Agenda packet — Los Gatos City Council, February 20, 2024 (part 2 of 3)

PAGE 5 OF 6
SUBJECT: DRAFT REVISED 2023-2031 HOUSING ELEMENT/GP-22-003 DATE: February 15, 2024
ATTACHMENTS:

Previously Received with the January 16, 2024 Staff Report:

1. Draft Revised Housing Element, Track Changes Copy

2. Draft Response Table

3. December 1, 2023 HCD’s Findings Comment Letter

4. Public Comments Received Between 11:01 a.m., Tuesday, December 19, 2023, and 11:00 a.m., Thursday, January 11, 2024
Previously Received with the January 16, 2024 Desk Item:

5. Comments from the Vice Mayor

6. Public Comments Received Between 11:01 a.m., Thursday, January 11, 2024, and 11:00 a.m., Tuesday, January 16, 2024
Previously Received with the February 6, 2024 Staff Report:

7. Draft Revised Housing Element, Track Changes – January 2024

8. Draft Response Table – January 2024

9. HCD Informal Preliminary Review Matrix with Staff’s Responses

10. Goldfarb & Lipman, LLP Feedback Table with Staff’s Responses

11. Track Changes and Clean Version of Program AY Housing Mobility

12. Public Comments Received Between 11:01 a.m., Tuesday, January 16, 2024, and 11:00 a.m., Thursday, February 1, 2024
Previously Received with the February 5, 2024 Addendum:

13. Pages from the Draft Revised Housing Element Without the Recommendations Made by the Housing Element Advisory Board

14. Correspondence with HCD
Attachments Received with this Report:

15. Extracted Pages from the Draft Revised Housing Element with Revisions

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HCD Revised Draft Revised 2023-2031 Housing Element
10-46 HCD Revised Draft Revised 2023-2031 Housing Element March SeptemberNovemberJanuary 20232024
Programs
Performance Metric(s)
Delivery of Housing Element
IJ Helping Senior Housing s
PrograResourcesm
Provide financial assistance for health,
safety, emergency and accessibility home
repairs to low-income seniors and lowincome mobile homeowners through the Below Market Price Program funds,
subject to availability of Program funds.

Provide regularly updated senior housing
resource materials at the Adult Recreation
Center, Library, and Farmers’ Market.

Implementation Policies
HE-1.6 Universal Design
HE-2.7 Senior Housing
HE-2.8 Equal Housing and Special Needs
HE-6.1 Fair Housing
HE-6.2 Financial Assistance
HE-6.3 Housing for Persons with Special Needs
HE-6.4 Affordable Housing Awareness
Responsible Department/Review Authority
Responsible Department/Review Authority
Community Development Department and the
Town Council
Timeframe
Ongoing and annual effort
Update materials annually
Funding Source
Town Affordable Housing Funds
Quantified Objective
Maintain the existing housing stock by funding
three home repairs to lower income seniors
annually
Performance Metric(s)
Measure the number of units assisted versus the
need
JK Small Multi-Unit Housing, “Missing
Middle”
The Housing Element supports the land
use goal of providing opportunities for
housing that can accommodate the
needs, preferences, and financial
capabilities of current and future residents
in terms of different housing types,
tenures, density, sizes, and costs.

Specifically, the Town aims to create
mixed residential neighborhoods through
new and innovative housing types that
meet the changing needs of Los Gatos
households and expand housing in a
variety of neighborhoodsall
neighborhoods. These housing types
include, but are not limited to, single
dwelling units, multifamily dwelling units,
accessory dwelling units, small and micro
units, use of pre-fabricated homes, and
clustered housing/cottage housing. The
Implementation Policies
HE-1.5 Variety of Housing Choices
HE-2.4 Rental Housing
HE-3.3 Efficient Development Processing
Responsible Department/Review Authority
Community Development Department
Timeframe
December 2024
Funding Source
None required
Quantified Objective
Increase the number of small multi-unit housinglowrise multi-family developments by five50150 units from the previous yearover eight years with the
goal of achieving 100% of the units in low to
medium density designations and high median
income areas.

ATTACHMENT 15

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10. Housing Element
JanuaryNovemberSeptember March 2023 2024 HCD Draft Revised Draft 2023-2031 Housing Element
10-47
Programs
Town will also promote small multi-unit
housing that increases density while
remaining consistent with the building
scale and character present in existing
neighborhoods. This includes multi-family
units or clustered residential buildings that
provide relatively smaller, less expensive
units within existing neighborhoods.

Update the Zoning Code to facilitate low
rise multi-family structures small multi-unit
housing in the low to mMedium
Residential Density designations.

Modify the Zoning Code to facilitate small
multi-unit housing in certain low and
medium density designations. This
includes creating mixed residential
neighborhoods through new and
innovative housing types that meet the
changing needs of Los Gatos households
and expand housing choices in a variety
of neighborhoods. Housing types include,
but are not limited to single dwelling units,
multifamily dwelling units, accessory
dwelling units, small and micro units, use
of prefabricated homes, and
clustered/cottage housing. This zoning
will occur in a variety of areas throughout
the Town but NOT in areas which are in
Very High Fire Hazard Severity Zones,
historic districts, adjacent to home in our
historic inventory (currently pre-1941)
homes, in hillside residential zones, within
500 feet of an evacuation route and within
a half mile of a transit stop.

Small multi-unit housing is defined as
multiple units on a single parcel (whether
attached or detached) that are compatible
in scale and form with detached singlefamily homes. Common housing types include duplexes; triplexes; fourplexes;
courtyard apartments; cottage courts;
townhomes; triplex stacked (vertical); and
live-work spaces.

Promote this program through publication,
to include the following information: Low
rise multi-family dwelling units ranging
from two to 10 units can help meet the
needs of families, seniors and students.

Permit processing times tend to be
shorter than larger multi-family buildings
Performance Metric(s)
Complete Zoning Code amendment by December
2024 and track the number of entitled Planning
applications received per year

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HCD Revised Draft Revised 2023-2031 Housing Element
10-48 HCD Revised Draft Revised 2023-2031 Housing Element March SeptemberNovemberJanuary 20232024
Programs
due to the low-rise nature of the
structures.

Specifically, update the Zoning to allow
for all housing types considered for the
provision of Small Multi-Unit Housing
types as part of Low Density High
Density Residential designations.

Research existing regulatory impediments
to the creation of new housing types that
have the potential to fulfill unmet housing
needs (e.g., tiny homes, co-housing
developments) and if necessary, amend
applicable ordinances and development
standards to facilitate and to allow for
their development at the maximum
density.

Pursue establishment of a maximum
average unit size as a tool to moderate
unit sizes for developments over a certain
size but to allow flexibility for a range of
unit sizes.

L Rental Housing for Large Families
Encourage development of multi-family rental
housing that is greater than two bedrooms to
encourage the provision of adequate rental
housing for families.

Implementation Policies
HE-1.5 Variety of Housing Choices
HE-2.4 Rental Housing
Responsible Department/Review Authority
Community Development Department
Timeframe
Ongoing and annual effort
Funding Source
None required
Quantified Objective
Four family friendly multi-family rental housing units
are entitled a year
Performance Metric(s)
Number of two-, three-, and four-bedroom units
entitled and number of family friendly designated
units
MK Lot Consolidation
The Town will conduct outreach to
property owners in these areas to identify
meaningful incentives to facilitate lot
consolidation, lot assemblage and
redevelopment in mixed use and
commercial areas. Based on this
feedback, within two years of Housing
Element adoption, the Town will consider
Implementation Policies
HE-3.4 Lot Consolidation
Responsible Department/Review Authority
Community Development Department
Timeframe
June 2025
Funding Source

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10. Housing Element
JanuaryNovemberSeptember March 2023 2024 HCD Draft Revised Draft 2023-2031 Housing Element
10-77
Programs
Establish a list by December 31, 2024, to post
online.

Funding Source
General fund (staff time)
Quantified Objective
Annually update the list or upon request from a
local union.

Performance Metric(s)
N/A
AY Housing Mobility
Housing mobility strategies consist of
removing barriers to housing in areas of
opportunity and strategically enhancing
access (Los Gatos is entirely highest
resource in terms of access to opportunity
and a concentrated area of affluence). To
improve housing mobility and promote
more housing choices and affordability
townwide, including in lower density
neighborhoods, the Town will employ a
suite of actions to expand housing
opportunities affordable to extremely low,
very low-, low-, and moderate-income
households. Actions and strategies
include:
 SB 9 – Monitor the Town’s SB 9
standards and amend standards to
facilitate SB 9 applications (e.g.,
duplexes in single-family zones) if the
Town is not on track to meet its SB 9
application goals during the planning
period. See Program AV.
 Rezoning for Small Multi-Unit
Housing, “Missing Middle” – Modify
the Zoning Code to facilitate small
multi-unit housing in certain the low
and to medium density designations.

This includes creating mixed
residential neighborhoods through
new and innovative housing types
that meet the changing needs of Los
Gatos households and expand
housing choices in a variety of
neighborhoods. Housing types
include, but are not limited to single
dwelling units, multifamily dwelling
units, accessory dwelling units, small
and micro units, use of prefabricated
homes, and clustered/cottage
housing. This zoning will occur in a
Implementation
Policy HE-1.5 Variety of Housing Choices
Policy HE-1.7 Infill Opportunities in Single-Family
Neighborhoods
Responsible Department/Review Authority
Community Development Department
Timeframe
Annually review overall progress and effectiveness
in April and include information in annual report to
HCD. If the Town is not on track to meet its 160
affordable housing unit goal for the 8-year RHNA
cycle by 2027 (i.e., 80 affordable units built or in
process by 2027), the Town will consider
alternative land use strategies and make necessary
amendments to zoning or other land use
documents to facilitate a variety of housing choices,
including but not limited to, strategies that
encourage missing middle zoning (small-scale
multi-unit projects), adaptive reuse, and allowing
additional ADUs and/or JADUs, within six months,
if sufficient progress toward this quantified objective is not being met.

Funding Source
General fund (staff time)
Quantified Objective
Provide 160 housing opportunities affordable to
lower income households by January 2031.

Performance Metric(s)
Townwide, but especially lower-density
neighborhoods.

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HCD Revised Draft Revised 2023-2031 Housing Element
10-78 HCD Revised Draft Revised 2023-2031 Housing Element March SeptemberNovemberJanuary 20232024
Programs
variety of areas throughout the Town
but NOT in areas which are in Very
High Fire Hazard Severity Zones,
historic districts, adjacent to home in
our historic inventory (currently pre1941) homes, in hillside residential zones, within 500 feet of an
evacuation route and within a half
mile of a transit stop. See Program J.
 Housing on Town Sites – Enter into a
public-private partnership to develop
housing, targeting low-income
households, on Town owned
properties. See Program E.
 Enhanced Inclusionary Housing –
Assess and amend the Town’s
inclusionary housing requirements to
better produce low-income units and
units for special needs groups
townwide. See Program L.
 Accessory Dwelling Units (ADUs) –
Encourage and streamline ADUs in
single-family neighborhoods by
preparing standardized ADU plans
with a variety of unit sizes and by
affirmatively marketing and outreach
to increase awareness and the
diversity of individuals residing in Los
Gatos. See Program Q.
 Junior ADUs – Develop and adopt
objective standards to allow more
than one (at minimum two) Junior
ADU per structure by July 2025. The
objective is to achieve at least 10
JADUs in lower-density
neighborhoods by January 2031.

See Program Q.
 Religious Institutional Sites – Expand
housing opportunities on all religious
institutional sites within the Town.

See Program S. Conduct outreach to
owners and operators of religious
institutions to raise awareness and
encourage housing proposals.

Increase affordable housing on
religious institution/faith-based site(s)
during the 2023-2031 planning period
by 25 units. If no application for
housing on a religious institution/faithbased site is received by December 2025, the Town will expand outreach
efforts to be conducted annually.

This may include direct mailings to
faith-based sites highlighting

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10. Housing Element
JanuaryNovemberSeptember March 2023 2024 HCD Draft Revised Draft 2023-2031 Housing Element
10-79
Programs
successful affordable housing units
on other faith-based sites, as well as
available Town resources and
programs to support such projects
(e.g., Programs N, P, T, AI, AJ –
Assist in securing funding for
affordable housing projects).
 Homesharing – Research and pursue
a homesharing program, including
coordination with non-profits and
other to assist with matching tenants
with existing homeowners. The Town
will publicize and take other actions
as necessary (e.g., facilitate
presentations at the Los Gatos Adult
Recreation Center, etc.) at least
annually with the goal of five
opportunities per year. See Program
T.

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HCD Revised Draft Revised 2023-2031 Housing Element
10-82 HCD Revised Draft Revised 2023-2031 Housing Element March SeptemberNovemberJanuary 20232024
Program Specific Commitment Timeline Geographic
Targeting
Eight-Year
Metric
Program L. Below
Market Price
Program
Conduct a study to evaluate the
existing BMP Program and
recommend changes to the
program to increase the number
of units constructed.

By June 2025
Townwide with
emphasis on high
median income
areas
Increase number
of BMP units
annually by five
units (from 257
baseline) with a
goal of achieving
30% of new units
in high median
income areas.

Program V.

Housing
Opportunities for
Persons Living
with Disabilities
Review and update regulations
and encourage implementation
of Universal Design.

Amend Zoning Code to increase
housing for persons with
disabilities.
2023-2031
By December
2025.

Townwide
Increase housing
for persons with
disabilities by 90
units.

Program AP.

Special Needs
Housing
Establish streamlined
procedures for special needs
housing.

Amend the Zoning Code to
remove barriers to building
special needs housing
By January 2028
By January 2024
Townwide
Adopt Zoning Cod
amendments to
facilitate the
construction of
units for special
needs populations.

Program X.

Assistance for
Persons with
Developmental
Challenges
Work with local and/or regional
partners to provide rental
assistance for persons with
developmental challenges.

Annually Townwide
Provide rental
assistance for
persons with
disabilities.

Program Q: ADUs
Promote the use of Housing
Choice Vouchers (HCVs) and
homesharing (once established)
to make the units available to
lower income households.

By December
2025 Townwide
Initiate a marketing
plan and
coordinate efforts
for HCVs and
homesharing
programs.

Program T:

Nonprofit
Affordable
Housing Providers
Pursue a homesharing program
and market program annually.

By December
2025; Annually
Townwide with
emphasis on lower
density, singlefamily
neighborhoods,
and high median
income
neighborhoods
Facilitate 5
matches per year.

Program AV:

Senate Bill 9
Monitoring
Annually monitor SB 9
entitlements and develop
strategies, e.g., more flexible
development standards to
accommodate a potential
shortfall, if necessary.

Annually monitor
and adopt
additional
incentives, if
needed by end of
2027
Townwide with
emphasis on lower
density, singlefamily
neighborhoods,
and high median
income
neighborhoods
Facilitate 96 SB 9
entitlements
Program AY.

Housing Mobility
To improve housing mobility,
promote more housing choices,
and affordability.

Annually Townwide
Provide 160
housing
opportunities to
lower income
households.

Place-based Strategies for Neighborhood Improvement – Medium Priority Program AI.

Countywide Home
Repair Programs
Support home repair programs
including Habitat for Humanity
East Bay/Silicon Valley,
Rebuilding Together, Housing
Trust of Santa Clara County,
and contribute funding from the
Town’s Below Market Price
2023-2031
Townwide with
emphasis on
central and western
tracts where
substandard
housing conditions
and aging units are
more prevalent.

Complete three
minor home
repairs or
accessibility
improvements for
lower income
households
annually.

