION OF BANKS
The Treasurer shall maintain a list of banks and savings banks approved to provide banking services for the Town. To be eligible, a bank must be a member of the Federal Deposit Insurance Corporation, must qualify as a depository of public funds in the State of California as defined in California Government Code Section 53630.5 and shall secure deposits in excess of FDIC coverage in accordance with California Government Code Section 53652.

Authorized banks that accept deposits from the Town shall meet high standards with regard to liquidity, asset quality, profitability and capital adequacy. The Treasurer shall utilize a commercial bank rating service to perform credit analysis on banks seeking authorization.

Banks that in the judgment of the Treasurer no longer offer adequate safety to the Town shall be removed from the Town’s list of authorized banks.

SAFEKEEPING AND CUSTODY
The Treasurer shall select one or more financial institutions to provide safekeeping and custodial services for the Town. A Safekeeping Agreement shall be executed with each custodian bank prior to utilizing that bank's safekeeping services.

Custodian banks will be selected on the basis of their ability to provide services for the Town's account and the competitive pricing of their safekeeping related services.

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The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery versus payment basis. All securities shall be perfected in the name of the Town.

Sufficient evidence to title shall be consistent with modern investment, banking and commercial practices.

All investment securities, purchased by the Town, will be delivered by book entry and will be held in third-party safekeeping by a Town approved custodian bank or its Depository Trust Company (DTC) participant account.

All Fed wireable book entry securities owned by the Town shall be held in the Federal Reserve System in a customer account for the custodian bank which will name the Town as “customer.” All DTC eligible securities shall be held in the custodian bank’s DTC participant account and the custodian bank shall provide evidence that the securities are held for the Town as “customer.”

PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account prevailing market conditions, risk constraints for eligible securities, and cash flow requirements. The performance of the Town’s investments shall be compared to the average yield on the U.S. Treasury security that most closely corresponds to the portfolio’s weighted average effective maturity. When comparing the performance of the Town’s portfolio, its rate of return will be computed net of all fees and expenses.

REPORTING
Every month, the Treasurer shall prepare a report that conforms to Government Code Section 41004. The report shall be submitted to the Town Clerk within 45 days after the end of each month for inclusion as an agenda item at the next scheduled Town Council meeting. The report shall include the following information:

1. Investment type, issuer, date of maturity, par value and dollar amount invested in all securities, and investments and monies held by the Town;

2. A market value as of the date of the report (or the most recent valuation as to assets not valued monthly) and the source of the valuation;

3. Realized and unrealized gains or losses calculated by amortized cost and by fair value;

4. The weighted average maturity of the portfolio and a percentage breakdown of the total portfolio by maturity;

5. A description of the funds, investments and programs that are under the management of contracted parties;

6. The Town of Los Gatos Environmental, Social and Governance (ESG) scores;

7. A statement of compliance with this Investment Policy or an explanation for noncompliance; and

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POLICY NUMBER:
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8. A statement of the ability to meet expenditure requirements for the next six months, and an explanation of why money will not be available if that is the case.

PROCEDURES
This Investment Policy shall be adopted by resolution of the Town Council. Annually the Town Manager shall present this Investment Policy to the Town Council and the Finance Commission for review to ensure its consistency with the Town’s investment objectives, current law and economic trends. Any amendments to this Investment Policy shall be approved by the Town Council.

APPROVED AS TO FORM:
_________
Gabrielle Whelan, Town Attorney

PREPARED BY: Ryan Baker
Library Director
Reviewed by: Town Manager, Town Attorney, and Finance Director 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/21/2023
ITEM NO: 13
DATE: February 21, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive Update on the Community Grant Program and Provide Direction on the Program’s Funding Level for Fiscal Year (FY) 2023-24 RECOMMENDATION:

Receive update on the Community Grant Program and provide direction on the program’s funding level for FY2023-24.

BACKGROUND:

The Town of Los Gatos has been awarding grants since 1992 to support community groups working toward the benefit of Los Gatos residents. The program was administered by the Town’s Community Services Department until the Department was dissolved in FY 2011/12. In that year, program administration was transferred to the Town Manager’s Office with review of applications and award recommendations passing through the Arts and Culture Commission (ACC) and the Community and Senior Services Commission [now Community Health and Senior Services Commission (CHSSC)] before final approval from Town Council. In 2018, the ACC and CHSSC revised and streamlined the application process.

On February 4, 2020, the Town Council approved revisions to the Community Grant program which had been recommended by Town staff working in conjunction with the ACC and the CHSSC. These changes included establishing the total funding amount for community grants as part of the regular budget process; moving the application cycle to begin after approval of the annual budget; allowing grant applications for projects addressing Community Vitality and Events in addition to the traditional categories of Human Services, Arts, and Education; and establishing three classes of grants: one-time grants focusing on assisting new projects or surmounting new challenges for non-profits, two-year grants for sustaining non-profit projects in social services that had been receiving funding consistently between 2014 and 2020, and

PAGE 2 OF 3
SUBJECT: Community Grant Update
DATE: February 21, 2023
BACKGROUND (continued):
one-time innovation grants to assist individual community members in launching a project for the community. On June 2, 2020, the Town Council approved a standardized scoring rubric for judging and rating grant applications by using a fair and equally comparable set of guidelines, with staff making minor administrative changes each year where additional clarity was needed (Attachment 1). Grant applications are read and ranked by a joint subcommittee consisting of two members of the ACC and two members of the CHSSC.

Between FY2020-21 to FY2022-23, the Town has allocated between $150,000 to $151,000 per fiscal year to fund the Community Grant Program. In those three years, the Town has awarded a total of 32 one-time Community Grants for non-profits at approximately $7,500 each, 14 Sustaining Grants for non-profits ranging between $5,000 and $22,000 each, and seven Innovation Grants for individual community members at a flat $1,500 each.

The Community Grant Program is funded with General Fund monies with no tie or crossover with American Rescue Plan Act (ARPA) funding. Under the Council’s authority and discretion, the Council did award grants to organizations using ARPA funds outside of the community grant process. As such, these ARPA grants are not discussed in this report.

DISCUSSION:

Demand for grant funding from local organizations each year far exceeds the budget allocated, with approximately 15 applications per year not awarded funding for a total of 45 unfunded applications over the three-year period. Additionally, several organizations each year approach Council directly to request funding for their projects either in addition to, or in lieu of, applying for a Community Grant.

If Council is agreeable to continuing the Community Grant Program in its current form, Council may wish to consider what funding levels can be afforded within the limitations of the FY2023- 24 budget in relation to Council’s priorities for support to community organizations.

Additionally, if Council is agreeable to continuing the program in its current form, staff requests that Council be forthright throughout the year in directing requests received at Council meetings to the Community Grant application process to ensure that all community organizations are subject to the same standard set of guidelines, processes, and rating considerations so that all competition for such funding is on equal footing and within threshold allocation amounts.

PAGE 3 OF 3
SUBJECT: Community Grant Update
DATE: February 21, 2023
CONCLUSION:

The Town’s Community Grant Program is unique in that few local government agencies offer similar competitive application programs on an annual basis for distributing grants of public money from their General Funds; where such programs do exist, they are often funded from Community Development Block Grants or passed through from other State or Federal grants.

There is no doubt that such funds greatly aid organizations in our community, although it is not possible for staff to determine what amount of budget placed towards grant giving would meet community demand for funding.

ALTERNATIVES:

If Council is not amenable to continuing the Community Grant Program in its current form, either by discontinuing the program due to budget constraints, assigning funding directly to select organizations instead of employing a competitive process, or desiring to revise the program process other than changes to funding levels, Council should provide staff with direction regarding desired changes.

FISCAL IMPACT:

A status quo budget for Community Grants for FY2023-24 would be equal to $151,000. Any amount greater or less would be taken from or returned to the General Fund.

ENVIRONMENTAL ASSESSMENT:

This is not a project defined under CEQA, and no further action is required.

Attachment:

1. Community Grant Scoring Rubric

GRANT SCORING RUBRIC FY2022-2023 – ONE-TIME GRANTS FOR NON-PROFITS Criteria 5 points
Exemplary
3-4 points
Good
1-2 points
Passable or Needs
Improvement
subtract 1 point from final
tally
Evidence not demonstrated.

Project overview Proposal clearly
explains the project and
the scope, steps,
methods and intended
results with logical and
systematic detail
Proposal adequately
explains the scope,
steps, methods and
intended results of the
project in general terms
Proposal explains the
general scope and intended
results but lacks detail of the
project steps and methods
Proposal lacks sufficient detail
to convey the scope or
intended results of the project
Advancing new ideas
or surmounting new
challenges
The project clearly
represents the
implementation of a
new insight or idea that
has not been piloted
previously, or
surmounts a new (nonfinancial) challenge
facing the organization
The project clearly
represents the
implementation of an
emerging innovation or
trend that has been
piloted in other
communities but will be
new to the Los Gatos
community
The project clearly
represents the adoption of a
change, addition, or
variation to an already
established program for the
Los Gatos community
The project just continues an
already established program
or service, or the proposal
lacks information or evidence
to suggest that it is a new
project or service
ATTACHMENT 1

Community Impact Target
audience/population
clearly and specifically
defined.

Strong presentation of
the meaningful positive
impact to the target
audience/population
provided with evidence
or data specific to Los
Gatos.

Target
audience/population
reasonably well defined.

Sufficient presentation
of meaningful positive
impact to the target
audience/population
provided with general
evidence or data
although specific to Los
Gatos.

Target audience/population
very broadly defined.

Presentation of positive
impact based on realistic
assumptions despite gaps in
evidence
Target audience/population
not sufficiently defined or too
broadly defined
Proposal lacks demonstration
of meaningful impact to target
audience/population
Direct Benefit to Los
Gatos Community
Project is highly local
and specifically targets
the incorporated Los
Gatos Community
(whether or not the
organization is based in
Los Gatos)
Project is regional but
specifically is targeting
expansion into the
incorporated Los Gatos
Community or shows
significant benefit to the
Los Gatos Community
Project is regional but gives
strong evidence for how the
incorporated Los Gatos
Community will directly
benefit
Project is regional with a wide
regional target audience
indicating only an indirect
benefit for the Los Gatos
Community
Organizational Goals The goals of the
organization are clearly
aligned with
Applicant demonstrates
it has adequate
experience or
knowledge in the field
as it relates to
completing the project
or expertise in a related
Applicant has gaps in
experience or knowledge as
it relates to the proposal but
demonstrates that it can
reasonably bridge gaps to
successfully accomplish
project
Applicant does not
demonstrate the experience
or knowledge to complete the
project

field that would transfer
to the project
Budget Analysis Strongly detailed and
realistic budget with
sound use of funds.

Any funding necessary
above the limit of the
grant is both accounted
for and secured through
commitments from
other means.

Realistic budget with
general detail to show
responsible use of
funds. Any funding
necessary above the
limit of the grant is
accounted for with
reasonable certainty or
commitment.

Budget generally appears to
support the project
activities as described
although there are gaps in
detail.

Applicant has realistic
opportunity to secure
necessary funding above the
limit of the grant even if
commitment from those
sources is not certain
Described proposal is not
supported by the budget or no
reliable source of funding is
presented to provide any
necessary funding beyond the
limit of the grant.

Feasibility and
Timeline
Project, personnel,
available resources, and
timeline are realistic
and congruent with
project descriptions and
outcomes.

High likelihood of
project being achievable
based on information
presented.

Deficiencies or
overestimations exist in
project, personnel,
available resources or
timeline within tolerable
range. Outcome appears
achievable despite some
gaps or leaps.

Project, personnel, timeline
or resources as described
expose weaknesses in the
proposal that will leave
gaps.

Project outcome’s ability to
be achieved is questionable
at the level proposed, but
likely will be achievable at a
smaller level.

Insufficient information about
personnel, resources, project
or timeline to gauge
feasibility.

Assessment/Evaluation Clear definition of
success of program.

Clear picture of how
data will be collected to
demonstrate degree to
which outcomes are
met.

Good understanding of
anticipated specific
results of success, but
plan lacks details about
data or methods.

Success difficult to
ascertain, flawed by
untestable outcomes,
inappropriate methods, or
lack of useful data
collection.

Evaluation plans missing or
unusable.

Fairness considerations
to organizations that
do not have access to
alternative Town
funding
N/A N/A N/A Deduct 5 points from
proposals that receive funding
for projects from the Town
through sources other than
One-time Community Grants,

Los Gatos Community Grant Scoring Rubric – Innovation Grants for Individual Community Members and Students Criteria 5 points
Exemplary
3-4 points
Good
1-2 points
Needs Improvement
0 points
Not demonstrated
Innovation Project represents the
implementation of a new
insight or idea
Project represents local
implementation of emerging
popular innovations or trends
Project represents the adoption
of a change, addition, or variation
to an already established
program in Los Gatos
No innovation described.

Project reproduces or
continues an already
established program in Los
Gatos.

Sustainability Evidence presented that the
project can be sustained
locally beyond the grant
period without additional
funding necessary from the
Town
Project is temporary, designed
to end when the grant ends
with meaningful rational of
ending explained.

Plans for future are stated as
assumptions without supporting
evidence.

Project is not designed to be
temporary, but no meaningful
plans for future beyond
funding term appear in
proposal.

Community Spirit Proposal is a role model of
inclusive spirit, desire to
better the community
and/or provide new
opportunities.

Proposal demonstrates a good
to strong sense of inclusive
spirit, desire to better the
community and/or provide
new opportunities.

Proposal implies an adequate
sense of inclusive spirit, desire to
better the community and/or
provide new opportunities even
if wording is somewhat vague in
this area.

Proposal lacks demonstration
of inclusive community spirit or
desire to better the
community.

Community Impact Strong presentation of
positive impact based on
robust evidence of need.

Sufficient presentation of
positive impact based on
reliable observations of need.

Presentation of positive impact
lacking but based on realistic
assumptions.

Proposal lacks demonstration
of meaningful positive impact
or is based on unsupported
assumptions.

Applicant Starting
Point
Applicant demonstrates
they have significant
experience, expertise, or
resource connections as it
relates to completing the
project.

Applicant demonstrates they
have adequate experience,
knowledge, or resource
connections that would
translate to completing the
project
Applicant has gaps in experience,
knowledge, or resource
connections as it relates to the
proposal but demonstrates they
can reasonably bridge gaps to
successfully accomplish project
Applicant does not
demonstrate the experience,
knowledge, or resource
connections to complete the
project
Feasibility High likelihood of project
being achievable based on
information presented.

Outcome appears achievable
despite some gaps or leaps.

Project outcome’s ability to be
achieved is questionable at the
level proposed, but likely will be
achievable at a smaller level.

Insufficient information to
gauge feasibility, or project is
unrealistic as presented.

PREPARED BY: Ryan Baker
Library Director
Reviewed by: Town Manager, Town Attorney, and Finance Director 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/21/2023
ITEM NO: 13

DESK ITEM
DATE: February 21, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive Update on the Community Grant Program and Provide Direction on the Program’s Funding Level for Fiscal Year (FY) 2023-24 REMARKS:

Attachment 2 contains comments from a Council Member.

Attachment Previously Received with the Staff Report:

1. Community Grant Scoring Rubric
Attachment Received with this Desk Item:

2. Council Member comments

From: Rob Moore <[email protected]>
Sent: Monday, February 20, 2023 5:58 PM
To: Wendy Wood <[email protected]>; Laurel Prevetti <[email protected]> Subject: Item 13 Desk Item
Hi Laurel and Wendy,
Please see my attached desk item for Tuesday evening’s meeting.

Thank you very much!
Rob
Rob Moore
Councilmember, Los Gatos Town Council
ATTACHMENT 2

Item 13 Desk Item (Councilmember Moore):

I am very supportive of the Community Grant Program and I hope to continue to expand on the great success of this program.

In order to better align our Community Grants Program with the Town’s ongoing JEDI efforts, I recommend the Town Council add an “Equity” category to each of the scoring rubrics. This is a common practice among grant-giving organizations, as evidenced by the Silicon Valley Community Foundation, one of the largest philanthropic organizations in Silicon Valley.

In each of its grant category areas, from Arts and Culture to Health to Neighborhoods, SVCF’s grant applications begin with an equity statement that affirms SVCF’s commitment to prioritizing funding for organizations that have historically been underfunded and are focused on advancing equity in the community. I believe that Los Gatos should have a similar focus as we award grants to community based organizations.

Recommendation: Town Council should add an “Equity” scoring category to each of the two scoring rubrics used for evaluating Community Grant Program applications. Staff should reference SVCF and other existing philanthropic organizations equity scoring categories to create specific language for our Community Grant Program scoring rubric.

PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 14
DATE: February 15, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2022:
a. Receive FY 2022/23 Mid-Year Budget Report;
b. Authorize Budget Adjustments as Recommended in the Mid-Year Budget Report; and
c. Provide Direction of the Order of Authorized Funding Source to Balance the FY 2022/23 Operating Budget, if Necessary, at the Final Close of the Fiscal Year.

RECOMMENDATION:

Staff recommends that the Town Council take the following actions regarding the Mid-Year Budget Performance Report - July 1 - December 31, 2021:
a. Receive FY 2021/22 Mid-Year Budget Report (Attachment 1); b. Authorize budget adjustments as recommended in the Mid-Year Budget Report; and c. Provide direction of the order of authorized funding sources to balance the FY 2022/23 Operating Budget, if necessary, at the close of the Fiscal Year.

REMARKS:

The purposes of the Mid-Year Report (Attachment 1) are to provide the Town Council with a status of the adopted Fiscal Year (FY) 2021/22 Operating Budget after the first six months and to make any adjustments to ensure the continuity of municipal services and operations for the remainder of the fiscal year. The Report is one of several periodic updates to the Town Council on the status of the current year’s revenues and expenditures and the projected financial condition of all Town funds compared with the Adopted Operating Budget. The updates primarily focus on the Town’s General Fund.

On February 13, 2023, the Finance Commission discussed the Mid-Year Report. The Commission’s comments are included in this report to Town Council.

PAGE 2 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):

Highlights of the Mid-Year Budget Report include:

Financial Overview and Executive Summary
As discussed in the Report, the current fiscal year-end projections for FY 2022/23 reflect an anticipated $0.7 million surplus of operating revenues and planned use of reserves over expenditures compared to the anticipated $3.2 million deficit in the Adopted Budget.

As discussed in greater detail later in this Report, the primary drivers of the reduction in the projected deficit are estimated increases in property tax, business license tax, Transient Occupancy Tax (TOT), and franchise fee distribution. ln addition to the improvement in revenue projections, staff is estimating that there will be year-end operating expenditure savings. Staff anticipates savings attributable to Departmental vacancies and lower cost structures associated with retiree replacements. In addition, for FY 2022/23, salaries were again budgeted at actual salary plus a one step increase, which was a significant budgeting methodology change from previous practice.

On June 7, 2023, the Town Council adopted the combined use of American Rescue Plan Act (ARPA) funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

The significant revenue increases combined with projected expenditure savings indicate that the approved sources might not be necessary; however, it can only be determined at the time of the final close of the fiscal year. Staff recommends not to re-program the proposed sources until the fiscal year is closed. Since it is probable that not all sources will be utilized, staff is asking for Council direction regarding what source should be utilized first to cure current fiscal year deficit, if needed. Due to the fact that OPEB Trust withdrawal should be requested in June, significantly earlier than the final numbers are available, staff recommend to not utilizing the Trust Reimbursement first. The Finance Commission did not agree with the staff recommendation. It preferred using the ARPA source last so as to give Council more resources to reprogram.

ARPA Replacement Reveneue $1,643,281
Measure G Residual for Operation $679,443
OPEB Trust Reimbursement for Retiree Medical $902,579
Total $3,225,303
Planned Use of One-Time Sources Balancing the FY 2022/23 Operating Budget

PAGE 3 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):

General Fund Revenue Analysis
The current forecast expects increases in economically sensitive revenues such as property tax, business license tax, transient occupancy tax, and franchise fee; however, sales tax revenues trending lower than the adopted budget. Pass Through Revenue increase with matching expenditure increases also recognized for development activity, recognizing loan repayment and grant proceeds. The combined recommended mid-year revenue adjustments total a net increase of $2.8 million. While staff conducted a detailed analysis of all General Fund revenues and provided the expected year-end estimates, only major revenue sources are recommended for adjustment at this time.

General Fund Expenditure Analysis
General Fund expenditure totals are trending in accordance with the Adjusted Budget, with total operational expenditures at the end of the second quarter at or about 40% of the Adjusted Budget. With six months of data now available, staff expects that the next six months of expenditures will be within the Adjusted Budget, although unexpected costs can still occur which may require future Council action. The staff analysis examines potential salary and other expenditure savings; however, budget adjustments are only recommended in certain instances as outlined in the next section of the Report. The recommended General Fund mid-year expenditure adjustments including pas through items with matching revenues total a net increase of $1.4 million.

FY 2022/23 Recommended Budget Adjustments and Summary of Key Recommended Budget Adjustments
All recommended revenue and expenditure adjustments are contained in these sections along with a description of the major adjustments.

General Fund Financial Summaries and Estimates
This section introduces the Schedule of General Fund Operating Revenues Versus Operating Expenditures for the second quarter of FY 2022/23 which includes comparison information from the prior year.

Financial Summaries of Other Funds
This section provides financial summaries and presents data by governmental, proprietary, and fiduciary fund types. For each, the fund information starts with a beginning fund balance, adds

PAGE 4 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):
current year revenues, and subtracts current year expenditures, resulting in an ending fund balance.

Finance Commission Review
On February 13, 2023, the Finance Commission received the FY 2022/23 Mid-Year Budget Report. After staff presentation, the Commission asked questions and provided input regarding the FY 2022/23 Mid-Year Budget Report. Commissioners commented on the big uncertainty of the ERAF proceeds and the probability of a higher year end surpluses. As mentioned above, the Finance Commission did not recommend using ARPA first as one of the three budget balancing options.

COORDINATION:

All Town Departments participated in the data collection and analysis that informed the preparation of the Mid-Year Report and proposed budget adjustments.

CONCLUSION AND NEXT STEPS:

Staff is continuing to monitor all revenues and expenditures during the preparation of the Proposed Operating and Capital Budgets for FY 2023/24. Should any additional budget adjustments be necessary to balance operating revenue and expenditures prior to the FY 2022/23 close, staff will advise the Council accordingly. The Draft FY 2023/24 Operating and Capital Budgets will be available in May with the budget hearing tentatively scheduled for May 16, 2023.

Staff recommends that the Town Council approve the proposed revenue and expenditure budget adjustments as described in Attachment 1 and provide direction on the order of the use of the approved funding sources to balance the FY 2022/23 Operating Budget, if necessary, at the close of the Fiscal Year. In additon, staff looks forward to answering the Town Council’s questions.

ENVIRONMENTAL ASSESSMENT:

This is not a project defined under CEQA, and no further action is required.

Attachments:

1. Mid-Year Budget Report - July 1 - December 31, 2022 as Presented at the Finance Commission February 13, 2023 Meeting.

2. Public Comments Receive before Posting the Staff Report

PREPARED BY: Gitta Ungvari
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

FINANCE COMMISSION REPORT
MEETING DATE: 02/13/2023
ITEM NO: 5
DATE: February 8, 2023
TO: Finance Commission
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Provide Comments to the Town Council Regarding Mid-Year Budget Report
RECOMMENDATION:

Review and provide comments to the Town Council regarding Mid-Year Budget Report.

DISCUSSION:

With the passage of Measure A, the Finance Commission has been tasked with several mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. – Duties states that:
(a) The Finance Commission shall:

Serve as an on-going. substantive and expert advisory body to the Town and Town Council so that the Town and Town Council can make informed decisions about the Town's financial, budgetary and investment matters and operations related thereto.

On February 21, 2023, the Town Council will consider the FY 2022/23 Mid-Year Budget Report and recommendations for budget adjustments (see Attachment 1). Staff will provide the Finance Commission comments to the Town Council for the February 21, 2023 meeting.

Attachment:

1. Town Council Draft FY 2022/23 Mid-Year Budget Report

2. Commissioner Communication Received before Publishing the Staff Report

1 TOWN OF LOS GATOS

MID-YEAR BUDGET REPORT
JULY 1 - DECEMBER 31, 2022
February 9, 2023
FINANCIAL OVERVIEW AND EXECUTIVE SUMMARY: STATUS OF FY 2022/23

ADOPTED BUDGET
The purposes of the Mid-Year Report are to provide the Town Council with a status of the Adopted Fiscal Year (FY) 2022/23 Operating Budget after the first six months and to make any adjustments to ensure the continuity of municipal services and operations for the remainder of the fiscal year. The Report is one of several periodic updates to the Town Council on the status of the current year’s revenues and expenditures and the projected financial condition of all Town funds compared with the Adopted Operating Budget. The updates typically focus on the Town’s General Fund.

On January 24, 2023, the Town Council determined the Strategic Priorities for 2023-2025, providing guidance to Town staff and Commissions on workload prioritization. The Council affirmed its Strategic Priorities to be multi-year efforts focused on Safety, Prudent Financial Management, Traffic/Transportation, and Quality of Life. Under these broad topics, the Council added a few new items including: Hazardous Tree Management, Develop a Five-Year Structurally Balanced and Sustainable Operating Forecast, Develop a Five-Year Full Funded Capital Plan, Traffic Calming/Safety for All Users, Streamline Permit Process, Work with Town Partners to Support Needs of Unhoused Residents, and Redefine Town Commissions in Alignment with Strategic Priorities. (see the following page).

Based on the Town Council’s identified Strategic Priorities, staff has started budget development work for the next fiscal year, including an update of the Five-Year Financial Forecast, identification of critical Town needs, contractual obligations, unfunded mandates, potential adjustments to the Fee and Fine Schedule, and other analyses. Staff is actively engaged in the FY 2023/24 budget process with the primary focus of ensuring that the available Town resources are allocated to meet the priority service needs of the community. The Town Council is scheduled to hold a public hearing on the Proposed FY 2023/24 Budget on May 17, 2022.

The prior fiscal year closed with approximately $0.9 million surplus operating revenues over expenditures. The actual net change in fund balance was $2,982,171, of which $2,065,302 are proceeds from the second tranche of American Rescue Plan Act (ARPA) payments that has not been expended yet.

Current fiscal year-end projections for FY 2022/23 reflect an anticipated $0.7 million surplus of operating revenues and planned use of reserves over expenditures compared to the anticipated $3.2 million deficit in the Adopted Budget.

ATTACHMENT 1

2 Page 233
3 As discussed in greater detail later in this Report, the primary drivers of the reduction in the projected deficit are estimated increases in property tax, business license tax, Transient Occupancy Tax (TOT), and franchise fee distribution. ln addition to the improvement in revenue projections, staff is estimating that there will be year-end operating expenditure savings. Staff anticipates savings attributable to Departmental vacancies and lower cost structures associated with retiree replacements. In addition, for FY 2022/23, salaries were again budgeted at actual salary plus a one step increase, which was a significant budgeting methodology change from previous practice.

On June 7, 2023, the Town Council adopted the combined use of ARPA funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

The significant revenue increases combined with projected expenditure savings indicate that the approved sources might not be necessary; however it can only be determined at the time of the final close of the fiscal year. Staff recommends not to re-program the proposed sources until the fiscal year is closed. Since it is probable that not all sources will be utilized, staff is asking for Council direction regarding what source should be utilized first to cure current fiscal year deficit, if needed. Due to the fact that OPEB Trust withdrawal should be requested in June, significantly earlier than the final numbers are available, staff recommend to not utilizing the Trust Reimbursement.

Providing services to the community in this and future fiscal years will require a strong return to prepandemic performance of the Town’s economically sensitive revenues to offset continued projected cost increases. The FY 2023/24 budget development process will endeavor to maintain essential public services while controlling operational costs in light of the five-year fiscal forecast, which predicts operating revenue shortfalls in subsequent fiscal years.

ARPA Replacement Reveneue $1,643,281
Measure G Residual for Operation $679,443
OPEB Trust Reimbursement for Retiree Medical $902,579
Total $3,225,303
Planned Use of One-Time Sources Balancing the FY 2022/23 Operating Budget

4 CONTENT OVERVIEW
The remainder of this Report focuses on the General Fund and provides analyses of key revenues and expenditures, including historic data by Town Department/Service Area. The next section contains descriptions of recommended revenue and expenditure budget adjustments. The Report also includes financial summaries of other funds as well as a table of General Fund Operating Revenues Versus Operating Expenditures through the second quarter of FY 2022/23 which includes comparison information from the prior year.

GENERAL FUND - KEY REVENUE ANALYSIS FY 2022/23
The following information provides a recap of the General Fund budgeted significant revenue sources, including estimated year end collection as of the second quarter ending December 31, 2022. Staff is monitoring developments in each major revenue source closely for potential adjustments to budgeted revenues as recommended in this Report.

Property Tax and Motor Vehicle in Lieu Fee (VLF)
Property tax and VLF are the single largest revenue source for the Town and comprise approximately 42% of total Town General Fund estimated revenues for FY 2022/23. 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 a 2% inflation factor annually thereafter. However, when property changes hands or new construction occurs, the property is then reassessed at its current market value.

5 The County of Santa Clara provides property tax collection updates and projections throughout the year.

The current County estimate indicates $617,332 of more than the Adopted Budget. The increase is a combined effect of higher than expected Redevelopment Agency (RDA) Residual Apportionment, and VLF allocation, as well as decreases in secured property tax estimates, and no change to property transfer tax and the Educational Revenue Augmentation Fund (ERAF) estimates.

