PAGE 3 OF 3
SUBJECT: County Grant for Adult Day Services and/or Case Management DATE: December 7, 2023
CONCLUSION AND NEXT STEPS:
Staff looks forward to Council’s discussion and direction on how to allocate the $125,000 grant funds between adult day services and case management for older adults. If the Council agrees with the CHSSC recommendation, staff suggests that the Town first conduct the competitive process to select an adult day services provider. Through the RFP process, service providers may have different cost estimates for the equivalent of one FTE of service. Staff would evaluate the proposals and recommend a service provider to Town Council and make the final allocation for the adult day services provider.
Once the funding for that service is determined, the remaining funds would be allocated to the case management service and staff would proceed with the RFP, returning to Council with the selected provider for approval.
This approach would provide more certainty both sets of service providers. to the organizations that may wish to respond to the case management RFP.
Alternatively, Council could direct the release of both RFPs simultaneously and the results return to Council as a package.
COORDINATION:
The preparation of this report was coordinated with the Library and Finance Departments, and the Town Attorney’s Office.
FISCAL IMPACT:
The $125,000 grant funds are being provided to the Town from the County to cover the costs of contracted case management and adult day services. With this agenda item, Council has two fiscal actions to take: Authorize revenue and expenditure budget adjustments in the amount of $125,000 to recognize grant receipt and expenditure of the grant from County of Santa Clara received by the Town.
Staff time related to grant management, the RFP(s), and program oversight will not be covered by grant funds and will be absorbed by existing staff.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
PREPARED BY: Katy Nomura
Assistant Town Manager
Reviewed by: Town Manager, Assistant 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: 12/19/2023
ITEM NO: 19
DATE: December 11, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review the Revenue Modeling Report Prepared by NBS and Provide Direction on Any Ballot Measures to Consider for Polling.
RECOMMENDATION:
Review the revenue modeling report prepared by NBS and provide direction on any ballot measures to consider for polling.
BACKGROUND:
While costs of providing services and programs for residents have significantly increased over the years, Town revenues have not kept pace. Los Gatos is facing the same economic pressures as many other cities and businesses, including inflation and the uneven recovery from the pandemic. In addition, unfunded mandates by the State have also reduced the Town's available funds.
Los Gatos has taken the following proactive cost-cutting measures during major economic downturns to reduce budget expenditures and control costs while maintaining high service levels:
Reduced full-time employees by 15% (since 2001) and did not return to pre-recession staffing levels,
Imposed wage freezes and unpaid furloughs, and
Reduced employee benefit costs.
Town budgets are reviewed annually by an independent auditor. Los Gatos has earned recognition for its fiscal responsibility with the highest credit rating (AAA bond rating by Moody’s) and annual awards by the Government Finance Officers Association for its high quality and transparent budgeting practices.
PAGE 2 OF 6
SUBJECT: Potential Revenue Ballot Measure Options
DATE: December 11, 2023
BACKGROUND (Continued):
The Town faces a budget deficit of $3 to $4 million per year for the projected future. On May 17, 2022, Council acknowledged the Finance Commission’s finding that a structural financial deficit exists and requested recommendations on how to cure the deficit.
On November 17, 2022, the Finance Commission reviewed several cost reductions measures and recommended that the Town further work toward operational efficiencies and researching additional revenue options.
On January 24, 2023, the Town Council determined its Strategic Priorities for 2023-2025, which included exploring new revenue opportunities and addressing the forecasted deficit.
In addition to cost containment over the years, the Town has also added the following revenues in an incremental and diversified way:
November 2016 Measure T increased the Transient Occupancy Tax (TOT) from 10 percent to 12 percent. The 2% increase raises approximately $400,000 annually in additional revenue.
November 2018 Measure G creates a 1/8-cent dedicated district sales tax for a 20-year period. The adoption of the dedicated tax provides approximately $1,000,000 annually in additional revenue.
In February 2019, Council approved an Ordinance allowing regulated short-term rentals subject to TOT. Approximately $80,000 of additional TOT is collected annually. In June 2019, Council voted to annex 24 unincorporated County pockets. This action results in approximately $1,000,000 in property taxes remaining in the Town instead of being diverted to the County.
November 2022 Measure J increased business license taxes for the first time since 1991, raising approximately $1,100,000 annually in additional revenue.
In an effort to explore new revenue opportunities to address the forecasted deficits, the Town may want to consider a revenue ballot measure in 2024. On June 20, 2023, the Town Council authorized the Town Manager to issue a Request for Qualifications (RFQ) for revenue ballot measure consulting services. After conducting the RFQ process, the Town selected NBS.
On October 17, 2023, Council authorized the Town Manager to enter into an agreement for the initial phase of the work for amount not to exceed $44,600, with direction to return to Council with revenue modeling prior to beginning any polling.
There was also a request to review efficiencies, cost reduction measures, and the Annual Comprehensive Financial Report (ACFR). An extensive overview of efficiencies was reviewed by Council on August 16, 2022, and staff continues to implement efficiency improvements to address increased workloads, new State unfunded mandates, and
PAGE 3 OF 6
SUBJECT: Potential Revenue Ballot Measure Options
DATE: December 11, 2023
BACKGROUND (Continued):
little to no increases in headcount, without reducing the high quality of work product, internal controls, or the high level of customer service the Los Gatos community expects of the Town.
The Town does not have the staff capacity to quantify cost savings associated with these efficiencies and continue to provide expected municipal services.
As described earlier, cost reduction measures were considered by the Finance Commission on November 17, 2022. Another item on this agenda presents the draft ACFR for Council’s receipt.
It is important to note that the surplus at the close of Fiscal Year 2022/23 represents one-time funds.
DISCUSSION:
NBS conducted a comprehensive evaluation of options to increase revenue for the Town and associated revenue modeling, with the goal of reducing the forecasted annual budget deficits ranging from $2.8 million in Fiscal Year (FY) 2025/26 to $3.8 million in FY 2028/29. This included an evaluation of a property transfer tax increase, utility user tax (UUT), special assessment districts, transient occupancy tax (TOT), business license tax, sales tax, and parcel tax scenarios. Each of these options is outlined in NBS’ revenue modeling report (Attachment 1). Of the options, NBS recommended either a sales tax or a parcel tax.