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Appendix A. AFFH Report
JanuaryNovemberSeptemberMarch 20232024 Appendix A A-19
 Past priorities for single-family residential land uses through planning and zoning efforts as well as historical restrictive covenants have contributed to the prevalence of RCAAs in the Town.  The Town will use “Affirmative Marketing” strategies, as described in Implementation Program AT BI, to work with affordable and market rate housing developers to ensure that affordable housing is affirmatively marketed to households with disproportionate housing needs, including Hispanic and Black households who work in and live outside of Los Gatos (e.g., materials in Spanish and English, distributed through employers). The Town will also amend its Zoning Ordinance in order to increase the development of affordable housing.
 Opportunities, including employment, environmental, economic, and housing may not be accessible to all residents, especially those in vulnerable populations.
 In addition to Program AT described above, Los Gatos will implement programs to facilitate the development of affordable housing, including special needs housing, to increase housing opportunities in the Town (Programs D, E, L, N, O, W). The Town will also serve vulnerable populations through Senior Housing Resources (Program I), Housing Opportunities for the Homeless (Program U), Assistance for Persons with Developmental Challenges (Program V), and Supportive Services for the Homeless (Program Y). The Town also aims to increase transportation opportunities for new households through Program AF, Transit Oriented Development.
 In addition to actions to facilitate new affordable housing opportunities described previously, the Town has outlined place-based strategies for neighborhood improvement with the following metrics to develop better access to opportunities (environmental, housing, etc.). Specifically, the Town will complete three minor home repairs or accessibility improvements for lower income households annually, provide rehabilitation to five low-income homeowner units annually, and complete three projects related to public facilities and transportation infrastructure.

Fair Housing Issue
Los Gatos feeds to high performing schools, yet, except for Asian students, students of color cannot take advantage of these learning opportunities because they cannot afford to live in Los Gatos.

Priority Level: LowHigh
Contributing factors:
 Lack of affordable housing overall due to high land costs, high construction costs, limited availability of land, limited availability of financing, duration of permitting process, cost of permitting process, and lack of incentives.
 The Town will address this issue by allocating a percentage of the Town’s Affordable Housing (Below Market Program) Fund to subsidize housing for extremely low-income households and by including housing development sites on the Sites Inventory in all areas of Town. The Town aims to increase BMP units by five units annually in addition to other actions to facilitate affordable housing development outlined in this Housing Element.

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Appendix A. AFFH Report
JanuaryNovemberSeptemberMarch 20232024 Appendix A A-21
Table A-1. Contributing Factors
Identified Fair Housing Issue Contributing Factor Action Priority Outreach and Enforcement
 Lack of adequate fair housing
testing, monitoring, or targeted
outreach.
 Program A: Developer Forum
 Program O: Affordable Housing Development
 Program W: Rental Dispute Resolution Program
 Program AE: Fair Housing Law Education
 Program AM: Santa Clara County Fair Housing
Consortium
 Program I. Senior Housing Resources
 Program X. Developmental Challenges
 Program AN. Use a Variety of Communication
Methods
 Program AO. Educate Single-Family Property
Owners Regarding In-Fill Housing Options
 Program AT. Affirmative Marketing
High
Integration and Segregation
(Outreach and Enforcement,
New Housing Opportunities in
High Resource Areas, and
Housing Mobility)
 Concentrated wealth and White
populations in the Town as
compared to the region.
 Past priorities for single-family
residential land uses and
historical restrictive covenants.
 Program O. Affordable Housing Development
 Program AM. Santa Clara County Fair Housing
Consortium
 Program AN. Use a Variety of Communication
Methods
 Program AT. Affirmative Marketing
 Program D. Additional Housing Capacity for
North Forty Specific Plan
 Program J. Small Multi-Unit “Missing Middle”
Housing
 Program L. Below Market Price Program
 Program AP. Special Needs Housing
 Program AY: Housing Mobility
High
Access to Opportunities (New
Housing Opportunities in High
Resource Areas)
 Lack of diverse housing stock
such as multifamily housing.
 Lack of affordable housing
overall due to high land costs,
high construction costs, limited
availability of land, limited
availability of financing,
duration of permitting process,
cost of permitting process, and
lack of incentives.
 Program D. Additional Housing Capacity for
North Forty Specific Plan
 Program N. Funds for Development for
Extremely Low Income (ELI) Households
 Program O. Affordable Housing Development
 Program Q. ADUs
 Program AB. Allow for 100 Percent Affordable
Residential Development in Mixed-Use General
Plan Designations
Medium
Disproportionate Housing
Needs (Housing Mobility and
Place-based Strategies for
Neighborhood Improvement)
 Lack of diverse housing stock
such as multifamily housing.
 Disproportionate need for
housing and assistance for
special needs populations.
 Program V. Housing Opportunities for Persons
Living with Disabilities
 Program AP. Special Needs Housing
 Program X. Assistance for Persons with
Developmental Challenges
 Program T: Nonprofit Affordable Housing
Providers
 Program AI. Countywide Home Repair Programs
 Program AJ. Residential Rehabilitation Program
 AFFH: CIP Projects
Medium

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PREPARED BY: Erin Walters, Associate Planner and
Jocelyn Shoopman, Associate Planner
Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and the Community Development Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6872 www.losgatosca.gov

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 2/20/2024
ITEM NO: 11

DESK ITEM
DATE: February 20, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Discuss and Provide Direction on the Proposed Revisions to the Draft Revised 2023-2031 Housing Element and Next Steps. Location: Town-Wide. General Plan Amendment Application GP-22-003.

REMARKS:

Attachment 16 includes all correspondence with the State Department of Housing and Community Development (HCD) since the February 6, 2024, Town Council meeting.

On February 20, 2024, the Town’s HCD reviewer provided staff and the Housing Element Consultant with a second informal preliminary review matrix based on revisions made to the Draft Revised Housing Element and informally provided to the Town’s HCD reviewer on February 1, 2024, and February 9, 2024. The second informal preliminary review matrix is included in Attachment 17.

Attachment 18 contains public comment received between 11:01 a.m., Thursday, February 15, 2024, and 11:00 a.m., Tuesday, February 20, 2024.

ATTACHMENTS:

Previously Received with the January 16, 2024 Staff Report:

1. Draft Revised Housing Element, Track Changes Copy

2. Draft Response Table

3. December 1, 2023 HCD’s Findings Comment Letter

4. Public Comments Received Between 11:01 a.m., Tuesday, December 19, 2023, and 11:00 a.m., Thursday, January 11, 2024
Previously Received with the January 16, 2024 Desk Item:

5. Comments from the Vice Mayor

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PAGE 2 OF 2
SUBJECT: DRAFT REVISED 2023-2031 HOUSING ELEMENT/GP-22-003 DATE: February 20, 2024
ATTACHMENTS (continued):

6. Public Comments Received Between 11:01 a.m., Thursday, January 11, 2024, and 11:00 a.m., Tuesday, January 16, 2024
Previously Received with the February 6, 2024 Staff Report:

7. Draft Revised Housing Element, Track Changes – January 2024

8. Draft Response Table – January 2024

9. HCD Informal Preliminary Review Matrix with Staff’s Responses

10. Goldfarb & Lipman, LLP Feedback Table with Staff’s Responses

11. Track Changes and Clean Version of Program AY Housing Mobility

12. Public Comments Received Between 11:01 a.m., Tuesday, January 16, 2024, and 11:00 a.m., Thursday, February 1, 2024
Previously Received with the February 5, 2024 Addendum:

13. Pages from the Draft Revised Housing Element Without the Recommendations Made by the Housing Element Advisory Board

14. Correspondence with HCD
Previously Received with the February 20, 2024 Staff Report:

15. Extracted Pages from the Draft Revised Housing Element with Revisions Attachment Received with this Desk Item:

16. Correspondence with HCD

17. HCD Second Informal Preliminary Review Matrix

18. Public Comment Received Between 11:01 a.m., Thursday, February 15, 2024, and 11:00 a.m., Tuesday, February 20, 2024

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From: Veronica Tam < >
Sent: Tuesday, February 20, 2024 9:00 AM
To: Jauregui, Jose @HCD <[email protected]>; McDougall, Paul@HCD <[email protected]>
Cc: Jennifer Armer <[email protected]>; Erin Walters <[email protected]> Subject: RE: Los Gatos HE Revisions
I mean before our mee�ng tonight, thanks!
Veronica Tam, AICP
Principal
Veronica Tam and Associates, Inc.

From: Veronica Tam
Sent: Tuesday, February 20, 2024 8:59 AM
To: Jauregui, Jose @HCD <[email protected]>; McDougall, Paul@HCD <[email protected]>
Cc: Jennifer Armer <[email protected]>; Erin Walters <[email protected]> Subject: Los Gatos HE Revisions
Hi Jose and Paul –
Any chance we can get some feedback on the revisions?
Veronica
Veronica Tam, AICP
Principal
Veronica Tam and Associates, Inc.

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From: Veronica Tam < >
Sent: Friday, February 16, 2024 10:16 AM
To: Jauregui, Jose @HCD <[email protected]>
Subject: Re: Los Gatos
Yes!! Thanks. Sorry having a morning exercise class.

Sent from my iPhone
From: Jauregui, Jose @HCD <[email protected]>
Sent: Friday, February 16, 2024 9:35 AM
To: Veronica Tam < >
Subject: RE: Los Gatos
Just to confirm Green reflects latest revisions, Teal reflects revisions made in January and Yellow reflects revisions made in September?
Warm regards,
<image001.png>
Jose A. Jauregui he / him
Housing Policy Analyst
Housing Policy Development
Housing & Community Development
2020 W. El Camino Avenue, Suite 500 | Sacramento, CA 95833 Cell: (916) 820-1516
From: Veronica Tam < >
Sent: Friday, February 16, 2024 10:16 AM
To: Jauregui, Jose @HCD <[email protected]>
Subject: Re: Los Gatos
It’s the green highlight.

Sent from my iPhone
From: Jauregui, Jose @HCD
Sent: Friday, February 16, 2024 8:31 AM
To: Veronica Tam < >
Subject: RE: Los Gatos
Good morning Veronica,
Can you please let me know which highlighted track changes reflect the most recent revisions made to the element? There are too many colors that I just want to be sure as to what we are reviewing.

Warm regards,
<image001.png> Jose A. Jauregui he / him
Housing Policy Analyst

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Housing Policy Development
Housing & Community Development
2020 W. El Camino Avenue, Suite 500 | Sacramento, CA 95833 Cell: (916) 820-1516

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From: Veronica Tam < >
Sent: Wednesday, February 14, 2024 2:30 PM
To: Jauregui, Jose @HCD <[email protected]>
Cc: McDougall, Paul@HCD <[email protected]>
Subject: RE: Los Gatos
Yes, I sent the revised pages in a couple of emails. The town council does not want us to officially resubmit un�l you have okayed it.

Veronica Tam, AICP
Principal
Veronica Tam and Associates, Inc.

From: Jauregui, Jose @HCD <[email protected]>
Sent: Wednesday, February 14, 2024 2:29 PM
To: Veronica Tam < >
Cc: McDougall, Paul@HCD <[email protected]>
Subject: RE: Los Gatos
Can’t guarantee I can give this a look by Tuesday, but I’ll do my best! Did you just want us to review the revised program languages? I’m s�ll catching up on emails.

Warm regards,
<image001.png>
Jose A. Jauregui he / him
Housing Policy Analyst
Housing Policy Development
Housing & Community Development
2020 W. El Camino Avenue, Suite 500 | Sacramento, CA 95833 Cell: (916) 820-1516
From: Veronica Tam < >
Sent: Wednesday, February 14, 2024 2:10 PM
To: Jauregui, Jose @HCD <[email protected]>
Cc: McDougall, Paul@HCD <[email protected]>
Subject: Los Gatos
Hi Jose –
Los Gatos has a Town Council mee�ng on Tuesday. Do you think you can take a quick look at our revisions before that and give some feedback?
Thanks,
Veronica
Veronica Tam, AICP

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Principal
Veronica Tam and Associates, Inc.

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THIS PAGE HAS BEEN LEFT INTENTIALLY BLANK

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From: Veronica Tam < >
Sent: Friday, February 9, 2024 1:54 PM
To: McDougall, Paul@HCD <[email protected]>; Jauregui, Jose @HCD <[email protected]>
Cc: Erin Walters <[email protected]>; Jocelyn Shoopman <[email protected]>; Jennifer Armer <[email protected]>
Subject: Programs J and AY - Revisions based on Council direction Hi Paul and Jose –
Town Council met on February 6th and is proposing alterna�ve language to Programs J and AY and are reques�ng HCD’s feedback. Atached are the edits to Program J and Program AY per the Town Council’s direc�on. Can we get your feedback by February 16? We need to report to Council.

Thanks,
Veronica
Veronica Tam, AICP
Principal
Veronica Tam and Associates, Inc.

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Provide regularly updated senior housing
resource materials at the Adult Recreation
Center, Library, and Farmers’ Market.

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Update the Zoning Code to facilitate low
rise multi-family structures small multi-unit
housing in the low to mMedium
Residential Density designations.

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Specifically, update the Zoning to allow
for all housing types considered for the
provision of Small Multi-Unit Housing
types as part of Low Density High
Density Residential designations.

Pursue establishment of a maximum
average unit size as a tool to moderate
unit sizes for developments over a certain
size but to allow flexibility for a range of
unit sizes.

L Rental Housing for Large Families
Encourage development of multi-family rental
housing that is greater than two bedrooms to
encourage the provision of adequate rental
housing for families.

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10. Housing Element
JanuaryNovemberSeptember March 2023 2024 HCD Draft Revised Draft 2023-2031 Housing Element
10-77
Programs
Establish a list by December 31, 2024, to post
online.

Funding Source
General fund (staff time)
Quantified Objective
Annually update the list or upon request from a
local union.

Funding Source
General fund (staff time)
Quantified Objective
Provide 160 housing opportunities affordable to
lower income households by January 2031.

Performance Metric(s)
Townwide, but especially lower-density
neighborhoods.

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See Program Q.
 Religious Institutional Sites – Expand
housing opportunities on all religious
institutional sites within the Town.

See Program S. Conduct outreach to
owners and operators of religious
institutions to raise awareness and
encourage housing proposals.

This may include direct mailings to
faith-based sites highlighting

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Town of Los Gatos Informal 2 Preliminary Review
Received 12/24/2023
Subsequent Informal 2: 2/01/24
Prior Review: 12/01/2023
Prior HCD Finding Page # Prelim
Rev 1
Page# Prelim
Rev 2
Notes
Affirmatively Furthering Fair Housing
Income and Racial Concentration Area of Affluence (RCAA):

The element now includes actions to promote an inclusive community; however, the element must provide specific
analysis of income and RCAA at a regional level (town
compared to the broader region) to better formulate
appropriate policies and programs. The analysis should at least address trends, conditions, coincidence with other fair housing factors (e.g., race, highest resource, overpayment), effectiveness or absence of past strategies (e.g., lack of publicly assisted housing and lack of multifamily zoning), local data and knowledge and other relevant factors.

A-69 ~/No A-71 Yes/~ Minimal revision.

Prior Review: Minimal analysis
added; should address trends,
coincidence with other factors
(e.g., income, TCAC), past
strategies and effectiveness such
as result of North 40 in the prior
planning period, zoning, land use
and other factors. These analyses
should be incorporated into
contributing factors
Contributing Factors to Fair Housing Issues: Based on a complete analysis, the element should re-assess and prioritize contributing factors to fair housing issues. For example, the Town is wholly a RCAA, highest resource and highest median incomes in contrast to the rest of the region. As a result, fair housing issues such as the lack of affordable housing and segregation from the rest of the region should be a high priority.

A-18 ~ A20 Yes Re-assess based on a complete
analysis
Goals and Actions: As noted above, the element must include a complete analysis of affirmatively furthering fair housing (AFFH). The element must be revised to add goals and
actions based on the outcomes of a complete analysis.
10-43-
10-50-
10-65
10-66
~/No 10-76 ~
Include metric for home sharing
action (Program Q)
ATTACHMENT 17

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In addition, while the element includes some actions toward AFFH and enhancing housing mobility (e.g., choices and
affordability), actions should be added, numeric targets should be increased, and geographic targeting should be fine-tuned to better promote inclusive neighborhoods throughout the Town. This is particularly important since over 80 percent of the lower-income regional housing need allocation (RHNA) is isolated in two census tracts. As noted in HCD’s prior review and the assessment of fair housing, the Town is wholly a racially concentrated area of affluence, highest resource and highest median incomes in contrast to the rest of the region.