The Town has been monitoring ongoing developments regarding the distribution of excess ERAF funds.

A portion of property tax revenue goes to the ERAF to support local school districts. When the amount contributed to ERAF is more than the minimum cost of funding local schools, excess funds have traditionally been returned to the county, cities, and special districts. Five counties, including Santa Clara, have been using a redistribution allocation formula that has been contested by the State. The Town received the full amount for FY 2021/22; however, the Santa Clara County Assessor’s Office recommends budgeting only 70% of the FY 2022/23 projected number. The Adopted FY 2022/23 Budget included a $1. 5 million ERAF estimate, 70% of the current ERAF base revenue estimate is still the same.

Property tax distributions are largely received in the third and fourth quarters. Second quarter receipts are trending similar to those received during the second quarter of the previous fiscal year and are at 29% of budgeted totals. Based on current County projections, staff recommends a $617,332 increase in estimated General Property Tax and Motor Vehicle in Lieu Fee collections.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 4,785,479 $ 4,785,479 $ 5,481,928 $ 5,761,081 $ 6,141,998 Fiscal Year Total Actual Revenues $ 17,321,346 $ 18,330,427 $ 19,878,834 $ 21,129,080 Fiscal Year Total Estimated Revenues $ 21,525,226
Fiscal Year Budgeted Revenues $ 20,907,894
2nd Quarter Percent of Total 28% 26% 28% 27% 29%
Recommended Budget Revision $ 617,332
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
$22,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Property Tax and VLF - Quarterly and Annual Revenues
5-Year History
2n d Q uarter Act ual Reven ues Fiscal Y ear To tal Actu al Revenu es Fiscal Y ear B udge ted Reven ues Fiscal Y ear To tal Est imated R evenue s

6 Sales Tax
Sales tax is the second largest revenue source for the Town’s General Fund, accounting for 18% of budgeted General Fund projected revenues for FY 2022/23. The Town currently receives 1.125 cents for every 9.125 cents of sales tax paid per dollar on retail sales and taxable services transacted within Los Gatos, including the Town of Los Gatos residents’ approved ballot Measure G in 2018 enacting a oneeighth cent (0.125%) district sales tax for 20 years.

Sales tax estimates are based on actual sales tax data and annual sales tax estimates for five years provided by the Town’s consultant, MuniServices. In addition to brick-and-mortar sales tax generation, the MuniServices estimates include several online sales tax projections. The 2018 Wayfair Decision resulted in e-commerce vendors utilizing the Amazon platform to collect sales tax based on destination; however, items shipped directly from Amazon fulfillment centers are collecting sales tax based on the point of distribution. Regular sales tax collected through online transactions are distributed through the Santa Clara County pool for which the Town receives a pro rata share of the sales tax generated in Santa Clara County for that particular quarter. The Town directly receives the one-eighth district tax portion of the sales tax generated by the residents of Los Gatos. Current total sales tax estimates include $7,559,566 ($301,422 decrease) in proceeds from regular sales tax and $1,287,690 ($26,266 decrease) in proceeds from the Measure G one-eighth cent district tax. Actual receipts net of administrative fees collected by the State will be confirmed at the close of the fiscal year and per prior Council direction, the Measure G funds are allocated 50% for capital improvement projects and 50% for operating expenses.

While FY 2022/23 second quarter receipts are trending slightly higher than in the same period last fiscal year, staff recommends a $327,688 budget decrease to reflect the MuniServices current estimates.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 2,568,415 $ 2,755,208 $ 2,813,652 $ 2,556,341 $ 2,821,421 Fiscal Year Total Actual Revenue $ 8,158,152 $ 7,531,425 $ 7,933,604 $ 8,483,673 Fiscal Year Total Estimated Revenues $ 8,847,256
Fiscal Year Budgeted Revenues $ 9,174,944
2nd Quarter Percent of Total 31% 37% 35% 30% 31%
Recommended Budget Revision $ (327,688)
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Sales Tax & Measure G Tax - Quarterly and Annual
Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

7 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 5% of projected General Fund revenues in FY 2022/23.

Historically, franchise payments are not remitted equally throughout the fiscal year; therefore, second quarter receipts are not necessarily predictive of future receipts. Total franchise fee revenues are trending higher than those of the second quarter in FY 2021/22 especially in the garbage franchise fee category. Staff recommends a $222,600 budget increase to this revenue source.

As the Town previously enclosed in the FY 2021/22 Annual Comprehensive Financial Report (ACFR), the California Supreme Court recently issued an opinion in a case challenging the franchise fees that the city of Oakland charges to certain waste hauling companies. In Zolly v. City of Oakland, the court concluded that it did not have enough evidence to rule as a matter of law that the fees are exempt from the voter approval requirements that apply to taxes under Proposition 26, Article XIII C of the California Constitution. However, there are several exceptions to the general rule that a tax must be approved by the voters. One exception (Article IIIC, section 1 (e)(1)) is for “a charge imposed for a specific benefit conferred or privileged granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.” In the event the Town is unable to utilize one of the exceptions, the potential impact is a loss of approximately $2.4 million annually.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 840,555 $ 864,849 $ 807,833 $ 968,181 $ 1,044,055 Fiscal Year Total Actual Revenues $ 2,475,916 $ 2,495,792 $ 2,499,463 $ 2,822,515 Fiscal Year Total Estimated Revenues $ 2,716,470
Fiscal Year Budgeted Revenues $ 2,493,870
2nd Quarter Revenue Percent of Total 34% 35% 32% 34% 38% Recommended Budget Revision $ 222,600
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Franhise Fees - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

8 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. In November 2022, Los Gatos voters approved Measure J, which modernized the Town’s business license tax program. This is the first update to the program since 1991, strengthening funding for core Town services that are enjoyed by Town businesses. Measure J included a 30% increase on flat rate fees, a 40% increase in retailing gross receipts, and a 120% increase in e-commerce, manufacturing, wholesaling, and jobbing gross receipts. Fees for activities such as wholesale sales and manufacturing are charged on a sliding scale based on gross receipts, as is retail, with retail being capped at $1,365. These gross receipt activities account for approximately 25% of annual business licenses, while the remaining 75% are flat fee businesses. Annual renewal payments are due on January 2 of each year. Payments for new flat-fee-based businesses are prorated by quarter.

The Town is partnering with HdL Companies (HdL) to provide dedicated business license support to Los Gatos businesses. The Town’s business license application and renewal process is now streamlined by offering online business license applications and renewals. Council authorized the omission of late business license penalties for all businesses in 2023 to assist with the business license management transition.

Business license tax revenue for the current fiscal year was budgeted at the prior tax rate, current estimates based on the updated tax rate predict a significant increase for the business license tax revenue. Staff is recommending a $1,056,500 increase to this revenue source. Staff anticipates collecting the majority of the business license revenue during the third quarter. Staff is closely monitoring the activities and will return with any recommended adjustments in May.

FY 18/19 FY 19/20 FY 20/21 FY 21/22
2nd Quarter Actual Revenues $ 240,293 $ 60,500 $ 224,388 $ 167,942 $ 97,974 Fiscal Year Total Actual Revenues $ 1,526,894 $ 1,357,080 $ 1,386,943 $ 1,481,667 Fiscal Year Total Estimated Revenues $ 2,444,000
Fiscal Year Budgeted Revenues $ 1,387,500
2nd Quarter Revenue Percent of Total 53% 53% 59% 11% 4% Recommended Budget Revision $ 1,056,500
FY 22/23
$-
$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
$2,200,000
$2,400,000
$2,600,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Business License Tax - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

9 Transient Occupancy Tax
TOT is an important revenue source for the Town and comprises approximately 4% of total Town estimated revenues in the amount of $2.0 million for FY 2022/23. The Town levies a 12% transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los Gatos. The 12% rate has been in effect since January 1, 2017, after the voters approved a ballot measure to increase in the TOT from 10% to 12% at the November 8, 2016 election.

The FY 2022/23 Adopted Budget modeled a 17.3% increase from FY 2021/22 adjusted budget. During the pandemic, TOT experienced the most significant percentage decline relative to historical adopted budgets. Due to a significant rebound in leisure “staycation” travel and modest improvements in business travel, current TOT collections are trending higher than anticipated and average occupancy rates are rebounding as well.

Staff will continue to monitor this revenue source since current estimates, however, based on the current trend and occupancy data analysis staff is recommending a $357,540 budget increase.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 994,581 $ 910,806 $ 399,620 $ 711,861 $ 875,715 Fiscal Year Total Actual Revenues $ 2,692,043 $ 1,869,685 $ 1,044,820 $ 1,895,064 Fiscal Year Total Estimated Revenues $ 2,000,000
Fiscal Year Budgeted Revenues $ 1,642,460
2nd Quarter Revenue Percent of Total 37% 49% 38% 38% 53% Recommended Budget Revision $ 357,540
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
TOT - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

10 Interest Income
The Town earns interest income by investing monies not immediately required for daily operations in a number of fixed income and money market instruments. These investments are made within the parameters stated in the Town Council’s Investment Policy and State regulation. The Town’s investment goal is to achieve a competitive rate of return while maintaining sufficient liquidity and 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.

As of December 31, 2022, the Town’s weighted portfolio yield was 2.28% which exceeded by 11 basis points the Local Agency Investment Fund (LAIF) yield of 2.17% for the same reporting period. Currently the LAIF portfolio’s weighted average maturity (WAM) is 304 days versus the Town’s longer WAM of 439 days. This slightly longer maturity allows the Town to pick up higher yields available on the later maturities. The Town’s weighted average rate of return of 2.28% at the close of December was 25 basis points higher when compared to the prior months return of 2.03% reported as of November 30, 2022.

Staff recommends no change to this revenue source at this time.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 422,729 $ 482,517 $ 343,813 $ 227,164 $ 145,002 Fiscal Year Total Actual Revenues $ 801,729 $ 1,145,538 $ 838,649 $ 610,975 Fiscal Year Total Estimated Revenues $ 517,379
Fiscal Year Budgeted Revenues $ 432,947
2nd Quarter Revenue Percent of Total 53% 42% 41% 37% 33% Recommended Budget Revision
* GASB 31 Market Adjustment is not Included
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Interest - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Revenues Fiscal Year Budgeted Revenues Fiscal Year Total Estimated Revenues

11 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 cost recovery formulas, which reflect approximate costs of providing these regulatory services. This category includes charges for the School Resource Officer and crossing guard services.

Second quarter Town Service revenues, specifically Charges for Services, are trending lower than in the second quarter compared to the previous fiscal year. Typically, development fees are collected in advance for projects and recognized as revenue in the fiscal year the work is performed. Fiscal Year estimated revenues includes all revenue line item in this category. Staff recommends a $660,314 budget increase in selected items to reflect increased activities in planning and engineering services as explained in the next section of this Report.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 2,567,814 $ 2,905,238 $ 3,258,027 $ 3,906,577 $ 3,284,766 Fiscal Year Total Actual Revenues $ 4,672,407 $ 4,469,963 $ 4,851,273 $ 5,460,608 Fiscal Year Total Estimated Revenues $ 5,105,701
Fiscal Year Budgeted Revenues $ 4,445,635
2nd Quarter Revenue Percent of Total 55% 65% 67% 72% 64% Recommended Budget Revision $ 660,314
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Charges for Services - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

12 Licenses and Permits
Licenses and Permits consist mainly of planning and 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 Permits revenue was budgeted slightly lower than FY 2021/22 in anticipation of slower development activity.

Second quarter License and Permit revenue is trending 59% of budgeted revenue. Fiscal Year estimated revenues includes all revenue line item in this category. Staff recommends a $95,545 increase in selected items in this category as explained in the next section of this Report.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 1,498,864 $ 1,692,252 $ 1,584,098 $ 3,373,287 $ 1,602,633 Fiscal Year Total Actual Revenues $ 3,036,390 $ 2,673,706 $ 1,984,400 $ 4,814,650 Fiscal Year Total Estimated Revenues $ 2,841,374
Fiscal Year Budgeted Revenues $ 2,735,029
2nd Quarter Revenue Percent of Total 49% 63% 80% 70% 59% Recommended Budget Revision $ 95,545
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Licenses & Permits - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Revenues Fiscal Year Total Actual Rev enues

13 GENERAL FUND – EXPENDITURE ANALYSIS
For FY 2022/23, General Fund Operating expenditures (not including debt payment and transfers out) are programmed at $47.7 million. The delivery of Town services is highly dependent on talent which comprises 67.5% of budgeted General Fund expenditures for FY 2022/23. During the fiscal year, the Town Council has approved several budget adjustments, which are tracked against the Adopted Budget.

The net effect is an Adjusted Budget. General Fund expenditure totals are trending in accordance with the Adjusted Budget, with total operational expenditures at the end of the second quarter at or about 44% of the Adjusted Budget. With six months of data now available, staff expects that the next six months of expenditures will be within the Adjusted Budget, although unexpected costs can still occur which may require future Council action.

As with most municipalities, services are provided directly by employees to the Town’s residents, businesses, and visitors. As a service delivery enterprise, the cost of salaries and benefits are a significant portion of the budget. As the table below illustrates, at mid-year, actual salaries are trending at 46% of budgeted salaries, while pension benefits and other benefits are trending at 46% and 40% respectively to the Adjusted Budget.

Salaries and benefits savings are anticipated due to vacancies and reduced cost structure due to replacements after retirements. In addition, vacant positions are often filled with temporary unbenefitted positions, which translate into additional benefit savings. Actual vacancies during the course of the first half of fiscal year are illustrated in the table below.

FY 2021/22
Actuals
FY 2021/22
2Q
2Q % of
FY
22021/22
Actuals
2Q % of
FY 2022/23
Adjusted
Budget
FY 2022/23
2Q
FY 2022/23
Estimated
FY 2022/23
Adjusted
Budget
Salaries $ 19,981,412 $ 9,805,293 49% 46% 10,801,348 $ $ 21,951,228 $ 23,260,024 Pension Benefits $ 6,531,958 $ 3,259,216 50% 46% 3,493,382 $ $ 7,128,830 $ 7,666,660 Other Benefits $ 3,679,378 $ 1,868,661 51% 40% 1,841,519 $ $ 3,931,260 $ 4,561,640 Total Salary & Benefit $ 30,192,748 14,933,170$ 49% 45% 16,136,249 $ $ 33,011,318 $ 35,488,324 General Fund Salaries & Benefits

14 The pie chart below represents the Departmental proportion of Town General Fund estimated operating expenditures. The subsequent pages review program expenditures and any anticipated savings are provided for each program. Also provided are historical program costs, year over year (YOY) percentage changes in actual expenditures, and five-year average changes per the Finance Commission’s suggestion.

YOY percentage changes are, in many cases, impacted by the timing of one-time expenditures that occur during the fiscal year. Historical analysis has been provided in selected cases to provide explanations for some of the fluctuations between fiscal years. The FY 2022/23 Estimated figures also include analysis on potential salary and other expenditure savings; however, budget adjustments are only recommended as identified in this Report.

Department Position
Town Attorney Legal Admin Assistant Separation Filled with Temp Filled - Permanent Clerk Deputy Clerk Separation Vacant
Admin Services Emergency Manager - Temp Separation Vacant Admin Services Finance Director Retirement Filled Interim Filled - Permanent Admin Services Finance Manager Promotion Vacant
Admin Services IT Technician Separation Vacant Filled - Permanent Admin Services Events and Mark Specialist Separation Vacant Filled - Permanent Community Development Associate Planner Separation Vacant Filled - Permanent Community Development Permit Technician Retirement Vacant Filled - Permanent Police Police Dispatcher Separation Vacant
Police Police Dispatcher Separation Vacant
Police Police Dispatcher Separation Vacant
Police Police Dispatcher Separation Vacant
Police Police Officer Separation Filled - Permanent
Police Police Officer Separation Vacant Filled
Police Police Officer Retirement
Police Police Officer Retirement Filled
Police Police Officer Retirement Filled
Police Police Officer Separation Vacant
Police Police Captain Promotion Vacant Filled - Permanent Police Records & Com Manager Separation Vacant
Police Police Record Specialist Promotion Vacant Filled - Permanent Police Police Record Specialist Separation Vacant Filled - Permanent Police Senior Parking Control Officer Retirement Vacant Filled - Permanent Parks & Public Works Parks & Public Works Director Separation Filled - Permanent Parks & Public Works Senior Civil Engineer Separation Vacant Filled - Permanent Vacant Parks & Public Works Transp and Mob Manager Separation Vacant Filled Parks & Public Works Town Engineer Separation Vacant Interim Library Senior Library Page Separation Filled with Temp Filled - Permanent Library Librarian Separation Vacant Filled - Permanent
Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22

15 Town Council
The Town Council is the elected legislative body that represents the residents and provides policy direction for the delivery of services and capital improvements for the Town of Los Gatos. Town Council expenditures are trending lower than the same quarter in prior year. Staff anticipates minimal expenditures savings in this program. Savings are anticipated in office supplies and medical benefits.

Staff does not recommend any expenditure budget adjustment in this program.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 100,209 $ 112,711 $ 99,787 $ 91,800 $ 91,822 Fiscal Year Total Actual Expenditures $ 205,903 $ 206,163 $ 192,280 $ 189,569 Fiscal Year Total Estimated Expenditure $ 216,231
Fiscal Year Budgeted Expenditures $ 217,238
Second Quarter Percentage of Total 49% 55% 52% 48% 42%
Recommended Budget Revision
YOY Percentage Changes 6.58% 0.13% -6.73% -1.41% 14.06% 5-year Average Percentage Change 2.53%
$-
$500,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Town Council - Quarterly and Annual Expenditures
5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

16 Town Attorney
The Town Attorney is the legal advisor to the Town Council, Successor Agency to the former Redevelopment Agency, and Town staff. In this capacity, the office of the Town Attorney provides a wide range of legal services to ensure that Town actions and activities are legally sound. Town Attorney program expenditures are trending at 47%. Staff estimates approximately $26,000 expenditures savings in this program. Savings is anticipated in staff salaries and benefits, travel and training, and office supplies. Staff does not recommend any expenditure budget adjustment in this program.

Beginning in FY 2018/19, all personnel costs that were previously budgeted in Internal Service funds were transferred to the General Fund. While overall expenditures did not increase, salary and benefit costs that were formerly reported as an Internal Service Fund expense effective with the change became a General Fund expense.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 310,219 $ 296,424 $ 311,520 $ 226,377 $ 332,183 Fiscal Year Total Actual Expenditures $ 562,542 $ 559,010 $ 537,296 $ 629,935 Fiscal Year Total Estimated Expenditure $ 685,473
Fiscal Year Budgeted Expenditures $ 711,426
Second Quarter Percentage of Total 55% 53% 58% 36% 47%
Recommended Budget Revision
YOY Percentage Changes 58.82% -0.63% -3.88% 17.24% 8.82% 5-year Average Percentage Change 16.07%
$-
$500,000
$1,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Town Attorney - Quarterly and Annual Expenditures
5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

17 Administrative Services
The Town Manager provides overall management, administration, and direction for the entire Town organization, reporting to the full Town Council. Administrative Services incorporates five key programs:

Town Manager’s Office, Clerk Department, Finance Department, Human Resources Department, and Information Technology.

Administrative Services program expenditures are trending similar compared to the same quarter expenditures in prior year. This program had some vacancies during the course of the first half of the fiscal year including Finance and Accounting Manager, Special Event Coordinator, Deputy Clerk and Temporary Emergency Services Coordinator. The Special Event Coordinator, Deputy Clerk positions are filled and the recruitment for the other two vacant positions has already started. Staff estimates approximately $326,000 expenditures savings in this program. Savings are anticipated in staff salaries and benefits, travel and training, and office supplies.

Beginning in FY 2018/19, all personnel that were previously budgeted in Internal Service funds were transferred to the General Fund. While overall expenditures did not increase, salary and benefit costs that were formerly reported as an Internal Service Fund expense effective with the change became a General Fund expense. This program budget includes a limited temporary position to assist the Town with its emergency preparedness and response operations since FY 2019/20.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 2,069,839 $ 2,204,552 $ 2,467,813 $ 2,583,281 $ 2,483,472 Fiscal Year Total Actual Expenditures $ 3,931,807 $ 4,380,504 $ 4,667,995 $ 5,441,605 Fiscal Year Total Estimated Expenditure $ 4,983,530
Fiscal Year Budgeted Expenditures $ 5,310,119
Second Quarter Percentage of Total 53% 50% 53% 47% 47%
Recommended Budget Revision
YOY Percentage Changes 18.77% 11.41% 6.56% 16.57% -8.42% 5-year Average Percentage Change 8.98%
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Administrative Services - Quarterly and Annual Expenditures 5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

18 Community Development Services
The Community Development Department works with elected and appointed officials, other Departments, and the community to guide the physical growth, development, and preservation of the Town.

Community Development program expenditures are trending lower than the same quarter expenditures in prior year due to increased development activities in the Department Building and Pass Through programs. The Pass Through program collects the required developer deposits for various review services. The Town provides those services through consultants and the consultants are paid out of the applicant’s account. At the close of a project, all remaining fees collected will be refunded to the applicant. This program is fully staffed as of December 31, 2022; however, the Associate Planner and Planning Technician positions were partially vacant during the first half of the fiscal year. Staff is requesting to increase an Associate Planner position form 0.75 Full Time Equivalent (FTE) to 1 FTE to assist the Department with the current and future workload pertaining to unfunded State mandates and other work. In addition, staff recommends expenditure budget adjustments for building permit services ($150,000) and redepositing the first proceed ($300,00) of the affordable loan repayment. Both of these requested items have dedicated revenue sources and cost neutral. Not counting the last two items, staff anticipates approximately $420,000 expenditures savings in this program. Savings are anticipated in staff salaries and benefits, travel and training, and office supplies.

Community Development Department expenditures vary year to year based on the development activity and pass through services.

FY 18/19 FY 19/20 FY 20/21 FY 2021/22 FY 22/23
Second Quarter Actual Expenditures $ 2,104,258 $ 2,245,767 $ 2,589,502 $ 3,460,301 $ 2,394,537 Fiscal Year Total Actual Expenditures $ 4,577,495 $ 4,473,790 $ 4,994,391 $ 6,313,505 Fiscal Year Total Estimated Expenditure $ 5,990,576
Fiscal Year Budgeted Expenditures $ 5,960,379
Second Quarter Percentage of Total 46% 50% 52% 55% 40%
Recommended Budget Revision $ 456,962
YOY Percentage Changes 8.42% -2.27% 11.64% 26.41% -5.11% 5-year Average Percentage Change 7.82%
$- $500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
FY 18/19 FY 19/20 FY 20/21 FY 2021/22 FY 22/23
Community Development - Quarterly and Annual Expenditures 5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

19 Police Services
The Los Gatos-Monte Sereno Police Department provides Police services to the Town of Los Gatos and contractually to the City of Monte Sereno. The Department is committed to ensuring public safety with integrity, compassion, and professionalism, by providing exceptional law enforcement services, building community partnerships, and engaging the community in problem solving.

Staff is continuing to monitor Police service program revenues and expenditures. Staffing levels remain a challenge for the Police Department with dedicated ongoing recruitment for open positions.

Whenever feasible, open positions are filled with trainees, per diems, and temporary employees until positions are filled. The Police Department does not anticipate any budgetary concerns at mid-year.

Staff anticipates approximately $420,000 expenditures savings in this program. Savings are anticipated in staff salaries and benefits, travel and training, and office supplies. Staff recommends $27,151 expenditure budget increase to expend the proceeds of an Opioid Settlement disbursement for opioid preventative and awareness education and additional costs related to increased parking ticket collection administration.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 7,832,251 $ 8,504,636 $ 9,041,998 $ 8,266,432 $ 8,957,541 Fiscal Year Total Actual Expenditures $ 14,948,952 $ 15,793,815 $ 16,570,836 $ 16,451,189 Fiscal Year Total Estimated Expenditure $ 18,695,679
Fiscal Year Budgeted Expenditures $ 19,225,986
Second Quarter Percentage of Total 52% 54% 55% 50% 47%
Recommended Budget Revision $ 27,151
YOY Percentage Changes 3.51% 5.65% 4.92% -0.72% 13.64%
5-year Average Percentage Change 5.40%
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Police - Quarterly and Annual Expenditures
5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

20 Parks and Public Works Services
The Parks and Public Works Department constructs and maintains the Town’s public parks, facilities, roadways, right-of-way, and other infrastructure. Six organizational units work in coordination to achieve the Department’s overarching goal of ensuring the Town’s facilities are safe, functional, and attractive.

The Parks and Public Works services program expenditures are trending lower than prior year same quarter expenditures. This program experienced vacancies in couple of positions including Parks and Public Works Director, Senior Civil Engineer, Transportation and Mobility Manager, and Town Engineer during the course of the first half of the fiscal year. Staff is requesting the deletion of the hire-ahead onetime Urban Forest Manager position. Funding for the current fiscal year of the position is available from the tree replacement deposit fund while in future years the Department is proposing to reclassify the Town Arborist position as it becomes vacant.

Staff anticipates approximately $570,000 expenditures savings in this program. Savings are anticipated in staff salaries and benefits, travel and training, and office supplies. Staff recommends an expenditure budget increase of $283,112 attributed to the additional contractual obligations, increased pass through activities and defunding the Urban Forest Manager position as explained in the next section of this Report.

Beginning in FY 2018/19, all personnel that were previously budgeted in Internal Service funds were transferred to the General Fund. While overall expenditures did not increase, salary and benefit costs that were formerly reported as an Internal Service Fund expense effective with the change became a General Fund expense.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 3,717,900 $ 3,864,874 $ 4,185,306 $ 4,010,181 $ 4,226,049 Fiscal Year Total Actual Expenditures $ 7,969,631 $ 8,139,106 $ 8,175,987 $ 8,605,455 Fiscal Year Total Estimated Expenditure $ 9,221,597
Fiscal Year Budgeted Expenditures $ 9,798,966
Second Quarter Percentage of Total 47% 47% 51% 47% 43%
Recommended Budget Revision $ 283,112
YOY Percentage Changes 10.92% 2.13% 0.45% 5.25% 7.16%
5-year Average Percentage Change 5.18%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Parks and Public Works - Quarterly and Annual Expenditures 5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

21 Library Services
The Los Gatos Library fosters curiosity and community connection and strives to be at the heart of an engaged and vibrant community.

Library services program expenditures are trending lower than prior year same quarter expenditures.

This program had Librarian and Senior Library Page vacancies during the first half of the fiscal year. Staff anticipates approximately $46,000 expenditures savings in this program. Savings are anticipated in temporary employee salaries, travel and training, and office supplies. Staff recommends a $2,735 budget increase to authorize spending of a State Library Grant received by the Department.

FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Second Quarter Actual Expenditures $ 1,280,179 $ 1,404,285 $ 1,445,899 $ 1,365,415 $ 1,442,555 Fiscal Year Total Actual Expenditures $ 2,493,617 $ 2,700,802 $ 2,828,873 $ 2,752,401 Fiscal Year Total Estimated Expenditure $ 3,097,584
Fiscal Year Budgeted Expenditures $ 3,144,450
Second Quarter Percentage of Total 51% 52% 51% 50% 46%
Recommended Budget Revision $ 2,735
YOY Percentage Changes -1.42% 8.31% 4.74% -2.70% 12.54% 5-year Average Percentage Change 4.29%
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23
Library - Quarterly and Annual Expenditures
5-Year History
Second Quarter Actual Expenditures Fiscal Year Total Actual Expenditures Fiscal Year Budgeted Expenditures Fiscal Year Total Estimated Expenditure

22 FY 2022/23 RECOMMENDED BUDGET ADJUSTMENTS
Budget adjustments are recommended for the following revenues and expenditures at the second quarter as described below:

Fund Program Account
111 1201 411XX Property Tax $ 417,682 Based on Santa Clara County Property Tax Estimates November 2022 111 1201 41141 Motor Vehicle In Lieu Fee 199,650 Based on Santa Clara County Property Tax Estimates November 2022 111 1201 41211 Sales & Use Tax (301,422) Based on MuniServices Most Probable January 2023 Sales Tax Estimates 111 1221 41214 Measure G - District Sales Tax (36,266) Based on MuniServices Most Probable January 2023 Sales Tax Estimates 111 1201 41311 Transient Occupancy Tax 357,540 Funds Received 111 1201 41612 PG&E Franchise Fee 50,000 Funds Anticipated 111 1201 41613 Garbage Franchise Fee 172,600 Funds Anticipated 111 2301 41411 Business License Tax 1,056,500 Funds Anticipated 111 3201 44214 Other Service Fees (12,500) Funds are not Received 111 3201 44412 Plan Check (45,000) Funds are not Received 111 3301 44422 Building Inspections 150,000 Funds Anticipated 111 3501 45111 Affordable Hosuing Loan -Repayment 300,000 Funds Received 111 4202 43336 Prop 172 - Public Safety Sales Tax 37,300 Based on MuniServices Most Probable January 2023 Sales Tax Estimates 111 4301 45922 Opioid Settlement Account 14,151 Funds are Available 111 4304 45126 Online Parking Ticket 25,000 Funds Anticipated 111 5202 42514 Encroachment Permits 50,000 Funds Anticipated 111 5202 44621 Engineering Services 50,000 Funds Anticipated 111 5301 43531 Plan JPA Safety Grant 7,236 Funds Anticipated 111 5301 42512 OMP- Parking Fee (20,000) Funds are not Received 111 5301 45421 Donation - Benches 10,347 Funds are Available 111 5302 42522 HHW Fee 8,466 Funds Anticipated
111 5302 42523 JPA Fee 126,177 Funds Anticipated
111 5302 43521 AB 939 2,000 Funds Anticipated
111 5401 42521 Street Sweeping Fees (69,098) Funds are not Received 111 5401 48621 From Tree Replacement Deposit - Defund Urban Forest Ma (234,260) Funds are Available 111 5999 48416 Plan Check - Pass Thorugh 458,575 Funds Received 111 7801 43343 Public Library Fund Grant 2,735 Matching Expenditure TOTAL GENERAL FUND REVENUES $ 2,777,413
Fund Program Account
111 1201 62113 Town Share of Retiree Medical $ 143,130 Funds are not Expended 111 1201 62119 Additional Payment to IRS Pension Trust 300,000 From Avaialable Reserve 111 1201 72111 PG&E Loan Principal Payment 156,034 Funds are Partially Expended 111 3301 63381 Building Inspections 150,000 Funds are Partially Expended 111 3201 5XXXX Additional 0.25 FTE Associate Planner 6,962 Funds are not Expended 111 3501 XXXXX Loan Repayment to BMP 300,000 Funds are Expended 111 4301 64111 Training 14,151 Funds are not Expended
111 4304 62223 SCC Court and Jail Construction Fee 10,000 Funds are Partially Expended 111 4304 63344 Parking Citation Service 3,000 Funds are Partially Expended 111 5203 63332 Software License Maintenance 7,460 Funds are Partially Expended 111 5301 61224 Playground Safety 3,756 Funds are Expended 111 5301 63363 Landscape Maintenance 37,234 Funds are Partially Expended 111 5301 68622 Benches 10,347 Funds are Expended
111 5401 5**** Urban Forest Manager (234,260) Funds are not Expended 111 5999 68416 Plan Check - Pass Through 458,575 Funds are Partially Expended 111 7801 61172 Youth Collections 2,735 Matching Revenue TOTAL GENERAL FUND EXPENDITURES $ 1,369,124
FY 2022/23 MID-YEAR BUDGET ADJUSTMENT REQUESTS - GENERAL FUNDS General Fund Revenues
General Fund Expenditures

23 SUMMARY OF KEY RECOMMENDED BUDGET ADJUSTMENTS
 General Property Tax and Motor Vehicle in Lieu Fee: Staff recommends a decrease in projected revenues of approximately $417,682 in General Property Tax and an increase of $199,650 Motor Vehicle in Lieu fee which are in line with the estimates and forecasts provided to the Town from Santa Clara County.
 Sales and Use Tax: Staff recommends a $301,422 budget decrease to reflect current sales tax trends based on MuniServices most likely projections.

Fund Program Account Other Fund Revenues
251
Theatre Tenant Rent 68,400 Funds Anticipated
$ 68,400
234
234 5504 41152 L&L Assessment 4,500 Funds Anticipated
5504 42515 Interest Income 465 Funds Anticipated
$ 4,965
481
481 411-811-6004 82405 Increased Gas Tax Projections for Street Repair (67,218) Based on California City Finance Projection May 2022 $ (67,218)
711
711 7301 45452 Additional Donation Received 5,000 Funds Received $ 5,000
TOTAL OTHER FUNDS REVENUES $ 11,147
Fund Program Account
231
232 5501 63363 Landscape Maintenance (194) Funds are not Expended $ (194)
232
232 5502 63363 Landscape Maintenance 5,875 Funds are Partially Expended $ 5,875
233
233 5503 63363 Landscape Maintenance (606) Funds are not Expended $ (606)
234
234 5504 63363 Landscape Maintenance 2,270 Funds are Partially Expended $ 2,270
235
235 5505 63363 Landscape Maintenance 2,352 Funds are not Expended $ 2,352
236
236 5506 63363 Landscape Maintenance (75) Funds are not Expended $ (75)
251
5408 61214 General Maintenance Supplies 1,000 Funds are Partially Expended 61241 Office Furniture Equipment 3,000 Funds are Partially Expended 62371 Building Maintenance and Repairs 47,000 Funds are Partially Expended 62611 Utilities - Electric 4,091 Funds are Partially Expended 62612 Utilities - Gas 8 Funds are Partially Expended
62613 Utilities - Water 715 Funds are Partially Expended $ 55,814
481
481 481-811-9901 82405 Decreased Gas Tax Projections for Street Repair (67,276) Based on California City Finance Projection May 2022 $ (67,276)
633
633 5404 62161 WVS Annual Fee 8,608 From Available Facilities Maintenance Internal Service Fund $ 8,608
711
711 7301 62420 Additional Donation Received 2,500 Funds are not Expended 711 7301 62424 Additional Donation Received 2,500 Funds are not Expended TOTAL OTHER FUNDS EXPENDITURES $ 9,268
FY 2022/23 MID-YEAR BUDGET ADJUSTMENT REQUESTS - OTHER FUNDS Facilities Maintenance
Library Trust Fund
Hillbrook Drive LLD
Other Fund Expenditures
Gemini Court LLD
Vasona Heights LLD
Gas Tax
Los Gatos Theatre
Kennedy Meadows LLD
Gas Tax
Santa Rosa Heights LLD
Blackwell LLD
Santa Rosa Heights LLD
Los Gatos Theatre
Library Trust

24  Measure G – District Sales Tax: Staff recommends a $36,266 budget decrease to reflect the current trends of the one-eight cent sales tax based on MuniServices most likely projections.  Transient Occupancy Tax (TOT): Staff recommends a $357,540 budget increase based on the current trends.
 PG&E Franchise Fee:: Staff recommends an increase in projected revenues of approximately $50,000 in cable franchise fee based on last year actuals.  Garbage Franchise Fee: Staff recommends an increase in projected revenues of approximately $172,600 in cable franchise fee based on current activities and trends.  Business License Tax: Staff recommends a $1,056,500 budget increase based on the estimated collection per the new business license tax.
 Plan Check and Other Service Fee: Staff recommends a $57,500 budget decrease based on the current plan check activities.
 Building Inspection Services: Staff recommends a $150,000 revenue and budget increase for building inspection services from available developer contribution.  Additional 0.25 FTE Associate Planner: Staff recommendsan expenditure budget increase in the amount of $6,962 toprovide additional 0.25 FTE Associate Planner hours due to ongoing long range planning efforts and unfunded mandates from yearly State Legislation that has and continues to be enacted.
 Affordable Loan Repayment: Staff recommends $300,000 revenue and budget increase for receiving a partial repayment of the Dittos Lane affordable housing loan and redepositing the proceeds to Below Market Housing Deposit Account.
 Prop 172 – Public Safety Sales Tax: Staff recommends a $37,300 budget increase to reflect the current trends of the Prop 172- Public Safety Sales Tax based on MuniServices projections.  Opioid Settlement Proceeds: Staff recommends a $14,150 revenue and expenditure budget increase to recognize the receipt of Opioid Settlement disbursement. The Settlement requires funds be used primarily for opioid abatement; the Police Department will follow the fiscal guidelines outlined in the Settlement agreement. The Police Department identified utilizing the funding for specific advancedofficer training in recognition, response, treatment, and management of an opioid overdose crisis, and to supplement opioid preventative and awareness education training for youth through the School Resource Officer drug awareness program.  Online Parking Ticket: Staff recommends a $25,000 revenue budget increase to reflect recent parking citation revenue and $13,000 expenditure budget increase to increased administrative and processing cost related to inceased parking citation revenue collection. • Encroachment Permits: Staff recommends a revenue budget increase of $50,000 to recognize increased developments happening in Town.

25 • Engineering Services: Staff recommends a revenue budget increase of $50,000 to recognize increased developments happening in Town.
• Oak Meadow Park Parking Fee: Staff recommends a decrease in the Oak Meadow Park Parking fee revenue in the amount of $20,000. Staff is in the process of procuring a pay station that will integrate with the Town’s current parking enforcement efforts. • Safety Grant: Staff recommends $10,347 revenue and $3,756 expenditure budget increase to recognize the receipt of safety grant for paygorund safety. The payground safety work was partially budgeted before the grant was identified.
• West Valley Solid Waste Management Joint Powers Agency (JPA) Revenue Realignment between Programs: Staff recommends a revenue budget increase of in the amount of $67,545 to reflect the current contribution for different Town programs based on the agreement signed with the Joint Powers Authority after the original budget was adopted. • Donation – Benches: Staff recommends revenue and expenditure budget increase of $10,347 to recognize donation received for bench installation.
• Town Share of Retiree Medical: Staff recommends an expenditure budget increase of $143,130 to recognize increased cost related the retiree medical services due to additional recent retirements.
• Additional Payment to IRS Pension Trust: Staff recommends an expenditure budget increase in the amount of $300,000 for additional payment to the IRS Pension Trust from available Pension/OPEB Reserve.
• PG&E Loan Principal Payment: Staff recommends an expenditure budget increase in the amount of $156,034 for PG&E Loan Payment. The Town utilized an interest fee loan from PG&E for energy efficiency improvements for various Town buildings. The payments were suspended by PG&E due to the pandemic during budget development, but the payment schedule was since reinstated.
• Software License Maintenance: Staff recommends an expenditure budget increase of $7,460 for software license maintenance.
• Landscape Maintenance: Staff recommends an expenditure budget increase of $37,234 for increased landscape maintenance services.
• Urban Forest Manager: Staff recommends revenue and expenditure budget decrease of $234,260 to defund the one-time hire ahead Urban Forest Manager position.  Plan Check Services: Staff recommends a $485,575 revenue and budget increase forplan check services from available developer contribution.

Other Fund Revenues and Expenditures

26  Landscape Maintenance: Staff recommends an expenditure budget increase in the amount of $9,622 to the various Park Light and Landscaping Districts for increased landscape maintenance services.
 Theatre Needs: Staff recommends $68,000 revenue increase to recognize the current tenants anticipated rent proceeds and $55,814 expenditure budget increase from available rent proceeds for initial set-up, utility cost and additional expenses related to the Los Gatos Theatre Building maintenance and repairs.
 Gas Tax: Staff recommends revenue and expenditure budget decrease in the amount of $67,218 reflecting most recent gas tax projections.
 West Valley Sanitation District Annual Fee: Staff recommends an expenditure budget increase in the amount of $8,608 to for additional water meter connected and increased water usage fee.  Library Trust programming: Staff recommends $5,000 revenue and expenditure adjustment to recognize additional donation from the Friends of the Los Gatos Library. The Friends were able to donate an additional of $5,000 this year. Staff anticipated spending $5,000 of the additional donation in the current fiscal year.

American Rescue Plan Act (ARPA) Fund:

In accordance with ARPA, the Town was awarded an ARPA grant in the amount of $7,229,744 paid to the Town in two separate payments, the first payment of $3,618,872 was received in early July 2022 and the second payment of $3,614,872 was received in early July 2023.

Based on initial guidance of eligible uses of ARPA funds the Town allocated these funds to various purposes to respond and support the impacts of the pandemic on Town residents, non-profits, the business community including the construction of downtown parklets, non-profit fee and rent waivers, enhanced senior services, promenades, and increased funding for Town infrastructure capital improvements, among other initiatives.

Upon Treasury’s release of the simplified reporting process for entities awarded less than $10 million in ARPA funding and additional guidance received on federal compliance issues, the Town recognized the $3.4 M of FY 2021/22 and the recommending recognizing the second tranche of $3.6M cash collections of ARPA revenues in FY 2022/23 as qualified revenue loss under the Treasury provisions for use in providing government services. To further aid in compliance with federal uniform guidance and Single Audit requirements, staff claimed the lost revenue for use in providing essential government services and accounted for the use of ARPA revenue loss revenues for eligible public safety payroll costs for in FY 2021/22 and proposing the same for FY 2022/23.

The recommended action as illustrated in the below worksheet will allocate all ARPA “replacement” revenues to the General Fund which in turn will unencumber other General Fund operating revenues which were previously dedicated for public safety costs. The newly unencumbered General Fund revenues can then be allocated to the ARPA pandemic responses as identified.

27 Council has already allocated all the $7.2 million proceeds for various priorities as illustrated in the below table. Staff will bring back any residual balance not used for the original purpose after completing the program for Council re-programming reconsideration
While the Town already recognized the full first tranche of the ARPA proceeds during FY 2020/21 and FY 2021/22, only $1,549,570 was utilized during those fiscal years, $2,065,302 is part of the General Fund balance and tracked by staff to ensure that the proceeds are spent by Council adopted uses.

The FY 2022/23 budget was adopted prior to the simplified guideline so staff is proposing the following budget adjustments to recognize the revenue and track the Council approved uses.

FY 2020/21 GRAND
BUDGET ADJ.

ACTUALS ESTIMATED ACTUALS BAL REMAINING ESTIMATED EST. MID-YEAR TOTAL ARPA FUNDS REVENUE RECOGNIZED $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 GOV SERVICES (WAIVERS,CUP&ADA,DIRECT GRANTS) 200,911 200,911 REVENUE LOSS -GOV SERVICES (PUBLIC SAFETY) 3,413,961 3,413,961 3,614,872 7,028,833 $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744
GENERAL FUND ARPA REPLACEMENT REVENUES AVAILABLE $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 LESS APPROVED USES TO BE BUDGETED:

PARKLETS (DOWNTOWN IMPVTS PROJECT) $ - $ 680,000 $ 466,428 $ 213,572 $ 250,000 $ - $ 930,000 RENT WAIVERS 121,255 341,452 341,452 - 283,756 746,463
CUP/ADA FEE WAIVERS 19,656 27,672 27,672 - 27,672 75,000 DESTINATION MARKETING 55,000 55,000 - 55,000
K-RAILS (DOWNTOWN IMPVTS PROJECT) 68,000 88,654 (20,654) 68,000 PROMENADES 80,000 69,855 10,145 120,000 90,628 200,000
DIRECT GRANTS 60,000 50,000 50,000 - 110,000
ENHANCED SENIOR SERVICES 500,000 249,597 250,403 500,000 CAPITAL IMPROVEMENT PROGRAM SUPPORT TRANSFERS 2,900,000 580,000 2,900,000 REQUIRED FOR GF BALANCING OF OPERATING REV_EXP 1,645,281 1,645,281 TOTAL ALLOCATIONS OF GENERAL FUND ARPA REPLACEMENT REVENUES $ 200,911 $ 1,802,124 $ 1,348,659 $ 453,465 $ 5,226,709 $ 670,628 $ 7,229,744

AMERICAN RESCUE PLAN ACT (ARPA) SUMMARY WORKSHEET
FY 2021/22 FY 2022/23
Fund Program Account
111 4301 48219 ARPA - Intergovernmental Revenue 3,614,872 111 5301 48219 ARPA - Intergovernmental Revenue 40,431
111 3201 48219 ARPA - Intergovernmental Revenue 27,672
111 2101 48219 ARPA - Intergovernmental Revenue 120,000 411 411-813-0235 48219 ARPA - Intergovernmental Revenue 250,000 633 5404 48219 ARPA - Intergovernmental Revenue 243,325 241 1241 43217 ARPA - Intergovernmental Revenue 2,310,176 $ 6,606,476
241 1241 68219 ARPA - Income Replacement Expense 2,310,176 111 1201 68219 ARPA - Income Replacement Expense 3,581,428 $ 5,891,604
American Rescue Plan Act (ARPA) Fund
FY 2022/23 MID-YEAR BUDGET ADJUSTMENT REQUESTS - ARPA RECLASSIFICATION

28 GENERAL FUND FINANCIAL SUMMARIES AND ESTIMATES
The following table is the Schedule of General Fund Operating Revenues Versus Operating Expenditures for the second quarter of FY 2022/23which includes comparison information from the prior year.

The FY 2022/23 Adjusted Budget column includes the adopted budget and items that Council approved during the course of the first two quarters of the fiscal year, such as additional funding for legal services, and miscellaneous carry over grants from prior fiscal year.

The FY 2022/23 Estimated column contains projections of final balances for the current fiscal year based upon staff analysis, the early trends observed through the second quarter in sales tax and property tax projections, and the proposed mid-year adjustments as listed in this report.

The FY 2022/23 Estimated figures also include analysis on potential salary and other expenditure savings; however, budget adjustments are only recommended as identified in this Report.

Staff continues to fine tune the detailed analysis of the FY 2022/23 year-end estimated revenue and expenditure numbers and an update will be provided with the presentation of the Proposed Fiscal Year 2023/24 Operating Budget.

The following table illustrates the summary of the General Fund balance status based on current estimates and prior year result.

The table in the following page provides the details of the Revenues and Use of Reserve and Total Expenditures and Reserve Allocations.

FY 2021/22 FY 2021/22
2Q % of
FY 2021/22
2Q % of
FY 2022/23 FY 2022/23 FY 2022/23 FY 2022/23
Actuals Q2 Actuals Adjusted
Budget
as of 12/31/2022
Q2 Adjusted
Budget
Year End Estimates
Including
Proposed
Mid-Year
Adjustments
Total Revenues & Transfers In $ 54,448,222 $ 17,978,806 33% 34% $ 17,098,505 $ 50,266,120 $ 50,546,861 Total Expenditures 51,466,052 21,155,306 41% 40% 21,105,947 52,886,926 51,777,130 Net Increase (Decrease) $ 2,982,171 $ (4,007,441) $ (2,620,805) $ (1,230,268) Beginning Fund Balance 23,914,618 26,896,789 26,896,789 26,896,789 Ending Fund Balance $ 26,896,789 $ 22,889,348 $ 24,275,983 $ 25,666,521

GENERAL FUND

SUMMARY OF REVENUES AND EXPENDITURES

29 FY 2021/22 FY 2021/22
2Q % of
FY 2021/22
2Q % of
FY 2022/23 FY 2022/23 FY 2022/23 FY 2022/23
Actuals Q2 Actuals Adjusted
Budget
as of
12/31/2022
Q2 Adjusted
Budget
Year End Estimates
Including
Proposed
Mid-Year
Adjustments
Revenues
Property Tax $ 16,899,618 $ 5,761,081 34.1% 37.1% $ 6,141,998 $ 16,551,544 $ 16,969,226 VLF Backfill Property Tax 4,229,462 - 0.0% 0.0% - 4,356,350 4,556,000 Sales & Use Tax 7,177,597 2,143,460 29.9% 30.5% 2,398,925 7,860,988 7,559,566 Measure G Sales & Use Tax 1,306,076 412,881 31.6% 32.5% 426,496 1,313,956 1,287,690 Franchise Fees 2,822,515 968,181 34.3% 41.9% 1,044,055 2,493,870 2,716,470 Transient Occupancy Tax 1,895,064 711,861 37.6% 52.2% 857,715 1,642,460 2,000,000 Business License Tax 1,481,667 167,942 11.3% 7.1% 97,974 1,387,500 2,444,000 Licenses & Permits 4,814,650 3,373,287 70.1% 58.6% 1,602,633 2,735,029 2,841,374 Intergovernmental 1,263,352 370,615 29.3% 33.8% 379,739 1,124,093 1,250,731 Town Services 5,460,608 3,906,577 71.5% 73.9% 3,284,766 4,445,635 5,105,701 Fines & Forfeitures 319,170 118,809 37.2% 75.1% 151,615 201,750 232,129 Interest (1,404,526) (211,169) 15.0% 33.5% 145,003 432,947 517,379 Use of Property 32,400 - 0.0% - - -
Miscellanious Other 311,040 150,622 48.4% 14.0% 457,906 3,280,749 626,066 Park Construction Tax 14,752 - 7,680 7,000 8,280
Debt Service - Entry Eliminated for ACFR 1,899,850 - 0.0% 0.0% - 1,893,713 1,893,713 ARPA Income Replacement - Entry Eliminated for ACFR 556,316 Pension Trust Income - Entry Eliminated for ACFR 690,000 Measure G for Operations - Entry Eliminated for ACFR 629,147 Proceeds for Sales of Assets 2,151 - 0.0% -
Fund Transfer In 4,047,313 104,659 2.6% 18.9% 102,000 538,536 538,536 Total Revenues & Transfers In $ 54,448,222 $ 17,978,806 33% 34% $ 17,098,505 $ 50,266,120 $ 50,546,861 Use of Other Funding Sources:

Use of Reserves - Capital/Special Projects - Capital $ 550,000 $ - 0.0% 0.0% $ - $ 2,350,000 $ 2,350,000 Use of Reserves - Surplus Property 1,200,000
Use of Reserve - Pension/OPEB 300,000 300,000
Use of Reserve - Accumulated Measure G 1,100,000 - - 679,443 Total Other Funding Sources $ 3,150,000 $ - 0% 0% $ - $ 3,029,443 $ 2,650,000 Total Revenues and Use of Reserves $ 57,598,222 $ 17,978,806 31% 32% $ 17,098,505 $ 53,295,563 $ 53,196,861 Expenditures
Town Council $ 189,569 $ 91,800 48.4% 42.3% 91,822 $ 217,238 $ 216,231 Attorney 629,935 226,377 35.9% 46.7% 332,183 711,426 685,473 Administrative Services 5,441,605 2,583,281 47.5% 45.9% 2,438,472 5,310,119 4,983,530 Non- Departmental 2,792,857 1,160,520 41.6% 33.8% 1,222,789 3,617,671 3,823,598 Community Development 6,313,505 3,460,301 54.8% 40.2% 2,394,537 5,960,379 5,990,576 Police 16,451,189 8,266,432 50.2% 46.6% 8,957,541 19,225,986 18,695,679 Parks & Public Works 8,605,455 4,010,181 46.6% 43.1% 4,226,049 9,798,966 9,221,597 Library 2,752,401 1,356,415 49.3% 45.9% 1,442,555 3,144,450 3,097,584 Principal 156,034 156,034
Total Department Expenditures $ 43,332,550 $ 21,155,307 49% 44% $ 21,105,948 $ 47,986,235 $ 46,870,302 Debt Service - Entry Eliminated for ACFR $ 1,899,850 $ - 0.0% 0.0% $ - $ 1,893,713 $ 1,899,850 ARPA Income Replacement - Entry Eliminated for ACFR 556,316 Transfer to Pension Trust Fund - Entry Eliminated for ACFR 690,000 Measure G Transfer - Entry Eliminated for ACFR 629,148
Transfers Out 4,358,188 - 0.0% 0.0% - 3,006,978 3,006,978 Total Additional Non-Departmental Expenditures $ 8,133,502 $ - 0% 0% $ - $ 4,900,691 $ 4,906,828 Total Operating Expenditures $ 51,466,052 $ 21,155,307 41% 40% $ 21,105,948 $ 52,886,926 $ 51,777,130 Allocate to Budget Stabilization/Catastrophis Reserve 1,062,162 Allocate to Carryover Encumbrances 33,145
Allocate to Pension/OPEB Reserve 300,000 Allocate to Restricted Pension Trust 390,000 690,000 Excess (Deficiency) of Revenues Over Expenditures $ 4,736,863 ** $ * (3,176,501) $ (4,007,443) * $ 18,637 $ 729,731

SUMMARY OF REVENUES AND EXPENDITURES

GENERAL FUND
*FY 2021/22 and FY 2022/23 2Q Net Operating Revenues are negative because some revenues budgeted for the entire fiscal year are received in the third or fourth quarters and fund expended in the first or second quarters.
** This schedule includes fund balance uses. Total Revenues and Transfers In ($54,448,222) minuesTotal Operating Expenditures ($51,466,052) equals $2,982,171 with rounding.

30 FINANCIAL SUMMARIES OF OTHER FUNDS
The group 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 Development Block Grant Fund, Housing Conservation Program Fund, Urban Runoff Source Fund (NonPoint Source), and several Landscaping Lighting District (LLD) Funds, American Recovery Program Act (ARPA) Fund, and Theatre Fund, and Library Trusts Funds. Staff recommends recognizing the second tranche of ARPA in the amount of $3,614,872 as revenue replacement in the current fiscal year following the federal streamlined process. Staff also recommends $68,400 revenue budget adjustment to recognize Theatre tenant lease revenues and $55,814 expenditure budget adjustment for Theatre related expenses from available rent proceeds.

CDBG Non-Point LLD's LIBRARY
Grants Source ARPA THEATRE TRUSTS
Beginning Fund Balance $ 166,654 $ 451,558 $ 174,237 $ - $ 19,500 $ 555,252 Budgeted Revenues - 359,950 34,680 1,304,696 68,400 76,250 Total Actual Revenues - 2nd Qtr $ - $ 160,698 $ - $ 3,614,872 $ 17,850 $ 45,175 Budgeted Expenditures - 190,911 100,562 1,304,696 55,814 121,255 Total Actual Expenditures - 2nd Qtr - 95,587 2,315 - 3,375 30,093 2nd Quarter Ending Fund Balance $ 166,654 $ 516,669 $ 171,922 $ 3,614,872 $ 33,975 $ 570,334 Special Revenue Funds
Budget to Actuals Comparisons

31 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. Staff recommends revenue and expenditure budget adjustments in the amount of $67,276 to reflect decreased gas tax projections. Staff will continue to monitor these revenues and 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.

GFAR* Traffic * Grant Funds* Storm Utility Gas
Fund Mitigation CIP Drains Undergd Tax
Beginning Fund Balance $ 14,783,787 $ 405,570 $ (948,604) $ 3,218,811 $ 3,302,514 $ 1,836,068 Budgeted Revenues 10,505,492 923,455 11,984,439 105,080 52,490 1,536,413 Total Actual Revenues - 2nd Qtr 2,111,705 671,640 744,808 58,876 60,327 625,666 Budgeted Expenditures 23,414,582 923,455 10,984,377 670,300 347,576 3,258,618 Total Actual Expenditures - 2nd Qtr 992,728 671,640 452,251 1,916 - 1,510,293 2nd Quarter Ending Fund Balance $ 15,902,764 $ 405,570 $ (656,047) $ 3,275,771 $ 3,362,841 $ 951,441 Capital Project Funds
Budget to Actuals Comparisons
* GFAR, Traffic Mitigation, and Grant Funds balances are combined in the FY 2022 ACFR. The combined balance of $14,240,753 is presented as an Appropriated Reserve.

32 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, Joint Powers Authority Pooled Liability Network (PLAN) Self-Insurance Fund, Information Technology Fund, and the Facilities Maintenance Fund.

Staff recommends a $8,606 expenditure budget adjustment to cover additional expenses related to the West Valley Sanitation District annual fee increase from the available Facilities Maintenance Fund. Staff will continue to monitor expenditures and propose a revised cost allocation if needed during the FY 2023/24 budget preparation.

Equipment Workers Self Information Facility
Replacemt Compensation Insurance Technology Maint.

Beginning Fund Balance $ 2,222,395 $ 1,295,185 $ 803,293 $ 2,990,931 $ 928,481 Budgeted Revenues 686,837 1,033,315 429,249 714,309 1,262,247 Total Actual Revenues - 2nd Qtr 328,419 584,101 205,798 371,373 481,561 Budgeted Expenditures 1,351,124 1,840,000 846,940 1,741,242 1,240,344 Total Actual Expenditures - 2nd Qtr 299,565 812,582 784,661 395,392 430,810 2nd Quarter Ending Fund Balance $ 2,251,249 $ 1,066,704 $ 224,430 $ 2,966,912 $ 979,232 Internal Service Funds
Budget to Actuals Comparisons

33 Trust and Agency Funds (Fiduciary Fund Type)
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. The fund balance reported is the actual fund balance that incorporated the full accrual of long term debt related to the outstanding bonds payable to the 2002 and 2010 Certificates of Participations. The approved ROPS schedule includes full funding related to the obligation for this debt.

SA
Trust
Beginning Fund Balance $ (7,607,527) *
Budgeted Revenues 3,799,926
Total Actual Revenues - 2nd Qtr 1,893,713
Budgeted Expenditures 3,799,877
Total Actual Expenditures - 2nd Qtr 3,537,259
2nd Quarter Ending Fund Balance $ (9,251,073)
Trust & Agency Fund
Budget to Actuals Comparisons

1 Subject: FW: Follow up to Investment Report discussed at the FC meeting Attachments: Pages from FY-202122-ACFR - (5).pdf; July investment report.pdf From: Phil Koen
Sent: Friday, January 13, 2023 3:09 PM
To: Gitta Ungvari <[email protected]>
Cc: Arn Andrews <[email protected]>;
Subject: Follow up to Investment Report discussed at the FC meeting

EXTERNAL SENDER
Hello Gitta,
It was great to see you on the FC meeting call this past Tuesday. I appreciate your patience in answering my questions.

There is a lot to absorb, and I only learn by asking questions. I’ll try to keep them to a minimum going forward.

I would like to circle back to the investment report. I have attached a page from the July Investment Report which shows a “beginning funds balances” totaling $72,886,942. I have also attached a portion of footnote #2 from the ACFR which shows the total cash and investments held by the Town and Fiduciary Funds totaling $74,096,537. Can you explain the source of the $72,886,942 shown on the Investment Report? Also, could you clarify the description “Fund Balances” on the investment report. What does that exactly mean? As far as I can tell this is not the total of all fund balances for the Town. According to the ACFR, the total fund balance for all Governmental Funds was $50,862,138 and the fund balance for all Proprietary Funds was $8,240,282. That would mean the total fund balances for the Town was $59,102,420, leaving an unexplained gap of $13,784,522.