Sales Tax
As mentioned in the NBS report, “the current sales tax rate in the Town is 9.25%, of which the Town’s share is 1% (not including the Measure G sales tax rate of 0.125%). The Town has the capacity to raise its sales tax rate by an additional 0.125%...If structured as a general sales tax, the Town would only need to secure approval from a majority of the registered voters within the Town to increase the sales tax rate. NBS recommends that the Town move quickly on this option, if desired, as the Town’s remaining capacity for a sales tax increase could be utilized by another government agency within the County during the next election cycle.” An 1/8-cent sales tax increase would not necessarily cover the Town’s ongoing budget deficit but would serve as a good first step.
The following table shows NBS’ revenue modeling for FY 2025/26 through FY 2028/29:
Parcel Tax
According to NBS, “the parcel tax option is the only reliable way to correct the Town’s projected deficits with one funding mechanism, however attaining two-thirds approval from voters at the rates that meet that objective may be difficult.”
Potential Sales Tax
Increase
Potential New Total
Sales Tax %
Additional Revenue
2025/26 Projected
Additional Revenue
2026/27 Projected
Additional Revenue
2027/28 Projected
Additional Revenue
2028/29 Projected
0.125% 9.375% $ 1,062,500 $ 1,087,500 $ 1,125,000 $ 1,162,500
PAGE 4 OF 6
SUBJECT: Potential Revenue Ballot Measure Options
DATE: December 11, 2023
DISCUSSION (Continued):
NBS explored revenue modeling for a parcel tax without senior/low-income exemptions, a parcel tax with senior/low-income exemptions, and a parcel tax on commercial buildings over 25,000 square feet. For the purposes of this analysis, the following revenue targets were used and are referenced as High, Consensus, Middle, and Low:
NBS determined the Consensus Revenue Target to show a target that would conservatively address the forecasted deficit. Staff is not recommending this target for a potential revenue measure. It is presented here for illustrative and discussion purposes only.
The following tables show the illustrative results for each scenario.
A. Parcel Tax without Senior/Low-Income Exemptions
Average Annual Taxes on Single-Family and Condo Parcels in the Consensus Revenue Target in the Scenario without the Senior/Low-Income Exemptions:
B. Parcel Tax with Senior/Low-Income Exemptions
Revenue Target Amount
High $ 4,000,000
Consensus $ 3,500,000
Middle $ 2,000,000
Low $ 1,000,000
Description Rate - High Rate - Consensus Rate - Mid Rate - Low Taxable Parcels - per Parcel $ 356.19 $ 311.67 $ 178.09 $ 89.05 Taxable Parcels - per Lot Square Foot $ 0.0203 $ 0.0178 $ 0.0102 $ 0.0051 Taxable Parcels - per Building Square Foot $ 0.14 $ 0.12 $ 0.07 $ 0.03 Average of
Parcel Tax - By
Parcel
Average of
Parcel Tax - By
LotSqFt
Average of
Parcel Tax - By
BldgSqFt
$ 311.67 $ 254.10 $ 262.08
PAGE 5 OF 6
SUBJECT: Potential Revenue Ballot Measure Options
DATE: December 11, 2023
DISCUSSION (Continued):
Average Annual Taxes on Single-Family and Condo Parcels in the Consensus Revenue Target in the Scenario with the Senior/Low-Income Exemptions (note that the average is higher for the non-exempt parcels in order to meet the same Consensus Revenue Target):
C. Parcel Tax on Commercial Buildings Over 25,000 Square Feet Only 35 parcels in the Town have commercial buildings over 25,000 square feet and would be subject to such a parcel tax. For illustrative purposes only, the total annual tax per owner for this scenario at the $3.5M Consensus Revenue Target would range from approximately $4,600 to $612,000.
CONCLUSION AND NEXT STEPS:
Staff looks forward to Council’s discussion and direction on which potential revenue measures should be included in a poll. NBS recommends that no more than two options should be polled.
Polling is a targeted effort to evaluate whether a potential measure would be viable and would include a small number of likely voters (e.g., 100 to 200 interviews) to obtain statistically valid results. Once polling is completed, staff would provide a summary of the results to the Finance Commission for a recommendation to Council on whether to pursue any of the options. Staff would then return to Council for direction on whether to proceed with any of the options.
If Council decides to proceed, Phase 2 of the contract with NBS would need to be authorized to continue the work. Phase 2 includes public education and outreach, ballot measure language refinement, and a final resolution for the Town Council to place the measure on the 2024 ballot.
COORDINATION:
The preparation of this report was coordinated with the Town Manager, Town Attorney, and Director of Finance.
FISCAL IMPACT:
Description Rate - High Rate - Consensus Rate - Mid Rate - Low Taxable Commercial/Office/Industrial Parcels - per Building Square Foot > 25K $ 3.31 $ 2.90 $ 1.66 $ 0.83
PAGE 6 OF 6
SUBJECT: Potential Revenue Ballot Measure Options
DATE: December 11, 2023
On October 17, 2023, Council authorized the Town Manager to enter into an agreement for the initial phase of the work for amount not to exceed $44,600. The cost for polling for potential revenue ballot measures was already included in this amount. After polling is complete, Council will have the option to decide whether to allocate additional funding to pursue placing a measure on the 2024 ballot.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachment:
1. NBS Revenue Modeling Report
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NBS
TOWN OF LOS GATOS MEMORANDUM
TO: Laurel Prevetti, Town Manager, Town of Los Gatos
FROM: Nick Dayhoff, Senior Consultant
DATE: December 14, 2023
SUBJECT: Revenue Modeling Scenarios
a
Purpose
The Town of Los Gatos (the “Town”) has requested a comprehensive evaluation of options to increase revenue to address the Town’s forecasted budget deficits in the near term. This evaluation includes modeling for increases to sales tax and transient occupancy tax (“TOT”) rates, and a limited model for a new utility user tax (“UUT”) and a new parcel tax. This Memorandum summarizes additional revenues that could be generated via a new parcel tax based on various revenue targets, the estimated revenue generated by potential increases to the Town’s sales tax and TOT rates, and the estimated revenue generated by the implementation of a UUT.
Projected Budget Deficits
According to the Town’s Operating and Capital Summary Budget for Fiscal Year 2023/24, the following table shows the forecasted budget deficits for Fiscal Years 2025/26 through 2028/29:
Non-Viable and Not-Recommended Revenue Options
Property Transfer Tax Increase
Only Charter cities can increase the property transfer tax rate above the general law maximum of $0.55 per $1,000 of value (city rate). The Town is not a Charter city.
Limited UUT for Cable, Gas, and Electric Utilities
A UUT may be imposed by the Town on the consumption of utility services, including (but not limited to) electricity, gas, water, sewer, telephone (including cell phone and long distance), sanitation and cable television.