These conditions and circumstances warrant significant and robust actions (not limited to the RHNA) to promote housing mobility and increasing housing choices and affordability throughout the Town, including lower-density neighborhoods.

Actions should be added and revised with aggressive numeric targets and geographic targets throughout the Town, including lower-density neighborhoods. Examples include creating more housing choices and affordability in single-family
neighborhoods beyond complying with law (e.g., SB 9, ADUs) such as missing middle housing types, targeting affordable housing funding, homesharing, more than one unit of
converted space within a single-family structure, increased multifamily capacity, enhanced efforts on religious institutional sites and other alternative land use and financing strategies.

Program AY
Prior Review: See Programs J, L,

O, Q, T, AV
Program J should clarify that
capacity will be increased (not just
zoning text), development
standards will be adjusted to
facilitate maximum densities and
increase the objective (~150 units)
or add strategies (religious
institutional, JADU plus, SB 10)
Consider adding JADU plus to
ADU HCV homesharing program
and increasing objective
Program AV should go beyond
complying with SB 9 (marketing,
modification to development
standards)
For all housing mobility actions
(Programs J, L, O, Q, T, AV),
geographic targeting should be
revised to clarify town-wide
including highest median income
areas and numeric targets should
be reflected with geographic
targeting (e.g., 100 units townwide
and 50% in highest median income
areas)
Sites Inventory, Analysis and Adequate Sites
Small Sites: The element identifies several sites with parcels less than a half-acre (p. D-13) that have common ownership and, in some cases, expressed interest to redevelop the site.

D-2 Yes D-11 N/A

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For small sites with expressed interest in redevelopment, the element should clarify that the expressed interest is also in consolidating the sites. For the remaining sites (Sites D-2 and D-5), the element should explain the circumstances leading to the potential for consolidation such as necessity to consolidate due to access, feasibility, shape, or site planning flexibility.

Based on the outcomes of this analysis, the element should add or modify Program K (Lot Consolidation) to further
promote lot consolidation, if appropriate.

Electronic Sites Inventory: For your information, while the Town has submitted an electronic sites inventory as part of this submittal, pursuant to Government Code section 65583.3, the Town must submit an electronic sites inventory with its adopted housing element. Please see HCD’s housing element webpage at https://www.hcd.ca.gov/planning-andcommunitydevelopment/housing-elements for a copy of the form and instructions. The Town can reach out to HCD at
[email protected] for technical assistance

N/A FYI FYI
Adequate Sites Programs: As noted in the prior review, if necessary to make appropriate zoning available to
accommodate the lower-income RHNA, programs must be
revised to meet all requirements pursuant to Government Code section 65583.2, subdivisions (c), (h) and (i). The element includes Programs D (Program By Right Zoning Text Amendment to Accommodate RHNA), AR (General Plan
Amendment) and AS (Adequate Sites for Housing) to address these requirements. With respect to sites identified in prior planning periods, the element meets statutory requirements, but these actions must be completed by January 31, 2024.

With respect to a shortfall of adequate sites to accommodate the lower-income RHNA, the element includes Programs AR and AS. However, the Programs commit to the appropriate zoning given the rezoning occurs after the statutory deadline of January 31, 2023. HCD understands the Town completed the rezoning after the statutory deadline and, therefore, the rezoning must meet all by right requirements pursuant to Government Code section 65583.2, subdivisions (h) and (i).

Based on a cursory review, the rezoning does not appear to meet these requirements. As a result, these programs must Not
Found
No/? Yes Rezone ordinance 2347, Ord
2348, Ord 2349, Ord 23507;

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clearly commit to meet all by-right requirements by January 31, 2024.

In addition, please be aware, the recent California appellate decision in Martinez v. City of Clovis found that while overlays can be used in a rezone, when the base zone allows
residential development, both the base zone and the overlay zone must comply with the minimum density requirements of Government Code section 65583.2, subdivision (h). The Town may need to adjust its rezoning strategy if the underlying zoning for sites that will be rezoned allows minimum densities less than 20 dwelling units per acre. Martinez v. City of Clovis (2023) 90 Cal.App.5th 193, 307 Cal.Rptr.3d 64.

Governmental Constraints
Land Use Controls: HCD’s prior review found that the Town must list and evaluate development standards in the North Forty Specific Plan and High Density Residential and
Commercial designation. In response, the Town has now
listed development standards by each zoning district but should also analyze those development standards for impacts on housing supply and cost and most importantly, the ability to encourage maximum densities without exceptions. For
example, lot coverages, heights, and setbacks in the
Multifamily Residential (RM) zone; and lot coverage heights and guest parking requirements in the North Forty Specific Plan could be constraints. Based on the outcomes of a
complete analysis, the element should add or modify
programs to include specific commitment to review and revise these development standards as necessary.

C-1
C-5
10-62
? 10-43 No Program D includes action to
remove guest parking in North
Forty Specific plan; however,
include a program to revise all MF
guest parking requirements,
specifically RM, CH zones.

Prior Review: RM parking
program? Guest parking reduced?
Guest parking and lot coverage in
the North Forty Specific Plan
analyzed?
Local Processing and Permit Procedures: The element now discusses decision-making bodies and lists approval findings for the Architecture and Site Application. However, the element should also analyze these processes to better inform programs to address identified constraint. For example, the element mentions the decision-making body depends on the scope of the application. The element should explain the scope, resulting decision-making body and impacts on
10-62 No/? C-41 ~ Brief statement made on approval
body but must discuss and analyze
the scope of the trigger for PC
review.

Program AQ
Prior Review: See Program AQ

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approval timing and certainty. In addition, the element lists approval findings and concludes some findings may be
constraints then modifies Program AQ (Zoning Code
Amendments) to amend approval findings (considerations).

But the element should discuss which approval findings may be constraints to better inform implementation of Program AQ.

Program should remove or modify
Findings 4 and 6 of the
architectural and site process
Scope trigger for approval body
analyzed? Addressed?
Programs: As noted above, the element requires a
complete analysis of potential governmental constraints.

Depending upon the results of that analysis, the Town may need to revise or add programs and address and remove or mitigate any identified constraints. In addition, programs should be revised, as follows:

TBD TBD Depends on complete analysis
Program D (Additional Capacity for the North Forty Specific Plan): The Program should also commit to establish or modify development standards to facilitate achieving maximum
densities, regardless of the level of affordability and should specify to either remove the unit cap or increase the unit cap to allow maximum build out of each parcel, including State Density Bonus Law or other circumstances that might warrant increasing allowable densities.
10-41 ~/No/? No Include a specific commitment to
increase or remove unit cap (within
6 months)
Prior Review: No action included to
modify development standards?
No action to remove cap.

Commitments should also not
implement the cap to allow
maximum build out of each parcel
or other circumstances warranting
increasing allowable densities
Program V (Housing opportunities for Persons living with Disabilities): Given the importance of promoting housing access for persons with disabilities, the Program could be modified with a date earlier in the planning period (e.g., by December 2024).
? No/? 10-57 Yes
Program AA (Reduce Parking Standards): The Program
currently commits to “Initiate a study to determine specific updates…” While initiating a study and making a
determination are important steps by themselves, these
actions do not result in outcomes. The Program should clearly commit to amending the municipal code. For example, the 10-53 Yes N/A

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Program could commit to: “Initiate a study and outreach, including with developers, and amend the Municipal Code, as follows:…”
Program AQ (Zoning Code Amendments): The Program
commits to apply the Housing Element Overlay Zone (HEOZ) to identified sites and modify development standards. HCD understands this action has been completed. Based on a
cursory review of the Town’s Ordinance 2347, some
development standards such as heights may be a constraint on achieving maximum densities. As a result, this Program should commit to monitor and evaluate these development standards, including outreach with the development
community, and making adjustments, as appropriate, by a specified date.
10-61 ~/No 10-70 Yes Program AQ
Program AW (Story Poles and Netting Policy): While the
Program now commits to revise Story Poles and Netting
Policy Requirements; these requirements are constraints and impact housing costs; supply (number of units) and approval certainty and should be removed or replaced with cost
effective measures to promote certainty for the developers and the community. Further, the element should evaluate the effectiveness of any future requirements or measures, and making adjustments, as necessary, by a specified date (e.g., by 2028).
10-65- No C-38 Yes Program AW
Prior Review: Video rendering
should be expanded to other visual
methods
Scope of alternative should be
expanded to all multifamily and
mixed use
Housing Programs: ADU
Program Q Accessory Dwelling Units (ADU): While the
Program now commits to amend the ADU Ordinance, it must also commit to establish incentives such as modifying
development standards (e.g., heights), pursuing funding; waiving fees beyond ADU law; proactive marketing and
establishing points of contact to ease permitting processes. In addition, the Program commits to monitor production and affordability of ADUs annually but should also commit to making adjustments by a specified date (e.g., within six months) if production and affordability are not meeting assumptions. Further, the Program should clearly commit to options beyond incentives such as rezoning if production and affordability far differs from assumptions.
10-48- Yes N/A

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Public Participation:

Public participation in the development, adoption and
implementation of the housing element is essential to effective housing planning. Throughout the housing element process, the Town should continue to engage the community, including organizations that represent lower-income and special needs households, by making information regularly available and considering and incorporating comments where appropriate.

Please be aware, any revisions to the element must be posted on the local government’s website and to email a link to all individuals and organizations that have previously requested notices relating to the local government’s housing element at least seven days before submitting to HCD. HCD particularly encourages the Town to continue engaging commenters on
this review. These comments contained valuable insights that can result in a more effective housing elements, especially related to programs and specific commitment. HCD’s future reviews will continue to consider the extent to which the revised element documents how the Town solicited,
considered, and addressed public comments in the element.

The Town’s consideration of public comments must not be limited by HCD’s findings in this review letter.
? 10-17 Yes/~ Summary of Public comments
submitted.

Other (HCD use only)
Program J N/A No New language excluding missing
middle housing types in multiple
areas throughout the Town. The
program should remove new
language and proceed with
previous program language
informally reviewed.

Program AY N/A No See comments above.

Sb 9 units N/A 10-9
D-2
No/? Is the town now counting SB 9
units towards RHNA?
Table D-2?
Public comments TBD Yes Additional comments?

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Prior Review: Must address new
public comments
Document availability FYI FYI
Rezone timing FYI FYI Cant be found in full compliance
until all rezones are complete
50% nonvacant resolution FYI FYI
Electronic sites inventory FYI FYI
Overlay No Program AQ HE Overlay zone
Modification Authority N/A N/A Informal submittal

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From: Iddo Hadar < >
Sent: Sunday, February 18, 2024 8:11 PM
To: Housing Element <[email protected]>
Subject: Fwd: Housing Situation in Los Gatos
In reference to: Town Council Meeting – February 20, 2024– 7:00 p.m.

We were informed that, on February 20, 2024, the Town Council will be discussing and providing feedback on the latest revisions to the Draft Revised Housing Element.

I would like to provide (and discuss in person during the session) comments on specific site plans included in your list:

The plans for Capri Fruitstand (14288 Capri Dr) are absurd, in terms of height and number of units.

Neither Plan A nor Plan B are logical for the location and the town in general.

Thank you for the opportunity to review this information and provide input. -Iddo Hadar
---------- Forwarded message ---------
From: Matthew Hudes < >
Date: Mon, Feb 12, 2024 at 6:30 AM
Subject: Re: Housing Situation in Los Gatos
To: Iddo Hadar < >
Hi Iddo,
We have recently made some progress on our Housing Element document that needs to be certified by the State.

As you know, the document failed to gain approval 4 times, but obtaining this approval ASAP is imperative, since the fact that it is overdue for State certification has opened the door to developers claiming that they have the right to a Builder's Remedy. In fact, a Builder's Remedy has already been claimed in at least 9 of the 11 new proposals to the Town, as listed below. (If granted, a Builder's Remedy limits the Town’s ability to alter/guide the proposed development, providing "almost automatic" approval.) During the February 6 Council meeting, we made progress responding to the State's requirement to spread housing throughout the Town. Some members of the Council proposed opening all single-family residential neighborhoods to multi-unit housing. This expansive approach, added to our already included housing sites, could allow a maximum possible 5,250 new housing units in Town, going far beyond the State requirement of 1,993 units. Of course this large number is not likely, but it illustrates the uncontrolled nature of an approach with no constraints. And yet, this approach would still not necessarily result in any of the small multi-unit housing actually being affordable ATTACHMENT 18

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housing. I proposed a more guided approach, which passed on a 3-2 vote. The guided approach steers this denser development to areas that are more fire-safe and more transit-available and that are less likely to disrupt the historic and natural beauty of Los Gatos.

This progress on the Housing Element is part of the more efficient approach to getting our entire Housing Element approved as quickly as possible. Over the last 18 months, the Town failed 4 times to get its 800-page document approved, each time going through a cumbersome 3-6 month cycle. Now, in order to obtain State approval more nimbly and efficiently, the Town is following a process (that I proposed and the Council unanimously approved) to "fix" the State's concerns, piece by piece, in manageable "bites" that can be readily, informally reviewed and approved by the State. This should save months of time as compared to our previous approach. I believe that it is not how quickly we submit, but how quickly we are certified that matters.

Our next meeting is on February 20, and your involvement and engagement are welcomed. We will continue to push forward until we obtain certification.

Regards,
Matthew
Vice Mayor, Town of Los Gatos
_____________________________________
I am always open to information provided at public hearings. I will not express a final opinion until the Council votes on these matters. Any expression is by me as an individual, not by the Council.

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__________________________________________________
On Dec 31, 2023, at 12:06 PM Matthew Hudes < > wrote:

Hi Iddo,
Some good news about the Housing Element document that needs to be certified by the State (and has failed to gain approval 4 times):

On December 19, the Los Gatos Town Council met and adopted a new, more effective process for revising and obtaining approval from the State. This new process is structured to better engage the community, the Council, the housing consultant and the State. This will enable the community to be more involved in the decisions that are made regarding the locations for housing as well making more effective, directed progress toward State certification. By a 5-0 vote, the Council adopted a motion that I made, outlined as having the following actions:

1. Prioritizing the comments from the California Department of Housing and Community Development (HCD)

2. Presenting the Los Gatos Housing Element draft text to Council with examples from two to three certified Housing Elements, and providing the public an opportunity to comment at the Council meeting with staff addressing the public comments in subsequent meetings

3. Scheduling Council meetings with the Town's housing consultant on a regular basis to complete the edits

4. Reviewing the proposed edits with HCD and providing written feedback to the Council about HCD’s responses

5. Conducting public engagement with the Housing Element Advisory Board after Council completes the draft
Council also unanimously voted to meet and review the Housing Element prior to submittal to the State (HCD).

This means that you will have the opportunity to participate at the January 16 Council meeting and at subsequent meetings until the State certifies our Housing Element.

As Mayor Badame stated, this is the most important issue currently facing the Town.

Please keep your ideas and comments coming, as I read all of them.

Regards,
Matthew
_____________________________________
More information:

Video of February 6 Council Meeting
https://www.youtube.com/watch?v=NiejWYHRdGE&t=4s

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(about 37 minutes in)
SB 330 including Pre-Applications
https://www.losgatosca.gov/2875/Senate-Bill-SB-330
Formal Applications
https://www.losgatosca.gov/2216/Pending-Planning-Projects Housing Element
https://www.losgatosca.gov/1735/General-Plan---Housing-Element Matthew Hudes for Town Council · CA 95030, United States This email was sent to . To stop receiving emails, click here.