I think it is important that we use terminology which is accurate to avoid any confusion for members of the TC and the public. My concern here is the term “funds balances” as used on the Investment report really means the total of all financial assets being invested. Could you please clarify what the term “funds balances” as used on the investment report means.

All the best,
Phil Koen

TOWN OF LOS GATOS, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022

The following table summarizes the Towns policy related to maturities and concentration of investments:

Maximum
Maximum Portfolio
Investment Type Maturity Percentage
US Treasury Obligations 5 years None
US Agency Obligations 5 years None
Bankers Acceptances 180 days 30%
Commercial Paper 270 days 25%
Medium Term Notes 5 years 30%
Collateralized CD's 5 years 30%
CA LAIF NA $65 million
Money Market Funds NA 20%
The following is a summary of the Town’s Cash and Investments (stated at fair value) as of June 30, 2022:

Available Concentration Time to Weighted
for of Credit Input Mature Average
Operations Restricted Total Risk Rating Level (Years) Maturity US Treasury Securities $ 15,212,639 $ - $ 15,212,639 29.29% n/a 2 0-3 1.35 Government Agencies 15,995,919 - 15,995,919 30.79% n/a 2 0-4 1.52 Corporate Bonds 13,664,652 - 13,664,652 26.31% A3 2 0-3 1.33 Market Mutual Funds 253,599 - 253,599 0.49% Not Rated 2 n/a n/a LAIF 6,816,565 - 6,816,565 13.12% Not Rated n/a n/a n/a Total Investments 51,943,374 - 51,943,374 100.00%
Cash Deposits with Banks 19,349,009 2,094,363 21,443,372 Money Market Accounts 17,391 - 17,391
Pension Trust - 690,000 690,000
Cash on Hand at Town 2,400 - 2,400
Total Cash and Investments $ 71,312,174 $ 2,784,363 $ 74,096,537 Description
Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted by Town debt or Agency agreements.

Fiduciary
Description Total Town Funds Totals
Cash and Investments Available for Operations $ 69,392,044 $ 1,920,130 $ 71,312,174 Restricted Cash and Investments 819,929 1,964,434 2,784,363 Total Cash and Investments $ 70,211,973 $ 3,884,564 $ 74,096,537 DRAFT
72,132,11

Month YTD
Fund Balances - Beginning of Month/Period $72,886,942.83 $72,886,942.83 Receipts 6,045,229.86 6,045,229.86
Disbursements (11,248,320.72) (11,248,320.72)
Fund Balances - End of Month/Period $67,683,851.97 $67,683,851.97 Portfolio Allocation: % of Portfolio Max. % 0r $ Allowed Per State Law or Policy BNY MM $292,775.99 0.55% 20% of Town Portfolio
US Treasury Notes $10,046,915.87 18.75% No Max. on US Treasuries Government Agency Debenture Notes $22,975,336.40 42.89% No Max. on Non-Mortgage Backed Corporate Medium Term Bonds $13,339,223.01 24.90% 30% of Town Portfolio Local Agency Investment Fund $6,918,398.79 12.91% $75 M per State Law Subtotal - Investments 53,572,650.06 100.00%
Reconciled Demand Deposit Balances 14,111,201.91
Total Treasurer's Fund $67,683,851.97
Town of Los Gatos
Portfolio Allocation & Treasurer's Fund Balances
July 31, 2022
BNY MM

0.55% US Treasury Notes

18.75%
Government Agency Debenture Notes

42.89%
Corporate Medium Term Bonds

24.9%
Local Agency Investment Fund

12.9%
Portfolio Investment Allocation
0 10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
90000000
Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Treasurer's Fund Balances
page 2 Page 19
Item 2.
-

1 Subject: FW: Mid-Year Update Review Request
Attachments: Mid Year revie- General Fund Budget vs Actual.pdf; FY 23 General Fund and Capital Fund - Budget.pdf
From: Phil Koen
Sent: Thursday, January 19, 2023 10:21 PM
To: Laurel Prevetti <[email protected]>
Cc: Gitta Ungvari <[email protected]>; Arn Andrews <[email protected]>; Rick Tinsley Subject: Mid‐Year Update Review Request

EXTERNAL SENDER
Hello Laurel,
Please find attached two schedules – the first is the mid‐year budget vs actual schedule used last year for the budget update discussion in February and the other schedules are the general fund and capital project fund budgets found in the FY 23 budget book.

I would request that the Staff prepare 1 additional schedule for the mid‐year budget review which will show FY 22 actuals, FY 23 year to date actuals, a most probable FY 23 year forecast and the adopted FY 23 Budget  and variances using the same revenue and expense classifications found in the budget book. This will provide insight into budget vs actual variances for revenue and expense categories (such as salaries and operating expenditure) that were used in preparing the FY 23 budget and the 5‐year forecast. Since 67% of the general fund expenditures comprise salary and benefits, being able to gain insight as to how those expenses are tracking would be valuable. This type of analysis has never been presented at a mid‐year review.

Additionally, using in the budget book format will highlight the change in fund balances as opposed to the sources and uses format which does not show the impact on fund balances. This will quickly show whether the Town is structurally balanced and will provide the reader with a better understanding of the Town’s evolving financial condition.

The information to populate this one additional schedule should not require much effort and the benefits would be significantl. I realize you are concerned about staff workload, but I believe this report is well worth the minimal extra effort to prepare it.

Please let me know if you have any questions. Thank you.

Phil Koen

28 FY 2020/21 FY 2020/21
Q2% of
FY 2019/20
Q2% of
FY 2020/21 FY 2021/22 FY 2021/22 FY 2021/22
Actuals Q2 Actuals Adjusted
Budget
Q2 Adjusted
Budget
Estimated YE
Including
Mid-Year
Proposed
Revenues
Property Tax $ 15,826,162 $ 5,481,928 34.6% 36.3% $ 5,761,081 $15,881,866 $15,401,391 VLF Backfill Property Tax 4,052,672 - 0.0% 0.0% - 4,154,320 4,229,462 Sales & Use Tax 6,794,218 2,429,968 35.8% 29.7% 2,143,460 7,213,540 7,069,045 Measure G Sales & Use Tax 1,139,386 383,684 33.7% 42.8% 412,881 964,319 1,173,733 Franchise Fees 2,499,463 807,883 32.3% 37.3% 968,181 2,597,630 2,503,560 Transient Occupancy Tax 1,044,820 399,620 38.2% 77.4% 711,861 920,040 1,400,000 Business License Tax 1,386,943 224,388 16.2% 13.4% 167,942 1,250,000 1,250,000 Licenses & Permits 2,999,711 1,494,487 49.8% 82.5% 2,180,000 2,641,779 3,065,997 Intergovernmental 1,573,697 818,352 52.0% 9.5% 370,615 3,881,836 1,130,125 Town Services 4,835,962 3,691,233 76.3% 100.5% 3,854,415 3,834,579 4,152,549 Fines & Forfeitures 103,467 31,638 30.6% 58.4% 118,809 203,450 218,120 Interest 876,460 (1,485,278) -169.5% -15.4% (85,001) 551,233 551,233 GASB 31 to Market (780,399) 517,744 -66.3% 114.7% (126,168) (110,000) (110,000) Use of Property 36,372 - 0.0% - - -
Miscellanious Other 335,906 1,367,206 407.0% 24.4% 153,036 626,631 964,163 Park Construction Tax 14,921 - 7,680 7,000 8,280
Debt Service - Entry Eliminated for ACFR 1,908,494 - 0.0% 0.0% - 1,899,850 1,899,850 ARPA Income Replacement - Entry Eliminated for ACFR 79,176 Proceeds for Sales of Assets 1,201,369 - 0.0% -
Fund Transfer In 652,056 104,659 16.1% 16.5% 104,659 633,352 633,352 Total Revenues & Transfers In $ 46,580,856 $16,267,512 35% 36% $16,743,451 $47,151,425 $45,540,860 Use of Other Funding Sources:

Use of Reserves - Capital/Special Projects - Capital $ 3,401,479 $ - 0.0% 0.0% $ - $ 550,000 $ 550,000 Use of Reserves - Capital/Special Projects - Other $ 250,596 $ 250,596 Use of Reserve - Pension/OPEB $ 4,532,500
Use of Reserve - Accumulated Measure G - - - 590,581 590,581 Use of Reserves - Surplus Property - - - 1,200,000 1,200,000 Use of ARPA - Income Replacement - 1,444,021
Use of ARPA - Community Grants 550,000
Total Other Funding Sources $ 7,933,979 $ - 0% 0% $ - $ 3,141,177 $ 4,035,198 Total Revenues and Use of Reserves $ 54,514,835 $16,267,512 30% 33% $16,743,451 $50,292,602 $49,576,058 Expenditures
Town Council $ 192,280 $ 99,787 51.9% 45.2% 91,800 $ 202,891 $ 193,559 Attorney 537,296 311,520 58.0% 33.8% 226,341 669,733 554,137 Administrative Services 4,667,995 2,467,813 52.9% 45.3% 2,584,905 5,701,385 5,501,110 Non- Departmental 8,642,563 4,437,554 51.3% 32.0% 1,159,874 3,628,466 4,046,008 Community Development 4,994,391 2,589,502 51.8% 63.4% 3,460,301 5,461,716 5,094,473 Police 16,570,836 9,041,998 54.6% 47.6% 8,266,574 17,376,333 17,289,979 Parks & Public Works 8,175,987 4,185,306 51.2% 46.7% 4,020,953 8,605,418 8,332,422 Library 2,828,873 1,445,899 51.1% 44.4% 1,356,415 3,053,708 2,886,606 Capital Outlay 2,365 - - - -
Total Department Expenditures $ 46,612,586 $24,579,379 53% 47% $21,167,163 $44,699,650 $43,898,294 Debt Service - Entry Eliminated for ACFR $ 1,908,494 $ - 0.0% 0.0% $ - $ 1,899,850 $ 1,899,850 ARPA Income Replacement - Entry Eliminated for ACFR $ 79,176 Transfers Out 3,401,479 - 0.0% 0.0% - 2,801,047 2,801,047 Total Additional Non-Departmental Expenditures $ 5,389,149 $ - 0% 0% $ - $ 4,700,897 $ 4,700,897 Total Operating Expenditures $ 52,001,735 $24,579,379 47% 43% $21,167,163 $49,400,547 $48,599,191 Allocate to Budget Stabilization/Catastrophis Reserve 65,764 Allocate to Compensated Absences 110,509
Allocate to Surplus Property Reserve 1,200,000
Allocate to Sale of Property Reserve 5,302
Allocate to Pension/OPEB Reserve 300,000
Allocate to Measure G - Capital 482,160 586,867
Allocate to Restricted Pension Trust 390,000 390,000
Excess (Deficiency) of Revenues Over Expenditures $ 831,525 $ (8,311,867) * $ (4,423,712) * $ 19,895 $ -

SUMMARY OF REVENUES AND EXPENDITURES

GENERAL FUND
*FY 2020/21 and FY 2021/22 Q2 Net Operating Revenues are negative because some revenues budgeted for the entire fiscal year are received in the third or fourth quarters and fund expended in the first or second quarters.
** FY 2021/22 General Fund Budget included the ARPA revenue receipt, now the ARPA revenue is budgeted in a Special Revenue Fund.

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C - 8

TOTAL TOWN

REVENUES AND EXPENDITURES

GENERAL FUND
2018/19 2019/20 2020/21 2021/22 2022/23
Actuals Actuals Actuals Estimated Adopted

REVENUES
Property Tax $ 13,636,099 $ 14,454,513 $ 15,826,162 $ 15,908,858 $ 16,551,544 VLF Backfill 3,685,247 3,875,914 4,052,672 4,229,462 4,356,350 Sales & Use Tax 7,930,021 6,535,034 6,794,218 7,497,873 7,934,189 Measure G - District Sales Tax 228,131 996,391 1,139,386 1,173,733 1,240,755 Franchise Fees 2,475,916 2,495,792 2,499,463 2,435,800 2,493,870 Transient Occupancy Tax 2,692,043 1,869,685 1,044,820 1,475,000 1,642,460 Other Taxes 1,526,894 1,357,080 1,386,943 1,425,000 1,387,500 Licenses & Permits 3,059,894 2,696,457 2,999,711 3,065,997 2,757,029 Intergovernmental 945,191 1,104,075 1,573,697 1,130,125 1,051,814 Town Services 4,648,904 4,447,213 4,835,962 4,295,407 4,235,261 Internal Srvc Reimbursement - - - - -
Fines & Forfeitures 510,266 271,117 103,467 218,120 201,750 Interest 1,682,347 2,266,134 96,061 441,233 432,947
Other Sources 6,093,211 1,381,187 2,217,072 1,140,853 3,287,749 Debt Service Reimbursement 1,909,073 1,905,024 1,908,494 1,899,850 1,893,713 Transfers In 1,578,911 599,669 1,833,218 633,352 538,536 TOTAL REVENUES $ 52,602,148 $ 46,255,285 $ 48,311,346 $ 46,970,663 $ 50,005,467

EXPENDITURES
Salaries & Benefits $ 26,803,225 $ 28,933,568 $ 30,297,504 $ 30,160,568 $ 35,472,825 Operating Expenditures 11,955,327 13,397,031 14,276,602 9,849,151 9,318,742 Grants & Awards 248,533 274,249 298,303 800,000 241,000 Fixed Assets 38,307 138,384 2,365 - -
Interest - - 52,011 - -
Internal Service Charges 2,527,470 2,188,211 2,314,305 2,619,672 2,711,652 Capital Projects - - - - -
Capital Acquisitions - - - - -
Debt Service 1,909,073 1,905,024 1,908,494 1,899,850 1,893,713 Transfers Out 2,785,220 8,053,847 4,582,641 3,423,211 3,006,978 TOTAL EXPENDITURES $ 46,267,155 $ 54,890,314 $ 53,732,225 $ 48,752,452 $ 52,644,910 Net Increase (Decrease) 6,334,993 (8,635,029) (5,420,879) (1,781,789) (2,639,443) Beginning Fund Balance 31,635,533 37,970,526 29,335,497 23,914,618 22,132,829 Ending Fund Balance $ 37,970,526 $ 29,335,497 $ 23,914,618 $ 22,132,829 $ 19,493,386

GENERAL FUND
* Year End Fund Balance represents General Fund 111 (Long Term Compensated Absences were accounted in Fund 961 prior to FY 2018/19, Pension Trust Fund 731 was incorported in FY 2018/19).

C - 11

TOTAL TOWN

REVENUES AND EXPENDITURES

CAPITAL PROJECT FUNDS
2018/19 2019/20 2020/21 2021/22 2022/23
Actuals Actuals Actuals Estimated Adopted

REVENUES
Property Tax $ - $ - $ - $ - $ -
VLF Backfill - - - - -
Sales & Use Tax - - - - -
Franchise Fees - - - - -
Transient Occupancy Tax - - - - -
Other Taxes 28,390 34,437 67,146 34,562 30,000
Licenses & Permits 844,064 1,153,364 1,340,530 764,465 1,074,300 Intergovernmental 1,641,511 3,161,010 1,818,494 3,153,295 7,789,892 Town Services 52,094 223,318 34,417 306,210 -
Internal Srvc Reimbursement - - - - -
Fines & Forfeitures - - - - -
Interest 127,251 158,756 122,705 35,801 36,405
Other Sources 784,085 325,607 2,239,342 1,198,207 3,016,000 CIP Proj Reimbursement - - - - -
SCC RPTTF Reimbursement - - - - -
Transfers In 2,685,220 8,325,591 3,401,479 3,421,424 3,706,978 TOTAL REVENUES $ 6,162,615 $ 13,382,083 $ 9,024,113 $ 8,913,964 $ 15,653,575

EXPENDITURES
Salaries & Benefits $ - $ - $ 31,085 $ - $ -
Operating Expenditures - - 496 - -
Grants & Awards - - - - -
Fixed Assets - - - - -
Interest - - - - -
Internal Service Charges - - - - -
Capital Projects 8,987,510 7,907,339 5,833,758 11,847,615 15,447,668 Capital Acquisitions - - - - -
Debt Service - - - - -
Transfers Out 533,616 569,952 533,616 533,616 533,616
TOTAL EXPENDITURES $ 9,521,126 $ 8,477,291 $ 6,398,955 $ 12,381,231 $ 15,981,284 Net Increase (Decrease) (3,358,511) 4,904,792 2,625,158 (3,467,267) (327,709) Beginning Fund Balance 18,488,574 15,130,063 20,034,855 22,660,013 19,192,746 Ending Fund Balance $ 15,130,063 $ 20,034,855 $ 22,660,013 $ 19,192,746 $ 18,865,037

1 Wendy Wood
Subject: FW: Pre meeting to review mid year review information From: Phil Koen
Sent: Monday, January 30, 2023 3:08 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Re: Pre meeting to review mid year review information [EXTERNAL SENDER]
Gitta,
Thank you for the quick reply. Understand completely. How about 9am on the 10th? Also can you confirm you will be able to prepare the additional schedules I requested for the mid‐year review? Thanks.

Phil
Sent from my iPhone
On Jan 30, 2023, at 5:37 PM, Gitta Ungvari <[email protected]> wrote:

Hello Phil,
Our team is working on the February 13th Finance Commission Agenda items. We are publishing the items late Thursday afternoon. We can meet on Friday the 10th of February.  I am available on Friday from 9 a.m. to 10:45 a.m. or between noon and 3 p.m.

Let me know what time would work for you to schedule an hour meeting.

Thanks,
Gitta
‐‐‐‐‐Original Message‐‐‐‐‐
From: Phil Koen
Sent: Sunday, January 29, 2023 6:03 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Pre meeting to review mid year review information [EXTERNAL SENDER]
Hello Gitta,

2 I was hoping we could meet on Thursday afternoon Feb 9 to review the FC package with a particular focus on the mid year financial information. I think it would be helpful to jointly review the material in advance of the meeting and address any potential questions. That will make the meeting more efficient.

I have asked Rick to join us, but his schedule may not allow him to join. I’ll let him wade in on this. I think we can cover everything in about an hour.

Please let me know if Thursday afternoon would be convenient for you and the best time to meet.

Thank you.

Phil Koen

1 Subject: FW: Pages from FY-202122-ACFR - ARPA Discussion for mid year review Attachments: Pages from FY-202122-ACFR - (11)(1).pdf
From: Phil Koen
Sent: Tuesday, January 31, 2023 11:46 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Pages from FY‐202122‐ACFR ‐ ARPA Discussion for mid year review [EXTERNAL SENDER]
Gitta,
As part of the mid‐year review I would respectfully request that we review the use of the $3,413,961 ARPA funds recognized as revenue in FY22 and the $3,614,872 recognized as revenue in FY 23. My concern is there is a perception that the Town is on the razor edge and does not have any discretionary funds available for very worthy projects. It is important that the Town provide a complete accounting of the “uses” of the ARPA funds received so there is complete transparency and agreement on how these funds were actually deployed.

Regarding the $3,413,961 in FY 22 revenue, based on the audited financials all of the ARPA revenue was recorded in the other non‐major ARPA fund and then transferred to the General Fund. There were no expenses recorded in the ARPA fund, so the entire $3,413,961 was transferred. You can see this in the attached schedules.

In a prior update given to the FC, the plan was to use $1,433,000 of the FY22 ARPA revenue for various expenditures such as destination marketing, k rails, promenades, enhanced senior services, grants and parklets. It appears all of these expenditure were made from the General Fund, not the ARPA Fund, and are an element of the $43.3m in total general fund expenditures for FY 22.

In addition the plan was to “backfill” $369,124 in general fund revenue for the “loss” of rental revenue from rental waivers.The backfill and the incremental expenditures noted above, total $1,802,124 in “uses” earmarked for the FY 22 ARPA funds.

In trying to understand the flow of the $3,413,161, while acknowledging money is fungible, the financial statements show growth in all general fund tax revenues was more than sufficient to fund all of the earmarked expenditures AND all of the rent waivers. Total tax revenues alone exceeded the adopted plan by $2,381,516. That means none of the $3,413,161 in ARPA funds were used as planned. In fact, the General Fund reported a surplus of $3,290,895 in excess revenues over expenditures (note there was no ARPA funds in the General Fund revenues), even after absorbing the planned $1,802,124 in additional uses of funds.

This operating surplus combined with the transfer in of the $3,413,961 in ARPA funds and additional transfers in from other funds of $633,353 combined to create a gross surplus in the General Fund, before transfers out, of $7,338,208.

Again, $3,413,961 was directly attributable to ARPA.

It is at this point we lose all traceability for the ARPA funds. All we know is $4,358,188 was transferred out of the General Fund, leaving $2,980,020 of the $7,338,208 in the General Fund balance. This balance was then allocated across

2 a number of general fund balance reserve accounts. Was some of this ARPA funds? We don’t know since the ARPA footnote does not provide the reader with any insight.

Regarding the $4,358,188 that was transferred out, we have no idea if any or all of that was the ARPA funds. Since money is fungible, we could just declare that the entire $3,413,961 was included in that transfer out. That would make it simpler in tracing the funds.

If we make that assumption, that means all $3,413,188 is still available since it is in the GAFR ending fund balance of $14,240,753.

In addition to the FY 22 ARPA revenues, the Town has received $3,614,872 in FY 23. These funds were received in July 2022 and recorded in the ARPA fund as revenue. And like FY 22, most likely no expenses were recorded in the ARPA fund, with all of the funds ultimately being transferred into the General Fund.

As part of the mid‐year update it would be helpful to provide an analysis of the use of the FY 23 funds. If FY 23 is like FY 22, the General Fund Tax revenues will most likely  be stronger than the adopted plan and therefore no ARPA funds will be necessary to “backfill” rental waivers or planned revenue shortfalls. The revenue over achievement combined with the savings from open positions that could be as much as $2m, suggest the General Fund will experience another year where revenues exceed expenditures. That means that no ARPA funds would be necessary to balance the F23 general fund.

Given the above, It is entirely possible that the full $7m in ARPA funds is still available to the TC for allocation. We need to confirm this.

Let’s work together to develop the analysis to show what happened in FY 22 and the most likely outcome for FY 23 to the ARPA funds. I am concerned that without better clarity, the Town will miss an opportunity to help many worthy programs.

Thank you,
Phil

of $1,156,412, increasing beginning fund balance and net position by $0.7 million. See Note 4 for additional information.
• The Town received the first tranche payment of $3,614,872 from the American Rescue Plan Act (ARPA) grant on July 13, 2021. For FY 2020/21, $200K of ARPA proceeds was recognized asrevenue to reimburse the Town for qualifying expenditures under the provisions of the Act including boosting economic recovery and providing rent forgiveness and direct grants to nonͲprofit and social welfare organizations. For FY 2021/22, the Town recognized $3.4 million in ARPA revenues related to recovery of revenue loss. • Despite the ongoing economic impacts resulting from the nationwide pandemic, the Town’s economically sensitive major revenues of property tax, sales tax, and business license tax were able to record gains from amounts reported the prior fiscal year. Property taxes collected increased $1.3 million, sales taxes increased $0.6 million, while business license tax increased by a modest $94K from amounts collected the prior year. • The economic impacts related to the pandemic and initial travel restrictions continued into FY 2021/22. FY 2021/22 Transient Occupancy Tax (TOT) revenue collection increased by $840K compared to the level collected in FY 2020/21. However, the current year proceeds of $1.9 million is still $0.8 million lower than FY 2019/20 level of TOT collection. • Total expenses asreported in the Statement of Activitiesincreased $2.2 million from the prior year. The increase primarily was driven by a oneͲtime $6.9 million State passͲthrough grant payment in General Government for wildfire protection. Excluding the oneͲtime payment, total expenses actually decreased from the prior year by $4.7 million primarily due to the $3.1 million calculated pension expense credit,salary and benefitsavings, and other miscellaneous operational savings. As previously noted, the pension expense credit was mostly from actual investment earnings in excess of estimated assumed investment earnings and additional discretionary payments in excess of contractually required contributions. • The cost of all governmental activities as presented in the Statement of Activities this year was $52.7 million. The Town’s governmental program revenues were $41.2 million including charges for services of $12.8 million, operating grants and contributions of $6.2 million, and capital grants and contributions of $22.2 million. After taking governmental program revenues into consideration, the net amount of taxpayer supported governmental activities was $11.5 million. The Town paid for the remaining “public benefit” portion of governmental activitiesfrom total taxes and general revenues of $35.7 million. This $11.5 million in net cost of governmental activities is net of the $12.2 million Los Gatos Theatre contribution that occurred during FY 2021/22. Excluding the theatre contribution, the net cost of governmental activities would be $23.7 million which represents an approximate 32% decrease from the prior fiscal year ($35.1 million). The decrease reflects reduced costs related to the pension credit and increased governmental grant revenuesfrom the prior year. • At the end of FY 2021/22, the General Fund balance was $26,896,789 compared to $23,914,618 in the prior year. The ending fund balance of $26,896,789 represents approximately 62% of General Fund expenditures for the current fiscal year excluding L

TOWN OF LOS GATOS, CALIFORNIA

GOVERNMENTAL FUNDS

STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES
FOR THE FISCAL YEAR ENDED JUNE 30, 2022

Other
Nonmajor Total
Appropriated Governmental Governmental
General Reserves Funds Funds

REVENUES
Property Taxes $ 21,129,082 $ - $ 38,640 $ 21,167,722
Sales Taxes 8,483,673 - - 8,483,673
Other Taxes 1,909,816 - 66,382 1,976,198
Licenses & Permits 5,096,318 420,055 538,667 6,055,040
Intergovernmental 1,263,352 9,400,918 4,828,712 15,492,982 Charges for Services 5,460,613 1,464,746 - 6,925,359
Fines and Forfeitures 319,170 - - 319,170
Franchise Fees 2,822,515 - - 2,822,515
Developer Fees 1,200,000 535,571 - 1,735,571
Interest (1,404,527) 34,805 90,739 (1,278,983)
Use of Property 32,400 93,001 19,500 144,901
Other 311,040 - 38,105 349,145
Total Revenues 46,623,452 11,949,096 5,620,745 64,193,293

EXPENDITURES
Current:

General Government 9,053,968 6,900,000 - 15,953,968
Public Safety 16,451,190 - - 16,451,190
Parks and Public Works 8,605,457 - 33,671 8,639,128
Community Development 6,313,511 - - 6,313,511
Library Services 2,752,397 - 74,813 2,827,210
Sanitation and Other - - 194,969 194,969
Capital Outlay - 9,570,780 907,890 10,478,670
Debt service:

Principal 156,034 - - 156,034
Total Expenditures 43,332,557 16,470,780 1,211,343 61,014,680

EXCESS (DEFICIENCY) OF REVENUES
OVER EXPENDITURES 3,290,895 (4,521,684) 4,409,402 3,178,613

OTHER FINANCING SOURCES (USES)
Gain from sale of assets 2,151 - - 2,151
Transfers in 4,047,313 4,074,141 32,853 8,154,307
Transfers (out) (4,358,188) (427,616) (3,524,881) (8,310,685) Total Other Financing Sources (Uses) (308,724) 3,646,525 (3,492,028) (154,227) NET CHANGES IN FUND BALANCES 2,982,171 (875,159) 917,374 3,024,386 BEGINNING FUND BALANCES 23,914,618 15,115,912 8,807,222 47,837,752 ENDING FUND BALANCES $ 26,896,789 $ 14,240,753 $ 9,724,596 $ 50,862,138 The notes to the financial statements are an integral part of this statement.

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TOWN OF LOS GATOS, CALIFORNIA

NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2022
d. Partnerships for the conversion of existing residential developments dedicated to affordable housing
e. Grants to the Santa Clara County Housing Trust for the development of affordable housing.

During the fiscal year ended June 30, 2012, the rights and obligations resulting from this cooperative agreement were transferred to the Successor Agency Trust Fund as a part of the Town’s dissolution of its Redevelopment Agency.

NOTE 15 - COVID19 PANDEMIC PROGRAMS
On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law by President Biden.

The $1.9 trillion package (the Act) provided financial aid to families, governments, businesses, schools, nonprofits and others impacted by the COVID19 public health crisis. Of the $1.9 trillion, $350 billion is being directed toward state and local governments. All 19,000 municipal governments are entitled to a direct, noncompetitive federal formula grant from the U.S. Treasury Department. The portion allocated to cities, towns, and villages totals $65.1 billion of which $19.5 billion is obligated toward cities with less than 50,000 residents. The Act will allocate $7,229,744 to the Town over a twoyear period. The first tranche payment of $3,614862 was received on July 13, 2021, and the second payment no earlier than 12 months after the first payment.

Section 603. CORONAVIRUS LOCAL FISCAL RECOCERY FUND of the Act identified four eligible uses for funding, as follows:
$ 5espond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality; % 5espond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the metropolitan city, nonentitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work;
& 3URYLGH government services to the extent of the reduction in revenue of such metropolitan city, nonentitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, nonentitlement unit of local government, or county prior to the emergency; or
' 0DNH necessary investments in water, sewer, or broadband infrastructure.

During the fiscal year ended June 30, 2022 , the Town recognized $3,413,961 as operating grant revenue in the ARPA special revenue fund and transferred $3,413,961 to other funds, reimbursing the Town for qualifying expenditures under the provisions of the Act. )RU )<  WKH 7RZQ UHFRJQL]HG WKH LQLWLDO . RI $53$ SURFHHGV DV UHYHQXH WR UHLPEXUVH WKH 7RZQ IRU TXDOLI\LQJ H[SHQVHV

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1 Subject: FW: Pages from FY-202122-ACFR - ARPA Discussion for mid year review From: Phil Koen
Sent: Thursday, February 2, 2023 7:25 AM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Re: Pages from FY‐202122‐ACFR ‐ ARPA Discussion for mid year review [EXTERNAL SENDER]
Terrific. Let’s review that when we get together.