ATTACHMENT 1
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 2 The Town does not currently levy UUTs, so modeling what the potential revenues might be from a new UUT relies on the limited amount of information received from the Town, including historical franchise fee collections from its cable, electric, and gas franchises. Since any UUT would be based upon the gross receipts of each utility, NBS has had to estimate the gross receipts of the gas, electric, and cable utilities based on forecasted franchise fee collections and franchise fee rates for the Town’s cable, electric, and gas franchises.
The Town does not collect franchise fees for the water, sewer, or telephone utilities, so we cannot estimate what the gross receipts of those utilities might be. As such, we have not included these utilities in our estimate of potential UUT revenue. In addition, NBS is not including a UUT on the Town’s garbage utility as part of this analysis, as the contract between the hauler and the Town is currently being negotiated and the service may no longer be categorized as a “Franchise” moving forward.
According to the Town, the following table shows the forecasted cable, electric, and gas franchise fee collections for Fiscal Years 2025/26 through 2028/29:
From here, we can estimate what the gross receipts of the cable and gas/electric utility are, as the cable franchise fee is 5.00% of gross revenues, and the gas/electric franchise fee is 2.00% of gross revenues.
The following table shows the potential revenue generated via various UUT rates for the cable, gas, and electric utilities for Fiscal Years 2025/26 through 2028/29:
Title 2025/26 2026/27 2027/28 2028/29
CABLE FRANCHISE FEE 530,450$ 546,360$ 562,750$ 579,630$ PG&E FRANCHISE FEE 441,830 455,080 468,730 482,790
TOTAL 972,280$ 1,001,440$ 1,031,480$ 1,062,420$
Title 2025/26 2026/27 2027/28 2028/29
CABLE @ 5% FF 10,609,000$ 10,927,200$ 11,255,000 $ 11,592,600$ PG&E @ 2% FF 22,091,500 22,754,000 23,436,500 24,139,500 TOTAL 32,700,500$ 33,681,200$ 34,691,500$ 35,732,100$
Potential UUT
Potential New Total
UUT %
Additional Revenue
2025/26 Projected
Additional Revenue
2026/27 Projected
Additional Revenue
2027/28 Projected
Additional Revenue
2028/29 Projected
1.00% 1.00% 327,005$ 336,812$ 346,915$ 357,321$
2.00% 2.00% 654,010 673,624 693,830 714,642
3.00% 3.00% 981,015 1,010,436 1,040,745 1,071,963
4.00% 4.00% 1,308,020 1,347,248 1,387,660 1,429,284
5.00% 5.00% 1,635,025 1,684,060 1,734,575 1,786,605
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 3 The following table shows how the maximum estimated UUT revenue (5.00%) in the table above would affect the Town’s forecasted deficits:
Based on these revenue estimates, the Town would still be in deficit in the near term; however, if combined with the following other recommended revenue options, the Town could potentially close its deficit. The approval of a majority of registered voters within the Town is needed to implement a UUT. In general, obtaining voter approval for a new UUT where none existed is difficult to achieve. In addition, when Town voters were asked about a new UUT in a 2016 poll, opposition was twice that of support, with 62% opposed and 31% in favor. We see no reason why this sentiment should have changed enough since then to make a new UUT a viable option for the Town. In addition, from 2002 through 2020, 85 cities asked for voter approval of a new UUT, and just 28 (33%) were successful, even though approval required only a majority vote.
UUT for Streaming Video Services
In 2021, a judge in Los Angeles ruled that local utility laws don’t cover streaming services, so imposing a UUT on streaming services may not be a viable option. NBS recommends that the Town obtain a legal opinion on this matter.
Special Assessment Districts
Several statutes authorize cities to levy assessment for specific services and facilities. General law cities considering assessments are limited to the services and facilities types listed in each statute and must comply with the substantive and procedural requirements in Article XIII D of the California Constitution, added by Proposition 218, and the Proposition 218 Omnibus Implementation Act.
The following are some of the most used authorizing statutes for assessments and the kinds of services and facilities for which they can be used:
Landscaping and Lighting Act of 1972: Authorizes assessments for such things as the installation, construction, and maintenance of landscaping; ornamentation; street lighting, including traffic signals; curbs, gutters, sidewalks, and drainage; parks and recreational facilities; community centers, auditoriums, and public performance space.
Benefit Assessment Act of 1982: Authorizes assessments for the maintenance of drainage; flood control; street lighting; and streets, roads, or highways.
Improvement Act of 1911 (“1911 Act”): Authorizes assessments for a variety of public improvements, such as streets and sidewalks, including decorative features; sewers; storm drains; lighting; pipes and hydrants for fire protection; levees and walls for the protection of streets and to prevent beach erosion or promote accretion to beaches; water supply; gas supply; bomb shelters; trees and landscaping; mooring; land Item
FY
2025/26
FY
2026/27
FY
2027/28
FY
2028/29
Forecasted Surplus/(Deficit), in Millions ($2.8) ($3.1) ($3.3) ($3.8) UUT Revenue @ 5.00%, in Millions 1.6 1.7 1.7 1.8
Forecasted Surplus/(Deficit), in Millions ($1.2) ($1.4) ($1.6) ($2.0)
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 4 stabilization improvements. It also allows assessment revenue to be used for limited acquisition of land related to the authorized improvements.
Municipal Improvement Act of 1913 (“1913 Act”): Generally authorizes assessments for the acquisition of land and construction of a wide array of public works and improvements, including but not limited to utilities. It also allows for the financing of some improvements to private property, such as seismic strengthening and fire safety.
In calculating an assessment, a city must first determine the entire cost of the facility or service to be funded. It must then separate the benefits of the service or facility to the general public from the benefits to property owners who will be subject to the assessment. That means, in part, determining the proportionate special benefit that each parcel subject to the assessment derives from the service or facility.
Finally, the assessment imposed on each parcel cannot exceed the cost of the special benefit conferred on the parcel.
An option to fund general city services via special assessment does not exist in California. In addition, assessment districts may not fund general public-safety services, as those services have been deemed to provide general benefits to entire communities, and not special benefits to certain properties.