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PREPARED BY: Jocelyn Shoopman, Associate Planner and
Erin Walters, Associate Planner
Reviewed by: Town Manager, Community Development Director, Planning Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6872 www.losgatosca.gov

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024
ITEM NO: 12
DATE: February 15, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Approve a Recommendation of the Planning Commission to Introduce an Ordinance Titled “An Ordinance of the Town Council of the Town of Los Gatos Amending Chapter 29, ‘Zoning Regulations,’ of the Town Code to Define ‘By Right Approvals’ and Amend the Housing Element Overlay Zone (HEOZ), Division 5 of Article VIII, ‘Overlay Zones and Historic Preservation,’” to Clarify Regulations Applicable to “By Right” and “Non By Right” Residential Development in the Housing Element Overlay Zone. An Environmental Impact Report (EIR) was Prepared and Certified for the 2040 General Plan Update on June 30, 2022. No further Environmental Analysis is Required. Zoning Code Amendment Application Z-24-001. APPLICANT: Town of Los Gatos. PROJECT PLANNERS: Jocelyn Shoopman and Erin Walters.

RECOMMENDATION:

Approve a recommendation of the Planning Commission to introduce to Introduce an Ordinance titled “An Ordinance of the Town Council of the Town of Los Gatos Amending Chapter 29, ‘Zoning Regulations,’ of the Town Code to Define ‘By Right Approvals’ and Amend the Housing Element Overlay Zone (HEOZ), Division 5 of Article VIII, ‘Overlay Zones and Historic Preservation,’” to Clarify Regulations Applicable to “By Right” and “Non By Right” Residential Development in the Housing Element Overlay Zone (Attachment 2).

BACKGROUND:

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PAGE 2 of 3
SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: February 15, 2024
BACKGROUND (continued):
the community and identifies implementation programs to meet those housing needs. Unlike other General Plan elements, the Housing Element must be updated every eight years, rather than every 10 to 20 years, must address statutory requirements regarding its content, and is subject to mandatory review by HCD. The Town’s Regional Housing Needs Allocation (RHNA) for the sixth cycle planning period is 1,993 units.

The Town of Los Gatos 2023-2031 Housing Element identifies amending the Town Code to create the HEOZ as a strategy to accommodate the Town’s RHNA.

On November 21, 2023, the Town Council adopted Ordinance No. 2347 to enact the proposed Town Code amendments to modify the Affordable Housing Overlay Zone (AHOZ) to become the HEOZ (Attachment 1).

On December 1, 2023, the Town received the HCD findings/comment letter on the Town’s Draft Revised Housing Element as submitted to HCD, including a preliminary review of the adopted HEOZ Ordinance. The comment letter recommended additional amendments. The letter is available on the Town’s Housing Element webpage:
https://www.losgatosca.gov/HousingElement
On January 24, 2024, the Planning Commission met to discuss the amendments proposed in response to the HCD comments. The Planning Commission received and considered public comments on the proposed amendments, reviewed the proposed language, and unanimously recommended approval to Town Council with the single modification of “at the density ranges specified in Table 1-A” to “within the density ranges specified in Table 1-A in Section 29.80.510 (a)” (Attachments 3 and 4).

DISCUSSION:

The Town has received comments from HCD requiring amendments to the Town’s adopted HEOZ Ordinance to include by right approval requirements pursuant to Government Code section 65583.2, subdivision (h) and (i), as well as the minimum density requirements of Government Code section 65583.2, subdivision (h).

Staff, with the assistance from the Town’s outside legal counsel, Goldfarb and Lipman LLP, and the Town’s Housing Consultant, Veronica Tam and Associates, have prepared an amended ordinance (Attachment 2) to address HCD’s comments, as described in Attachment 3.

The proposed amended ordinance in Attachment 2 includes a definition of “By Right Approval” from the State Government Code. The amended Ordinance also provides clarification on which regulations apply to “By Right” and “Non By Right” residential development in the HEOZ.

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PAGE 3 of 3
SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: February 15, 2024
DISCUSSION (continued):

The Town’s HCD reviewer has reviewed the proposed language, asked clarifying questions of staff, and staff provided HCD answers. The Town’s HCD reviewer responded with an email thanking staff for the clarifications.

PUBLIC COMMENTS:

Public notification has included a legal advertisement in the paper. The meeting has also been publicized on the Town’s website and through the Town’s social media platforms. As of the drafting of this report, no comments from the public have been received.

CONCLUSION:

Staff recommends that the Council introduce an Ordinance titled “An Ordinance of the Town Council of the Town of Los Gatos Amending Chapter 29, ‘Zoning Regulations,’ of the Town Code to Define ‘By Right Approvals’ and Amend the Housing Element Overlay Zone (HEOZ), Division 5 of Article VIII, ‘Overlay Zones and Historic Preservation’” to clarify which regulations apply to “By Right” and “Non By Right” residential development in the HEOZ (Attachment 2) with any specific changes identified and agreed upon by the majority of the Town Council.

Alternatively, the Council may:

1. Continue this item to a date certain with specific direction to staff; or

2. Refer the item back to the Planning Commission with specific direction.

Attachments:

1. Ordinance 2347

2. Draft Ordinance

3. January 24, 2024, Planning Commission Staff Report with Exhibits 1-2

4. January 24, 2024, Planning Commission Verbatim Minutes

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Intentionally
Left Blank

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ATTACHMENT 1

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1 of 5
HEOZ Ordinance February 20, 2024

DRAFT ORDINANCE

AN ORDINANCE OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS AMENDING CHAPTER 29, “ZONING REGULATIONS,” OF THE TOWN CODE TO DEFINE “BY RIGHT APPROVALS” AND AMEND THE HOUSING ELEMENT OVERLAY ZONE (HEOZ), DIVISION 5 OF ARTICLE VIII, “OVERLAY ZONES AND HISTORIC PRESERVATION”
ZONING CODE AMENDMENT APPLICATION Z-24-001
PROPERTY LOCATION: TOWN WIDE
APPLICANT: TOWN OF LOS GATOS
WHEREAS, the Town of Los Gatos 2023-2031 Housing Element identifies amending the Town Code to create the Housing Element Overlay Zone as a strategy to accommodate the Town’s Regional Housing Needs Allocation (RHNA); and
WHEREAS, the Planning Commission at its meeting on August 23, 2023, reviewed the proposed Town Code amendments, held a public hearing, and forwarded a recommendation of approval to the Town Council; and
WHEREAS, on October 3, 2023, the Town Council accepted the report of the Planning Commission’s recommendation of approval for the proposed Town Code amendment, held a public hearing, and continued to the matter to November 7, 2023; and WHEREAS, on November 7, 2023, the Town Council reviewed the proposed Town Code amendments, held a public hearing, and introduced the ordinance to amend the Town Code to modify the Affordable Housing Overlay Zone to be the Housing Element Overlay Zone; and WHEREAS, on November 21, 2023, the Town Council adopted Ordinance No. 2347 to enact the proposed Town Code amendments; and
WHEREAS, on December 1, 2023, the Town received comments from the State Housing and Community Development Department (HCD) regarding the adopted Housing Element Overlay Zone ordinance; and
WHEREAS, staff has prepared a revised ordinance to address HCD’s comments; and WHEREAS, the Planning Commission at its meeting on January 24, 2024, reviewed proposed Town Code amendments, held a public hearing, and forwarded a recommendation of approval to the Town Council; and
WHEREAS, this matter was regularly noticed in conformance with State and Town law Draft Ordinance: Subject to
modification by Town Council based
on deliberations and direction.

ATTACHMENT 2

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2 of 5
HEOZ Ordinance February 20, 2024
and came before the Town Council on February 20, 2024.

WHEREAS, on February 20, 2024, the Town Council accepted the report of the Planning Commission’s recommendation of approval for the proposed Town Code amendments, held a public hearing, and introduced an ordinance to add a definition of “by right approval” and modify the HEOZ Ordinance; and
NOW, THEREFORE, BE IT ORDAINED by the Town Council of the Town of Los Gatos as follows:

SECTION I. Section 29.10.020, “Definitions,” of Chapter 29, “Zoning Regulations,” of the Town Code is amended to add the following between the definitions of “Business or commerce” and “Carport” to read as follows:

By right approval shall have the meaning set forth in Government Code Section 65583.2 (i).

SECTION II. Division 5 of Article VIII, “Overlay Zones and Historic Preservation,” of Chapter 29, “Zoning Regulations,” is amended to read as follows:

ARTICLE VIII. OVERLAY ZONES AND HISTORIC PRESERVATION
…
DIVISION 5. HOUSING ELEMENT OVERLAY ZONE
Sec. 29.80.505. Intent.

The Housing Element Overlay Zone (HEOZ) ordinance in this division is intended to increase the supply and the mix of housing types, tenure, and affordability within the Town of Los Gatos. Through appropriate densities, concessions, and fee deferrals or waivers, the HEOZ encourages the development of housing affordable to all income levels on sites within the Town that are deemed to be most appropriate for such uses. The Housing Element lists sites within the Town of Los Gatos as key housing opportunities. The designation of these sites will assist the Town in meeting its Regional Housing Needs Allocation (RHNA), as required by the State.

Sec. 29.80.510. HEOZ and underlying zoning.
(a) “By right” residential developments on sites with underlying zoning of RM, CH, or NF-SP (Table 1A below). Pursuant to Government Code Section 65583.2, subsections (h) and (i), in the HEOZ, residential developments with at least 20 percent of the units proposed for “low income” households and without a subdivision are subject to “by right approval.” These developments are subject to the following:

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HEOZ Ordinance February 20, 2024

1. The developments must be developed at within the densityies ranges specified in Table 1A below and in no event shall any residential development projects be developed below the minimum density of 30 units per acre.

2. The developments shall be subject to non-discretionary design review based on objective development standards in accordance with the procedures specified in Article II, "Administration and Enforcement,” of Chapter 29, “Zoning Regulations,” of the Town Code.

3. No California Environmental Quality Act review shall be required.

4. Subdivisions remain subject to all applicable state and local laws, including but not limited to the Subdivision Map Act.

5. Residential units shall occupy at least 50 percent of the floor area in all mixed-use projects.

6. For residential developments and mixed-use projects, the standards set forth in Table 1A shall apply.

Table 1A HEOZ Development Standards for “By Right” Residential Development General Plan
Land Use
Designation
Zoning Minimum Yards Maximum
Lot
Coverage
Maximum
Floor Area
Ratio (FAR)
Maximum
Height
Limit (ft)
Density
Units Per Acre
High Density
Residential
R-M As authorized by
Section 29.40.645
75% N/A 45 feet 30-40
Mixed-Use CH As authorized by
Section 29.60.435
N/A 3.0 45 feet 30-40
North Forty
Specific Plan
NF-SP As defined in
Specific Plan
As defined
in Specific
Plan
As defined
in Specific
Plan
As defined
in Specific
Plan
30-40
(b) For all other residential developments other than those described in subsection (a), the standards set forth in Table 1B below shall apply.

Table 1B HEOZ Development Standards for Other Residential Development General Plan
Land Use
Designation
Zoning Minimum Yards Maximum
Lot
Coverage
Maximum
Floor Area
Ratio (FAR)
Maximum
Height
Limit (ft)
Density
Units Per Acre
Low Density
Residential
R-1 As authorized by
Section 29.40.405
50% N/A 30 feet 0-5
Medium Density
Residential
R-1D, R-D,
and R-M
As authorized by
Section 29.40.405,

29.40.530, and

29.40.645
75% N/A 35 feet 14-22 or 5-12
in Very High
Fire Hazard
Severity Zones
Neighborhood
Commercial
C-1 As authorized by
Section 29.60.225
N/A 1.0 35 feet 10-20

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Central Business
District
C-2 As authorized by
Section 29.60.335
N/A 2.0 45 feet 20-30
Office
Professional
O As authorized by
Section 29.60.100
N/A 1.0 35 feet 10-20
(c) The underlying zoning development standards will remain in effect for all other development without a residential component.
(d) Regardless of the underlying zoning designation, no residential use may be developed that does not meet the applicable HEOZ development standards. (e) Where standards are not specified, the development standards provided in the underlying zoning district shall apply.

SECTION III. CEQA.

The Town Council finds as follows:

A. No further Environmental Analysis is required as an Environmental Impact Report (EIR) was prepared and certified for the 2040 General Plan Update on June 30, 2022, which included the proposed Town Code amendments; and
B. The Town Code amendments are consistent with the General Plan and its elements; and C. That all proceedings have been conducted in compliance with the provisions of Government Code Section 65850 et seq.

SECTION IV. EFFECTIVE DATE.

This Ordinance was introduced at a regular meeting of the Town Council of the Town of Los Gatos on the 20th day of February 2024, and adopted by the following vote as an ordinance of the Town of Los Gatos at a regular meeting of the Town Council of the Town of Los Gatos on the ____ day of ___________, 2024. This ordinance shall take effect 30 days after the date it is adopted. The Town Clerk shall cause this ordinance or a summary thereof to be published in accordance with Section 36933 of the California Government Code.

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COUNCIL MEMBERS:

AYES:

NAYS:

ABSENT:

ABSTAIN:

SIGNED:

MAYOR OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: __________________
ATTEST:

TOWN CLERK OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: ________________

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PREPARED BY: Jocelyn Shoopman and Erin Walters
Associate Planner and Associate Planner
Reviewed by: Community Development Director, Planning Manager, and Town Attorney 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6872 www.losgatosca.gov

TOWN OF LOS GATOS

PLANNING COMMISSION
REPORT
MEETING DATE: 01/24/2024
ITEM NO: 3
DATE: January 19, 2024
TO: Planning Commission
FROM: Joel Paulson, Community Development Director
SUBJECT: Consider a Request to Further Amend Chapter 29 of the Town Code to Define “By Right Approvals” and Amend the Housing Element Overlay Zone as Division 5 of Article VIII, “Overlay Zones and Historic Preservation.” An Environmental Impact Report (EIR) was Prepared and Certified for the 2040 General Plan Update on June 30, 2022. No further Environmental Analysis is Required. Zoning Code Amendment Application Z-24-001. Project Location:

Town Wide. Applicant: Town of Los Gatos.

RECOMMENDATION:

Forward a recommendation of approval to the Town Council to further amend Chapter 29 of the Town Code to define “By Right Approvals” and amend the Housing Element Overlay Zone (HEOZ) as Division 5 of Article VIII, “Overlay Zones and Historic Preservation.” BACKGROUND:

The Town of Los Gatos is required to prepare an updated Housing Element for the period covering 2023-2031 that is certified by the State Housing Community Development Department (HCD). The Housing Element is one of nine State-mandated elements that must be included in every General Plan. The Housing Element assesses housing needs for all income groups within the community and identifies implementation programs to meet those housing needs. Unlike other General Plan elements, the Housing Element must be updated every eight years, rather than every 10 to 20 years, must address statutory requirements regarding its content, and is subject to mandatory review by HCD. The Town’s Regional Housing Needs Allocation (RHNA) for the sixth cycle planning period is 1,993 units.

The Town of Los Gatos 2023-2031 Housing Element identifies amending the Town Code to create the HEOZ as a strategy to accommodate the Town’s Regional Housing Needs Allocation (RHNA).

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SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: January 19, 2024
BACKGROUND (continued):

On August 23, 2023, the Planning Commission reviewed the proposed Town Code amendments, held a public hearing, and forwarded a recommendation of approval to the Town Council to modify the Affordable Housing Overlay Zone (AHOZ) to be the HEOZ.

On October 3, 2023, the Town Council accepted the report of the Planning Commission’s recommendation of approval for the proposed Town Code amendment and held a public hearing.

On November 7, 2023, the Town Council, reviewed the proposed Town Code amendments, held a public hearing, and introduced the ordinance to amend the Town Code.

On November 21, 2023, the Town Council adopted Ordinance No. 2347 to enact the proposed Town Code amendments (Exhibit 1).