It is very reasonable to claim that all $7m is still available since the GF ran a very strong operating surplus in FY 22.

Understanding how the capital was deployed is really important. We all need to be on the same page so we can make a recommendation to the TC.

Thanks!
Phil
Sent from my iPhone
On Feb 2, 2023, at 3:46 PM, Gitta Ungvari <[email protected]> wrote:

Phil,
Thanks for your email. The Finance Team is already incorporating a recap of the Council Direction regarding ARPA proceeds spending in the mid‐year budget review report.

Gitta
From: Phil Koen
Sent: Tuesday, January 31, 2023 11:46 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Pages from FY‐202122‐ACFR ‐ ARPA Discussion for mid year review [EXTERNAL SENDER]
Gitta,
As part of the mid‐year review I would respectfully request that we review the use of the $3,413,961 ARPA funds recognized as revenue in FY22 and the $3,614,872 recognized as revenue in FY 23. My concern is there is a perception that the Town is on the razor edge and does not have any discretionary funds available for very worthy projects. It is

2 important that the Town provide a complete accounting of the “uses” of the ARPA funds received so there is complete transparency and agreement on how these funds were actually deployed.

Regarding the $3,413,961 in FY 22 revenue, based on the audited financials all of the ARPA revenue was recorded in the other non‐major ARPA fund and then transferred to the General Fund. There were no expenses recorded in the ARPA fund, so the entire $3,413,961 was transferred. You can see this in the attached schedules.

In a prior update given to the FC, the plan was to use $1,433,000 of the FY22 ARPA revenue for various expenditures such as destination marketing, k rails, promenades, enhanced senior services, grants and parklets. It appears all of these expenditure were made from the General Fund, not the ARPA Fund, and are an element of the $43.3m in total general fund expenditures for FY 22.

In addition the plan was to “backfill” $369,124 in general fund revenue for the “loss” of rental revenue from rental waivers.The backfill and the incremental expenditures noted above, total $1,802,124 in “uses” earmarked for the FY 22 ARPA funds.

In trying to understand the flow of the $3,413,161, while acknowledging money is fungible, the financial statements show growth in all general fund tax revenues was more than sufficient to fund all of the earmarked expenditures AND all of the rent waivers. Total tax revenues alone exceeded the adopted plan by $2,381,516. That means none of the $3,413,161 in ARPA funds were used as planned. In fact, the General Fund reported a surplus of $3,290,895 in excess revenues over expenditures (note there was no ARPA funds in the General Fund revenues), even after absorbing the planned $1,802,124 in additional uses of funds.

This operating surplus combined with the transfer in of the $3,413,961 in ARPA funds and additional transfers in from other funds of $633,353 combined to create a gross surplus in the General Fund, before transfers out, of $7,338,208.

Again, $3,413,961 was directly attributable to ARPA.

It is at this point we lose all traceability for the ARPA funds. All we know is $4,358,188 was transferred out of the General Fund, leaving $2,980,020 of the $7,338,208 in the General Fund balance. This balance was then allocated across a number of general fund balance reserve accounts. Was some of this ARPA funds? We don’t know since the ARPA footnote does not provide the reader with any insight.

Regarding the $4,358,188 that was transferred out, we have no idea if any or all of that was the ARPA funds. Since money is fungible, we could just declare that the entire $3,413,961 was included in that transfer out. That would make it simpler in tracing the funds.

If we make that assumption, that means all $3,413,188 is still available since it is in the GAFR ending fund balance of $14,240,753.

In addition to the FY 22 ARPA revenues, the Town has received $3,614,872 in FY 23. These funds were received in July 2022 and recorded in the ARPA fund as revenue. And like FY 22, most likely no expenses were recorded in the ARPA fund, with all of the funds ultimately being transferred into the General Fund.

As part of the mid‐year update it would be helpful to provide an analysis of the use of the FY 23 funds. If FY 23 is like FY 22, the General Fund Tax revenues will most likely  be stronger than the adopted plan and therefore no ARPA funds will be necessary to “backfill” rental waivers or planned revenue shortfalls. The revenue over achievement combined with the savings from open positions that could be as much as $2m, suggest the General Fund will experience another year where revenues exceed expenditures. That means that no ARPA funds would be necessary to balance the F23 general fund.

Given the above, It is entirely possible that the full $7m in ARPA funds is still available to the TC for allocation. We need to confirm this.

3 Let’s work together to develop the analysis to show what happened in FY 22 and the most likely outcome for FY 23 to the ARPA funds. I am concerned that without better clarity, the Town will miss an opportunity to help many worthy programs.

Thank you,
Phil

1 Subject: FW: ARPA Update.pdf
Attachments: ARPA Update.pdf
From: Phil Koen
Sent: Thursday, February 2, 2023 10:05 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: ARPA Update.pdf
[EXTERNAL SENDER]
Hi Gitta,
I have attached the last update the FC received on the deployment of the ARPA funds.

Let’s review what actually happened in FY 22 and discuss the plan for FY 23 taking into consideration our best thinking on most likely outcome for FY 23 operating surplus.

Greatly appreciate you walking me through this.

Phil
Sent from my iPhone

ATTACHMENT 5
PREPARED BY: Stephen Conway
Finance Director
Reviewed by: Town Manager and Assistant Town Manager
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov

TOWN OF LOS GATOS

FINANCE COMMISSION

REPORT REPORT
MEETING DATE: 06/13/2022
DATE: June 8, 2022
TO: Finance Commission
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive Update on American Rescue Plan Act Administration RECOMMENDATION:

Receive update on American Rescue Plan Act (ARPA) administration.

BACKGROUND:

In accordance with ARPA, the Town was awarded an ARPA grant in the amount of $7,229,744 paid to the Town in two separate payments, the first payment of $3,618,872 was received in early July 2021 and the second payment of $3,614,872 is expected to be received in early July 2022.

Based on initial guidance of eligible uses of ARPA funds the Town allocated these funds to various purposes to respond and support the impacts of the pandemic on Town residents, nonprofits, the business community including the construction of downtown parklets, non-profit fee and rent waivers, enhanced senior services, promenades, and increased funding for Town infrastructure capital improvements, among other initiatives.

Since receipt of ARPA funds staff has been following the evolution of the federal guidelines for the use of ARPA funding as well as regularly participating in ARPA focused webinars presented by the US Department of the Treasury (Treasury) staff and the ARPA sub-group sponsored by the Government Finance Officers Association. During the initial ARPA implementation period Treasury received a tremendous number of inquiries from ARPA grant recipients on how best to comply with the complex and evolving federal regulations and guidance for calculating pandemic related revenue loss and complying with federal uniform guidance on eligible uses of ARPA funds. Treasury responded to this demand by revising its initial requirements in their

Item 2.

PAGE 2 OF 3
SIBJECT: Receive Update on American Rescue Plan Act (ARPA) Administration DATE: June 8, 2022
BACKGROUND (continued):

Final Interim Rule to allow certain non-entitlement units (NEUs) like the Town of Los Gatos a simplified procedure for claiming and reporting revenue loss. To be eligible for the simplified claiming procedures, the NEU must receive a total ARPA award of less than $10 million.

DISCUSSION:

Upon Treasury’s release of the simplified reporting process for entities awarded less than $10 million in ARPA funding and additional guidance received through staff review of federal compliance issues, staff recommends that the Town recognize the $3.4 M of FY 2021/22 and the anticipated $3.6M FY 2022/23 cash collections of ARPA revenues as qualified revenue loss under the Treasury provisions for use in providing government services. To further aid in compliance with federal uniform guidance and Single Audit requirements, staff is intending to claim the lost revenue for use in providing essential government services and intends to account for the use of ARPA revenue loss revenues for eligible public safety payroll costs for both FY 2021/22 and FY 2022/23.

The recommended action as illustrated in the below worksheet will allocate all ARPA “replacement” revenues to the General Fund which in turn will unencumber other General Fund operating revenues which were previously dedicated for public safety costs. The newly unencumbered General Fund revenues can then be allocated to the ARPA pandemic responses as identified, approved and allocated by Town Council since receipt of the $7.2 million ARPA award.

Item 2.

I
11

PAGE 3 OF 3
SIBJECT: Receive Update on American Rescue Plan Act (ARPA) Administration DATE: June 8, 2022
CONCLUSION:

The worksheet illustrates budget adjustments related to the necessary ARPA and General Fund revenue and expense adjustments and recaps the total ARPA grant award of $7,229,744 and the Council directed uses approved or proposed through June 7, 2022. In addition, the worksheet provides the detail staff will use to adjust the ARPA and General Fund budgets to recognize the ARPA grant award for revenue loss to be used to reimburse public safety response. It will also be used to recognize and budget FY 2021/22 matching General Fund ARPA replacement revenues and expenditure budgets for use in supporting the ARPA objectives as approved/proposed and directed by Town Council since original receipt of the ARPA grant award.

Item 2.

1 Subject: FW: Follow up to the FC meeting
From: Phil Koen
Sent: Monday, February 6, 2023 5:49 PM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>
Subject: FW: Follow up to the FC meeting
[EXTERNAL SENDER]
Hello Gitta,
I was going through my open item list and noticed that Arn had never responded to my email below. This was a follow up note for more information coming from the last FC meeting.

If you have time, it would be great if you could provide the information requested.

Phil
From: Phil Koen
Sent: Thursday, January 12, 2023 5:00 PM
To: Arn Andrews <[email protected]>
Cc:

Subject: Follow up to the FC meeting
Hello Arn,
Just a quick follow up note regarding information requests from the FC meeting last Tuesday evening. Staff was going to provide the FC with the gross amount of the market‐to‐market adjustment that was netted in the “net” investment income of $(1,404,563).

Also, there were a couple of questions regarding the balance of the development deposits for General Plan Revenue ($698,302 in revenue was recognized) and the balance of the development deposits for the Below Market Housing Program ($1,200,000 in revenue was recognized). I am assuming that all these various development fee deposits are consolidated and reported in the $6.8m deposits on the General Fund balance sheet. Is my understanding correct? How many different deposit accounts are consolidated into the $6.8m? I had one last question which I forgot to ask last. On page 35 of the transactions report, under the private purpose trust fund column there is a $5,899,675 deduction. Could you provide some detail about this deduction? Thank you.

Phil Koen

1 Subject: FW: Meeting on Friday
Attachments: Pages from FY-202122-ACFR - (12).pdf
From: Phil Koen
Sent: Tuesday, February 7, 2023 11:19 AM
To: Gitta Ungvari <[email protected]>
Cc: Laurel Prevetti <[email protected]>; Rick Tinsley Subject: Meeting on Friday
[EXTERNAL SENDER]
Hi Gitta,
I’m looking forward to our meeting on Friday. Since we only have 1 hour, we will need to be efficient with our time. I would propose the following agenda

1. Discuss the mid‐year financial update 30 mis

2. Review of $7m in ARPA fund flows 15 mins

3. Discussion of GAFR FY 22 10 mins

4. Information request from Jan FC   5 mins
I have attached a schedule from the 2022 ACFR which shows the budget vs actual for the GAFR. I am interested in understanding the variance from the adopted budget for intergovernmental revenues and the capital outlay. I know that $6.9m of intergovernmental revenue is the pass‐through grant for wildfire which was not planned. What were the other $1m in revenues that were recorded as revenue that weren’t in the original adopted budget? Also, what projects accounted for the $4.1m more in capital outlay than was originally planned? That is a material increase and I do not know what caused that.

I am asking this so I have a better understanding of what might happen in FY 23 based on how FY 22 played out. Could we receive more intergovernmental revenues that weren’t planned but are on the horizon? Could capital outlays be materially different from the adopted FY 23 budget? These are the issues we should explore.

Thanks,
Phil

Variance
Original Final Positive
Budget Budget Actual (Negative)

REVENUES
Licenses & permits 160,000 160,000 420,055 260,055
Intergovernmental 1,691,069 16,912,649 9,400,918 (7,511,731) Charges for services 755,676 2,693,556 1,464,746 (1,228,810) Developer fees 20,000 20,000 535,571 515,571
Interest - - 34,805 34,805
Use of Property - - 93,001 93,001
Total Revenues 2,626,745 19,786,205 11,949,096 (7,837,109)

EXPENDITURES
Current:

General government - 7,000,000 6,900,000 100,000
Capital outlay 5,414,872 10,894,632 9,570,780 1,323,852 Total Expenditures 5,414,872 17,894,632 16,470,780 1,423,852

EXCESS (DEFICIENCY) OF REVENUES
OVER EXPENDITURES (2,788,127) 1,891,573 (4,521,684) (6,413,257)

OTHER FINANCING SOURCES (USES)
Transfers in 2,841,047 3,584,047 4,074,141 490,094
Transfers (out) (427,616) (427,616) (427,616) -
Total Other Financing Sources (Uses) 2,413,431 3,156,431 3,646,525 490,094 CHANGE IN FUND BALANCE $ (374,696) $ 5,048,004 (875,159) $ (5,923,163) BEGINNING FUND BALANCE 15,115,912
ENDING FUND BALANCE $ 14,240,753

BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2022

TOWN OF LOS GATOS

APPROPRIATED RESERVES FUND

COMBINING SCHEDULE OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCE
og
o_0
A

From: Phil Koen
To: Gitta Ungvari
Cc: Laurel Prevetti; Rick Tinsley; Maria Ristow; Rob Rennie Subject: Excess liquidity available to be reprogrammed
Date: Wednesday, February 15, 2023 9:45:27 AM
Attachments: Excess liquidity (2).pdf
[EXTERNAL SENDER]
Hi Gitta,
I have been reflecting on the FC meeting and I recommend that the Staff provide more clarity to the Town Council on two questions - 1) how much of the ARPA money is currently available, meaning unspent vs programmed to be spent; and 2) what is FY 23’s most likely range of operating surplus (revenues in excess of expenditures).

I have attached a couple of pages from the FC package where I have provided my view. Let me lay out my thinking:

1. ARPA Funds
The Staff memo points out that there are $2,065,302 ARPA funds available in the GF reserve as of year end FY 22. Additionally the Town received the second ARPA payment of $3,614,872 in July, 2022 and recorded the grant as revenue in FY 23. The schedule of Special Revenue Funds - ARPA on page 23 of item #5 shows those funds are still available and unspent as of the end of Q2 FY 23. Therefore $5,680,174 is available.

I understand that because the TC passed a resolution which programmed the expenditure of ARPA funds in FY 23, the Staff views these “programmed” expenditures as “spent”. Applying these future programmed expenditures totaling $681,428 to the current funds available of $5,680,174, leaves a balance of $4,998,746. This amount is available to the TC to reprogram to new and better uses if the TC should so decide.

Since the updated forecast now reflects a surplus of $1,238,174 (more on this below) there is no need to program $1,645,281 as “balancing revenue and operating expenses” for FY 23.

Additionally the $2,900,000 for capital expenditures is a pool of funds that has not been allocated to any specific capital project and should be freely available for redeployment if the TC so decides. It should be pointed out that as of June 30, 2022 the Town had approximately $33 reserved for capital projects in total government funds. Of this $33m, only $8m is restricted in its use, leaving $25m unrestricted. The $2.9m would be in addition to the unrestricted amount.

2. FY 23 probable operating surplus including mid-year adjustments The schedule on page 28 of item #5 shows in the far right column an estimate for FY 23 which reflects all proposed mid-year adjustments. The FY 23 net change to the General Fund is projected to be a decrease of ($1,230,268). This net change is comprised of the FY 23 ATTACHMENT 2

operating surplus, plus transfers in, less transfers out from the General Fund balance. Fund transfers are not an element of the current year’s operating surplus but do impact the change in fund balance. Our interest is only the current year surplus for this analysis.

We need to expand the net change number into the component pieces to determine the estimated operating surplus for FY 23. I have shown my calculations on the attached which computes $1,238,174 as the operating surplus. By comparison, in FY 22 the General Fund had an operating surplus of $3,290,895.

It is very important to understand that no ARPA revenue nor expenses are included in the projected $1,238,174 operating surplus for FY 23. That is because the ARPA money is accounted for in a separate special revenue fund. Therefore to arrive at a total liquidity available to the Town Council for reprogramming you need to add the funds available from both the General Fund’s operating surplus and the ARPA funds. That number is $6,236,920.

This is why I made the comment during the FC advising the Town Council that there is significant amount of funds available for programming in FY 23. I stand by that recommendation.

While I appreciate how the Staff has arrived at their estimate, it is important to realize there is a level of conservatism baked into these estimates. While that is a reasonable approach, without having an idea of the degree of conservatism, it is difficult to judge the probability associated with actual having a $1,238,174 operating surplus or even a greater surplus.

In doing a line item by line item review of both revenues and expenditures, taken as a whole, I conclude it is highly likely total tax revenues will be $1,000,000 greater than the estimate, operating expenses primarily driven by vacancies and other savings will be $500,000 less and interest income through better cash management of the Town’s $10m in demand deposits and reinvestment of low yield maturing securities could possibly be $200k higher.

Therefore the most likely range for the operating surplus is $1,238,174 up to $2,938,174.

Given the degree of conservatism baked into the forecast and mindful that there is only 4 and 1/2 months left in FY 23, I do not see any likelihood that the operating surplus will be less than the up dated estimate. There is far more upside than downside.

As the TC thinks about resource allocation the risks they must clearly understand is 1) the risk of not funding a worthy program because they relied on a too conservative forecast versus 2) the risk of funding a worthy program and not having the funds available.

It is my recommendation that the more acceptable risk to assume is the second risk because the Town has significant General Fund reserves to tap in this event. Far better to fund worthy programs and tap reserves (this is why reserves exist) than to not fund worthy programs and not have necessary services provided to the Town’s residents.

In fact, the Town has been operating this way for some time. It is very common for the Town Council to approve an unfunded incremental expenditure by tapping the Capital/Special Project reserve of the General Fund as a funding source. This reserve has historically been used as the “shock absorber” for unfunded new needs. I might point out that there are more appropriate ways to handle this situation, which we have discussed.

Please let me know if you have any questions. I have also copied our two Council Members on ATTACHMENT 2

the FC so they can benefit from this analysis. To be clear this is my analysis and has not been shared with entire FC because of the lack of time.

Phil

27 Council has already allocated all the $7.2 million proceeds for various priorities as illustrated in the below table. Staff will bring back any residual balance not used for the original purpose after completing the program for Council re-programming reconsideration
While the Town already recognized the full first tranche of the ARPA proceeds during FY 2020/21 and FY 2021/22, only $1,549,570 was utilized during those fiscal years, $2,065,302 is part of the General Fund balance and tracked by staff to ensure that the proceeds are spent by Council adopted uses.

The FY 2022/23 budget was adopted prior to the simplified guideline so staff is proposing the following budget adjustments to recognize the revenue and track the Council approved uses.

FY 2020/21 GRAND
BUDGET ADJ.

ACTUALS ESTIMATED ACTUALS BAL REMAINING ESTIMATED EST. MID-YEAR TOTAL ARPA FUNDS REVENUE RECOGNIZED $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 GOV SERVICES (WAIVERS,CUP&ADA,DIRECT GRANTS) 200,911 200,911 REVENUE LOSS -GOV SERVICES (PUBLIC SAFETY) 3,413,961 3,413,961 3,614,872 7,028,833 $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744
GENERAL FUND ARPA REPLACEMENT REVENUES AVAILABLE $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 LESS APPROVED USES TO BE BUDGETED:

PARKLETS (DOWNTOWN IMPVTS PROJECT) $ - $ 680,000 $ 466,428 $ 213,572 $ 250,000 $ - $ 930,000 RENT WAIVERS 121,255 341,452 341,452 - 283,756 746,463
CUP/ADA FEE WAIVERS 19,656 27,672 27,672 - 27,672 75,000 DESTINATION MARKETING 55,000 55,000 - 55,000
K-RAILS (DOWNTOWN IMPVTS PROJECT) 68,000 88,654 (20,654) 68,000 PROMENADES 80,000 69,855 10,145 120,000 90,628 200,000
DIRECT GRANTS 60,000 50,000 50,000 - 110,000
ENHANCED SENIOR SERVICES 500,000 249,597 250,403 500,000 CAPITAL IMPROVEMENT PROGRAM SUPPORT TRANSFERS 2,900,000 580,000 2,900,000 REQUIRED FOR GF BALANCING OF OPERATING REV_EXP 1,645,281 1,645,281 TOTAL ALLOCATIONS OF GENERAL FUND ARPA REPLACEMENT REVENUES $ 200,911 $ 1,802,124 $ 1,348,659 $ 453,465 $ 5,226,709 $ 670,628 $ 7,229,744

AMERICAN RESCUE PLAN ACT (ARPA) SUMMARY WORKSHEET
FY 2021/22 FY 2022/23
Fund Program Account
111 4301 48219 ARPA - Intergovernmental Revenue 3,614,872 111 5301 48219 ARPA - Intergovernmental Revenue 40,431
111 3201 48219 ARPA - Intergovernmental Revenue 27,672
111 2101 48219 ARPA - Intergovernmental Revenue 120,000 411 411-813-0235 48219 ARPA - Intergovernmental Revenue 250,000 633 5404 48219 ARPA - Intergovernmental Revenue 243,325 241 1241 43217 ARPA - Intergovernmental Revenue 2,310,176 $ 6,606,476
241 1241 68219 ARPA - Income Replacement Expense 2,310,176 111 1201 68219 ARPA - Income Replacement Expense 3,581,428 $ 5,891,604
American Rescue Plan Act (ARPA) Fund
FY 2022/23 MID-YEAR BUDGET ADJUSTMENT REQUESTS - ARPA RECLASSIFICATION

Item 5.

O
Balance 2,065,302
and ARPA 318897T available
Programmed 681,428
spend
Net Page 294 avail 4,998,711
28 GENERAL FUND FINANCIAL SUMMARIES AND ESTIMATES
The following table is the Schedule of General Fund Operating Revenues Versus Operating Expenditures for the second quarter of FY 2022/23which includes comparison information from the prior year.

The FY 2022/23 Adjusted Budget column includes the adopted budget and items that Council approved during the course of the first two quarters of the fiscal year, such as additional funding for legal services, and miscellaneous carry over grants from prior fiscal year.

The FY 2022/23 Estimated column contains projections of final balances for the current fiscal year based upon staff analysis, the early trends observed through the second quarter in sales tax and property tax projections, and the proposed mid-year adjustments as listed in this report.

The FY 2022/23 Estimated figures also include analysis on potential salary and other expenditure savings; however, budget adjustments are only recommended as identified in this Report.

Staff continues to fine tune the detailed analysis of the FY 2022/23 year-end estimated revenue and expenditure numbers and an update will be provided with the presentation of the Proposed Fiscal Year 2023/24 Operating Budget.

The following table illustrates the summary of the General Fund balance status based on current estimates and prior year result.

The table in the following page provides the details of the Revenues and Use of Reserve and Total Expenditures and Reserve Allocations.

FY 2021/22 FY 2021/22
2Q % of
FY 2021/22
2Q % of
FY 2022/23 FY 2022/23 FY 2022/23 FY 2022/23
Actuals Q2 Actuals Adjusted
Budget
as of 12/31/2022
Q2 Adjusted
Budget
Year End Estimates
Including
Proposed
Mid-Year
Adjustments
Total Revenues & Transfers In $ 54,448,222 $ 17,978,806 33% 34% $ 17,098,505 $ 50,266,120 $ 50,546,861 Total Expenditures 51,466,052 21,155,306 41% 40% 21,105,947 52,886,926 51,777,130 Net Increase (Decrease) $ 2,982,171 $ (4,007,441) $ (2,620,805) $ (1,230,268) Beginning Fund Balance 23,914,618 26,896,789 26,896,789 26,896,789 Ending Fund Balance $ 26,896,789 $ 22,889,348 $ 24,275,983 $ 25,666,521

GENERAL FUND

SUMMARY OF REVENUES AND EXPENDITURES

Item 5.

I
open surplus
1,23044
opusurp 3,290,895 538,536
Tye Ah 4,047,313 Transfer In
Ty out 4,358,188 Trager
out
Net change EÉ
nettchangzEI

what could the surplus
Really be in FY 23
Curr estimate 1,238 174
Revenues
1 0001000
stronger
tax
vacancy
savings
5001000
interest meine 2,338,717

PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 14

ADDENDUM
DATE: February 17, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2022:
a. Receive FY 2022/23 Mid-Year Budget Report;
b. Authorize Budget Adjustments as Recommended in the Mid-Year Budget Report; and
c. Provide Direction of the Order of Authorized Funding Source to Balance the FY 2022/23 Operating Budget, if Necessary, at the Final Close of the Fiscal Year.

REMARKS:

A Council Member had the following inquiries and staff’s response is below.

Please confirm if $4,998,746 of American Rescue Plan Act (ARPA) funds are currently available to be reprogrammed by the Town Council, itemize what ARPA funds have actually been spent, specify what funds have been programmed but not spent and what is the estimated revenues over expenditures.

FY 2020/21 GRAND
BUDGET ADJ.

ACTUALS ESTIMATED ACTUALS BAL REMAINING ESTIMATED EST. MID-YEAR TOTAL ARPA FUNDS REVENUE RECOGNIZED $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 GOV SERVICES (WAIVERS,CUP&ADA,DIRECT GRANTS) 200,911 200,911 REVENUE LOSS -GOV SERVICES (PUBLIC SAFETY) 3,413,961 3,413,961 3,614,872 7,028,833 $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744
GENERAL FUND ARPA REPLACEMENT REVENUES AVAILABLE $ 200,911 $ 3,413,961 $ 3,614,872 $ 7,229,744 LESS APPROVED USES TO BE BUDGETED:

PARKLETS (DOWNTOWN IMPVTS PROJECT) $ - $ 680,000 $ 466,428 $ 213,572 $ 250,000 $ - $ 930,000 RENT WAIVERS 121,255 341,452 341,452 - 283,756 746,463
CUP/ADA FEE WAIVERS 19,656 27,672 27,672 - 27,672 75,000 DESTINATION MARKETING 55,000 55,000 - 55,000
K-RAILS (DOWNTOWN IMPVTS PROJECT) 68,000 88,654 (20,654) 68,000 PROMENADES 80,000 69,855 10,145 120,000 90,628 200,000
DIRECT GRANTS 60,000 50,000 50,000 - 110,000
ENHANCED SENIOR SERVICES 500,000 249,597 250,403 500,000 CAPITAL IMPROVEMENT PROGRAM SUPPORT TRANSFERS 2,900,000 580,000 2,900,000 REQUIRED FOR GF BALANCING OF OPERATING REV_EXP 1,645,281 1,645,281 TOTAL ALLOCATIONS OF GENERAL FUND ARPA REPLACEMENT REVENUES $ 200,911 $ 1,802,124 $ 1,348,659 $ 453,465 $ 5,226,709 $ 670,628 $ 7,229,744 FY 2021/22 FY 2022/23

PAGE 2 OF 3
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 17, 2023
REMARKS (continued):

The table above is also found on page 27 of the Mid-Year Budget Report. It depicts that all of the blue highlighted items that were not fully spent as of December 31 2022 will be fully expended per Council direction for parklets, enhanced senior services, rent waivers, and other items as listed.

The Adopted Budget included $2.9 million of ARPA allocation for Capital Purposes (highlighted in orange in the above table). At its August 16, 2022 meeting, the Council approved the partial programming of the $2.9 million as demonstrated in the table below.

Project Name Recommended Funding
Allocation
East Main Street Crosswalk
Improvements 300,000
Downtown Restroom
Feasibility Study/Design 25,000
Rehabilitate Automatic Gates
- 41 Miles Avenue 25,000
Termite Abatement at Water
Tower – 41 Miles Avenue 25,000
Civic Center Plumbing Repair
– 110 E. Main Street 40,000
HVAC Improvements – Police
Operations Building 25,000
Engineering Counter
Modifications – 41 Miles
Avenue 40,000
Unanticipated Repairs 100,000
Council Add: Pinehurst
Community Garden Project 100,000
Reserve for Future Capital
Projects or Matching Funds 2,220,000
TOTAL $2,900,000
As demonstrated in this table, $2,220,000 were set aside for Future Capital Projects or Matching Funds, such as Shannon Road repair and the required $750,000 match for the Wildfire Grant. The Capital Improvement Program and direction will be discussed separately at the the Finance Commission and Town Council March meetings.

Based on staff mid-year estimates, there is approximately $1.4 million operating revenues over operating expenditures. If all assumptions hold true, the $1.6 million (highlighted in green in

PAGE 3 OF 3
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 17, 2023
REMARKS (continued):
the table on the first page) most probably will not needed to balance the FY 2022/23 budget and would be available for Council reprogramming at the final close of the Fiscal Year with the audit (December 2023).

The following table demonstrates of the actual spending as of 2/15/2023 as a snapshot. The actual numbers do not include encumbrances, or future obligations under signed agreements. *Conditional Use Permit and Americans with Disability Act fee waivers for FY2022/23 will be determined at the close of the fiscal year.