Transient Occupancy Tax
The Town currently levies a TOT in the amount of 12% of the rent charged by the operator for the privilege of occupancy in any hotel. It’s worth noting here that Palo Alto has a 15.50% TOT rate, Los Altos and Milpitas have a 14.00% TOT rate, Santa Clara, Sunnyvale, and the unincorporated areas of Santa Clara County have a 12.50% TOT rate, Campbell and Cupertino have a 12.00% TOT rate, Morgan Hill, Mountain View, San Jose and Saratoga have a 10.00% TOT rate, and Gilroy has a 9.00% TOT. Los Altos Hills and Monte Serreno do not currently have a TOT.
According to the Town’s Operating and Capital Summary Budget for Fiscal Year 2023/24, the following table shows the forecasted TOT collections for Fiscal Years 2025/26 through 2028/29, including what each 1% yields:
1 - Current TOT rate is 12%
FY
Forecasted TOT
Collections Each 1% Yields 1
2025/26 2,600,000$ 216,667$
2026/27 2,600,000 216,667
2027/28 2,600,000 216,667
2028/29 2,700,000 225,000
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 5 The following table shows the potential revenue generated via various increases in the Town’s TOT rate for Fiscal Years 2025/26 through 2028/29:
The following table shows how the maximum estimated additional TOT revenue (3.50% increase) in the table above would affect the Town’s forecasted deficits:
NBS does not recommend increasing the TOT rate, as any potential increase doesn’t raise that much additional revenue to support the Town’s budget deficit.
Business License Tax Modification
The Town may also have an interest in exploring a modification to its Business License Tax to add a charge per employee. NBS is not modeling what the rate per employee would be as the Town does not yet know the number of employees that would be subject to the tax. It’s also worth noting here that voters in the Town approved an increase to the Business License Tax in November 2022 (Measure J), so perhaps it’s too soon to ask the voters for another modification.
Recommended Revenue Options
Sales Tax Rate Modeling
The current sales tax rate in the Town is 9.25%, of which the Town’s share is 1% (not including the Measure G sales tax rate of 0.125%). The Town has the capacity to raise its sales tax rate by an additional 0.125%.
Potential TOT
Increase
Potential New Total
TOT %
Additional Revenue
2025/26 Projected
Additional Revenue
2026/27 Projected
Additional Revenue
2027/28 Projected
Additional Revenue
2028/29 Projected
0.25% 12.25% 54,167$ 54,167$ 54,167$ 56,250$
0.50% 12.50% 108,333 108,333 108,333 112,500
0.75% 12.75% 162,500 162,500 162,500 168,750
1.00% 13.00% 216,667 216,667 216,667 225,000
1.25% 13.25% 270,833 270,833 270,833 281,250
1.50% 13.50% 325,000 325,000 325,000 337,500
1.75% 13.75% 379,167 379,167 379,167 393,750
2.00% 14.00% 433,333 433,333 433,333 450,000
2.25% 14.25% 487,500 487,500 487,500 506,250
2.50% 14.50% 541,667 541,667 541,667 562,500
2.75% 14.75% 595,833 595,833 595,833 618,750
3.00% 15.00% 650,000 650,000 650,000 675,000
3.25% 15.25% 704,167 704,167 704,167 731,250
3.50% 15.50% 758,333 758,333 758,333 787,500
Item
FY
2025/26
FY
2026/27
FY
2027/28
FY
2028/29
Forecasted Surplus/(Deficit), in Millions ($2.8) ($3.1) ($3.3) ($3.8) TOT Revenue @ 15.50%, in Millions 0.8 0.8 0.8 0.8
Forecasted Surplus/(Deficit), in Millions ($2.0) ($2.3) ($2.5) ($3.0)
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 6 According to the Town’s Operating and Capital Summary Budget for Fiscal Year 2023/24, the following table shows the forecasted sales tax collections for Fiscal Years 2025/26 through 2028/29, including what each 1% yields:
1 - Current sales tax rate is 9.25%, of which the City receives 1% (does not include Measure G sales tax rate of 0.125%)
The following table shows the potential revenue generated via a 0.125% increase in the Town’s sales tax rate for Fiscal Years 2025/26 through 2028/29:
The following table shows how the estimated additional sales tax revenue would affect the Town’s forecasted deficits:
It’s worth noting here that Campbell, Milpitas, and San Jose already have a 9.375% sales tax rate, while all other cities (excluding the Town) in Santa Clara County and the unincorporated areas of Santa Clara County are currently subject to a sales tax rate of 9.125%.
The amount of revenue generated by a potential sales tax increase does not completely fill the Town’s budget deficit, but it is higher than the potential revenue generated by an increase in the Town’s TOT rate and could potentially serve as a “first step” for the Town to raise additional revenue. If structured as a general sales tax, the Town would only need to secure approval from a majority of the registered voters within the Town to increase the sales tax rate. NBS recommends that the Town move quickly on this option, if desired, as the Town’s remaining capacity for a sales tax increase could be utilized by another government agency within the County during the next election cycle.
FY
Forecasted Sales Tax
Collections Each 1% Yields 1
2025/26 8,500,000$ 8,500,000$
2026/27 8,700,000 8,700,000
2027/28 9,000,000 9,000,000
2028/29 9,300,000 9,300,000
Potential Sales Tax
Increase
Potential New Total
Sales Tax %
Additional Revenue
2025/26 Projected
Additional Revenue
2026/27 Projected
Additional Revenue
2027/28 Projected
Additional Revenue
2028/29 Projected
0.125% 9.375% 1,062,500$ 1,087,500$ 1,125,000$ 1,162,500$ Item
FY
2025/26
FY
2026/27
FY
2027/28
FY
2028/29
Forecasted Surplus/(Deficit), in Millions ($2.8) ($3.1) ($3.3) ($3.8) Sales Tax Revenue, in Millions 1.1 1.1 1.1 1.2
Forecasted Surplus/(Deficit), in Millions ($1.7) ($2.0) ($2.2) ($2.6)
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 7 Parcel Tax Scenarios
For purposes of modeling a new parcel tax, the Town has provided four revenue target scenarios to fill its projected operating deficits: a consensus target of $3.5MM, a high target of $4MM, a middle target of $2MM, and a low target of $1MM, as shown below:
Our analysis assumes that the parcel tax, if approved in November 2024, would be collected beginning in Fiscal Year 2025/26, and rates would increase by 3% per year. The following table shows how each of the four revenue target scenarios for a potential parcel tax would affect the Town’s forecasted deficits:
Based on the latest Santa Clara County Assessor’s data from July 2023, there are a total of 11,230 parcels within the Town that would be Taxable, and an additional 365 parcels that would be Non-Taxable (generally publicly owned parcels, utilities, common areas, mobile homes, or other parcels with no assessed value).