On December 1, 2023, the Town received the HCD findings/comment letter on the Town’s Draft Revised Housing Element as submitted to HCD, including a cursory review of the adopted HEOZ ordinance. The letter is available on the Town’s Housing Element webpage:
https://www.losgatosca.gov/HousingElement
DISCUSSION:

A. Zoning Amendments
The Town has received comments from HCD requiring amendments to the Town’s adopted HEOZ ordinance to include by right approval requirements pursuant to Government Code section 65583.2, subdivision (h) and (i), as well as the minimum density requirements of Government Code section 65583.2, subdivision (h).

B. Add “By Right Approval” Definition
The definition of “By Right Approval” below will be added to Section 29.10.2020, “Definitions,” of Chapter 29, “Zoning Code Regulations,” of the Town Code:

By right approval shall have the meaning set forth in Government Code Section 65583.2 (i).

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SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: January 19, 2024
DISCUSSION (continued):

Government Code Section 65583.2 (i) defines “By Right Approval” as the following:

For purposes of this section and Section 65583, the phrase "use by right" shall mean that the local government's review of the owner-occupied or multifamily residential use may not require a conditional use permit, planned unit development permit, or other discretionary local government review or approval that would constitute a "project" for purposes of Division 13 (commencing with Section 21000) of the Public Resources Code. Any subdivision of the sites shall be subject to all laws, including, but not limited to, the local government ordinance implementing the Subdivision Map Act. A local ordinance may provide that "use by right" does not exempt the use from design review. However, that design review shall not constitute a "project" for purposes of Division 13 (commencing with Section 21000) of the Public Resources Code. Use by right for all rental multifamily residential housing shall be provided in accordance with subdivision (f) of Section 65589.5.

C. Provide Additional Specification on Residential Development in the HEOZ Division 5 of Article VIII, “Overlay Zones and Historic Preservation,” of Chapter 29, “Zoning Regulations,” is amended to provide clarification on what regulations apply to “by right” and “non by right” residential development in the HEOZ.

Specification includes the following for “by right” developments:
• Residential developments on sites with underlying zoning of RM, CH, or NF-SP with at least 20 percent of the units proposed for “low income” households and without a subdivision are subject to “by right approval.”
• The developments must be developed at the densities specified in Table 1A below and in no event shall any residential development projects be developed below the minimum density of 30 units per acre.
• The developments shall be subject to non-discretionary design review based on objective development standards in accordance with the procedures specified in Article II, "Administration and Enforcement,” of Chapter 29, “Zoning Regulations,” of the Town Code.
• No California Environmental Quality Act review shall be required. • Subdivisions remain subject to all applicable state and local laws, including but not limited to the Subdivision Map Act.
• Residential units shall occupy at least 50 percent of the floor area in all mixed-use projects.
• For residential developments and mixed-use projects, the standards set forth in Table 1A shall apply.

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SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: January 19, 2024
DISCUSSION (continued):

Table 1A HEOZ Development Standards for “By Right” Residential Development General Plan
Land Use
Designation
Zoning Minimum Yards Maximum
Lot
Coverage
Maximum
Floor Area
Ratio (FAR)
Maximum
Height
Limit (ft)
Density
Units Per
Acre
High Density
Residential
R-M As authorized by
Section 29.40.645
75% N/A 45 feet 30-40
Mixed-Use CH As authorized by
Section 29.60.435
N/A 3.0 45 feet 30-40
North Forty
Specific Plan
NF-SP As defined in
Specific Plan
As defined
in Specific
Plan
As defined
in Specific
Plan
As defined
in Specific
Plan
30-40
Specification includes the following for all other residential developments include the standards in Table 1B:

Table 1B HEOZ Development Standards for Other Residential Development General Plan
Land Use
Designation
Zoning Minimum Yards Maximum
Lot
Coverage
Maximum
Floor Area
Ratio (FAR)
Maximum
Height
Limit (ft)
Density
Units Per Acre
Low Density
Residential
R-1 As authorized by
Section 29.40.405
50% N/A 30 feet 0-5
Medium
Density
Residential
R-1D, R-D,
and R-M
As authorized by
Section 29.40.405,

29.40.530, and

29.40.645
75% N/A 35 feet 14-22 or 5-12
in Very High
Fire Hazard
Severity Zones
Neighborhood
Commercial
C-1 As authorized by
Section 29.60.225
N/A 1.0 35 feet 10-20
Central
Business
District
C-2 As authorized by
Section 29.60.335
N/A 2.0 45 feet 20-30
Office
Professional
O As authorized by
Section 29.60.100
N/A 1.0 35 feet 10-20
Specification includes the following for all residential developments, both “by right” and “non by right”:
• The underlying zoning development standards will remain in effect for all other development without a residential component.
• Regardless of the underlying zoning designation, no residential use may be developed that does not meet the applicable HEOZ development standards. • Where standards are not specified, the development standards provided in the underlying zoning district shall apply.

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SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: January 19, 2024
DISCUSSION (continued):

D. Next Steps
The Town Council will consider the proposed HEOZ Town Code amendments at a future date.

PUBLIC COMMENTS:

Public notification has included a legal ad in the paper. The meeting has also been publicized on the Town’s website and through the Town’s social media platforms. As of the drafting of this report, no comments from the public have been received.

CONCLUSION:

A. Summary
Consider a request for approval to further amend Chapter 29 of the Town Code to Define “By Right Approvals” and amend the HEOZ as Division 5 of Article VIII, “Overlay Zones and Historic Preservation.”
B. Recommendation
Based on the analysis above, staff recommends that the Planning Commission consider the Town Code amendments and forward a recommendation for approval of the amendments to the Town Council (Exhibit 2).

C. Alternatives
Alternatively, the Planning Commission can:

1. Continue the matter to a date certain with specific direction; or

2. Provide a recommendation for denial to the Town Council providing findings for denial.

EXHIBITS:

1. Adopted Ordinance 2347

2. Draft Ordinance

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A P P E A R A N C E S:

Los Gatos Planning
Commissioners:

Steve Raspe, Chair
Emily Thomas, Vice Chair
Susan Burnett
Melanie Hanssen
Kathryn Janoff
Adam Mayer
Town Manager: Laurel Prevetti
Community Development
Director:

Joel Paulson
Town Attorney: Gabrielle Whelan
Transcribed by: Vicki L. Blandin
(619) 541-3405
ATTACHMENT 4

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P R O C E E D I N G S:

CHAIR RASPE: We now move to the public portion
of the hearing tonight, and tonight we have a single item on the agenda, a request to further amend Chapter 29 of the Town Code to define “By Right Approvals,” and amend the Housing Element Overlay Zone as Division 5 of Article VIII, “Overlay Zones and Historic Preservation.” An Environmental Impact Report was prepared and certified for the 2040
General Plan Update on June 30, 2022. As a result, no
further environmental analysis is required.

Tonight I believe our Staff Report is from Ms.

Walters. Ms. Walters, would you like to proceed?
ERIN WALTERS: Yes, good evening, Chair and
Planning Commissioners.

Before you tonight is an amendment to the Housing
Element Overlay Zone Ordinance, also known as the HEOZ
Ordinance. On November 21st of last year the Town Council adopted the original HEOZ Ordinance as recommended by
Planning Commission, and this can be found in Exhibit 1.

Tonight’s amendment is in response to HCD’s
comments received by the Town on December 1st. The amended ordinance does not change the density minimum or maximum,

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it does not propose to modify sites with the HEOZ Overlay, but rather the proposed amendment provides more clear and explicit language. The Town’s outside legal counsel,
housing consultant, and HCD have reviewed this language.

The proposed amended ordinance in Exhibit 2
includes a definition of “by right approval” by the State government code. It also provides clarification on
regulations that apply to by right and non-by right
residential development, which is an HEOZ overlay.

Planning Commission recommendation tonight will
be forwarded to Town Council. Tentatively the Council will hear this item on February 20th, and the second reading is tentative for March 5th.

This concludes Staff’s presentation. Staff is
available for questions.

CHAIR RASPE: Thank you, Ms. Walters.

Commissioners, any questions for Staff on this item?
Commissioner Hanssen.

COMMISSIONER HANSSEN: Since we have gone through
plenty of reviews with HCD, you did mention that this
proposed change in language has been reviewed by outside legal, our consultants, and HCD, so you know what my next question is going to be. We shouldn’t have any issue with getting this through HCD this time. They did flag that we

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had not met the requirements for the rezoning, and so this will take us there and we don’t have anything left?
ERIN WALTERS: That would be our hope per their
review and our guidance from outside counsel.

COMMISSIONER HANSSEN: But they actually reviewed
this section of what changes and they said it looks okay? ATTORNEY WHELAN: They have. Yes, they did. This
is Gabrielle Whelen, Town Attorney. They reviewed the
ordinance over the past several weeks. They did have some questions for Staff on Monday and we responded to those questions, and I believe it meets their requirements.

COMMISSIONER HANSSEN: Okay, thank you.

CHAIR RASPE: Thank you. Any other questions from
Commissioners? Commissioner Janoff.

COMMISSIONER JANOFF: Thank you. Since you met
with HCD on Monday, or had feedback on Monday, and we
received our packages on Friday, did the feedback from HCD offer any substantial changes to what you had offered?
ATTORNEY WHELAN: No, they wanted to see
explicitly where it is stated that any residential
development must comply with the minimum densities that are set forth in the ordinance, and so we provided that. I
can’t remember their other questions. They had like two

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other questions. It was mostly they wanted to know where specifically in the ordinance requirements were located.

JENNIFER ARMER: I can jump in through the Chair
to provide additional clarification. We shared this draft of the ordinance with HCD and with our reviewer on Friday at the same time that we provide you with the Staff Report, and we heard from them on Monday with a few clarifying
questions.

It seemed clear that they were just confirming
that certain things were in there, for example, the fact that you can’t use the underlying zone, which might have a lower density, but that you would need to meet the minimum density in the Housing Element Overlay Zone, and so it was just confirming that those were located within, and we
received acknowledgement of our responses.

CHAIR RASPE: Thank you so much. Any further
questions, Commissioners? I have just one, and correct me if I’m wrong. This appears to me to be a largely technical correction for some language to be included. Is it correct that this does not impact our RHNA allocation numbers?
ERIN WALTERS: That’s correct, that does not
change.

CHAIR RASPE: I appreciate the confirmation.

Thank you. Commissioners, anything else? Let’s then go to

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members of our public for their comments. I have two cards tonight. Lee Fagot, if you’d please come to the podium and state your name for the record. You have three minutes.

LEE FAGOT: Good evening, thank you. Appreciate
the opportunity to speak tonight. Lee Fagot, a resident of Los Gatos. I’m not representing any group; I’m speaking as an individual long-term resident of the Town.

I appreciate the clarification tonight from the
feedback that occurred Monday that was discussed as well earlier this week by Council.

My concern is that we must preserve the historic
parts of our town, because that is the history of this
town, that is the legacy, and that is what our next
generations want to be able to relate to; that link is
critical. If there is a way to go forward and continue to preserve and still meet the RHNA allocation requirements of numbers of sites, please find a way to do that.

The other question I had was going to be did you
consider input from HCD from this week, but I just heard you do that.

Again, thanks for all the work that you’ve been
doing. It’s been a lot of effort, a lot of work, and the citizens appreciate it. You are representing us, the
citizens in town going forward, and preserving the

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character of our town. The heritage that we inherited needs to be passed on, so please do what you can to preserve the Historic District and those sites with the design elements, the height, and densities that are appropriate.

Seeing Victorian homes with five-story monoliths
next to them, as we’ve seen in some other municipalities, is not Los Gatos, and we can’t let the clowns in Sacramento begin telling us how we’re supposed to live our lives here.

Let’s be folks who take control of our lives here locally and manage it as best we can through this process and their edicts that are coming down. Thank you.

CHAIR RASPE: Thank you, Mr. Fagot. Before you
sit down, do any Commissioners have any questions? No.

Thank you, again, for your comments. Lee Quintana, please, if you would approach.

LEE QUINTANA: I was going to ask the question
also whether this had been reviewed by HCD, and I guess that’s been answered, but I do have some questions.

The first question I have is I’m somewhat
confused by the 1-A, which is, “Developments must be
developed within the densities of Table 1-A below.” Is it “within” the densities, or “at” the densities?
It says in one place as long as there is no
subdivision, I believe, and then in another place it

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indicates that subdivisions may be applicable. “Subdivision remains subject to all the applicable state and local laws, including but not including the Subdivision Act,” so I was a little confused about that.

If you could refresh my memory, are there any
medium-density sites within the AHOZ zone? My concern there is most medium-density sites in the downtown area are
either on very small lots so they can’t be developed into larger homes, or they are pre-1941, or they are within an historic district, so I just wanted clarity on that.

The other thing I wanted clarity on is whether or
not all of the AHOZ zones currently have a General Plan designation and a zoning designation that are consistent with one another, because along the Boulevard I’m not sure they are. Those are my major questions.

CHAIR RASPE: Thank you, Ms. Quintana. Before you
sit down, any Commissioners have questions of Ms. Quintana? Seeing none, thank you again for your comments. I think that’s all the public comments we have here in the
chambers. Mr. Paulson, anybody on Zoom wishing to speak on this matter?
JOEL PAULSON: No, there are no speakers on Zoom.

CHAIR RASPE: Thank you. I’ll then close the
public portion of this matter and I’ll open up the

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Commission to discussion, questions of Staff, anything
further. Commissioner Burnett.

COMMISSIONER BURNETT: Thank you to the two Lees
for your questions. My question would be for Staff. Would you be able to addresses Ms. Quintana’s two questions?
ATTORNEY WHELAN: I can address the first two
questions.

COMMISSIONER BURNETT: Thank you.

CHAIR RASPE: Please proceed.

ATTORNEY WHELAN: As written, the ordinance said
that developments must be developed at the density
specified in Table 1-A, but those densities are ranges.

I think it’s clear as it is, but if the Planning
Commission feels that it would be clearer to say “within the density ranges specified in Table 1-A below,” I’d be open to making that change pending input from CDD.

The second question was about subdivisions. The
first part of the ordinance where subdivisions are
referenced is intended to say that, “Projects requiring subdivisions will not be by right projects,” and then the second reference to subdivisions in the ordinance is
intended to say that, “Subdivisions will remain subject to all other applicable laws,” which is another way of saying

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that subdivisions won’t be by right development, and so that was our intent with the drafting.

CHAIR RASPE: Commissioner Burnett, does that
answer your question?
COMMISSIONER BURNETT: Yes, thank you.

CHAIR RASPE: Thank you. Commissioner Hanssen.

COMMISSIONER HANSSEN: I thought it would be
worth asking the question about the timing of this since we had a lot of Builder’s Remedy applications. When this
actually takes effect, we do have some sites that are
contained within the site inventory where we’ve already had a proposal from someone to develop then, and so I’m pretty sure that this won’t apply to them because of the timing of their application, but I thought it was worth asking that question, and then I have a follow up question.

JENNIFER ARMER: Thank you for that question.

Yes, for those that have already had their preliminary
application deemed submitted, those vest the regulations at that time, and so any that were deemed submitted prior to December 21, 2023 but then had the overlay zone applied would be developed under the previous zoning.

If though, through the development process or
decisions by the Applicant, that vesting is lapsed so they don’t meet the State regulations or they choose to change

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Amendment to Housing Element Overlay Zone
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the project by more than 20% for floor area or number of units, then they would need to restart and it would be
newly vested, and therefore they would then be subject to the Housing Element Overlay Zone regulations.

This really is being more explicit about what we
already were referencing and had in place with the Housing Element Overlay Zone, so it’s stronger, more defensible, and follows the direction from the State, but does not
substantially change anything, because the numbers in the table are still the same.

COMMISSIONER HANSSEN: Thank you; that was very
helpful. Related to that, would it also be true that since they filed it and they are vesting with the zoning that was there at the time that they are not eligible for by right unless they came in under some other provision like it was provided for in SB 330?
JENNIFER ARMER: If I understand the question
correctly, if we’re talking about a site that then has been rezoned in order to provide affordable units in our sites inventory, but that rezoning occurred after the vesting of the regulations, your question is are those by right as described in here? I will defer to the Town Attorney to see if she has thoughts on that question.