Attachments previously received with the Staff Report:

1. Mid-Year Budget Report - July 1 - December 31, 2022 as Presented at the Finance Commission February 13, 2023 Meeting.

2. Public Comments Receive before Posting the Staff Report Attachments received with this Addendum:

3. Public Comments received after publishing the Staff Report and before 11:01 a.m. on Friday February 17.

GRAND ACTUAL

SPENDING
TOTAL AS OF 2/15/2023
ARPA FUNDS REVENUE RECOGNIZED $ 7,229,744
GOV SERVICES (WAIVERS,CUP&ADA,DIRECT GRANTS) 200,911
REVENUE LOSS -GOV SERVICES (PUBLIC SAFETY) 7,028,833
$ 7,229,744
GENERAL FUND ARPA REPLACEMENT REVENUES AVAILABLE $ 7,229,744 LESS APPROVED USES TO BE BUDGETED:

PARKLETS (DOWNTOWN IMPVTS PROJECT) $ 930,000 $ 926,262
RENT WAIVERS 746,463 746,463
CUP/ADA FEE WAIVERS* 75,000 47,328
DESTINATION MARKETING 55,000 55,000
K-RAILS (DOWNTOWN IMPVTS PROJECT) 68,000 88,654
PROMENADES 200,000 200,000
DIRECT GRANTS 110,000 110,000
ENHANCED SENIOR SERVICES 500,000 455,067
CAPITAL IMPROVEMENT PROGRAM SUPPORT TRANSFERS 2,900,000 65,900 REQUIRED FOR GF BALANCING OF OPERATING REV_EXP 1,645,281 - TOTAL ALLOCATIONS OF GENERAL FUND ARPA REPLACEMENT REVENUES $ 7,229,744 $ 2,694,674

AMERICAN RESCUE PLAN ACT (ARPA) SUMMARY WORKSHEET

From: Phil Koen
To: Gitta Ungvari
Subject: Question
Date: Thursday, February 16, 2023 10:30:30 PM
Attachments: Pages from MEET-Packet-ea2faa2d56764d67af3ef698c40b1cd1.pdf [EXTERNAL SENDER]
Gitta,
Could you check to see which net change number for FY 23 is correct? On page 196 you are showing $(3,876,603) and on page 256 you are showing $(4,007,441).

Thanks.

Phil
ATTACHMENT 3

Fund Schedule
Fund
Number Fund Description
Current
Revenue
Current
Expenditure Transfer In
Transfer
Out

GENERAL FUND
Non-Spendable: - - - - -
Loans Receivable 159,000 159,000
Restricted Fund Balances:

Pension 690,000 690,000
Committed Fund Balances:

Budget Stablization 5,991,566 5,991,566
Catastrphic 5,991,566 5,991,566
Pension/OPEB 300,000 300,000
Assigned Fund Balances:

Open Space 410,000 - - - 410,000
Sustainability 140,553 140,553
Capital/Special Projects 11,071,231 11,071,231
Carryover Encumbrances 33,145 - - - - 33,145
Compensated Absences 1,519,147 - - - - 1,519,147
Measure G District Sales Tax 590,581 - - - - 590,581
Unassigned Fund Balances:
111 Other Unassigned Fund Balance Reserve (Pre YE distribution - (3,355,854) 6,211,284 (6,732,033) - (3,876,603) General Fund Total 26,896,789 (3,355,854) 6,211,284 (6,732,033) - - 23,020,186 December 2022
Prior Year
Carryforward
7/1/2022
Increase/
(Decrease)
July-Nov
Estimated Fund
Balance
12/31/2022*

28 GENERAL FUND FINANCIAL SUMMARIES AND ESTIMATES
The following table is the Schedule of General Fund Operating Revenues Versus Operating Expenditures for the second quarter of FY 2022/23which includes comparison information from the prior year.

The FY 2022/23 Adjusted Budget column includes the adopted budget and items that Council approved during the course of the first two quarters of the fiscal year, such as additional funding for legal services, and miscellaneous carry over grants from prior fiscal year.

The FY 2022/23 Estimated column contains projections of final balances for the current fiscal year based upon staff analysis, the early trends observed through the second quarter in sales tax and property tax projections, and the proposed mid-year adjustments as listed in this report.

The FY 2022/23 Estimated figures also include analysis on potential salary and other expenditure savings; however, budget adjustments are only recommended as identified in this Report.

Staff continues to fine tune the detailed analysis of the FY 2022/23 year-end estimated revenue and expenditure numbers and an update will be provided with the presentation of the Proposed Fiscal Year 2023/24 Operating Budget.

The following table illustrates the summary of the General Fund balance status based on current estimates and prior year result.

The table in the following page provides the details of the Revenues and Use of Reserve and Total Expenditures and Reserve Allocations.

FY 2021/22 FY 2021/22
2Q % of
FY 2021/22
2Q % of
FY 2022/23 FY 2022/23 FY 2022/23 FY 2022/23
Actuals Q2 Actuals Adjusted
Budget
as of 12/31/2022
Q2 Adjusted
Budget
Year End Estimates
Including
Proposed
Mid-Year
Adjustments
Total Revenues & Transfers In $ 54,448,222 $ 17,978,806 33% 34% $ 17,098,505 $ 50,266,120 $ 50,546,861 Total Expenditures 51,466,052 21,155,306 41% 40% 21,105,947 52,886,926 51,777,130 Net Increase (Decrease) $ 2,982,171 $ (4,007,441) $ (2,620,805) $ (1,230,268) Beginning Fund Balance 23,914,618 26,896,789 26,896,789 26,896,789 Ending Fund Balance $ 26,896,789 $ 22,889,348 $ 24,275,983 $ 25,666,521

GENERAL FUND

SUMMARY OF REVENUES AND EXPENDITURES

8 O O Page 302
PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 14

DESK ITEM
DATE: February 21, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2022:
a. Receive FY 2022/23 Mid-Year Budget Report;
b. Authorize Budget Adjustments as Recommended in the Mid-Year Budget Report; and
c. Provide Direction of the Order of Authorized Funding Source to Balance the FY 2022/23 Operating Budget, if Necessary, at the Final Close of the Fiscal Year.

REMARKS:

Attachment 4 includes public comments received between 11:01 a.m. on Friday February 17, 2023, and 11:01 a.m. on Tuesday February 21, 2023. Attachment 5 contains replacement page 2 of the Staff Report and Attachment 6 contains replacement pages 3 of the Mid-Year Budget Performance Report to correct date from June 7, 2023 to June 7, 2022 as was observed by the public commenter.

Attachments previously received with the Staff Report and Addendum:

1. Mid-Year Budget Report - July 1 - December 31, 2022 as Presented at the Finance Commission February 13, 2023 Meeting.

2. Public Comments Receive before Posting the Staff Report.

3. Public Comments received after publishing the Staff Report and before 11:01 a.m. on Friday February 17.

Attachments received with this Desk Item:

4. Public Comments received between 11:01 a.m. on Friday February 17, 2023, and 11:01 a.m. on Tuesday February 21, 2023.

5. Replacement Page 2 of 4 of the Staff Report.

6. Replacement Page 3 of 33 of Mid-Year Budget Performance Report.

ATTACHMENT 4
From: Lee Fagot
Sent: Monday, February 20, 2023 5:51 PM
To: Gitta Ungvari <[email protected]>
Subject: Error in Council Agenda document
[EXTERNAL SENDER]
Gitta,
Thanks for all the work you are doing for our community.

Reading the agenda documents for tomorrow nights council meeting I found a possible error in a document you prepared. And, its very simple:

Item 14, Page 225 mid page - I think you have the wrong year - On June 7, 2023, the Town Council adopted the combined use of American Rescue Plan Act (ARPA) funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

Thanks
Lee Fagot
From: Lee Fagot
Sent: Monday, February 20, 2023 5:56 PM
To: Gitta Ungvari <[email protected]>
Subject: Re: UPDATE Error in Council Agenda document
[EXTERNAL SENDER]
And, I just noticed the same error on page 231 of this report - On June 7, 2023, the Town Council adopted the combined use of ARPA funding, residual Measure G
On Feb 20, 2023, at 5:51 PM, Lee Fagot wrote:

Gitta,
Thanks for all the work you are doing for our community.

Reading the agenda documents for tomorrow nights council meeting I found a possible error in a document you prepared. And, its very simple:

Item 14, Page 225 mid page - I think you have the wrong year - On June 7, 2023, the Town Council adopted the combined use of American Rescue Plan Act (ARPA) funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

Thanks
Lee Fagot

PAGE 2 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2022 DATE: February 15, 2023
REMARKS (continued):

Highlights of the Mid-Year Budget Report include:

Financial Overview and Executive Summary
As discussed in the Report, the current fiscal year-end projections for FY 2022/23 reflect an anticipated $0.7 million surplus of operating revenues and planned use of reserves over expenditures compared to the anticipated $3.2 million deficit in the Adopted Budget.

As discussed in greater detail later in this Report, the primary drivers of the reduction in the projected deficit are estimated increases in property tax, business license tax, Transient Occupancy Tax (TOT), and franchise fee distribution. ln addition to the improvement in revenue projections, staff is estimating that there will be year-end operating expenditure savings. Staff anticipates savings attributable to Departmental vacancies and lower cost structures associated with retiree replacements. In addition, for FY 2022/23, salaries were again budgeted at actual salary plus a one step increase, which was a significant budgeting methodology change from previous practice.

On June 7, 2022, the Town Council adopted the combined use of American Rescue Plan Act (ARPA) funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

The significant revenue increases combined with projected expenditure savings indicate that the approved sources might not be necessary; however, it can only be determined at the time of the final close of the fiscal year. Staff recommends not to re-program the proposed sources until the fiscal year is closed. Since it is probable that not all sources will be utilized, staff is asking for Council direction regarding what source should be utilized first to cure current fiscal year deficit, if needed. Due to the fact that OPEB Trust withdrawal should be requested in June, significantly earlier than the final numbers are available, staff recommend to not utilizing the Trust Reimbursement first. The Finance Commission did not agree with the staff recommendation. It preferred using the ARPA source last so as to give Council more resources to reprogram.

ARPA Replacement Reveneue $1,643,281
Measure G Residual for Operation $679,443
OPEB Trust Reimbursement for Retiree Medical $902,579
Total $3,225,303
Planned Use of One-Time Sources Balancing the FY 2022/23 Operating Budget ATTACHMENT 5

3 As discussed in greater detail later in this Report, the primary drivers of the reduction in the projected deficit are estimated increases in property tax, business license tax, Transient Occupancy Tax (TOT), and franchise fee distribution. ln addition to the improvement in revenue projections, staff is estimating that there will be year-end operating expenditure savings. Staff anticipates savings attributable to Departmental vacancies and lower cost structures associated with retiree replacements. In addition, for FY 2022/23, salaries were again budgeted at actual salary plus a one step increase, which was a significant budgeting methodology change from previous practice.

On June 7, 2022 the Town Council adopted the combined use of ARPA funding, residual Measure G proceeds, and Other Post-Employment Benefits (OPEB) Trust reimbursement to balance the FY 2022/23 budget as illustrated in the table below.

The significant revenue increases combined with projected expenditure savings indicate that the approved sources might not be necessary; however it can only be determined at the time of the final close of the fiscal year. Staff recommends not to re-program the proposed sources until the fiscal year is closed. Since it is probable that not all sources will be utilized, staff is asking for Council direction regarding what source should be utilized first to cure current fiscal year deficit, if needed. Due to the fact that OPEB Trust withdrawal should be requested in June, significantly earlier than the final numbers are available, staff recommend to not utilizing the Trust Reimbursement.

Providing services to the community in this and future fiscal years will require a strong return to prepandemic performance of the Town’s economically sensitive revenues to offset continued projected cost increases. The FY 2023/24 budget development process will endeavor to maintain essential public services while controlling operational costs in light of the five-year fiscal forecast, which predicts operating revenue shortfalls in subsequent fiscal years.

ARPA Replacement Reveneue $1,643,281
Measure G Residual for Operation $679,443
OPEB Trust Reimbursement for Retiree Medical $902,579
Total $3,225,303
Planned Use of One-Time Sources Balancing the FY 2022/23 Operating Budget ATTACHMENT 6

PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 15
DATE: February 15, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Provide Comments Regarding the Five-Year Forecast (FY 2023/24 – 2027/28) and Scenarios and Provide Input for the FY 2023/24 Budget Direction
RECOMMENDATION:

Review and provide comments regarding the Five Year Forecast (Fiscal Years 2023/24 – 2027/28) and scenarios, and provide input for the FY 2023/24 budget direction.

EXECUTIVE SUMMARY:

The base case Five-Year Forecast (FY 2023/24 – 2027/28) (Attachment 2) identifies deficits for all future years, using the recent labor agreements for FY 2023/24 and the 2% salary increase assumption approved by the Town Council for the FY 2024/25 budget and other assumptions (see Attachments 3 and 4). The deficits are on the order of approximately $3M per year and can currently be resolved through expenditure controls and the use of one-time funds. The persistent presence of a deficit indicates that the Town needs to consider new revenue measures if it wants to maintain high levels of municipal services.

The sensitivity of the Forecast to its assumptions is demonstrated in this report. The Town Council can provide recommendations on the scenario assumptions for the FY 2023/24 budget and provide other budget direction as appropriate. The Capital Program is scheduled for a separate discussion at the next Council meeting.

DISCUSSION:

An important aspect of the Town’s budget development process is taking a multi-year approach to understand revenue and expenditure trends over time. Serving as the foundation of the budget planning process (Attachment 1), the Town develops a Five-Year Financial Forecast

PAGE 2 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):
(“Forecast”) beginning in the winter of each year. The Forecast enables the Town to evaluate the Town’s fiscal condition and to help guide policy, programmatic planning, and budget decisions. Development of a financial forecast as part of the budget development process has been identified as a best practice by the Government Financial Officers Association (GFOA).

The Forecast takes a forward look at the Town's General Fund revenues and expenditures and is updated regularly. Its purpose is to identify financial trends, potential shortfalls, and other issues so the Town can proactively address them and budget accordingly. It does so by projecting out into the future the fiscal results of continuing the Town's current service levels and policies. This process helps to provide a snapshot of what the future may look like as a result of the decisions made to date.

The initial Forecast (FY 2023/24 – 2027/28) is predicated on estimates derived from the FY 2022/23 Mid-Year review and includes updates to Town revenues and expenditures based on the Mid-Year end of year projections. Like any forecast, the Forecast’s revenue estimates for the first year is the most critical in the process as they ultimately define the expenditure limitations for the upcoming budget year.

This report contains detailed information that contributes to the preparation of the annual budget, including the Town’s “Base Case” Five-Year Forecast, its data sources, and budget assumptions. This report also provides two additional forecast scenarios utilizing a sensitivity analysis for four of the major revenue assumptions. These additional forecast scenarios illustrate the effects on future budgets of a more optimistic revenue scenario (“Greater Growth”) and a pessimistic revenue one (“Lower Growth”).

The Five-Year Financial Forecast is not a budget, nor a proposed plan. The Five-Year Financial Forecast sets the stage for the upcoming budget process and is a tool in facilitating both the Town Council and Town Manager in establishing priorities and allocating resources appropriately.

National and Local Economic Backdrop
The UCLA Anderson School of Business publishes an annual economic forecast for the nation and California. The results of the forecast are utilized as a portion of the macroeconomic basis of the Five-Year Forecast development. In their September 2022 Economic Outlook, they mentioned that based on their analysis, the chance of recession in U.S. in the next 12 months is less than 50%. Their assumption is that the economy will grow 1.5% in 2022, 0.3% in 2023, and

2.0% in 2024. Their assessment was backed by their study of strong consumer spending as we ease from COVID related supply chain issues. Another assumption is that business investment

PAGE 3 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):
is expected to occur domestically rather than internationally due to mounting geopolitical instability over the past year.

In its December 2022 Economic Outlook, Anderson mentioned that the “national economy has proved resilient as consumers continue to spend and businesses continue to invest.” This is demonstrated by the Gross Domestic Product (GDP) increase of 3.2% in the third quarter and

2.9% (advance estimate) in the fourth quarter of 2022. As the graph below illustrates, the 2.9% increase is partly offset by the decrease in housing investment. Inventory investment and consumer spending helped this downturn amidst the inflation, unemployment, and supplychain issues.

Based on this report, it was noted that the Federal Reserve actions will cushion California’s economy. The sectors of logistics, technology, and health care helped California’s GDP growth.

Its growth has been faster than the U.S. since high-income earners tend to belong in these sectors. In terms of the housing market, the increase of interest rates affected the decline of the median price of single-family homes. According to the report, “the median price was 8.4% below its previous peak but had returned to early 2021 levels.” With this assumption, the surge of accessory dwelling units (ADU) and growth in industrial space sector will help shield the state. This in turn makes the 2023 forecast for California more of a moderate slowing than for the U.S. overall.

Operating Revenue Trends and Five-Year Forecast Scenarios The Town is highly dependent on four economically sensitive revenues comprising 54% of General Fund forecasted revenues. Following are summaries of the Town’s major revenues of property tax, sales tax, business license tax, and transient occupancy tax (TOT). To provide context for the development of the Five-Year Forecast (FY 2023/24 – 2027/28), the prior year’s

PAGE 4 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):
growth assumptions and resulting revenue projections are provided. The Base Case Forecast can be found in Attachment 2.

With that context, updated growth assumptions are provided for each revenue source, and the resultant projected revenues for the new Forecast period. The revenue assumptions provided are informed by the County Tax Assessor, the Town’s sales tax consultant, and direct communication with the Town’s hospitality industry. In addition, alternative forecast scenarios are discussed in this report for these three revenue streams. Please see Attachment 3 for a description of all revenue categories with a comprehensive listing of revenue forecast assumptions.

Property Tax
Property tax is the single largest revenue source for the Town and comprised approximately 42% of total Town projected revenues for FY 2022/23. As the following table illustrates, Los Gatos has benefited from the economic expansion as evidenced by year-over-year (YOY) roll growth in property assessment since 2013. For the 10-year period, the average annual growth rate was 6.3%.

Los Gatos Assessment Roll Growth (values in billions)
Source: Santa Clara County Assessors Annual Reports
The County of Santa Clara provides property tax collection updates and projections throughout the year. The following table illustrates the most recent estimates relative to the Adopted FY 2022/23 Budget and FY 2021/22 actuals. The current County estimate indicates $617,332 more than the Adopted Budget. The increase is a combined effect of higher than expected Redevelopment Agency (RDA) Residual Apportionment, and Vehicle License Fees (VLF), decrease in secured property tax estimates, and no change to property transfer tax and the Educational Revenue Augmentation Fund (ERAF) estimates. 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total Roll 9.46 9.99 10.63 11.54 12.29 13.15 13.84 14.9 15.6 16.8 Percent
Growth 9.06 5.62 6.4 8.56 6.54 6.95 5.23 7.7 4.33 2.7
FY 2021/22
Actual
FY 2022/23
Adjusted Budget
County Estimate
with 70% ERAF
$21.1 M $20.9 M $21.5 M
Property Tax Revenue &
Vehicle License Fee Backfill

PAGE 5 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

The Town has been monitoring ongoing developments regarding the distribution of excess ERAF funds. A portion of property tax revenue goes to the ERAF to support local school districts. When the amount contributed to ERAF is more than the minimum cost of funding local schools, excess funds have traditionally been returned to the county, cities, and special districts. Five counties, including Santa Clara, have been using a redistribution allocation formula that has been contested by the State. The Town received the full amount for FY 2021/22; however, the Santa Clara County Assessor’s Office recommends budgeting only 70% of the FY 2022/23 projected number. The Adopted FY 2022/23 Budget included a $1,5 million ERAF estimate, 70% of the current ERAF base revenue estimate is still the same.

The following table illustrates the growth factors used in the development of the Five-Year Forecast (FY 2022/23 – 2026/27).

For purposes of the Forecast, the “Base Case” utilizes a growth factor of 3.0% and the “Greater Growth” and “Lower Growth” scenarios utilize a 2% differential from the Base Case. In addition to the growth factor, staff continues to assume $400,000 residual excess ERAF revenue in the base case scenario, 70% of the FY 2022/23 proceeds in the “Greater Growth,” and no ERAF revenues and the “Lower Growth” scenarios.

Sales Tax
Sales tax is the second largest revenue source for the Town and comprised approximately 16% of total Town projected revenues for FY 2022/23. The following table illustrates the most recent projections from the Town’s sales tax consultant MuniServices relative to the Adjusted FY 2022/23 budget and FY 2021/22 actuals.
2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 3% 3% 3% 3% 3%
Property Tax
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Greater Growth Scenario $22.40 $23.50 $24.60 $25.90 $27.30 Base Case
Modest Growth
Lower Growth Scenario $20.00 $20.20 $20.50 $20.60 $20.90 $23.50
Property Tax
(Property Tax & VLF)
$20.80 $21.40 $22.10 $22.70

PAGE 6 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Current total sales tax estimates include $7,559,566 ($301,422 decrease) in proceeds from regular sales tax and $1,287,690 ($26,266 decrease) in proceeds from the Measure G oneeighth cent district tax. Actual receipts net of administrative fees collected by the State will be confirmed at the close of the fiscal year and per prior Council direction, the Measure G funds are allocated 50% for capital improvement projects and 50% for operating expenses.

The table below provides the MuniServices Most Likely scenario which staff is utilizing for development of the FY 2023/24 Five-Year Forecast.

The following tables illustrates MuniServices Most Likely scenario relative to their “Conservative” and “Optimistic” scenarios.

FY 2021/22
Actual
FY 2022/23
Adjusted Budget
January 18, 2023
MuniServices
Estimate
Base Sales Tax $7.2 M $7.9 M $7.5 M
FY 2021/22
Actual
FY 2022/23
Adjusted Budget
January 18, 2023
MuniServices
Estimate
Measure G – 1/8 District Tax $1.3 M $1.3 M $1.3 M
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Most Likely $7.70 $8.00 $8.20 $8.50 $8.70
Base Sales Tax
Measure G
1/8 District Tax
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Most Likely $1.30 $1.30 $1.40 $1.40 $1.40
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Conservative $7.00 $7.20 $7.40 $7.60 $7.80
Most Likely $7.70 $8.00 $8.20 $8.50 $8.70
Optimistic $8.50 $8.80 $9.00 $9.30 $9.60
Base Sales Tax

PAGE 7 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Further Information related Sales Tax context are included as Attachment 5.

Transient Occupancy Tax
TOT is an important revenue source for the Town and comprises approximately 4% of total Town estimated revenues in the amount of $2.0 million for FY 2022/23. The Town levies a 12% transient occupancy tax (TOT) on all hotel and motel rooms within the municipal limits of Los Gatos
The following table illustrates TOT FY 2021/22 actuals, the Adjusted FY 2022/23 Budget, and year-end collection estimates.

The FY 2022/23 Adopted Budget modeled a 17.3% increase from FY 2021/22 adjusted budget.

During the pandemic, TOT experienced the most significant percentage decline relative to historical trends. Due to a significant rebound in leisure “staycation” travel and modest improvements in business travel, current TOT collections are trending higher than anticipated and average occupancy rates are rebounding as well.

The table below illustrates the growth projections utilized for development of the Five-Year Forecast (FY 2023/24 – 2027/28) for TOT and corresponding estimated revenues.

Measure G
1/8 District Tax
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Conservative $1.20 $1.20 $1.30 $1.30 $1.30
Most Likely $1.30 $1.30 $1.40 $1.40 $1.40
Optimistic $1.40 $1.40 $1.50 $1.50 $1.60
FY 2021/22 Actual FY 2022/23
Adjusted Budget Year-end Estimate
TOT $1.9 M $1.6 M $2.0 M
2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 5% 3% 3% 3% 3%
Estimated Revenues $2.1 M $2.2 M $2.2 M $2.3 M $2.4 M
TOT

PAGE 8 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

For purposes of the Forecast, the “Base Case” utilizes a growth factor as illustrated above and the “Greater Growth” and “Lower Growth” scenarios utilize a 1% differential from the Base Case.

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. In November 2022, Los Gatos voters approved Measure J, which modernized the Town’s business license tax program. This is the first update to the program since 1991, strengthening funding for core Town services that are enjoyed by Town businesses.

Measure J included a 30% increase on flat rate fees, a 40% increase in retailing gross receipts, and a 120% increase in e-commerce, manufacturing, wholesaling, and jobbing gross receipts.

Fees for activities such as wholesale sales and manufacturing are charged on a sliding scale based on gross receipts, as is retail, with retail being capped at $1,365. These gross receipt activities account for approximately 25% of annual business licenses, while the remaining 75% are flat fee businesses. Annual renewal payments are due on January 2 of each year. Payments for new flat-fee-based businesses are prorated by quarter.

Business license tax revenue for the current fiscal year was budgeted at the prior tax rate, current estimates based on the updated tax rate predict a significant increase for the business license tax revenue. Staff is recommending a $1,056,500 increase to this revenue source as an adjustment to the FY 2022/23 budget.

The following table illustrates Business License FY 2021/22 actuals, the Adjusted FY 2022/23 Budget, and year-end collection estimates.
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Greater Growth Scenario $2.1 $2.2 $2.3 $2.4 $2.5
Base Case
Modest Growth
Lower Growth Scenario $2.10 $2.10 $2.20 $2.20 $2.30
$2.2 $2.3 $2.4
TOT
$2.1 $2.2
FY 2021/22 Actual FY 2022/23
Adjusted Budget Year-end Estimate
Business License $1.5 M $1.4 M $2.4 M

PAGE 9 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Business license tax revenue for the current fiscal year was budgeted at the prior tax rate.

Current estimates based on the updated tax rate predict a significant increase for business license tax revenue. Staff is recommending a $1,056,500 increase to this revenue source and this estimate provides the base for the Five-Year Forecast (FY 2023/24 – 2027/28) as illustrated below.

For purposes of the Forecast, the “Base Case” utilizes a growth factor as illustrated above and the “Greater Growth” and “Lower Growth” scenarios utilize a 1% differential from the Base Case.

Garbage Franchise Fee
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 5% of projected General Fund revenues in FY 2022/23.

As the Town previously enclosed in the FY 2021/22 Annual Comprehensive Financial Report (ACFR), the California Supreme Court recently issued an opinion in a case challenging the franchise fees that the city of Oakland charges to certain waste hauling companies. In Zolly v.

City of Oakland, the court concluded that it did not have enough evidence to rule as a matter of law that the fees are exempt from the voter approval requirements that apply to taxes under Proposition 26, Article XIII C of the California Constitution. However, there are several exceptions to the general rule that a tax must be approved by the voters. One exception (Article IIIC, section 1 (e)(1)) is for “a charge imposed for a specific benefit conferred or privileged granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or 2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 2% 2% 2% 2% 2%
Estimated Revenues $2.5 M $2.5 M $2.6 M $2.6 M $2.7 M
Business License
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Greater Growth Scenario $2.5 $2.6 $2.7 $2.8 $2.8
Base Case
Modest Growth
Lower Growth Scenario $2.5 $2.5 $2.5 $2.5 $2.6
$2.6 $2.7
Business License
$2.5 $2.5 $2.6

PAGE 10 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):
granting the privilege.” In the event the Town is unable to utilize one of the exceptions, the potential impact is a loss of approximately $2.4 million annually.

The following table illustrates total franchise fees collection with and without garbage franchise fees.

Operating Expense Trends and Five-Year Forecast Scenarios Forecasts of future operating expenditures take into account two key factors: cost escalation and new operating expenditures. New operating expenditures refer to costs created by new or enhanced service programs approved during the annual budget process. Attachment 4 contains the expenditure assumptions.

Cost escalation refers to largely unavoidable increases in the cost of doing business. It includes inflation, multi-year contract costs, health care costs, and unfunded State mandates. Cost escalation also includes other unavoidable cost increases unique to a government organization, such as a rise in wages consistent with collective bargaining agreements and annual pension payments mandated by CalPERS. The Town has three bargaining units, including the Town Employees’ Association (TEA), the American Federation of State, County and Municipal Employees (AFSCME), and the Police Officers’ Association (POA). The unrepresented groups are Management and Confidential.

For FY 2022/23, General Fund Estimated Operating expenditures (not including debt payment and transfers out) are $46.9 million. The delivery of Town services is highly dependent on talent which comprises 70% of estimated General Fund expenditures. Given the high dependence on labor for service delivery, the Town has helped manage salary escalation (and benefits) through the maintenance of lower staffing levels. As the table below illustrates, since 2001 the Town has reduced its full-time employees by 15% to 153 FTE employees. 2023/24 2024/25 2025/26 2026/27 2027/28
Forecast Forecast Forecast Forecast Forecast
All Franchise Fees $2.8 M $2.8 M $2.9 M $3.0 M $3.1 M
Franchise Fees without
Garbage Franchise Fee $0.9 M $0.9 M $0.9 M $1.0 M $1.0 M Franchise Fees

PAGE 11 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Mandated pension payments to CalPERS has consistently been one of the major cost drivers for the Town over the past decade with persistent unanticipated increases in pension costs. The Town’s plans over the past several decades, like all other CalPERS participants, have experienced unfavorable investment returns, changes in actuarial assumptions, and demographic changes which have outweighed any positive plan experiences. The outcome of these unfavorable economic and demographic results is the development of unfunded pension and Other Post-Employment Benefit (OPEB) obligations for the Town. To address the escalation in pension costs, previous Councils have allocated additional discretionary pension funding. totaling $10.4 million. These additional discretionary payments will ultimately yield an approximate additional $12.7 million in contribution savings.

The Town and its bargaining groups have also worked to contain benefit costs. The Town closed the CalPERS retiree Tier 1 benefit for non-safety employees and created a new Tier 2 for nonsafety new employees in 2012, implemented the Public Employees’ Pension Reform Act (PEPRA) for all new non-classic employees starting in 2013, and participates in the CalPERS discounted prepayment option.