We provide below three parcel tax scenarios for each of the four revenue targets scenarios: (1) a uniform rate per parcel, (2) a uniform rate per lot square foot, (3) a uniform rate per building square foot, (4) a uniform rate per parcel with senior/low-income exemptions, (5) a uniform rate per lot square foot with senior/low-income exemptions, and (6) a uniform rate per building square foot with senior/low-income exemptions.
Without Senior/Low-Income Exemptions
Revenue Target Amount
High 4,000,000$
Consensus 3,500,000$
Middle 2,000,000$
Low 1,000,000$
Description Rate - High Rate - Consensus Rate - Mid Rate - Low Taxable Parcels - per Parcel 356.19$ 311.67$ 178.09$ 89.05$ Taxable Parcels - per Lot Square Foot 0.0203$ 0.0178$ 0.0102$ 0.0051$ Taxable Parcels - per Building Square Foot 0.14$ 0.12$ 0.07$ 0.03$
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 8 The average taxes on SFR and Condo parcels under the consensus revenue target for the three different apportionment methods are shown below:
With Senior/Low-Income Exemptions
For the purposes of this analysis, we have assumed that 10% of Taxable single-family residential parcels, 10% of Taxable single-family residential lot area, or 10% of Taxable single-family residential building area could qualify for a senior/low-income exemption, if offered.
The average taxes on SFR and Condo parcels under the consensus revenue target for the three different apportionment methods are shown below:
Commercial/Office/Industrial Parcels Only
The Town has also requested a scenario for a parcel tax that would only apply to Taxable Commercial/Office/Industrial Properties at a rate per building square foot over 25k building square feet.
The rates per building square foot over 25k building square feet for each of the revenue targets are shown below:
There are 35 Commercial/Office/Industrial parcels with buildings of 25,000 square feet or more and the resulting annual tax per owner would range from approximately $4,600 to $612,000.
Average of
Parcel Tax - By
Parcel
Average of
Parcel Tax - By
LotSqFt
Average of
Parcel Tax - By
BldgSqFt
311.67$ 254.10$ 262.08$
Description Rate - High Rate - Consensus Rate - Mid Rate - Low Taxable Commercial/Office/Industrial Parcels - per Building Square Foot > 25K 3.31$ 2.90$ 1.66$ 0.83$
Town of Los Gatos
Parcel Tax, Sales Tax, TOT Analysis, and UUT Revenue Modeling Scenarios Memorandum Page 9 The parcel tax option is the only reliable way to correct the Town’s projected deficits with one funding mechanism, however attaining two-thirds approval from voters at the rates that meet that objective may be difficult. I look forward to our upcoming meeting to discuss these revenue scenarios and the resulting model results. Please contact me with any questions or comments; I can be reached at 800. 676.7516 or via email at [email protected].
Sincerely,
Nick Dayhoff
Senior Consultant
PREPARED BY: Katy Nomura
Assistant Town Manager
Reviewed by: Town Manager, Assistant 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: 12/19/2023
ITEM NO: 19
ADDENDUM
DATE: December 18, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review the Revenue Modeling Report Prepared by NBS and Provide Direction on Any Ballot Measures to Consider for Polling.
REMARKS:
Attachment 2 contains public comments received between 11:01 a.m., Friday, December 15, 2023, and 11:00 a.m. Monday, December 18, 2023.
Attachment Received with the Staff Report:
1. NBS Revenue Modeling Report
Attachment Received with this Addendum:
2. Public comments
ATTACHMENT 2
From: Phil Koen
Sent: Monday, December 18, 2023 10:59 AM
To: Wendy Wood <[email protected]>; Mary Badame <[email protected]>; Matthew Hudes <[email protected]>; Maria Ristow <[email protected]>; Rob Rennie <[email protected]>; Rob Moore <[email protected]> Cc: Laurel Prevetti <[email protected]>
Subject: Agenda Item 19 - Public Comment
[EXTERNAL SENDER]
Hello Wendy,
Please receive my public comment.
Phil Koen
December 17, 2023
Re: Agenda Item # 19 – Review of Revenue Modeling Report Dear Town Council,
I am currently Vice Chair of the Finance Commission. I am wri�ng this note not in the capacity of Vice Chair but as a concerned ci�zen. The opinions expressed are my own.
I am troubled by the unsubstan�ated claim “the Town faces a budget deficit of $3 to $4 million per year for the projected future”. How do we know this to be true? The “proof” offered is a forecast covering the periods from FY 23 through FY 29 that was prepared in April 2023, before the FY 2023 actual results were known. The forecast was adopted as part of the FY 24 opera�ng budget. I have atached that forecast for your review as atachment 1.
The ques�on the Town Council must answer is - What evidence exists that supports the conclusion the mul�-year forecast is accurate and fairly models the Town’s future revenues and opera�ng expenses and therefore can be reasonably relied upon by the public as a basis for suppor�ng a sales tax increase or a parcel tax on residents?
Sadly, the answer is there is no evidence that remotely supports the forecast is accurate let alone an unbiased work product that was prepared as a financial planning and management tool. Instead, there is overwhelming evidence that suggests the purpose of the mul�-year forecast is a poli�cal tool to scare people into believing that the Town is des�ned to face $3 to $4 million per year opera�ng deficits and the only answer is raising taxes.
The honest answer is no one knows the future financial condi�on because there has never been an unbiased and fiscally sound mul�-year forecast prepared by the Town. Un�l an unbiased and comprehensive financial model is prepared which looks at future trends in property tax revenues reflec�ng forecasted new construc�on, and a reasonable forecast of change in property ownership over the planning period, and the CCPI infla�on factor for secured property or the impact on sales tax revenue resul�ng from popula�on growth, or available federal and state grants that might be secured, to name just a few revenue drivers, the Town will con�nue to have a poorly informed mul�-year
ATTACHMENT 2
financial forecast. And of course, an unbiased forecast must consider all prudent cost containment measures which could reasonably be employed to slow the accelera�on in the Town’s spending while not degrading service delivery. Both revenue and expense ac�ons must equally be considered.
The current forecas�ng methodology is flawed and is incapable of providing a reasonable forecast one year out, let alone 3 to 5 years out. I cannot stress this enough – no one should rely on the current mul�-year forecast as anything more than an exercise in using a spreadsheet.
How do I know this? The conclusion is based on examining the accuracy of the Town’s FY 22 and FY 23 annual opera�ng budget by comparing the original adopted budgets for each year to actual results. I have atached schedules from the FY 22 ACFR and the FY 23 ACFR (atachments 2 and 3) which compare the original adopted budget to actual. Staff prepared these schedules as part of the ACFR.