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Amendment to Housing Element Overlay Zone
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ATTORNEY WHELAN: I probably don’t have an answer
for the Planning Commission tonight. What I can do is
follow up with a memo.

COMMISSIONER HANSSEN: Okay. I think that would
be really helpful to understand, especially since we have a number of applications out there.

One last question, if the Chair doesn’t mind, and
this is for the benefit of people watching or trying to understand this. When it’s by right, if they meet the 20% affordable, what by right means is that they do have to live within our objective standards within our zoning, but there is no discretionary review if it doesn’t seem
compatible with the neighborhood as long as it meets the objective standards in our Zoning Code. Is that how you see by right?
ATTORNEY WHELAN: Yes, the two big impacts are
they’re subject only to objective design review, and there is no analysis under CEQA.

COMMISSIONER HANSSEN: So if people don’t like
the architecture or something else, that’s not something that we have purview over once it becomes by right?
ATTORNEY WHELAN: So long as it meets the Town’s
objective design standards, that’s correct, and then there

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Amendment to Housing Element Overlay Zone
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would be no opportunity to evaluate the aesthetics under CEQA.

COMMISSIONER HANSSEN: Okay, thank you.

CHAIR RASPE: Thank you for those answers.

Commissioners, any further questions for Staff? Vice Chair Thomas.

VICE CHAIR THOMAS: Thank you. I did just want to
follow up with a question regarding the densities versus at the density ranges. When I read this I assumed that was within the… I understand why it’s not within, because that would intend lower ranges also, but I guess I’m asking the Community Development Director, do you feel like what
language is most helpful for Staff?
JOEL PAULSON: I would say that Staff doesn’t
have a preference. The Town Attorney has offered that if you want to make that change she’s comfortable with that, so we would be comfortable with it as well.

VICE CHAIR THOMAS: Okay. I don’t have a huge
opinion either way, but I’m also not a developer person that’s going to be reading this.

CHAIR RASPE: Commissioner Janoff.

COMMISSIONER JANOFF: I would only say that
because it’s a range I would suggest that we use the word “within.”

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LOS GATOS PLANNING COMMISSION 1/24/2024, Item #3,
Amendments to Town Code re: By Right Approvals,
Amendment to Housing Element Overlay Zone
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CHAIR RASPE: Very good. Commissioners, any
further questions or comments? If not, I’m willing to
entertain a motion at this time. Further comment from the Vice Chair.

VICE CHAIR THOMAS: This is a question for the
Town Attorney. What language would you be comfortable
changing to?
ATTORNEY WHELAN: I think another alternative
would be, and this is pending acceptance by CDD, “The
developments must be developed within the density ranges specified in Table 1-A below.”
VICE CHAIR THOMAS: Okay.

JENNIFER ARMER: That’s acceptable to us.

CHAIR RASPE: Thank you. Commissioner Hanssen.

COMMISSIONER HANSSEN: I just wanted to weigh in
and say that it feels clearer to me to use the word
“within” than “at,” but that could just be me.

CHAIR RASPE: Thank you, and with that
clarification, is the Commission ready to proceed with this matter? I can give a crack at the motion, seeing no other takers.

I move to recommend to Town Council to further
amend Chapter 29 of the Town Code to define “By Right
Approvals,” and amend the Housing Element Overlay Zone as

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Amendment to Housing Element Overlay Zone
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Division 5, Article VIII, “Overlay Zones and Historic
Preservations,” containing the language as provided to the Planning Commission in the Staff Report with the singular change suggested by Town Counsel, substituting the “within” language as opposed to the “at” language. Making all
necessary findings. Commissioner Hanssen.

COMMISSIONER HANSSEN: I second the motion.

CHAIR RASPE: Vice Chair Thomas.

VICE CHAIR THOMAS: I just wanted to say
explicitly amend the motion to contain Exhibit 2.

CHAIR RASPE: So amended. And the seconder?
COMMISSIONER HANSSEN: Yes.

CHAIR RASPE: Roll call or show of hands on this?
JENNIFER ARMER: Show of hands is fine.

CHAIR RASPE: So Commissioners, can I see a show
of hands of all those in favor of the motion? Being all in favor, none against, the motion passes unanimously. Thank you, Commissioners.
(END)

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PREPARED BY: Jocelyn Shoopman, Associate Planner,
Erin Walters, Associate Planner, and
Gabrielle Whelan, Town Attorney
Reviewed by: Town Manager, Community Development Director, Planning Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6872 www.losgatosca.gov

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024
ITEM NO: 12

DESK ITEM
DATE: February 20, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Approve a Recommendation of the Planning Commission to Introduce an Ordinance Titled “An Ordinance of the Town Council of the Town of Los Gatos Amending Chapter 29, ‘Zoning Regulations,’ of the Town Code to Define ‘By Right Approvals’ and Amend the Housing Element Overlay Zone (HEOZ), Division 5 of Article VIII, ‘Overlay Zones and Historic Preservation,’” to Clarify Regulations Applicable to “By Right” and “Non By Right” Residential Development in the Housing Element Overlay Zone. An Environmental Impact Report (EIR) was Prepared and Certified for the 2040 General Plan Update on June 30, 2022. No further Environmental Analysis is Required. Zoning Code Amendment Application Z-24-001. APPLICANT: Town of Los Gatos. PROJECT PLANNERS: Jocelyn Shoopman and Erin Walters.

REMARKS:

Based on State Housing and Community Development (HCD) Department feedback received last week by the City of Sunnyvale and the Town’s outside legal counsel, Goldfarb and Lipman LLP, further revisions have been made to the Draft Ordinance as found in Attachment 5 (redline). A proposed Ordinance for adoption with the recommended changes is attached as Attachment 6.

The revision includes removing the phrase “and without a subdivision” in the description of “by right” in Section 29.80.510 (a) and replacing subsection (a)(4) of Section 29.80.510 with the following:
“Any subdivision of sites in the HEOZ shall be subject to all laws, including, but not limited to, Chapter 24, “Subdivision Regulations,” and Sections 29.10.067-29.10.087 of the Town Code implementing the Subdivision Map Act.”

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PAGE 2 of 2
SUBJECT: Housing Element Overlay Zone/Z-24-001
DATE: February 20, 2024
REMARKS (continued):

In addition, a severability clause has been added to the Ordinance. This means that, if any portions of the Ordinance are ruled unlawful, the remaining portions will remain in effect.

Previously Received with the February 20, 2024 Report:

1. Ordinance 2347

2. Draft Ordinance

3. January 24, 2024, Planning Commission Staff Report with Exhibits 1-2

4. January 24, 2024, Planning Commission Verbatim Minutes Attachments Received with this Desk Item:

5. Revised Draft Ordinance – Redline

6. Revised Draft Ordinance for Adoption

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HEOZ Ordinance February 20, 2024

DRAFT ORDINANCE

ATTACHMENT 5

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HEOZ Ordinance February 20, 2024
and came before the Town Council on February 20, 2024.

By right approval shall have the meaning set forth in Government Code Section 65583.2 (i).

SECTION II. Division 5 of Article VIII, “Overlay Zones and Historic Preservation,” of Chapter 29, “Zoning Regulations,” is amended to read as follows:

ARTICLE VIII. OVERLAY ZONES AND HISTORIC PRESERVATION
…
DIVISION 5. HOUSING ELEMENT OVERLAY ZONE
Sec. 29.80.505. Intent.

Sec. 29.80.510. HEOZ and underlying zoning.
(a) “By right” residential developments on sites with underlying zoning of RM, CH, or NF-SP (Table 1A below). Pursuant to Government Code Section 65583.2, subsections (h) and (i), in the HEOZ, residential developments with at least 20 percent of the units proposed for “low income” households and without a subdivision are subject are subject to “by right approval.” These developments are subject to the following:

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HEOZ Ordinance February 20, 2024

3. No California Environmental Quality Act review shall be required.

4. Subdivisions remain subject to all applicable state and local laws, including but not limited to the Subdivision Map Act. Any subdivision of sites in the HEOZ shall be subject to all laws, including, but not limited to, Chapter 24, “Subdivision Regulations,” and Sections 29.10.067-29.10-087 of the Town Code implementing the Subdivision Map Act.

5. Residential units shall occupy at least 50 percent of the floor area in all mixed-use projects.

6. For residential developments and mixed-use projects, the standards set forth in Table 1A shall apply.

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HEOZ Ordinance February 20, 2024

29.40.530, and

29.40.645
Fire Hazard
Severity Zones
Neighborhood
Commercial
C-1 As authorized by
Section 29.60.225
N/A 1.0 35 feet 10-20
Central Business
District
C-2 As authorized by
Section 29.60.335
N/A 2.0 45 feet 20-30
Office
Professional
O As authorized by
Section 29.60.100
N/A 1.0 35 feet 10-20
(c) The underlying zoning development standards will remain in effect for all other development without a residential component.
(d) Regardless of the underlying zoning designation, no residential use may be developed that does not meet the applicable HEOZ development standards. (e) Where standards are not specified, the development standards provided in the underlying zoning district shall apply.

SECTION III. CEQA.

The Town Council finds as follows:

SECTION IV. EFFECTIVE DATE AND PUBLICATION.

SECTION V. SEVERABILITY.

In the event that a court of competent jurisdiction holds any Section, subsection, paragraph, sentence, clause, or phrase in this Ordinance unconstitutional, preempted, or otherwise invalid, the invalid portion shall be severed from this Ordinance and shall not affect

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HEOZ Ordinance February 20, 2024
the validity of the remaining portions of this Ordinance. The Town hereby declares that it would have adopted each Section, subsection, paragraph, sentence, clause, or phrase in this Ordinance irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses, or phrases in this Ordinance might be declared unconstitutional, preempted, or otherwise invalid.

COUNCIL MEMBERS:

AYES:

NAYS:

ABSENT:

ABSTAIN:

SIGNED:

MAYOR OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: __________________
ATTEST:

TOWN CLERK OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: ________________

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HEOZ Ordinance February 20, 2024

DRAFT ORDINANCE

ATTACHMENT 6

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HEOZ Ordinance February 20, 2024
and came before the Town Council on February 20, 2024.

By right approval shall have the meaning set forth in Government Code Section 65583.2 (i).

SECTION II. Division 5 of Article VIII, “Overlay Zones and Historic Preservation,” of Chapter 29, “Zoning Regulations,” is amended to read as follows:

ARTICLE VIII. OVERLAY ZONES AND HISTORIC PRESERVATION
…
DIVISION 5. HOUSING ELEMENT OVERLAY ZONE
Sec. 29.80.505. Intent.

Sec. 29.80.510. HEOZ and underlying zoning.
(a) “By right” residential developments on sites with underlying zoning of RM, CH, or NF-SP (Table 1A below). Pursuant to Government Code Section 65583.2, subsections (h) and (i), in the HEOZ, residential developments with at least 20 percent of the units proposed for “low income” households are subject to “by right approval.” These developments are subject to the following:

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HEOZ Ordinance February 20, 2024

1. The developments must be developed within the density ranges specified in Table 1A below and in no event shall any residential development projects be developed below the minimum density of 30 units per acre.

3. No California Environmental Quality Act review shall be required.

4. Any subdivision of sites in the HEOZ shall be subject to all laws, including, but not limited to, Chapter 24, “Subdivision Regulations,” and Sections 29.10.067-29.10-087 of the Town Code implementing the Subdivision Map Act.

5. Residential units shall occupy at least 50 percent of the floor area in all mixed-use projects.

6. For residential developments and mixed-use projects, the standards set forth in Table 1A shall apply.

29.40.530, and

29.40.645
75% N/A 35 feet 14-22 or 5-12
in Very High
Fire Hazard
Severity Zones

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HEOZ Ordinance February 20, 2024
Neighborhood
Commercial
C-1 As authorized by
Section 29.60.225
N/A 1.0 35 feet 10-20
Central Business
District
C-2 As authorized by
Section 29.60.335
N/A 2.0 45 feet 20-30
Office
Professional
O As authorized by
Section 29.60.100
N/A 1.0 35 feet 10-20
(c) The underlying zoning development standards will remain in effect for all other development without a residential component.
(d) Regardless of the underlying zoning designation, no residential use may be developed that does not meet the applicable HEOZ development standards. (e) Where standards are not specified, the development standards provided in the underlying zoning district shall apply.

SECTION III. CEQA.

The Town Council finds as follows:

SECTION IV. EFFECTIVE DATE AND PUBLICATION.

SECTION V. SEVERABILITY.

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HEOZ Ordinance February 20, 2024
would have adopted each Section, subsection, paragraph, sentence, clause, or phrase in this Ordinance irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses, or phrases in this Ordinance might be declared unconstitutional, preempted, or otherwise invalid.

COUNCIL MEMBERS:

AYES:

NAYS:

ABSENT:

ABSTAIN:

SIGNED:

MAYOR OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: __________________
ATTEST:

TOWN CLERK OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
DATE: ________________

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

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024
ITEM NO: 13
DATE: February 13, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2023:
a. Receive the FY 2023/24 Mid-Year Budget Report; and
b. Authorize Budget Adjustments as Recommended in the Mid-Year Budget Report
RECOMMENDATION:

Staff recommends that the Town Council take the following actions regarding the Mid-Year Budget Performance Report - July 1 - December 31, 2023:
a. Receive the FY 2023/24 Mid-Year Budget Report (Attachment 1); and b. Authorize budget adjustments as recommended in the Mid-Year Budget Report.

BACKGROUND:

The purposes of the Mid-Year Report (Attachment 1) are to provide the Town Council with a status of the adopted Fiscal Year (FY) 2023/24 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.

The Mid-Year Report dated February 13, 2024 (Attachment 1) contains a few modifications from the February 6, 2024 Report provided to the Finance Commission. The revised Report updates the Police Services discussion, adds the Program numbers to the Recommended Budget Adjustments, describes the Recommended Budget Adjustments in the Equipment Replacement Fund, and makes other minor edits.

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PAGE 2 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2023 DATE: February 13, 2024
BACKGROUND (continued):

Finance Commission Review
On February 12, 2024, the Finance Commission received the Mid-Year Report. The Commission did not discuss the report in detail due to time constraints and the fact that a majority of the Commissioners indicated that they did not get a chance to read the report. The Chairperson commented that his year-end estimates predict higher surpluses than indicated in the staff presentation.

DISCUSSION:

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 2023/24 reflect an anticipated $1.7 million surplus of operating revenues and planned use of reserves over expenditures after reserving 30% of Education Revenue Augmentation Fund (ERAF) and the required allocation to the Pension Trust Fund.

The primary drivers of the projected surplus are the increased revenue projection for property tax and the restoration of the garbage franchise fee to prior year levels.

General Fund Revenue Analysis
The current year-end projections expect increases in economically sensitive revenues such as property tax, and franchise fees; however, sales tax revenues, business license tax, and transient occupancy tax are trending lower than the Adopted Budget. Current year-end estimates project increases in interest, parking citation, engineering review, engineering permit collections. Pass-Through Revenue increases have matching expenditure increases in the Town’s affordable housing program. The combined recommended mid-year revenue adjustments total a net increase of approximately $2.1 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 about 47% 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, assuming that Town Council approves the

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PAGE 3 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2023 DATE: February 13, 2024
DISCUSSION (continued):
recommended budget adjustments. The analysis examines all expenditure line items; however, budget adjustments are only recommended in certain instances as outlined in the Report. The recommended General Fund mid-year expenditure adjustments total just over $0.8 million.

The FY 2023/24 Adjusted Budget includes a 4.6% vacancy factor. Staff continues to monitor each Department’s budget because while an overall Town-wide surplus is predicted due to higher projected revenues, the individual Departments’ current expenditure budgets may not be sufficient for the remainder of the year. If additional adjustments are needed during the current fiscal year, the Council would be asked to consider these future actions.

FY 2023/24 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 2023/24 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 current year revenues, and subtracts current year expenditures, resulting in an ending fund balance.