In addition to the management of the Town’s pension obligations, prior Councils and the Town’s bargaining groups have worked to curb cost escalation in OPEB. In 2009, the Town initiated prefunding of the retiree healthcare benefit and has since established approximately $22.6 million in OPEB assets (as of 12/31/2022) from zero in 2009. In 2016, the Town’s bargaining groups approved the introduction of dependent cost sharing and a reimbursement cap to Medicare eligible employees, and in 2018 the elimination of the Town's existing retiree healthcare benefit prospectively.

PAGE 12 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

While these collective measures have helped to slow the growth in salary and benefit expenses, the Forecast anticipates continued increases in the Town’s pension obligations.

Provided below are the expense assumptions for salary and benefits and alternate case scenarios for pension contributions. The majority of other expenses are assumed to increase at 3% per annum. Detailed expenditure assumptions and factors can be found in Attachment 4.

Salary and Benefits
Salary
The Town has historically budgeted vacant and non-sworn positions at top step of the range for the position. Sworn and management positions are budgeted at one step higher of current step in anticipation of any merit increases expected to be awarded in the upcoming fiscal year.

Based on Council’s direction for FY 2021/22, salaries were budgeted at actual salary plus a one step increase, which was a significant budgeting methodology change from previous practice.

This methodology will be continued for the development of FY 2023/24 budget unless modified by the Town Council.

For the Forecast, positions are budgeted at the actual rate of pay of employees including benefits as of January 2023. Then, by position, salary costs are updated in accordance with the applicable Memorandum of Understanding (MOU) between the Town and its bargaining units.

The Memoranda of Understanding that outline the individual agreements between the Town and each unit related to compensation, health benefits, leave time, and grievance procedures will expire with TEA and AFSCME on June 30, 2024. POA’s MOU will expire on September 30, 2024. The Management and Confidential groups are unrepresented.

In addition to the economic terms of the MOUs, the Forecast assumes step increases for employees in applicable positions, and merit increases for Management and Confidential employees. In addition, based on prior Council guidance, 2% cost of living wage adjustments (COLA) are included in the Forecast for each year starting in 2024/25.

The following table illustrates the base case forecast compared to a forecast with 4% vacancy saving factor as recommended by the Finance Commission.

Salaries
(Current MOUs)
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Base Case $23.10 $23.62 $24.09 $24.63 $25.17

PAGE 13 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Pension and Other Benefits
For purposes of the Forecast, staff utilizes estimates provided by each plan’s most recent actuarial valuation received from CalPERS. The employer contribution rates reflect percentages of covered payroll. Rates shown for FY 2023/24 are actual rates as prescribed by CalPERS.

Forecasted rates for FY 2023/24 and subsequent years are based on the most recent CalPERS Actuarial Valuation Reports as adjusted by the impact related to the FY 2021/22 CalPERS negative 7.5% investment return and forecasted payroll.

Beginning in FY 2021/22, the estimates of employer contributions were credited with an anticipated reductions associated with the approximate $4.8 million additional discretionary payment (ADP) toward the 2016 unfunded amortization base paid off in October 2019 and the total of approximately $5.8 million in ADPs toward unfunded 2013 and 2015 amortization bases that were paid off in FY 2020/21.

Given that investment returns have one of the largest impacts on contribution variability, CalPERS provides projected employer Unfunded Actuarial Liability (UAL) contributions under alternate investment returns. Analysis using the investment return scenarios from the Asset Liability Management process completed in 2021 was performed to determine the effects of various future investment returns on required employer contributions. The projections below reflect the impact of the CalPERS Funding Risk Mitigation policy. The projected normal cost rates reflect that the rates are anticipated to decline over time as new employees are hired into lower-cost benefit tiers. The projections also assume that all other actuarial assumptions will be realized and that no further changes in assumptions, contributions, benefits, or funding will occur. The first table shows projected contribution requirements if the fund were to earn either 3.0% or 10.8% annually. These alternate investment returns were chosen because 90% of long-term average returns are expected to fall between these levels over the 20-year period ending June 30, 2041. This information is included for informative purposes and is not included in the base case, “Greater Growth,” or “Lower Growth” scenarios. 2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Base Case ($2.70) ($3.10) ($3.00) ($3.10) ($3.20)
with 4% Vacancy Factor ($1.30) ($1.70) ($1.50) ($1.50) ($1.60) Surplus/Deficit
Pension & Other
Benefits
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
($M) ($M) ($M) ($M) ($M)
Base Case $12.50 $12.90 $13.10 $13.70 $14.20

PAGE 14 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

Source: CalPERS Actuarial Valuations as of June 30, 2021 For the year ending June 30, 2022, the Public Employees Retirement Fund (PERF) returned negative 7.5%. The table below illustrates the historic investment returns for five years, ten years, twenty years, and thirty years.

Five-Year Financial Forecast Alternative Scenarios
The tables below present the “Base Case” forecast contrasted against the two alternative revenue scenarios of “Greater Growth” and “Lower Growth.” In addition, the 4% vacancy factor and the elimination of the garbage franchise fees are illustrated compared to the base case. As illustrated in the tables, even modest changes to the “Base Case” forecast can result in either additional surpluses or deficits during the forecast period.

UAL Town Contributions
(Misc & Safety)
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2026/27
Forecast
2027/28
Forecast
Greater Investment Return Scenario (10.8%) $4,432,000 $3,131,000 $1,613,000 $56,000 $0 Base Investment Return Case (3.0%) $4,774,000 $4,587,000 $4,914,000 $5,316,000 $6,128,000 CalPERS Compound Annual Rates of Return
(as of June 30, 2021) 5 Years 10 Years 20 Years 30 Years Compound Annual Return 10.30% 8.50% 6.90% 8.40%
5 Year Forecast
"Base Case"
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
Total Revenues &
Transfers $48.9 $50.1 $51.4 $53.1 $54.5
Total Expenses &
Allocations $51.6 $53.2 $54.4 $56.2 $57.7
Surplus/Deficit ($2.7) ($3.1) ($3.0) ($3.1) ($3.2)
Alternative Scenario
"Greater Growth"
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
Total Revenues &
Transfers $51.4 $53.2 $55.1 $57.6 $59.5
Total Expenses &
Allocations $51.7 $53.2 $54.4 $56.3 $57.8
Surplus/Deficit ($0.3) $0.0 $0.7 $1.3 $1.7

PAGE 15 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
DISCUSSION (continued):

CONCLUSION:

The Town Council should review and discuss the elements and assumptions of the initial FiveYear Forecast and other budget considerations. The “Base Case” Forecast estimates deficits at this time. Staff looks forward to answering the Town Council questions and receiving direction for the preparation of the proposed FY 2023/24 Operating Budget that results from the discussion.

The Finance Commission reviewed the Five-Year Forecast Report at its February 13, 2023 meeting. The Finance Commission commented that actual revenues tend to be higher than forecasted. There were no specific recommendations on the elements and assumptions of the initial Five-Year Forecast and other budget considerations.

The preparation of the FY2023/24 Operating and Capital Budgets is taking into account the Town’s current economic reality and long term fiscal picture, as well as maintaining the Town’s Alternative Scenario
"Lower Growth"
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
Total Revenues &
Transfers $47.3 $47.9 $48.9 $49.9 $50.8
Total Expenses &
Allocations $51.6 $53.1 $54.3 $56.2 $57.7
Surplus/Deficit ($4.3) ($5.2) ($5.4) ($6.3) ($6.9)
Alternative Scenario
"4% Vacancy Factor"
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
Total Revenues &
Transfers $48.9 $50.1 $51.4 $53.1 $54.5
Total Expenses &
Allocations $50.2 $51.8 $52.9 $54.6 $56.1
Surplus/Deficit ($1.3) ($1.7) ($1.5) ($1.5) ($1.6)
Alternative Scenario
without Garbage
Franchise Fee
2023/24
Forecast
($M)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
Total Revenues &
Transfers $47.1 $48.2 $49.4 $51.1 $52.4
Total Expenses &
Allocations $51.6 $53.2 $54.4 $56.2 $57.7
Original Surplus/Deficit ($4.5) ($5.0) ($5.0) ($5.1) ($5.3)

PAGE 16 OF 16
SUBJECT: Five-Year Forecast (FY 2023/24 – 2027/28)
DATE: February 15, 2023
CONCLUSION (continued):
high level of municipal services. This is considered a “status quo” approach with no major new initiatives or staffing. Key budget principles include:
 Develop and recommend a balanced budget that maintains service levels;  Address projected deficits;
 Continue to make progress on Strategic Priorities identified by the Town Council; and  Identify opportunities to maintain or enhance service delivery through new revenue sources and technology.

The Capital Improvement Program and direction will be discussed separately at the March meeting. The Finance Commission may also discuss budget assumptions. The Draft FY 2023/24 Operating and Capital Budgets will be available in April for the Finance Commission elaboration with the budget hearing tentatively scheduled for May 16, 2023.

COORDINATION:

This Report was prepared by the Finance Department and the Town Manager Office.

ENVIRONMENTAL ASSESSMENT:

This is not a project defined under CEQA, and no further action is required.

Attachments:

1. Annual Budget Process

2. Base Case Five-Year Forecast

3. Forecast Revenue Assumptions

4. Forecast Expense Assumptions

5. Additional Sales Tax Context from MuniServices

6. Public Comments Received before Publishing the Staff Report

December
January
February
May
June
July
December
Prior FY
(2021/22)
June 30, 2022 ACFR finalized and
presented for Council approval.

ACFR surpluses assigned per the
Council Reserve Policy as of June 30,
2022
Council deliberates Strategic
Priorities and Budget direction for FY
2023/24.

Review of Five-year Forecast and
assumptions.

Council determines if previously
assigned surpluses should be
reallocated for FY 2023/24.

Council adoption of the FY 2023/24
Operating & Capital Budgets End of June 30, 2023 ACFR period June 30, 2023 ACFR finalized and
presented for Council approval.

ACFR surpluses assigned per the Council
Reserve Policy as of June 30, 2023
ATTACHMENT 1
All Council deliberations and actions include opportunities for public input Current FY
(2022/23)
Next FY
(2023/24)
Start of new FY 2023/24 Operating
Budget year
Council considers Mid-Year Budget
adjustments through 12/31/2022 for
FY 2022/23 Budget.
͌
Public hearing on FY 2023/24
Operating & Capital Budgets

Finance Commission review and
comment on Proposed FY 2023/24
Operating & Capital Budgets.

April

ATTACHMENT 2
Account Revenue Category
2021/22
Actuals
2022/23
Adjusted
Budget
2022/23
Estimates
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
4100 Property Tax $ 16.9 $ 16.6 $ 17.0 $ 16.3 $ 16.8 $ 17.3 $ 17.8 $ 18.4 4110 VLF Backfill Property Tax 4.2 4.4 4.6 4.5 4.6 4.8 4.9 5.1 4200 Sales & Use Tax 7.2 7.9 7.5 7.7 8.0 8.2 8.4 8.7
4200 Measure G District Sales Tax 1.3 1.3 1.3 1.3 1.3 1.3 1.4 1.4 4250 Franchise Fees 2.8 2.5 2.7 2.7 2.8 2.9 3.0 3.1
4251 Transient Occupancy Tax 1.9 1.6 2.0 2.1 2.2 2.2 2.3 2.4 4400 Business License Tax 1.5 1.4 2.4 2.5 2.5 2.6 2.6 2.7 4400 Licenses & Permits 4.8 2.8 2.9 2.9 3.0 3.1 3.2 3.3 4500 Intergovernmental 1.3 1.1 1.3 1.0 1.0 1.0 1.2 1.1
4600 Town Services 5.3 4.4 5.1 3.8 3.8 3.9 4.0 4.1
4700 Fines & Forfeitures 0.3 0.2 0.2 0.2 0.2 0.2 0.3 0.3 4800 Interest (1.4) 0.4 0.5 0.4 0.4 0.4 0.4 0.4
4850 Other Sources 7.0 3.2 2.5 2.2 2.2 2.2 2.3 2.2
4900 Fund Transfers In 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Use of Capital/Special Project Reserve - $ 53.7 $ 48.3 $ 50.5 $ 48.1 $ 49.3 $ 50.6 $ 52.3 $ 53.7 Capital 0.6 2.4 2.4 0.8 0.8 0.8 0.8 0.8
Use of Pension/OPEB Reserve 0.3 0.3 0.3 - - - - -
Use of Property Surplus Reserve 1.2 1.2 - - - - - -
Use of Measure G Reserve 1.1 0.7 - - - - - -
ARPA Replacement Revenue - 1.6 - - - - - -
$ 56.9 $ 54.5 $ 53.2 $ 48.9 $ 50.1 $ 51.4 $ 53.1 $ 54.5 Account Expenditure Category 2021/22
Actuals
2022/23
Adjusted
Budget
2022/23
Estimates
2023/24
Forecast
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
5110 Salary 20.0 23.3 22.0 23.1 23.6 24.1 24.6 25.2
5120 CalPERS Benefits 6.5 7.7 7.1 8.1 8.4 8.5 9.0 9.4
5200 All Other Benefits 3.7 4.6 3.9 4.4 4.5 4.6 4.7 4.8 6211 OPEB Pay as You Go 1.4 1.5 1.6 1.5 1.6 1.7 1.8 1.9 6000 Operating Expenditures 10.4 7.1 7.8 6.9 7.2 7.3 7.6 7.7 7200 Grants & Awards 1.8 0.2 0.6 0.2 0.2 0.2 0.2 0.3
7400 Utilities 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7
8060 Internal Service Charges 2.6 2.7 2.4 2.9 3.1 3.3 3.7 3.8 8900 Debt Service 2.1 1.9 2.0 2.1 2.1 2.1 1.9 2.1
$ 49.0 $ 49.5 $ 48.1 $ 49.8 $ 51.3 $ 52.5 $ 54.3 $ 55.8 GASB 45 Retiree Medical Actuarial 0.1 - - - - - - -
Additional Discretionary Payment - Pension 0.7 0.4 0.7 0.4 0.4 0.4 0.4 0.4 $ 49.8 $ 49.9 $ 48.8 $ 50.2 $ 51.7 $ 52.9 $ 54.7 $ 56.2 Capital Transfers Out to GFAR 1.2 2.3 2.4 0.8 0.8 0.8 0.8 0.8 1/2 of Measure G Proceeds to Capital Pension/OPEB Transfer to Pension Trust 0.6 0.7 0.6 0.6 0.7 0.7 0.7 0.7 Fund - 0.4 0.7 - - - - -
Allocate to Budget
Stabilization/Catastrophic 1.1 - - - - - -
Allocate to Compensated Absences (0.2) - - - - - - -
Allocate to Market Fluctuation (0.4) - - - - - - -
Allocate to CalPERS/Pension 0.3 - - - - - - -
Allocate from CalPERS/Pension (0.3) - - - - - - -
Allocate to Authorized Carryforwards 0.03 - - - - - - - $ 52.1 $ 53.3 $ 52.5 $ 51.6 $ 53.2 $ 54.4 $ 56.2 $ 57.7 $ 4.7 $ 1.2 $ 0.7 $ (2.7) $ (3.1) $ (3.0) $ (3.1) $ (3.2) * Due to rounding of individual categories FY 2022/23 Estimated Total Expenditures and Reserve Allocations includes $0.1 million.

General Fund (111) Forecast does not include Pension Trusts activities.

Town of Los Gatos General Fund 5-Year Forecast - Base Case (in $ million)

NET REVENUES RESERVE TRANSFERS LESS EXPENDITURES &

RESERVE ALLOCATIONS FOR FINAL ALLOCATION AFTER YEAR

END CLOSE

TOTAL REVENUES, TRANSFERS, AND USE OF RESERVES

TOTAL EXPENDITURES & RESERVE ALLOCATIONS
TOTAL OPERATING REVENUES & TRANSFERS*

TOTAL OPERATING EXPENDITURES

TOTAL OPERATING & DISCRETIONARY EXPENDITURES

AMOUNTS AVAILABLE FOR RESERVE ALLOCATIONS

Revenue Baselines and Projection Factors
ATTACHMENT 3
Type of
Revenue
FY 2022/23
Estimates
Baseline
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Property
Tax/VLF
Backfill
Current
baseline set
by SCC
Assessor
Office
November
2022 report
3% 3% 3% 3% 3%
ERAF
Current
baseline set
70% of SCC
Assessor
Office
November
2022 report
$400K $400K $400K $400K $400K
Sales Tax
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
Sales Tax -
Measure G
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
MuniServices
January 2023
Most Likely
Estimates
Franchise Fee
Current
baseline set
by FY 2022/23
Estimates
3% 3% 3% 3% 3%
Transient
Occupancy
Tax
Current
baseline set
by FY 2022/23
Estimates
5% 3% 3% 3% 3%
Business
License Tax
Current
baseline set
by FY 2022/23
Estimates
2% 2% 2% 2% 2%
License &
Permits
Current
baseline set
by FY 2022/23
Estimates
3% 3% 3% 3% 3%
Town
Services
Current
baseline set
by FY 2022/23
Estimates
3% 3% 3% 3% 3%

Revenue Baselines and Projection Factors
ATTACHMENT 3
Fine &
Forfeitures
Current
baseline set
by FY 2022/23
Estimates
Varies Varies Varies Varies Varies
Interest
Current
baseline set
by FY 2021/22
Actuals
1% 1% 1% 1% 1%
Other Sources
Current
baseline set
by FY 2022/23
Estimates
Varies Varies Varies Varies Varies

ATTACHMENT 4

EXPENDITURE BASELINE AND PROJECTION FACTORS
Beginning in FY 2020/21, the Town started budgeting salaries at the actual salary plus a one-step increase. In the Five-Year Forecast, positions are forecasted at the actual rate of pay including salaries and benefits as of January 20, 2023, and rate is increasing in the actual anniversary date. *Salary increases are based on actual step increases and approved Memoranda of Understanding with the bargaining units plus the Council’s assumption of 2% per year cost of living adjustment. ** Benefit increase estimates are provided by CalPERS/Public Employees’ Medical and Hospital Care Act (PEMHCA)
*** Based on historical trends.

The Town’s required employer contribution rate estimates were developed using data provided by each plan’s most recent CalPERS actuarial valuation. The employer contribution rates reflect percentages of covered payroll. Rates shown for FY 2023/24 are actual rates as prescribed by CalPERS. Forecasted rates for FY 2023/24 and subsequent years are based on the most recent CalPERS actuarial valuation Reports Type of
Expenditure
FY 2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Salaries*(TEA,
Conf, Temp) 3-8% 3% 2% 2% 2% 2%
Salaries *(POA) 7.25% 3% 2% 2% 2% 2%
Salaries*(AFSCME) 7.5% 3% 2% 2% 2% 2%
Salaries *
(Management) 3% 3% 2% 2% 2% 2%
Benefit -
Medical** 7% 7% 7% 7% 7% 7%
Operating
Expenditures*** Varies 3% 3% 3% 3% 3%
Grants & Awards 0% 0% 0% 0% 0% 0%
Utilities*** Varies 3% 3% 3% 3% 3%
Internal Service
Charges***
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Based on
operating
cost and
scheduled
replacement
Debt Service Debt Service Schedules

ATTACHMENT 4
as adjusted by the impact related to the FY 2021/22 CalPERS negative 7.5% investment return and forecasted payroll.

Beginning in FY 2021/22, the estimates of employer contributions were credited with an anticipated reductions associated with the approximate $4.8 million additional discretionary payment (ADP) toward the 2016 unfunded amortization base paid off in October 2019 and the total of approximately $5.8 million in ADPs toward unfunded 2013 and 2015 amortization bases that were paid off in FY 2020/21.

Type of
Expenditure
FY 2022/23
Budget
FY 2023/24
Forecast
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
Safety
POA

69.44% 81.31% 86.65% 90.15% 93.71% 96.09%
Safety
Management
POA

72.44% 84.31% 89.65% 93.15% 96.71% 99.09%
Safety

POA - PEPRA

14.62% 14.5% 14.5% 14.5% 14.5% 14.5%
Miscellaneous
TEA/AFSCME/Con
fidential/
Management

29.92% 29.97% 28.67% 27.53% 28.58% 29.06%
Miscellaneous
TEA/AFSCME/Con
fidential/
Management
PEPRA
Separate PEPRA
rate for
Miscellaneous has
not been
established yet by
CalPERS.

29.92% 29.97% 28.67% 27.53% 28.58% 29.06%

California Taxable Sales
Quarter over Quarter Percent Change
CARES ACT: $2 TRILLION
3/25/2020, many
taxpayers that extended
in Ql catching-up.

CA COVID Lockdown
begins, many taxpayers
file extensions
New Wayfair / AB147 $ I
Economy begins to slow l
Consolidated
Appropriations Act: $900
billion 12/20/2020
Su mmer Rally I
COVID
Resurgence
-�
A
Federal Reserve begins taking aggressive
approach to fighting inflation, set 2% target
Inflation Reduction Act: $437
billion 08/16/2022
merican Rescue Plan:
$1 .9 trillion 3/11/2021
Russia Invades
Ukraine, pushing
energy prices,
inflation even
higher
Recovery, Rising Energy
Prices, Rising Inflation
JURISDICTION OR REGION 2019Q3 2019Q4 2020Ql 2020Q2 2020Q3 2020Q4 2021Ql 2021Q2 2021Q3 2021Q4 2022Ql 2022Q2 2022Q3 Federal Funds Rate (Top ofTarget Range)»> 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.50% 1.75% 3.25% OTHER SOUTHERN -12.5% 15.4% -- -29.5% --5.9% 2.9% -6.0% 48.1% 17.9% 14.1% 20.0% 26.1% -0.4% -2.0% CENTRAL COAST -10.7% 5.3% -25.9% -8.8% 2.0% -2.2% 38.9% 28.7% 11.4% 18.2% 20.5% 4.0% 8.5% SOUTH COAST -7.8% 5.5% -20.8% -10.7% -3.9% -10.5% 29.2% 34.6% 18.7% 28.7% 21.1% 5.7% 7.8% S.F. BAY AREA -11.5% 5.7% -20.0% -11.2% -4.9% -10.3% 23.2% 26.1% 13.6% 20.2% 19.8% 5.6% 10.4% STATEWIDE -8.8% 5.3% -18.9% -6.0% -0.2% -5.8% 32.8% 32.1% 17.6% 25.4% 19.1% 5.0% 7.5% INLAND EMPIRE -8.7% 4.7% -17.6% 1.8% 8.8% 3.6% 49.9% 37.5% 21.9% 30.4% 19.1% 6.8% 8.3% SACRAMENTO VALLEY -8.2% 2.3% -15.3% 5.6% 5.7% -0.9% 35.4% 27.8% 16.7% 22.8% 15.9% 2.0% 5.6% CENTRAL VALLEY -7.2% 6.0% -11.5% 8.1% 10.2% 8.6% 44.6% 33.7% 19.9% 24.3% 14.2% 3.7% 5.7% NORTH COAST -6.0% 7.1% -11.0% 3.2% 13.1% 5.2% 37.6% 24.5% 5.7% 6.4% 2.8% -5.3% -4.1% OTHER NORTHERN -11.0% 7.7% -9.2% 3.8% 11.1% 7.9% 34.5% 26.5% 9.2% 9.3% 5.6% -4.9% 1.2% Inflation (U.S. CPI-U) »> 2.1% 0.3% 1.2% 1.3% 1.9% 4.9% 5.4% 6.7% 8.0% 8.7% 8.3% CA Gasoline Average Retail>» 4.0% -26.8% -13.5% -19.5% 2.7% 41.9% 36.6% 44.7% 42.2% 46.8% 28.9% Non-Confidential Avenu Insights & Analytics
ATTACHMENT 5

California Taxable Sales
Quarter over Quarter Percent Change
CARES ACT: $2 TRILLION
3/25/2020, many
taxpayers that extended
in Ql catching-up.

CA COVID Lockdown
begins, many taxpayers
file extensions
New Wayfair / AB147 $ J
Economy begins to slow
Consolidated
Appropriations Act: $900
billion 12/20/2020
Su Jmmer Rally I
COVID
Resurgence
merica
.9 trill
An
$1
Federal Reserve begins taking aggressive
approach to fighting inflation, set 2% target
Inflation Reduction Act: $437
billion 08/16/2022
Russia Invades
Ukraine, pushing
n Rescue Plan: energy prices,
ion 3/11/2021 inflation even
higher
Recovery, Rising Energy
Prices, Rising Inflation
l l � ·� '
JURISDICTION OR REGION 2019Q3 2019Q4 2020Ql 2020Q2 2020Q3 2020Q4 2021Ql 2021Q2 2021Q3 2021Q4 2022Ql 2022Q2 2022Q3 Federal Funds Rate (Top of Target Range)»> 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.50% 1.75% 3.25% II ii 11� -�. II mm II iffiWAltf.ilWA JC EWD.I[ -ma�u m:mJrmm OTHER SOUTHERN -12.5% 15.4% -29.5% 5.9% 2.9% -6.0% 48.1% 17.9% 14.1% 20.0% 26.1% -0.4% -2.0% CENTRAL COAST -10.7% 5.3% -25.9% -8.8% 2.0% -2.2% 38.9% 28.7% 11.4% 18.2% 20.5% 4.0% 8.5% SOUTH COAST -7.8% 5.5% -20.8% -10.7% -3.9% -10.5% 29.2% 34.6% 18.7% 28.7% 21.1% 5.7% 7.8% S.F. BAY AREA -11.5% 5.7% -20.0% -11.2% -4.9% -10.3% 23.2% 26.1% 13.6% 20.2% 19.8% 5.6% 10.4% STATEWIDE -8.8% 5.3% -18.9% -6.0% -0.2% -5.8% 32.8% 32.1% 17.6% 25.4% 19.1% 5.0% 7.5% INLAND EMPIRE -8.7% 4.7% -17.6% 1.8% 8.8% 3.6% 49.9% 37.5% 21.9% 30.4% 19.1% ..

6.8% 8.3%
SACRAMENTO VALLEY -8.2% 2.3% -15.3% 5.6% 5.7% -0.9% 35.4% 27.8% 16.7% 22.8% 15.9% 2.0% 5.6% CENTRAL VALLEY -7.2% 6.0% -11.5% 8.1% 10.2% 8.6% 44.6% 33.7% 19.9% 24.3% 14.2% 3.7% 5.7% NORTH COAST -6.0% 7.1% -11.0% 3.2% 13.1% 5.2% 37.6% 24.5% 5.7% 6.4% 2.8% -5.3% -4.1% OTHER NORTHERN -11.0% 7.7% -9.2% 3.8% 11.1% 7.9% 34.5% 26.5% 9.2% 9.3% 5.6% -4.9% 1.2% Inflation (U.S. CPI-U) >» 2.1% 0.3% 1.2% 1.3% 1.9% 4.9% 5.4% 6.7% 8.0% 8.7% 8.3% CA Gasoline Average Retail »> 4.0% -26.8% -13.5% -19.5% 2.7% 41.9% 36.6% 44.7% 42.2% 46.8% 28.9% Non-Confidential Avenu Insights & Analytics

From: PublicComment
Subject:

Attachments:

FW: Overlook Road Eucalyptus Tree Removal
Unknown-1 Jpeg; Unknown.jpeg
From: Linda S Rodriguez
Sent: Monday, February 6, 2023 3:29 PM
To: Mary Badame <[email protected]>; Maria Ristow <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]>; Rob Rennie <[email protected]>; [email protected]; Clerk <[email protected]>; Arn Andrews <[email protected]> Cc: Rob Moulden <[email protected]>
Subject: Overlook Road Eucalyptus Tree Removal
I [EXTERNAL SENDER)
Dear Mayor, Vice Mayor, Members of Council and Town Manager, My name is Linda Rodriguez. I live at , Los Gatos. My building faces Overlook Road and I am in the unit directly under the two Eucalyptus trees that uprooted and fell during the storm last month and the three remaining trees
Fortunately the two trees did not fall on top of this building or any of the homes across the street.

The purpose for this email is to reinforce (letter sent on Jan. 24th by our Overlook Trees Neighborhood Group, and a letter sent by a board member of our HOA), the importance, and the need, for the removal of the remaining trees on Overlook Road; especially the three leaning trees next to the two that fell, directly over Building #6.
(See attached photos)
All of the trees on Overlook Road are a hazard to the homes and families that live, walk and drive under these trees, not only during winter storms but also during fire season. Living under these trees causes me, and my neighbors a lot of stress and fear during the winter months and fire season. Many property owners on Overlook Road support the removal of these trees as well as neighbors in the surrounding neighborhood.

Four years ago we sent several emails to the Town Arborist requesting that the trees be trimmed. The trees were finally trimmed, however we were unhappy with how little trimming was done. We were informed at that time that the Town put these trees on a more frequent trimming cycle. We didn't then and certainly don't now, believe that a more frequent trimming schedule is a long term solution for the danger these trees pose.

I am aware of the fact that many trees in Los Gatos fell during this past storm. However, these Eucalyptus trees are not a new problem or concern for the residents that live on this street. When the two trees fell it exacerbated the concern we have had for years. The potential loss of life and property that these old, extremely tall, highly flammable, non-native Eucalyptus trees present is a unique and long standing neighborhood concern and one that I hope the Town of Los Gatos takes very seriously when planning the 2023 1 ATTACHMENT 6 Page 331
2 Please approve the allocation of funds for the removal of these trees in your upcoming budget meetings.