The results of the analysis are eye opening. The original FY 22 adopted budget planned for a slight opera�ng surplus of $698,388 and the FY 23 adopted budget called for a deficit of $(1,816,881). Please consider each budget is for the coming fiscal year and should have the highest degree of accuracy and confidence. If you combine the two adopted budgets, the Town Council approved a cumula�ve opera�ng deficit of $(1,118,493) over the two-year period.
Did this happen? No! Instead, the Town realized a massive opera�ng surplus for each year, totaling a cumula�ve surplus of $9,009,779. To put a very sharp point on this, the variance from the original adopted budgets was a posi�ve $10,128,272 over the past 2 years.
While obviously pleased there were surpluses for these years, it should not have come as a “surprise.” The Town’s inability to forecast the opera�ng results for the immediate fiscal year is proof the mul�- year forecas�ng methodology cannot be relied upon.
I have studied the Town’s adopted budget vs actual performance going back more than 10 years and can confirm the Town has a structural forecas�ng bias which rou�nely overstates opera�ng expenses, and/or understates revenues resul�ng in forecasted opera�ng deficits. This is not a one- or two-year trend but a long-term trend that has been pointed out to the Town Council in prior communica�on.
One last point that needs to made is the representa�on that the independent auditor “reviews” the Town’s budgets is a gross misrepresenta�on. The auditor does not express an opinion or provide any form of assurance with regard the general fund budget or other major fund budgets. The budget is not audited. The budgets are the staff’s work product and they have acknowledged sole responsibility for this work product.
I point this out as an example of how the Staff’s external communica�on atempts to influence the public’s percep�on the mul�-year forecast is dependable and accurate with the inten�on of convincing the public “the Town faces a budget deficit.” This is inappropriate.
Another example would be the statement the Town “reduced full �me employees by 15% (since 2001) and did not return to pre-recession staffing levels.” While the budgeted (not actual) FTE headcount in the adopted FY 2001 budget was 180, Staff fails to men�on that the reduc�on in headcount stopped in FY 2013 at 136 FTE headcount.
Since FY 2013 the adopted headcount budgets have increased 13% to 153 FTE headcount for the FY 2024 adopted budget. If the Town was able to successfully deliver all services with 136 FTE in FY 2013, why does it now take 153 FTE to deliver the same service level? More importantly, why is Staff going back 23 years, to a date that was prior to the introduc�on of the iPhone by Apple (June 2007), as the basis for comparing headcount levels? Does this strike anyone as an appropriate way to benchmark long-term produc�vity levels?
What should the Town Council do? My recommenda�on is the Town Council should direct Staff to work with the Finance Commission and NBS to jointly develop a realis�c mul�-year forecast which will look at underlying revenue trends and explore cost containment measures to determine a reasonable financial path forward without any increase in taxes or a parcel tax. There needs to be a legi�mate baseline
ATTACHMENT 2
forecast established before turning to other viable solu�ons which would include both addi�onal taxes and expense reduc�ons.
It would be a waste of public resources to retain NBS to do a public poll regarding poten�al ballot measures without first establishing if there is really a need for addi�onal taxa�on. How does the Town Council really know the Town cannot operate within a reasonable revenue growth assump�on? And if there is a need for addi�onal tax revenue, how large is that need? The NBS report is en�rely predicated on the assump�on the Town’s mul�-year forecast is accurate. NBS did not evaluate the accuracy of the mul�-year forecast, they just ran with it. In my opinion this en�re project is a mad rush by a “revenue ballot measure consultant” to get a measure on the ballot to increase taxes without having done the necessary work to validate if it is really required.
If the Town Council persists in pursuing a poll without having done the most basic analysis to validate the need, I suspect the Town, as proponents of a ballot measure, will face a very difficult an�-tax elec�on environment.
Thank you,
Phil Koen
A-23
Account Revenue Category
FY 2022/23
Adjusted
Budget
FY 2022/23
Estimates
FY 2023/24
Adopted
Budget
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
4100 Property Tax $ 17.0 $ 17.2 $ 17.9 $ 17.8 $ 18.5 $ 18.9 $ 19.5 $ 20.1 4110 VLF Backfill Property Tax 4.6 4.6 4.7 4.8 5.0 5.1 5.3 5.4 4200 Sales & Use Tax 7.5 7.7 7.9 8.1 8.5 8.7 9.0 9.3
4200 Measure G District Sales Tax 1.3 1.3 1.3 1.3 1.3 1.4 1.4 1.4 4250 Franchise Fees 2.7 2.7 2.1 1.9 1.9 1.9 2.0 2.0
4251 Transient Occupancy Tax 2.0 2.3 2.4 2.5 2.6 2.6 2.6 2.7 4400 Business License Tax 2.4 2.3 2.4 2.5 2.5 2.6 2.6 2.7 4400 Licenses & Permits 2.9 2.9 2.9 2.9 3.0 3.1 3.2 3.3 4500 Intergovernmental 1.3 1.3 0.9 0.9 0.9 1.0 1.0 1.0
4600 Town Services 4.8 5.1 4.4 4.2 4.2 4.3 4.4 4.6
4700 Fines & Forfeitures 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4800 Interest 0.4 0.7 1.0 0.9 0.9 0.9 0.9 0.9
4850 Other Sources 3.5 7.1 3.6 2.8 2.8 3.0 2.9 2.9
4900 Fund Transfers In 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
p p j $ 51.1 $ 55.9 $ 52.2 $ 51.3 $ 52.8 $ 54.2 $ 55.5 $ 57.0 Capital 2.4 2.4 1.6 0.8 0.8 0.8 0.8 0.8
Use of Pension/OPEB Reserve 0.3 - 0.3 - - - - -
Use of OPEB Trust - - - - - -
ARPA Replacement Revenue - 1.6 - - - - - -
Vitalities - 6.1 - 0.7 - - - -
$ 55.4 $ 64.7 $ 54.5 $ 52.1 $ 53.6 $ 55.0 $ 56.3 $ 57.8 Account Expenditure Category