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 2024/25. Should any additional budget adjustments be necessary to balance operating revenue and expenditures prior to the FY 2023/24 close, Council would be asked to consider appropriate actions. The Draft FY 2024/25

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PAGE 4 OF 4
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2023 DATE: February 13, 2024
CONCLUSION AND NEXT STEPS (continued):

Operating and Capital Budgets will be available on April 22, 2024 with the Council’s budget hearing tentatively scheduled for May 21, 2024.

Staff recommends that the Town Council approve the proposed revenue and expenditure budget adjustments as described in Attachment 1. 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, 2023

2. Public Comments Received before 11:00 a.m. on February 15, 2024

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1 TOWN OF LOS GATOS

MID-YEAR BUDGET REPORT
JULY 1 - DECEMBER 31, 2023
February 13, 2024
FINANCIAL OVERVIEW AND EXECUTIVE SUMMARY: STATUS OF FY 2023/24

ADOPTED BUDGET
The purposes of the Mid-Year Report are to provide the Town Council with a status of the Adopted Fiscal Year (FY) 2023/24 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). Town Council will review these priorities on its February 13, 2024 Special Meeting.

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 2024/25 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 2024/25 Budget on May 21, 2024.

The prior fiscal year closed with approximately $4.1 million in surplus operating revenues, transfers in, and use of reserves over expenditures, transfers out, and reserve allocations. The General Fund balance was $29,528,304.

Current fiscal year-end projections for FY 2023/24 reflect an anticipated $1.7 million surplus of operating revenues and planned use of reserves over expenditures in addition to reserving 30% of ERAF and the proceeds to Pension Trust Fund.

ATTACHMENT 1

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3 As discussed in greater detail later in this Report, the primary drivers of the projected surplus are the increased revenue projection for property tax and the restoration of the garbage franchise fee to prior year levels.

On June 6, 2023, the Town Council balanced the budget with a 4.6% vacancy factor. Staff continues to monitor each Department budget because while overall Townwide savings are predicted due to higher projected revenues, the individual Departments’ current expenditure budgets may not be sufficient for the remainder of the year. Staff will recommend the necessary expenditure budget adjustments as needed.

Providing services to the community in this and future fiscal years will require a strong revenue performance of the Town’s economically sensitive revenues to offset continued projected cost increases. The FY 2024/25 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 with certain assumptions.

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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 2023/24 which includes comparison information from the prior year.

GENERAL FUND - KEY REVENUE ANALYSIS FY 2023/24
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, 2023. 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 sources for the Town and comprise approximately 42% of total Town General Fund estimated revenues for FY 2023/24. 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.

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

The current County estimate indicates $654,587 of more collections than the Adopted Budget. The increase is a combined effect of higher-than-expected Redevelopment Agency (RDA) Residual Apportionment, and Motor Vehicle in Lieu (VLF) Property, Excess Educational Revenue Augmentation Fund (ERAF) estimates and decrease in secured property tax estimates and in property transfer tax.

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 counties, 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 reserving 30% of the FY 2023/24 projected number due to an ongoing lawsuit between Santa Clara County and the State Controller Office and the State Controller’s audit findings on Marin County.

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 28% of budgeted totals. Based on current County projections, staff recommends a $654,587 increase in estimated General Property Tax and Motor Vehicle in Lieu Fee collections.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 4,785,479 $ 5,481,928 $ 5,761,081 $ 6,155,317 $ 6,446,869 Fiscal Year Total Actual Revenues $ 18,330,427 $ 19,878,834 $ 21,129,080 $ 22,743,088 Fiscal Year Total Estimated Revenues $ 23,903,898
Fiscal Year Budgeted Revenues $ 18,352,880 $ 18,705,325 $ 20,138,320 $ 22,484,118 $ 23,249,311 2nd Quarter Percent of Total 26% 28% 27% 27% 28%
Recommended Budget Revision $ 654,587
$-
$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
$24,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Property Tax and VLF - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Yea r Tota l Actua l Revenues Fi sca l Yea r Budg eted Revenues Fi sca l Yea r Tota l Estima ted Revenues

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6 Sales Tax
Sales tax is the second largest revenue source for the Town’s General Fund, accounting for 15% of budgeted General Fund projected revenues for FY 2023/24. 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 $6,960,850 (a $915,383 decrease from the Adopted Budget) in proceeds from regular sales tax and $1,239,843 (a $36,802 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 at 50% for capital improvement projects and 50% for operating expenses.

While FY 2023/24 second quarter receipts are trending lower than in the same period last fiscal year, staff recommends a $952,185 budget decrease to reflect the MuniServices current estimates.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 2,755,208 $ 2,813,652 $ 2,556,341 $ 2,825,421 $ 2,665,060 Fiscal Year Total Actual Revenues $ 7,531,425 $ 7,933,604 $ 8,483,673 $ 8,806,477 Fiscal Year Total Estimated Revenues $ 8,200,693
Fiscal Year Budgeted Revenues $ 8,723,000 $ 7,301,869 $ 8,671,606 $ 8,959,134 $ 9,152,878 2nd Quarter Percent of Total 37% 35% 30% 32% 29%
Recommended Budget Revision $ (952,185)
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Sales Tax & Measure G Tax - Quarterly and Annual
Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Yea r Tota l Actua l Revenues Fi sca l Yea r Budg eted Revenues Fi sca l Y ea r Tota l E stima ted Revenues

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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 6% of projected General Fund revenues in FY 2023/24.

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 2023/24.

As the Town previously disclosed 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.” The Town anticipated the impact starting on March 1, 2024, when the new garbage hauler contract goes into effect and reduced the Adopted Budget accordingly. The Town has a seat on the West Valley Solid Waste Management Authority (WVSWMA) Board that manages the solid waste contracts. The WVSWMA recently completed a Franchise Valuation Study that indicated that prior level of proceeds will be restored. Staff is recommending a $1,097,703 increase in garbage franchise fee collection to restore the prior year levels of proceeds, and a $94,530 increase in the PG&E Franchise Fee collection.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 864,849 $ 807,833 $ 968,181 $ 1,044,055 $ 1,079,717 Fiscal Year Total Actual Revenues $ 2,495,792 $ 2,499,463 $ 2,822,515 $ 3,074,624 Fiscal Year Total Estimated Revenues $ 3,308,703
Fiscal Year Budgeted Revenues $ 2,458,520 $ 2,532,289 $ 2,514,020 $ 2,716,470 $ 2,116,470 2nd Quarter Revenue Percent of Total 35% 32% 34% 34% 33% Recommended Budget Revision $ 1,192,233
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Franhise Fees - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actua l Revenues Fisca l Year Tota l Actual Revenues Fisca l Year Budgeted Revenues Fisca l Year Tota l Estimated Revenues

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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 was 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 reactivation of late business license penalties for all businesses in 2024 that was previously omitted due to pandemic and to assist with the business license management transition.

Business license tax revenue projections provided by HdL are trending slightly lower than the adopted budget. Staff is recommending a $11,347 decrease 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 19/20 FY 20/21 FY 21/22 FY 22/23
2nd Quarter Actual Revenues $ 60,500 $ 224,388 $ 167,942 $ 97,974 $ 352,611** Fiscal Year Total Actual Revenues $ 1,357,080 $ 1,386,943 $ 1,481,667 $ 2,361,862 Fiscal Year Total Estimated Revenues $ 2,429,419
Fiscal Year Budgeted Revenues $ 1,400,000 $ 1,300,000 $ 1,425,000 $ 2,310,110 $ 2,440,766 2nd Quarter Revenue Percent of Total 53% 53% 59% 4% 15% Recommended Budget Revision $ (11,347)
FY 23/24
$-
$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 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Business License Tax - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Yea r Tota l Actua l Revenues Fi sca l Yea r Budg eted Revenues Fi sca l Yea r Tota l Estima ted Revenues

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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 $2.3 million for FY 2023/24. 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% during the November 8, 2016 election.

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, TOT collections were recovering but current quarter is trending lower than the prior year. Based on the current trend, staff is recommending a $154,516 decrease to this revenue source.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 910,806 $ 399,620 $ 711,861 $ 875,715 $ 819,683 Fiscal Year Total Actual Revenues $ 1,869,685 $ 1,044,820 $ 1,895,064 $ 2,228,190 Fiscal Year Total Estimated Revenues $ 2,264,484
Fiscal Year Budgeted Revenues $ 2,850,285 $ 707,723 $ 1,475,000 $ 2,348,547 $ 2,419,000 2nd Quarter Revenue Percent of Total 49% 38% 38% 39% 34% Recommended Budget Revision $ (154,516)
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
TOT - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Y ea r Tota l Actua l Revenues Fi sca l Yea r Budg eted Revenues Fi sca l Yea r Tota l Estima ted Revenues

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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, 2023, the Town’s weighted portfolio yield for investments under management was

4.23% which was 30 basis points above the Local Agency Investment Fund (LAIF) yield of 3.93% for the same reporting period. Currently, the LAIF portfolio’s weighted average maturity (WAM) is 230 days versus the Town’s longer WAM of 587 days. The longer maturity (WAM) for Town assets under management reflects the Town’s strategy to take advantage of higher yields associated with longer maturities balanced with shorter term yields available on investments held with the State’s LAIF. The Town’s weighted average rate of return on investments under management of 4.23% at the close of December was 3 basis points higher when compared to the prior month’s return of 4.20% reported as of November 30, 2023.

Based on current interest rate environment and the Town portfolio, staff recommends a $532,033 revenue budget increase to this revenue source.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 482,517 $ 343,813 $ 227,164 $ 145,003 $ 235,922 Fiscal Year Total Actual Revenues $1,173,570 $ 876,460 $ 610,975 $ 602,592 Fiscal Year Total Estimated Revenues $ 1,567,130
Fiscal Year Budgeted Revenues $ 739,774 $ 626,409 $ 441,233 $ 670,021 $ 1,035,097 2nd Quarter Revenue Percent of Total 41% 39% 37% 24% 23% Recommended Budget Revision $ 532,033
* GASB 31 Market Adjustment is not Included
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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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 higher 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 items in this category. Staff recommends a $199,547 budget increase in selected items to reflect increased activities in planning and engineering services as explained in the Budget Adjustment section of this Report.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 2,905,238 $ 3,258,027 $ 3,906,577 $ 3,284,766 $ 3,375,872 Fiscal Year Total Actual Revenues $ 4,373,603 $ 4,797,770 $ 5,310,271 $ 4,646,705 Fiscal Year Total Estimated Revenues $ 5,166,743
Fiscal Year Budgeted Revenues $ 4,416,250
2nd Quarter Revenue Percent of Total 66% 68% 74% 71% 65% Recommended Budget Revision $ 199,547
$-
$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 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Charges for Services - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Yea r Tota l Actua l Revenues Fi sca l Yea r Tota l Estima ted Revenues Fi sca l Yea r Tota l Estima ted Revenues

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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 2022/23 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 items in this category. Staff recommends a $337,425 increase in selected items in this category as explained in the next section of this Report.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
2nd Quarter Actual Revenues $ 1,692,252 $ 1,584,098 $ 3,373,287 $ 1,602,633 $ 1,726,270 Fiscal Year Total Actual Revenues $ 2,673,706 $ 1,984,400 $ 4,814,650 $ 3,268,498 Fiscal Year Total Estimated Revenues $ 3,239,593
Fiscal Year Budgeted Revenues $ 3,250,534 $ 2,889,898 $ 3,052,907 $ 2,830,574 $ 2,925,230 2nd Quarter Revenue Percent of Total 63% 80% 70% 49% 59% Recommended Budget Revision $ 337,425
$-
$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 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Licenses & Permits - Quarterly and Annual Revenues
5-Year History
2nd Quarter Actual Rev enues Fi sca l Yea r Tota l Actua l Revenues Fi sca l Yea r Tota l Estima ted Revenues Fi sca l Yea r Tota l Estima ted Revenues

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13 GENERAL FUND – EXPENDITURE ANALYSIS
For FY 2023/24, General Fund Operating expenditures (not including debt payment and transfers out) are programmed at $51.6 million. The delivery of Town services is highly dependent on talent which comprises 67.4% of budgeted General Fund expenditures for FY 2023/24. 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 individual Departments’ current expenditure budgets may not be sufficient for the remainder of the year. If needed, staff will recommend the necessary expenditure budget adjustments 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 48% of budgeted salaries, overtime is trending 98% respectively to the adopted budget, while pension benefits and other benefits are trending at 44% and 43% respectively to the Adjusted Budget.

The FY 2023/24 budget was balanced including 4.6% vacancy factor, while Council directed that staff continue to hire for all vacant positions. The 4.6% salary savings represents approximately $1.7 million projected savings. Current year end expenditure estimates include about $0.6 million salary savings Townwide. Fully staffed Departments are trending over budget due to the 4.6% vacancy factor that was built in. Staff will continue to monitor the Salaries and Benefits and request adjustment as needed to ensure that all programs remain within its allocated budget before Fiscal Year end. Actual vacancies during the course of the first half of fiscal year are illustrated in the table below.

General Fund Salaries & Benefits
FY 2022/23
Actuals
FY 2022/23
2Q
2Q % of FY
2022/23
Actuals
2Q% of FY
2023/24
Adjusted
Budget
FY 2023/24
2Q
FY 2023/24
Adjusted
Budget as of
12/31/2023
FY 2023/24
Estimated
Salaries 20,424,953 10,163,834 50% 48% 10,288,684 21,263,027 21,516,835 Overtime 1,373,672 639,179 47% 98% 564,876 578,856 1,174,026 Pension Benefits 7,091,215 3,493,382 49% 44% 3,652,570 8,237,154 7,313,256 Other Benefits 3,829,826 1,841,520 48% 43% 2,044,327 4,716,655 4,209,350 Total Salaries and Benefits 32,719,665 16,137,915 49% 48% 16,550,457 34,795,692 34,213,467 Position
Deputy Clerk Separation Filled
Emergency Manager - Temp Separation Filled
Finance Manager Promotion Filled
Assitant Town Manager Separation Filled Vacant Filled
Accountant Separation Filled Vacant Filled
Accountant Retirement Filled Vacant
HR Analyst Separation Filled Vacant Filled
HR Director Separation Vacant
Associate Planner Separation Vacant Filled
Permit Technician Separation Vacant
Assistant Planner Separation Vacant
Police Dispatcher Separation Vacant Filled
Police Dispatcher Separation Vacant Filled
Police Dispatcher Separation Vacant
Police Dispatcher Separation Vacant Filled Vacant Filled Police Officer Retirement Vacant
Police Officer Separation Filled
Police Corporal Separation Vacant Filled
Police Officer Promotion Vacant
Police Officer Separation Vacant
Police Officer Separation Vacant
Police Officer Separation Vacant Filled
Administrative Analyst Separation Vacant
Parks and Maintenance Worker Separation Vacant
Senior Civil Engineer Separation
Transp and Mob Manager Separation Vacant
Town Engineer Separation Vacant Filled
Associate Civil Engineer Separation Vacant
Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23

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14 The pie chart below represents the Departmental proportion of the Town’s 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 2023/24 Estimated figures also include analysis on potential salary and other expenditure savings; however, budget adjustments are only recommended as identified in this Report.