I appreciate all the hard work and time each of you dedicate to keeping Los Gatos a wonderful place to live.

Thank you for your service,
Linda S. Rodriguez
Los Gatos, CA 95030
budget.

1 From: Debra Townley
Sent: Thursday, February 9, 2023 4:55 PM
To: Maria Ristow; Town Manager; Rob Moore; Matthew Hudes; Mary Badame; Rob Rennie Subject: Budget Item: Homelessness
[EXTERNAL SENDER]
Dear Council Member,
My name is Debra Townley and I am an advocate at West Valley Community Services. I am writing to you to ask you to include supportive services for our homeless residents in the budget for this coming year.

Services for people experiencing homelessness are important because more and more community members are facing homelessness daily. This is a crisis and an emergency. Los Gatos is not immune to the problem of homelessness as vulnerable people need help staying sheltered and re-establishing stable housing.

We conducted a focus group earlier this week to learn what people experiencing homelessness in our town would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers.

Los Gatos is a brilliant and compassionate town that likely understands the weight of this issue. I trust that homeless services will be included in the budget and look forward to the innovative and effective efforts for solving homelessness that emerge.

In community,
Debra Townley

1 From: kathleen elliott
Sent: Thursday, February 9, 2023 4:56 PM
To: Maria Ristow; Mary Badame; Rob Rennie; Matthew Hudes; Rob Moore; Town Manager Subject: Homelessness in Los Gatos
[EXTERNAL SENDER]
Dear Councilmember,
My name is Kathleen Elliott, and I am a client at West Valley Community Services. I am writing to ask you to include supportive services for our homeless residents in the budget for this coming year. I understand that you have stepped forward to address this issue directly and applaud that action. Though challenged with the opposite situation of being homebound in recent years I am concerned about those who cannot find affordable housing in our area.

It is a win-win situation to provide supportive services to help catapult people from homelessness to housed as both they and the community benefit. Here are some specifics to consider:

We conducted a focus group earlier this week to learn what people experiencing homelessness in Los Gatos would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers.

Thank you again for adding homelessness as a strategic priority and for including services in the budget.

In community,
Kathleen Elliott

1 From: Elizabeth Olmos
Sent: Thursday, February 9, 2023 4:58 PM
Subject: Homelessness services in Los Gatos
[EXTERNAL SENDER]
Dear Councilmember,
My name is Elizabeth Olmos and I am a staff member at West Valley Community Services. I am writing to you to ask you to include supportive services for our homeless residents in the budget for this coming year.

I believe it is important for all individuals to have access to resources for their basic everyday necessities.

We conducted a focus group earlier this week to learn what people experiencing homelessness in our town would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers.

Thank you again for adding homelessness as a strategic priority and I ask that you please take these crucial needs into consideration for services in the budget.

In community,
Elizabeth
(Pronouns: she, her, hers, ella)
-----
Elizabeth Olmos
HTH Program Case Manager
West Valley Community Services, Inc
10104 Vista Drive, Cupertino, CA 95014
Direct: 408.618.6299 | Main: 408.255.8033 | Fax: 408.366.6090 We need your help more than ever before. Please donate today to help your community! Facebook | Twitter | Instagram | YouTube | LinkedIn | WVCS Blog Chefs of Compassion | WVCS in The News To help protect your priv acy, Microsoft Office prevented automatic download of this picture from the Internet.

1 From: Janet Farabaugh
Sent: Thursday, February 9, 2023 5:00 PM
Cc: [email protected]
Subject: Support for Unhoused in Los Gatos
[EXTERNAL SENDER]
Dear Councilmember,
My name is Janet Farabaugh, and I am a Board Member at West Valley Community Services. I am writing to you to ask you to include supportive services for our homeless residents in the Los Gatos town budget for this coming year.

Our organization conducted a focus group earlier this week to better understand what people experiencing homelessness in Los Gatos would most like to have included in the budget. From this discussion with 15 individuals, (9 of whom are currently experiencing homelessness), the priorities were:
- Increased frequency of shower availability (2-3x per week) - A shelter (either permanent or temporary for events like the January storm - Funding for faith groups to distribute essential items such as propane tanks and laundry vouchers.

Thank you for your consideration of the above. These additional services would go a long way to support the most vulnerable in our community, through a relatively modest expenditure. Los Gatos would be an example for other towns and cities of a truly inclusive community where all are welcomed and supported.

In community,
Janet Farabaugh

1 From: Anusha Mannava
Sent: Thursday, February 9, 2023 5:01 PM
To: Maria Ristow
Subject: Homelessness services in Los Gatos
[EXTERNAL SENDER]
Dear Councilmember,
My name is Anusha Mannava, and I am a staff member at West Valley Community Services. I am writing to you to ask you to include supportive services for our homeless residents in the budget for this coming year.

Thanks to our advocacy, the Los Gatos Town Council voted to add support for homeless residents as a Strategic Priority.

However, much is to be done to address the housing crisis in this city.

We conducted a focus group earlier this week to learn what people experiencing homelessness in our town would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers.

In community,
Anusha
‐‐
Anusha
(Pronouns: she, her, hers)
--
Anusha Mannava
Client Services Associate
West Valley Community Services, Inc.
10104 Vista Drive, Cupertino, CA 95014
Direct: 408.471.2204 | Main: 408.255.8033 | Fax: 408.366.6090

1 From: Kathryn Hedges
Sent: Friday, February 10, 2023 2:02 PM
To: Kathryn Hedges
Subject: Homelessness services
[EXTERNAL SENDER]
Dear Councilmember,
My name is Kathryn Hedges, and I am a member of the West Valley Community Services Lived Experience. I am writing to you to ask you to include supportive services for our homeless residents in the budget for this coming year. (Say why you think services for people experiencing homelessness are important, why Los Gatos specifically should do this, what this means to you, any other thoughts you have) We conducted a focus group earlier this week to learn what people experiencing homelessness in our town would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers. (Provide any closing thoughts, thank them for adding homelessness as a strategic priority, and ask again for them to include these crucial services in the budget).

In community,
(Your name)

1 From: Kathryn Hedges
Sent: Friday, February 10, 2023 2:22 PM
To: Kathryn Hedges
Subject: Funding for homelessness services
[EXTERNAL SENDER]
Dear Councilmember,
My name is Kathryn Hedges, and I am a member of the Lived Experience Advisory Board of West Valley Community Services. I am writing to you to ask you to include supportive services for our homeless residents in the budget for this coming year.

We must provide these services as a human rights issue. Though we cannot immediately house everyone who needs housing, at the very least we can help with other basic needs.

We conducted a focus group earlier this week to learn what people experiencing homelessness in our town would like included in the budget. We were able to gather a group of 15 people, 9 of whom are currently experiencing homelessness in our town. Here is what they came up with: More showers (2 or 3x/week instead of 1x/week), a shelter (either permanent or temporary for events like the storm we experienced last month), and funding for faith groups to distribute things like propane tanks and laundry vouchers.

People complain about unhoused people being dirty, but if you could only shower once a week and couldn't do laundry (and probably slept in your clothing for warmth outside) you would be dirty too. And people die in storms, whether because they are swept away on a creekside or get hypothermia, or it exacerbates other health conditions. Providing foul weather shelter is the lowest bar we can possibly pass towards the human right to housing.

In community,
Kathryn Hedges
Member, WVCS Lived Experience Advisory Board

1 From: PublicComment
Subject: FW: Letter of Support for NUMU and the Proposal for Annual Rent Reduction Attachments: Los Gatos Town Council 2023.docx
From: George Rivera
Sent: Tuesday, February 14, 2023 2:06 PM
To: Council <[email protected]>
Cc: Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]>; Laurel Prevetti <[email protected]> Subject: Letter of Support for NUMU and the Proposal for Annual Rent Reduction [EXTERNAL SENDER]
February 14, 2023
Los Gatos Town Council
The Honorable Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie Dear Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie, My name is George Rivera and I have attached my email letter of support on behalf of NUMU and the Proposal of Annual Rent Reduction. Thank you.

Sincerely,
George Rivera

Los Gatos Town Council
The Honorable Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie
110 E. Main Street
Los Gatos Ca. 95030
February 14, 2023
Dear Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie, Thank you for this opportunity in allowing me to share my concerns and perspectives regarding the fiscal budget challenges facing one of the Town of Los Gatos and the South Bay Cultural Arts institutions, NUMU. You are all aware of the unprecedented and unexpected impact that the pandemic/Covid-19 has had on individuals, businesses, education, and non-profit organizations locally, nationally, and globally. The financial impact has been devasting and has been the main reason for so many significant cultural Arts organizations to ultimately close their doors and stop to exist. The majority of these Arts organization are not the large world renowned art museums or other highly endowed institutions which are privately funded by the original founders and prominent wealthy national financial leaders with extraordinary funded endowments to survive any financial disasters. Once these smaller community Arts organizations cease to exist, the impact to the entire community is significant, and rarely can any of these organization rise from this situation. The loss to all of these communities is tremendous and impacts all areas of potential funding and income resources to any community, town, and city.

For non-profit organizations, raising General Operating funding during “normal” average years is challenging enough, but the fiscal realities and impact of Covid-19 have been extraordinary. It has brought way too many cultural Art organizations to the brink of closure, and unexpected numbers of Arts institutions throughout the country have closed. Towns and Cities throughout America are working together to find ways to address these difficult issues, and working towards solutions to strengthen these vital relationships and partnerships which greatly impact their communities as significant community assets.

As a former Los Gatos resident and NUMU and current Museums of Los Gatos supporter since the late 1980s, I am writing today to request amendments to the New Museum Los Gatos’ current lease with the Town of Los Gatos. When this agreement was created, the fiscal and financial realities that have impacted the community of Los Gatos due to Covid-19 in 2020 to the present, could not have been predicted or foreseen, and they continue today. Even if this were to change in the immediate future, the financial recovery period and opportunities for funding towards General Operations for any and all cultural Arts organizations will experience a very slow recovery.

The request for the Town of Los Gatos to reduce the annual rent from $25,000 annually to an amount more aligned to those of similar “partnerships/relationships” throughout the Greater Bay Area, seems to be a very constructive and successful model and foundation to preserve impactful community assets such as NUMU. All along, I have been under the impression that the Town, like other cities in our region, supports the museum through free or minimal “symbolic” rent/lease such was the scenario with the former location for the Museums of Los Gatos on Tait Avenue, and annual grant opportunities for General Operations. NUMU is a great Los Gatos treasure, as well as a highly recognized and respected cultural Arts organization in the South Bay arts community. The programming, exhibitions, educational services, the community impact both on-site and off-site, the partnerships with other outstanding programs throughout the Town of Los Gatos; all of this and more, combine to create significant beneficial impact on the entire community. NUMU provides critical services to the Town that makes Los Gatos an incredible place to live, work, play, and learn, in addition to attracting visitors from throughout the Greater Bay Area and beyond, having a positive impact financially to local businesses.

My wife Kristin and I are proud to be members and active supporters of NUMU and to live near a Town that offers a vibrant cultural center and a museum that represents the region and safeguards our history.

I believe that solutions can be found that would mutually benefit all parties and build an even more successful outcome which would help to address any future unexpected financial challenges and create an ongoing structure and model for support that benefits the Town of Los Gatos and NUMU. I understand these challenges very well, as a former Executive Director of two different non-profit private not-affiliated with the City cultural Arts organizations for over 32 years, one in the City of San Jose, and the other in the City of Santa Clara, these same issues were at the core of which all else could be built and planned upon for the future. In both instances a sum of $1.00 a year was created and agreed upon for the annual lease/rent fee.

This is significant and I hope that this situation can be addressed with something similar to these models for solutions and possibilities to address the current fiscal challenges.

The presence and future of this treasured, recognized, and respected cultural Arts organization is in my opinion both a tremendous asset both financially and in the value and quality of life for the residents of Los Gatos, but also a commitment towards preserving and insuring a bright future of this distinguished institution in the town of Los Gatos. Thank you.

Sincerely,
George Rivera
Advisory Board Member NUMU,

Former Executive Director of the Triton Museum of Art, Santa Clara, Ca., and the San Jose Art League Center & Galleries, San Jose, Ca.

1 Subject: FW: Agency Lease Waiver Request
Attachments: 2023 Town Agency Lease Waiver Request.pdf
From: Nancy Rollett
Sent: Thursday, February 16, 2023 10:19 AM
To: Laurel Prevetti <[email protected]>
Cc: Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Matthew Hudes <[email protected]>; Rob Rennie <[email protected]>; Rob Moore <[email protected]> Subject: Agency Lease Waiver Request
[EXTERNAL SENDER]
Hello Laurel,
The Agency and our Board are seeking Council consideration of the attached lease waiver request I referenced in public comment at the Special Town Council meeting yesterday.

Please include this in the Council packet for the next meeting on 2/21/2023.

Regards,
Nancy
Nancy Rollett
Executive Director
Direct: 408.207.4900
LGS Recreation
Main Office: 408.354.8700
208 E. Main St, Los Gatos, CA 95030
Building a Healthy Community Through Enrichment, Innovation, and Fun!

February 16, 2023
Town of Los Gatos
Attn: Laurel Prevetti, Town Manager
110 E. Main Street
Los Gatos, CA 95030
Re: Los Gatos-Saratoga Community Education and Recreation Lease Agreement Request for Waiver: Lease Abatement
Dear Town Manager Laurel Prevetti:

This letter constitutes a Request for Waiver of terms with respect to the "Lease Agreement between Town of Los Gatos ["Town"] and Los Gatos-Saratoga Community Education and Recreation" ("Lease Agreement.") This Request is submitted in conjunction with the January 16, 2023 written proposal submitted by Los Gatos-Saratoga Recreation ("LGS Recreation").

Background
Since 2009, LGS Recreation has leased the ARC and YRC facilities from the Town, under which LGS Recreation provided staffing, financial management, programs and services to operate the 55 Plus Program, providing free or low-cost access to recreation, education, social, and wellness programs to the Town's residents.

With the support of the Town, Community Health and Senior Services Commission, and Senior Services Committee, as well as the Town's provision of funds under the American Rescue Plan Act ("ARPA"), the 55 Plus Program saw a resurgence in 2022, with 730 members, and over 1700 persons served through the program.

However, the post-pandemic economic environment has forced LGS Recreation to revisit the economic model upon which it provides free or low-cost adult recreation services to the Town's citizens, subsidized in part by LGS Recreation's other programs. The extended shelter-in-place in 2020-2021 significantly reduced participation levels LGS Recreation's programs, as well as the revenue generated from those programs.

The partnership entered between the Town and LGS Recreation in 2009 allowed the parties to provide valuable and meaningful recreational and social opportunities Town's citizens, and also, it was noted at the time, allowed such programs to be offered at a cost savings to the Town. However, the current economic climate has compelled LGS Recreation to re-evaluate the approximately $500,000 in costs it incurs to provide the recreation services under the Lease Agreement on a free or low-cost basis to the Town's residents, in addition to the approximately $250,000 facilities payments under the Lease Agreement that the Town is contemplating reinstating.

Terms of the Lease Agreement
The lease payments made by LGS Recreation are governed by Section 3 {"Rent") of the Lease Agreement. Section 36 of the Agreement ("Waiver") permits the Town to waive "one or more conditions of performance" without waiving "any other condition of performance." As noted above, the Town's decision to waive LGS Recreation's payments under the Lease Agreement in the past three years has been crucial to the rejuvenation · of the 55 Plus Program.

LGS Recreation is requesting that the Town consider releasing LGS Recreation from its obligations to deliver the 55 Plus Program, or agree to modifying the scale of the program, as set forth in LGS Recreation's January 13, 2023 proposal, starting July 1, 2023. The basis of such a request is that the partnership with LGS Recreation entered into in 2009 has allowed the Town to achieve cost savings by having its recreation programs provided in partnership with a third party. These programs have been offered to the Town's participants, many of whom are on a fixed income, on a free or low-cost basis, as LGS Recreation forecasts that they will only generate approximately $44,000 in revenue in 2023. We believe that the programmatic and financial benefits to the Town offset any opportunity costs to the Town. The cost of providing the 55 Plus Program to LGS Recreation is the catalyst for LGS's request for continuation of the lease abatement.

Prior to the pandemic, LGS Recreation subsidized the program in part through revenue generated by its other programs. In the post-pandemic economic climate, this economic model will prove infeasible on a going-forward basis. LGS Recreation asks the Town to consider the value of 55 Plus Program, using the $500,000 annual costs incurred by LGS Recreation to deliver such program as a benchmark, against the alternative scenarios of either having such programs discontinued due to economic infeasibility, providing such programs as a municipal service or through a new vendor, or providing such program at greater expense to the Town's participants. LGS Recreation believes that the Town's willingness to consider adjusting the scale the 55 Plus Program in light of the fiscal impact to LGS Recreation of the lease payments_will provide greater benefit the Town both programmatically and financially than the alternative scenarios.

Na ��Lctor
Los Gatos-Sa�atoga Community Education and Recreation
Cc: Mayor Ristow, Vice Mayor Badame, Council Members Hudes, Rennie and Moore

PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 15

ADDENDUM
DATE: February 17, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Provide Comments Regarding the Five-Year Forecast (FY 2023/24 – 2027/28) and Scenarios and Provide Input for the FY 2023/24 Budget Direction
REMARKS:

Attachment 7 contains public comments received after publishing the Staff report and before 11:01 a.m. Friday, February 17, 2023
Attachments received with the Staff Report:

1. Annual Budget Process

2. Base Case Five-Year Forecast

3. Forecast Revenue Assumptions

4. Forecast Expense Assumptions

5. Additional Sales Tax Context from MuniServices

6. Public Comments Received before Publishing the Staff Report Attachment received with this Addendum:

7. Public Comments Received after Publishing the Staff Report and before 11:01 a.m. Friday, February 17, 2023

From: Kristi Pearce-Percy
Sent: Friday, February 17, 2023 12:54 PM
To: Laurel Prevetti <[email protected]>; Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Rob Rennie <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]> Subject: Re: Council Meeting Feb 21 in support of KCAT
[EXTERNAL SENDER]
To the Town Manager, Laurel and to Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie~
I’m writing you today to ask for the support of the second half of KCAT’s initial request to seed The Producer Network which will take the Program to a point of sustainability.

I joined KCAT’s Board of Director’s in 2021. My passion for giving back to the community led me there, and I’m happy it did. KCAT is so much more than a Media Resource – it provides a safe place for those who might be a little shy and feel out of place, it provides education to those yearning to learn, it provides a sense of community… I could go on! BUT, most recently, with the town’s help in funding our 1st seed of money, we were able to start something so incredible and out of the box – THE PRODUCER’S NETWORK – that brought KCAT to the next level for our Senior Community. An Idea that turned into action, which then turned into passion, and now a necessary resource that NEEDS to remain in our town. Probably the best part of The Producer’s Network, is that it’s cross-generational. Gen X, Y & Z’s are working with our 55+ Community and they are learning from each other. How amazing is that?! I encourage you to attend a Producer Network meeting so you can see the buzz for yourself… Also, I know you have seen our metrics, but I wanted to point out a few highlights:
- 100% of the seniors participating in THE PRODUCERS will say that they have gained valuable skills and experiences
- 95 out of the 125 Producers are unique to local senior programs - A total of 19 shows created in 1 year! All produced and edited by the Producers - 30 people joined as couples
- 80+ additional individuals are in the pipeline to become involved I also want to make an important note that KCAT will not be asking for further funding for The Producer Network from the Town. But we do need this 2nd seed for this program to continue past March 2023.

Thank you for taking this into consideration, and we look forward to ALL celebrating the continued success of THE PRODUCER’S NETWORK.

Sincerely,
Kristi Pearce-Percy
ATTACHMENT 7

PREPARED BY: Gitta Ungvari
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: 02/21/2023
ITEM NO: 15

DESK ITEM
DATE: February 17, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Provide Comments Regarding the Five-Year Forecast (FY 2023/24 – 2027/28) and Scenarios and Provide Input for the FY 2023/24 Budget Direction
REMARKS:

Attachment 8 contains public comments received between 11:01 a.m. Friday, February 17, 2023, and 11:00 a.m. Tuesday, February 21, 2023.

Attachments received with the Staff Report:

1. Annual Budget Process

2. Base Case Five-Year Forecast

3. Forecast Revenue Assumptions

4. Forecast Expense Assumptions

5. Additional Sales Tax Context from MuniServices

6. Public Comments Received before Publishing the Staff Report Attachment received with the Addendum:

7. Public Comments Received after Publishing the Staff Report and before 11:01 a.m. Friday, February 17, 2023
Attachment received with this Desk Item:

8. Public Comments Received between 11:01 a.m. Friday, February 17, 2023, and 11:00 a.m.

Tuesday, February 21, 2023.

From: Ken Toren
Sent: Friday, February 17, 2023 6:35 PM
To: Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Rob Rennie <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]>; Laurel Prevetti <[email protected]> Subject: KCAT PROUD!
[EXTERNAL SENDER]
To Mayor Ristow, Vice Mayor Badame, Council Members Rennie, Hudes, Moore, and Town Manager Laurel Prevetti:

First, huge thanks for serving as our elected officials and Town Management. It's not an easy job and we appreciate and value your time, commitment, judgement, integrity, and trust.

It has been a privilege to serve on the KCAT Public Media Board for 10+ years. I have seen this organization grow in so many profound and meaningful ways. Here is a portion of what we do:

We are proud of our youth camp with over 600+ kids in 5 years.

We are proud that we have high school youth so engaged in a variety of station activities. Many of our youth return year after year and there is a constant flow of new energy.

We are proud that KCAT has built an excellent regional and national reputation to be innovative and transformative through podcasts, vodcasts, and leveraging the latest technology, devices, and platforms to stream content and do live broadcasts.

We are proud of our original local content, new programs, full schedule, and Government meetings which promotes transparency and civic pride.

We are proud to have expanded our terrific Board and fully embrace fund raising mainly through our Oktoberfest event which netted $36,000 in its first year!
We are proud that KCAT remained 24/7 during the various phases of COVID, pivoting as needed to manage virtual meetings, being one of the first to return to an in-person summer camp, and the only station in the Bay Area to cover an in-person version of LGHS graduation for students and families…all safely and in compliance with local regulations.

We are proud of our on-going relationship with the Town of Los Gatos and City of Monte Sereno as well as so many partnerships and collaborations including SASCC, Cassy, Rotary Clubs, Lions Club, LGS Recreation, LG Chamber, NUMU, and other businesses and nonprofits.

We are proud that KCAT has been serving the community for 40 years.

And we are proud to now have the 55+ community so active in our Producers Network and these super metrics in its first year of operation:
• 137 currently involved with 30 couples and 80+ in the pipeline. • 70% of members are unique to local senior programs.
• 19 shows created to date.
• Producers have volunteered in community events such as Promenades and Veteran’s events. • Youth and seniors have worked side-by-side as part of our intergenerational initiatives.

With great pride, we are thrilled to fulfil the objectives of the Senior Roadmap and continue the unique Producers program for many years to come.

And we are proud that our funding request of $100,000 from the Town for The Producers will be last and final as we have developed realistic and tangible plans for sustainability and growth.

Thank you.

Ken Toren
Board Member, KCAT Public Media
CEO, Red Cross Silicon Valley
Ken Toren

From: Joanne S. Talesfore
Sent: Saturday, February 18, 2023 7:03 PM
To: Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Rob Rennie <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]>; Laurel Prevetti <[email protected]> Subject: A KCAT REQUEST
[EXTERNAL SENDER]
Dear Mayor Ristow, Vice-Mayor Badame
Council Members Hudes, Rennie, Moore
Town Manager Laurel Prevetti
Your generous financial support in 2022, challenging KCAT TV to develop a community program to engage Seniors 55+ in
meaningful and productive areas, has done just that!
Today I am writing to you, as KCAT past-President and 12+ year Board member, and active community participant in Town
programs and committees, to say Thank you! Your vote of confidence at that time, with initial seed money, parlayed into one of KCAT’s most notable program developments - The Producers Network.

It has been a productive year of dedicated leadership by Executive Director Melissa Toren and Staff, with support from an enthusiastic Board, enabling all of us together to take pride in significant accomplishments we can identify in The Producers Network (TPN).

Consider this:
* 137 currently involved Seniors 55+, with a waiting list of 80 more * 70% of membership are unique to local senior programs *19 program shows created in video, podcasts, and an online magazine “ZINE”
* 20 ‘Producers’ volunteered at Chamber’s Promenades, Veteran events, OktoberFest LG

* 10 high school students and ‘producers’ worked together on projects as part of KCAT’s inter- generational focus
Ultimately, The Producers Network team fulfilled the initial objectives of the original grant’s challenge, and a a leader and participant, will continue to fulfill the Town’s objectives as written in the recently adopted Senior Roadmap, a valued Town
achievement.

I take pride that today, the KCAT funding request for $100,000.00 from the Town for The Producers Network, will be the last and final, as seed money should be. Proudly, KCAT has developed a realistic and tangible plan to move forward for sustainability and growth.

Thank you for your dedicated work for our Town of Los Gatos, a Town we are proud to serve with you,
Joanne Talesfore
KCAT TV Board Member

From: Joni Russell
Sent: Sunday, February 19, 2023 12:47 PM
To: Laurel Prevetti <[email protected]>; Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Rob Rennie <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]> Cc: Melissa Toren <[email protected]>
Subject: Council Meeting in Support of KCAT
[EXTERNAL SENDER]
To the Town Manager, Laurel Prevetti, and to Mayor Ristow, Vice Mayor Badame, and Council Members Hudes, Moore, and Rennie.

I am sending this email to you today and asking for your support to continue to fund KCAT’s Producers Network program, under the leadership of Melissa Toren, with the second half of the original seed money used to launch this innovative initiative.

I was hired by KCAT in 2022 as the Project and Engagement Manager for the Producers Network. I am proud to report that in just one year's time we have created and executed from scratch a transformative program that has offered the 55+ year old community of Los Gatos a level of training, experience, creativity, learning, and involvement reaching well above and beyond what is typically offered to this demographic of my peers.

It is with extreme pride that I am able to report that we have developed and nurtured a network of 125 volunteers who have produced and edited roughly 20 show episodes of original content for KCAT, including 2 shows that are created and hosted by 94-year olds. Our shows reflect the relevant content, skill sets, life lessons, expertise, information, and impactful stories that need to be told. We are improving lives, addressing isolation and loneliness, providing socialization, and using our media platform to become a connector in our community.

Each and every week we are receiving word-of-mouth requests from Seniors asking to join The Producers and sharing their desire to become involved. So I invite you to come and join us at one of our monthly speakers series meetings or walk the red carpet with us for a new show or episode premiere watch party. Visit us for hands-on tech training to learn studio filming, editing, or floor directing. Share our excitement and enthusiasm as we embark on the creation of a group Murder Mystery Pilot for TV. Watch as our generations working together generate unparalleled magic! Read about the volunteer work we do and what we have accomplished in our online magazine (Zine).

Our community deserves KCAT’s Producers Network to continue to thrive for all of us. I urge the town to continue to fund this essential program.

Thank you for your thoughtful consideration!
Sincerely,
Joni Russell
The Producers Network
Program and Engagement Manager
--

Joni Russell
Program & Engagement Manager
The Producers Network | KCAT Public Media

From: Mark Chow
Sent: Sunday, February 19, 2023 2:52 PM
To: Maria Ristow <[email protected]>; Mary Badame <[email protected]>; Rob Rennie <[email protected]>; Matthew Hudes <[email protected]>; Rob Moore <[email protected]>; Laurel Prevetti <[email protected]> Cc: Melissa Toren ; Mark Chow
Subject: a letter of support for KCAT funding
[EXTERNAL SENDER]
To: Mayor Ristow, Vice Mayor Badame, Councilmember Rennie, Councilmember Hudes, Councilmember Moore, and Town Manager Prevetti,
I'm writing to ask for your vote to support the funding of KCAT Public Media's Senior Citizen program "The Producer's Network." As you know, the town voted to fund half of the original program request, and this is a proposal to fund the remaining $100,000 that will allow the program to reach selfsustainability.

I've been a resident of Los Gatos for 28 years and have served on the KCAT board of directors for 18 years. In that time, I've seen and participated in KCAT's development from a volunteer video non-profit to a business-driven innovative organization providing the community media services that the Town of Los Gatos deserves.

In addition to providing broadcast and streaming video for official Town functions and the technical infrastructure to support government transparency, KCAT has developed self-funded programs such as Youth Camps, media technology education, podcasting and internet radio, and television shows that capture the culture of Los Gatos. We partner with the High School to support academic and sports programs; the Chamber of Commerce and business community to promote local enterprise; and service groups providing media coverage for their good works such as the annual Holiday Parade. "The Producer's Network" is a concept in the Silicon Valley tradition of thinking beyond the shuffleboard court to serve our senior population. It provides a creative and intellectually stimulating activity for participants that directly serves the media needs of our community since the decline of local newspaper coverage. It also provides a connection between our high school youth participants who bring their knowledge of new technology, and our seniors who bring the wisdom of their experience.

This is a special and innovative program that exemplifies the spirit of Los Gatos. We've proven that the KCAT team can deliver on the promise of enriching the lives of our senior participants. Los Gatos deserves "The Producer's Network" and this final round of funding will make it possible. I thank you for your consideration.

Sincerely,
Mark Chow
Senior Producer, Google Developer Education
Past KCAT Board President