FY 2022/23
Adjusted
Budget
FY 2022/23
Estimates
FY 2023/24
Adopted
Budget
FY 2024/25
Forecast
FY 2025/26
Forecast
FY 2026/27
Forecast
FY 2027/28
Forecast
FY 2028/29
Forecast
5110 Salary 23.0 22.5 23.2 23.8 24.4 25.0 25.5 26.0
5120 CalPERS Benefits 7.7 6.8 8.2 8.6 8.9 9.6 10.2 11.1 5200 All Other Benefits 4.6 3.9 4.7 4.8 4.9 5.0 5.1 5.2
4.6% Salary and Benefits Savings - - (1.7) (1.7) (1.8) (1.8) (1.9) (1.9) 6211 OPEB Pay as You Go 1.6 1.6 1.6 1.8 1.9 2.0 2.0 2.0 6000 Operating Expenditures 8.0 11.7 9.0 8.8 8.9 9.2 9.3 9.7 7200 Grants & Awards 0.5 1.2 0.8 0.6 0.6 0.3 0.3 0.3
7400 Utilities 0.6 0.6 0.6 0.6 0.7 0.7 0.7 0.7
8060 Internal Service Charges 2.7 2.6 3.4 3.6 3.7 3.9 4.1 4.2 8900 Debt Service 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1
$ 50.8 $ 53.0 $ 51.9 $ 52.9 $ 54.2 $ 55.9 $ 57.4 $ 59.4 GASB 45 Retiree Medical Actuarial - - - - - - - -
Additional Discretionary Payment - Pension 0.7 0.7 0.4 0.4 0.4 0.4 0.4 0.4 $ 51.5 $ 53.7 $ 52.3 $ 53.3 $ 54.6 $ 56.3 $ 57.8 $ 59.8 Capital Transfers Out to GFAR 2.4 2.4 1.6 1.1 1.1 1.1 1.1 1.1 1/2 of Measure G Proceeds to Capital / 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 Fund 0.4 - 0.7 - - - - -
Recovery - - 5.7 - - - - -
$ 54.9 $ 63.1 $ 54.5 $ 55.1 $ 56.4 $ 58.1 $ 59.6 $ 61.6 $ 0.5 $ - 1.6 $ $ (3.0) $ (2.8) $ (3.1) $ (3.3) $ (3.8) * 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 Trust activities.
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
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TOWN OF LOS GATOS, CALIFORNIA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2023
Variance With
Final Budget
Original Final Positive
Budget Budget Actual (Negative)
REVENUES
Property Taxes $ 20,907,894 $ 22,484,118 $ 22,743,087 $ 258,969 Sales Taxes 9,174,944 8,959,134 8,806,477 (152,657)
Transient Occupancy Taxes 1,642,460 2,348,547 2,228,190 (120,357) Other Taxes 7,000 7,000 6,454 (546)
Licenses & Permits 4,122,529 5,140,684 5,630,362 489,678 Intergovernmental 1,051,814 1,273,910 1,553,396 279,486 Charges for Services 4,257,261 5,540,465 4,646,705 (893,760) Fines and Forfeitures 201,750 226,750 416,950 190,200
Franchise Fees 2,493,870 2,716,470 3,074,624 358,154
Interest 432,947 670,021 605,789 (64,232)
Use of Property 41,211 41,211 38,126 (3,085)
Other 1,203,657 863,964 859,571 (4,393)
Total Revenues 45,537,337 50,272,274 50,609,731 337,457
EXPENDITURES
Current:
General Government:
Town Council 217,238 217,240 186,337 30,903
Town Attorney 707,555 811,427 699,143 112,284
Administrative Services 5,298,494 5,759,393 5,302,281 457,112 Non-Departmental 3,194,526 3,334,931 2,641,018 693,913
Total General Government 9,417,813 10,122,991 8,828,779 1,294,212 Public Safety 19,225,985 19,331,330 18,446,048 885,282
Parks & Public Works 9,798,967 10,368,194 8,998,088 1,370,106 Community Development 5,772,004 6,543,199 5,065,412 1,477,787 Library Services 3,139,449 3,247,730 3,096,486 151,244
Capital Outlay - 435,416 300,000 135,416
Debt Service:
Principal - 156,034 156,034 -
Total Expenditures 47,354,218 50,204,894 44,890,847 5,314,047
EXCESS (DEFICIT) OF REVENUES
OVER EXPENDITURES (1,816,881) 67,380 5,718,884 5,651,504
OTHER FINANCING SOURCES (USES)
Gain from sale of assets 600 600 2,162 1,562
Transfers In 2,183,817 3,381,544 4,153,408 771,864
Transfers Out (3,006,978) (5,842,011) (7,242,939) (1,400,928) Total Other Financing Sources (Uses) (822,561) (2,459,867) (3,087,369) (627,502) NET CHANGES IN FUND BALANCE $ (2,639,442) $ (2,392,487) 2,631,515 $ 5,024,002 BEGINNING FUND BALANCE 26,896,789
ENDING FUND BALANCE $ 29,528,304
The notes to the financial statements are an integral part of this statement.
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TOWN OF LOS GATOS, CALIFORNIA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
Variance With
Final Budget
Original Final Positive
Budget Budget Actual (Negative)
REVENUES
Property Taxes $ 20,036,156 $ 20,138,320 $ 21,129,082 $ 990,762 Sales Taxes 8,177,859 8,671,606 8,483,673 (187,933)
Other Taxes 927,040 1,482,000 1,909,816 427,816
Licenses & Permits 3,869,779 4,477,907 5,096,318 618,411 Intergovernmental 3,881,836 1,148,993 1,263,352 114,359 Charges for Services 3,882,490 4,385,547 5,460,613 1,075,066 Fines and Forfeitures 203,450 213,450 319,170 105,720
Franchise Fees 2,597,630 2,514,020 2,822,515 308,495
Developer Fees - - 1,200,000 1,200,000
Interest 440,833 440,833 (1,404,527) (1,845,360)
Use of Property 32,400 32,400 32,400 -
Other 290,898 290,898 311,040 20,142
Total Revenues 44,340,371 43,795,974 46,623,452 2,827,478
EXPENDITURES
Current:
General Government:
Town Council 201,499 202,890 189,569 13,321
Town Attorney 660,229 669,733 629,936 39,797
Administrative Services 5,087,207 5,965,803 5,441,604 524,199 Non-Departmental 3,546,680 3,581,965 2,792,859 789,106
Total General Government 9,495,615 10,420,391 9,053,968 1,366,423 Public Safety 17,239,480 17,390,966 16,451,190 939,776
Parks & Public Works 8,494,629 9,080,666 8,605,457 475,209 Community Development 5,395,864 5,461,713 6,313,511 (851,798) Library Services 3,016,395 3,062,707 2,752,397 310,310
Debt Service:
Principal - - 156,034 (156,034)
Total Expenditures 43,641,983 45,416,443 43,332,557 2,083,886
EXCESS (DEFICIT) OF REVENUES
OVER EXPENDITURES 698,388 (1,620,469) 3,290,895 4,911,364
OTHER FINANCING SOURCES (USES)
Gain from sale of assets 600 600 2,151 1,551
Transfers In 633,352 4,047,313 4,047,313 -
Transfers Out (2,801,047) (3,833,094) (4,358,188) (525,094) Total Other Financing Sources (Uses) (2,167,095) 214,819 (308,724) (523,543) NET CHANGES IN FUND BALANCE $ (1,468,707) $ (1,405,650) 2,982,171 $ 4,387,821 BEGINNING FUND BALANCE 23,914,618
ENDING FUND BALANCE $ 26,896,789
The notes to the financial statements are an integral part of this statement.
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PREPARED BY: Katy Nomura
Assistant Town Manager
Reviewed by: Town Manager, Assistant 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: 12/19/2023
ITEM NO: 19
DESK ITEM
DATE: December 19, 2023
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review the Revenue Modeling Report Prepared by NBS and Provide Direction on Any Ballot Measures to Consider for Polling
REMARKS:
Attachment 3 contains the presentation by staff.
Attachment Previously Received with the Staff Report:
1. NBS Revenue Modeling Report
Attachment Previously Received with the Addendum:
2. Public Comments
Attachment Received with this Desk Item:
3. Staff Presentation
Revenue Modeling and Potential
Polling Options
Town Council Meeting
December 19, 2023
ATTACHMENT 3
BACKGROUND
• Previous cost-cutting measures during major economic downturns:
• Reduced full-time employees by 15% (since 2001) and did not return to pre-recession staffing levels, • Imposed wage freezes and unpaid furloughs, and
• Reduced employee benefit costs.
• On May 17, 2022, Council acknowledged the Finance Commission’s finding that a structural financial deficit exists and requested recommendations on how to cure the deficit. • $3M-$4M budget deficit per year
• On November 17, 2022, the Finance Commission reviewed several cost reductions measures and recommended that the Town further work toward operational efficiencies and research revenue options. • On January 24, 2023, the Town Council determined its Strategic Priorities for 2023-2025, which included exploring new revenue opportunities and addressing the forecasted deficit. • On June 20, 2023, the Town Council authorized the Town Manager to issue a Request for Qualifications (RFQ) for revenue ballot measure consulting services.
• On October 17, 2023, Council authorized the Town Manager to enter into an agreement with NBS for the initial phase of the work, with direction to return to Council with revenue modeling prior to any polling. Page 2112
BACKGROUND
• Added the following revenues in an incremental and diversified way since 2016:
• Transient Occupancy Tax (TOT) increased and expanded, resulting in approximately $480,000 annually in additional revenue.
• Sales Tax increased by 1/8-cent for a 20-year period, resulting in approximately $1,000,000 annually in additional revenue.
• Annexed 24 unincorporated County pockets, resulting in approximately $1,000,000 in property taxes remaining in the Town instead of being diverted to the County. • Updated business license taxes for the first time since 1991, resulting in approximately $1,100,000 annually in additional revenue.
Date
Revenue Modeling Options
Overview
• Various options reviewed:
• property transfer tax increase
• utility user tax (UUT)
• special assessment districts
• transient occupancy tax (TOT)
• business license tax
• sales tax
• parcel tax
• NBS recommends polling both a sales tax and a parcel tax with senior/low-income exemptions
• NBS recommends polling no more than two options
Date
Revenue Modeling Options
Sales Tax Option: 1/8-cent (0.125%)
• Current sales tax rate: 9.25%
• Potential new rate: 9.375%
• Additional revenue projected: About $1.1M annually
• If a general sales tax, would require a majority of registered voters to pass • Would be a good first step but would not cover the forecasted deficit • The remaining capacity for sales tax could be utilized by another government agency during the next election cycle, preventing the Town from ever accessing this revenue
Date
Revenue Modeling Options
Parcel Tax Options: with senior/low-income exemptions
• According to NBS, the parcel tax option is the only reliable way to correct the Town’s forecasted deficits with one mechanism
• Options by parcel, by lot square foot, and by building square foot:
Annual Revenue
Target
Parcel Tax - By
Parcel
Parcel Tax - By Lot
Sq. Ft.
Parcel Tax - By
Building Sq. Ft.
$4M $ 390.82 $ 0.0219 $ 0.15
$3.5M $ 341.96 $ 0.0192 $ 0.13
$2M $ 195.41 $ 0.0110 $ 0.07
$1M $ 97.70 $ 0.0055 $ 0.04
Date
Revenue Modeling Options
Parcel Tax Options: with senior/low-income exemptions
• Average Single-Family Residence (SFR) and Condo Parcel Taxes (single unit) • Average Non-SFR and Condo Parcel Taxes
Annual
Revenue
Target
Average of Parcel
Tax - By Parcel
Average of Parcel Tax
- By Lot Sq. Ft.
Average of Parcel
Tax - By Building Sq.
Ft.
$4M $ 390.82 $ 313.02 $ 323.64
$3.5M $ 341.96 $ 273.89 $ 283.18
$2M $ 195.41 $ 156.51 $ 161.82
$1M $ 97.70 $ 78.25 $ 80.91
Annual
Revenue
Target
Average of Parcel
Tax - By Parcel
Average of Parcel Tax
- By Lot Sq. Ft.
Average of Parcel
Tax - By Building Sq.
Ft.
$4M $ 390.82 $ 935.60 $ 861.24
$3.5M $ 341.96 $ 818.65 $ 753.59
$2M $ 195.41 $ 467.80 $ 430.62
$1M $ 97.70 $ 233.90 $ 215.31 Page 2117
Next Steps
• Today: Provide direction on measures to poll
• NBS recommends no more than two options
• Polling is a targeted effort including a representative sample of likely voters (e.g., 100 to 200 interviews)
• January 2024: Conduct voter poll to measure resident opinion • Report results and recommended next steps to Finance Commission and Town Council • Council will determine whether to propose a revenue measure to voters on the November 2024 Ballot • If Council wishes to pursue a November 2024 revenue ballot measure:
• An amendment to the NBS agreement will be needed to execute the additional steps • February – May 2024: Public outreach and engagement
• June 2024: Council action to place measure on November 2024 Ballot • Finalize ordinance Page 2118
QUESTIONS?