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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 higher than the same quarter in the prior year. Total estimated expenditures are also trending higher than budget due to the fact that this Department is fully staffed. Staff will monitor this program and request a budget adjustment, if necessary, before Fiscal Year end.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 112,711 $ 99,787 $ 91,800 $ 92,674 $ 94,408 Fiscal Year Total Actual Expenditures $ 206,163 $ 192,280 $ 189,569 $ 186,337 Fiscal Year Total Estimated Expenditure $ 193,212
Fiscal Year Budgeted Expenditures $ 240,605 $ 243,486 $ 202,891 $ 217,238 $ 184,395 Second Quarter Percentage of Total 55% 52% 48% 50% 51%
Recommended Budget Revision $ -
YOY Percentage Changes 0.13% -6.73% -1.41% -1.70% 3.69% 5-year Average Percentage Change -1.21%
$-
$100,000
$200,000
$300,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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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 43%. Staff recommends a $150,000 expenditure budget increase to provide additional legal support for the Department.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 296,424 $ 311,520 $ 226,377 $ 332,183 $ 336,063 Fiscal Year Total Actual Expenditures $ 559,010 $ 537,296 $ 629,935 $ 699,143 Fiscal Year Total Estimated Expenditure $ 904,041
Fiscal Year Budgeted Expenditures $ 628,793 $ 658,831 $ 669,733 $ 811,426 $ 777,508 Second Quarter Percentage of Total 53% 58% 36% 48% 43%
Recommended Budget Revision $ 150,000
YOY Percentage Changes -0.63% -3.88% 17.24% 10.99% 29.31% 5-year Average Percentage Change 10.60%
$-
$500,000
$1,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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 Page 231 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 higher compared to the same quarter expenditures in prior year. This program had some vacancies during the first half of the fiscal year including Accountant and HR Director positions. Staff estimates approximately $322,000 expenditure savings in this program. Savings are anticipated in mainly staff salaries and benefits, travel and training, and office supplies. Staff requests a total of $79,500 budget decrease combining a $20,500 operating budget expenditure increase offsetting with a $100,000 expenditure budget decrease in the ARPA Tracking Pass-Through expenditures, since funds were expended in the prior year.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 2,204,552 $ 2,467,813 $ 2,583,281 $ 2,435,224 $ 3,157,872 Fiscal Year Total Actual Expenditures $ 4,388,762 $ 4,730,360 $ 5,441,605 $ 5,302,277 Fiscal Year Total Estimated Expenditure $ 6,091,006
Fiscal Year Budgeted Expenditures $ 4,891,905 $ 5,055,847 $ 5,965,801 $ 5,759,393 $ 6,508,065 Second Quarter Percentage of Total 50% 52% 47% 46% 49%
Recommended Budget Revision $ (79,500)
YOY Percentage Changes 10.41% 7.78% 15.04% -2.56% 14.88% 5-year Average Percentage Change 9.11%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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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 higher than the same quarter expenditures in the 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 had limited vacancies during the first half of the fiscal year. In addition, staff recommends expenditure budget adjustments for maintenance and repair of an affordable housing unit in the amount of $66,000 that is offset with dedicated revenue. Staff also recommends an additional $3,500 budget adjustment for miscellaneous operating expenditures. Staff anticipates approximately $20,000 expenditure savings in this program. Staff will monitor this program and request an additional budget adjustment, if necessary, before Fiscal Year end.

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

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 2,245,767 $ 2,589,502 $ 3,460,301 $ 2,394,537 $ 2,559,684 Fiscal Year Total Actual Expenditures $ 4,473,790 $ 4,994,391 $ 6,313,505 $ 5,365,410 Fiscal Year Total Estimated Expenditure $ 5,410,008
Fiscal Year Budgeted Expenditures $ 5,760,099 $ 5,605,215 $ 5,461,716 $ 6,978,617 $ 5,430,624 Second Quarter Percentage of Total 50% 52% 55% 45% 47%
Recommended Budget Revision $ 70,418
YOY Percentage Changes -2.32% 11.64% 26.41% -15.02% 0.83% 5-year Average Percentage Change 4.31%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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 Page 233 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. The Police Department dedicated additional resources for ongoing recruitments for open positions. Whenever feasible, open positions are filled with trainees, per diems, and temporary employees until positions are filled, which contributes to increased costs. Staff recommends $380,143 expenditure budget increase to aid with recruitment services, additional temporary employee costs, mandated software support, and legal services as described in the Recommended Budget Adjustments. Total estimated expenditures are also trending higher than budget due to overtime related activities. Staff is monitoring this program and may request additional budget adjustments, if necessary, before Fiscal Year end.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 8,504,636 $ 9,041,998 $ 8,266,432 $ 8,957,541 $ 9,732,666 Fiscal Year Total Actual Expenditures $ 15,793,815 $ 16,570,836 $ 16,451,189 $ 18,446,040 Fiscal Year Total Estimated Expenditure $ 20,313,916
Fiscal Year Budgeted Expenditures $ 17,097,583 $ 17,487,761 $ 17,390,969 $ 19,331,331 $ 19,933,414 Second Quarter Percentage of Total 54% 55% 50% 49% 49%
Recommended Budget Revision $ 380,143
YOY Percentage Changes 5.35% 4.92% -0.72% 12.13% 10.13% 5-year Average Percentage Change 6.36%
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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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 several positions including Associate Engineer and Park and Maintenance Worker during the first half of the fiscal year. Staff is requesting the deletion of the hire-ahead one-time Lead Maintenance Worker position (approximately $200,000). Staff also is requesting restructuring a couple of positions to better align the Department needs and further ensure Capital Project delivery by defunding the Transportation Mobility Manager and Associate Engineer positions and adding positions for Engineering Planner and Senior Engineer, resulting in a total net addition of $23,875.

Total Estimated expenditures are also trending higher than budget due to the fact that the Department is utilizing temporary per diem employees as needed to fill vacancies. Staff recommends an expenditure budget decrease of $33,416 attributed to the additional contractual obligations combined with the restructuring and defunding the hire-ahead position. Staff will monitor this program and request an additional budget adjustment, if necessary, before Fiscal Year end.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 3,864,874 $ 4,185,306 $ 4,010,181 $ 4,215,979 $ 4,574,800 Fiscal Year Total Actual Expenditures $ 8,168,040 $ 8,179,757 $ 8,605,455 $ 8,998,082 Fiscal Year Total Estimated Expenditure $ 10,519,175
Fiscal Year Budgeted Expenditures $ 8,328,730 $ 8,209,850 $ 9,080,662 $ 10,368,194 $ 10,177,731 Second Quarter Percentage of Total 47% 51% 47% 47% 45%
Recommended Budget Revision $ (33,416)
YOY Percentage Changes 2.43% 0.14% 5.20% 4.56% 16.90%
5-year Average Percentage Change 5.85%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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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 higher than prior year same quarter expenditures.

Staff recommends a $23,200 budget increase for general collection and other miscellaneous operating expenditures as described in the following section. Total Estimated expenditures are also trending higher than budget due to the fact that this Department is fully staffed. Staff will monitor this program and request an additional budget adjustment, if necessary, before Fiscal Year end.

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
Second Quarter Actual Expenditures $ 1,404,285 $ 1,445,899 $ 1,365,415 $ 1,442,417 $ 1,671,000 Fiscal Year Total Actual Expenditures $ 2,700,802 $ 2,828,873 $ 2,752,401 $ 3,096,485 Fiscal Year Total Estimated Expenditure $ 3,263,710
Fiscal Year Budgeted Expenditures $ 2,960,784 $ 2,957,531 $ 3,062,708 $ 3,247,731 $ 3,194,842 Second Quarter Percentage of Total 52% 51% 50% 47% 52%
Recommended Budget Revision $ 23,200
YOY Percentage Changes 7.67% 4.74% -2.70% 12.50% 5.40%
5-year Average Percentage Change 5.52%
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24
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

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22 FY 2023/24 RECOMMENDED BUDGET ADJUSTMENTS
Budget adjustments are recommended for the following revenues and expenditures at the second quarter as described below:

FY 2023/24 MID-YEAR BUDGET ADJUSTMENT REQUESTS - GENERAL FUND Program Account
1201 411** Property Tax - Without ERAF $ 144,267 Based on Santa Clara County Property Tax Estimates 1201 41126 Excess ERAF 297,000 Based on Santa Clara County Property Tax Estimates 1201 41141 Motor Vehicle In Lieu Fee (VLF) 213,320 Based on Santa Clara County Property Tax Estimates 1201 41211 Sales & Use Tax (915,383) Based on MuniServices Most Likely January 2024 Sales 1221 41214 Measure G - District Sales Tax (36,802) Based on MuniServices Most Likely January 2024 Sales 1201 41311 Transient Occupancy Tax (156,472) Based on Past Receipts and Current Trend 1201 41612 PG&E Franchise Fee 94,530 Funds Anticipated
1201 41613 Garbage Franchise Fee 1,097,703 Funds Anticipated, Restore Prior Level 1301 44715 Attorney Services - Reimbursement 20,989 Funds Received 2101 44316 Leadership Los Gatos Participation Fee 3,450 Funds Received, Partially Matching Expenditures 2101 4351* Additional Grants for Unhoused Initiative 5,000 Funds Anticipated 2102 48219 ARPA Tracking Pass-Through Revenue (100,000) Funds Expended Prior Fiscal Year, Matching 2301 41411 Business License Tax (11,347) Funds Anticipated 2301 452** Interest 532,033 Funds Anticipated
3201 42413 Planning Permits 86,500 Funds Anticipated
3201 42414 Council Appeal Fees 3,000 Funds Anticipated
3301 44421 Plan Check Building (19,800) Funds are not Received 3401 45111 Code Complience - Admin Citation 7,500 Funds Anticipated 3501 45929 Affordable Hosuing Escrow Refund 85,000 Funds Received, Partially Matching Expenditure 4101 45411 Police Foundation Donation 33,000 Matching Expenditure 4202 43336 Prop 172 - Public Safety Sales Tax (40,100) Based on MuniServices Most Probable January 2024 4301 42616 Alarm Registration (5,500) Funds are not Received 4304 42611 Parking Permits (12,000) Funds are not Received 4304 45112 Online Parking Permit (7,500) Funds are not Received 4304 45126 Online Parking Ticket 150,000 Funds Anticipated 4304 45127 SCC Park Bail Collection 5,000 Funds Anticipated 4999 43409 Excess SLESF 43,079 Funds Anticipated
4999 45917 Opioid Settlement 10,422 Funds Anticipated
5101 45919 Metal Recyling 209 Funds Received
5201 49411 Street Paving Project Management Support 23,875 Funds are not Received 5202 42514 Encroachment Permits 50,000 Funds Anticipated 5202 42517 Dumpster Permit (700) Funds are not Received 5202 42518 Under Utility Fee 3,000 Funds Anticipated
5202 44214 Other Service Fee 7,600 Funds Anticipated
5202 44621 Engineering Services (60,000) Funds are not Received 5202 44623 Engineering Review 130,000 Funds Anticipated 5202 44624 Grading Inspection 55,000 Funds Anticipated
5202 44625 NPDES Inspection 40,000 Funds Anticipated
5301 44614 LGUSL Sport Park Rental 5,884 Funds Anticipated 5301 45313 LGS Lawn Maintenance Reimbursement (3,972) Funds are not Received 5302 42523 JPA Fee 216,125 Funds Anticipated
5401 42519 Chargepoint Flex Billing 13,424 Funds Anticipated 5401 45922 Insurance Claim Reimbursement 54,696 Funds Received 5405 45922 Insurance Claim Reimbursement 18,563 Funds Received 7801 43343 Public Library Fund Grant 43,500 Grant Reimbursement Crossing Fiscal Years TOTAL GENERAL FUND REVENUES $ 2,124,093
General Fund Revenues

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23 FY 2023/24 MID-YEAR BUDGET ADJUSTMENT REQUESTS - GENERAL FUND Program Account
1201 62113 Town Share of Retiree Medical $ 18,506 Funds are not Expended 1201 62119 Additional Payment to IRS Pension Trust 300,000 From Available Reserve 1301 63215 Legal Service Support 150,000 Funds are not Expended 2101 62413 Boards and Commissions - DEI 2,500 Funds are not Expended 2101 62434 Leadership Los Gatos 13,000 Funds are Partially Expended 2101 62351 Unhoused Initiatives 5,000 Funds are not Expended 2102 68219 ARPA Tracking Pass-Through Expenditures (100,000) Funds Expended Prior Fiscal Year, Matching Revenues 3201 61111 Office Supplies 1,000 Funds are not Expended 3201 61114 Postage 2,500 Funds are Partially Expended
3201 62142 Membership Fees 1,000 Funds are Partially Expended 3501 62371 Building Maint and Repairs- Affordable Housing 63,952 Funds are Expended, Matching Revenue 3501 63370 HOA Dues and Services 1,966 Funds are Expended, Matching Revenue 4101 67503 Police Foundation Donation 33,000 Matching Revenues 4201 62143 Dues and Subscriptions 12,635 Funds are Partially Expended 4201 633XX Legal Services 48,000 Funds are Partially Expended 4202 63213 Recruitment Services 78,429 Funds are Partially Expended 4301 51*** Temporary Employee 100,000 Funds are not Expended 4301 61145 Safety Uniforms 21,000 Funds are not Expended 4301 64111 Training 16,000 Funds are not Expended
4304 62223 SCC Court and Jail Construction Fee 28,000 Funds are Partially Expended 4999 6841* Excess SLESF 43,079 Funds are not Expended
5101 62379 Miscellanious Services and Repairs 10,000 Funds are Partially Expended 5301 62524 Park Use Lease 1,500 Funds are Partially Expended 5301 62613 Utilities - Water 64,000 Funds are Expended
5301 5**** Defund - Hire Ahead Lead Maintenance Worker (196,904) Funds are not Expended 5101 5**** Defund - Transportation and Mobility Manager (134,160) Funds are Partially Expended 5201 5**** Add - Senior Engineer Planner 121,195 Funds are not Expended 5201 5**** Defund - Associate Engineer (237,389) Funds are Partially Expended 5201 5**** Add - Senior Engineer 274,229 Funds are not Expended 5401 61212 Street Signs 20,000 Funds are Partially Expended 5405 62379 Miscellanious Services and Repairs 6,216 Funds are Expended 5405 63364 Traffic Signalization 37,897 Funds are Partially Expended 7101 62142 Membership Fees 1,000 Funds are Partially Expended 7101 62317 Office Equipment Maintenance 1,200 Funds are not Expended 7201 61171 General Collections 6,000 Funds are not Expended 7204 61132 Computer Supplies 15,000 Funds are not Expended TOTAL GENERAL FUND EXPENDITURES $ 829,351
General Fund Expenditures

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24 FY 2023/24 MID-YEAR BUDGET ADJUSTMENT REQUESTS - OTHER FUNDS Fund Program Account Other Fund Revenues
251 5408
4353* Theatre Tenant Rent 51,445 Funds Anticipated
45919 Tenant Utility Reimbursement 54,155 Funds Anticipated $ 105,600
611 1302
611 45922 Insurance Claim Reimbursement 5,000 Funds Recveived $ 5,000
612 2202
612 45922 Excess Insurance Claim Reimbursement 140,379 Funds Received $ 140,379
631 5402
631 45328 Equipment Sharing Revenue (8,900) Funds are not Received 45922 Insurance Claim Reimbursement 18,591 Funds Received $ 9,691
481
481 411-811-6004 4332* Decreased Gas Tax Projections for Street Repair (73,138) Based on California City Finance Projection January 2024 $ (73,138)
711
711 7301 45411 Additional Donation 1,000 Funds Received 45452 Friends of the Library Donation 17,300 Funds Received $ 18,300
TOTAL OTHER FUNDS REVENUES $ 50,762
Fund Program Account
251
5408 62611 Utilities - Electric 73,068 Funds are Partially Expended 62612 Utilities - Gas 108 Funds are Partially Expended
62613 Utilities - Water 4,188 Funds are Partially Expended $ 77,364
411
411 411-831-9901 69111 23,875 From Available GFAR Fund Balance $ 23,875
481
481 481-811-9901 82405 Decreased Gas Tax Projections for Street Repair (73,138) Based on California City Finance Projection January 2024 $ (73,138)
611
611 1302 655XX Insurance Premium 49,482 From Available Liability Self Insurance Internal Service Fund 6551X Employee Risk Management Authority Insurance 120,000 From Available Liability Self Insurance Internal Service Fund $ 169,482
612
612 2202 62332 Ergonomic Evaluation 7,000 From Available Workers' Comp Internal Service Fund $ 7,000
631
5402 81112 Traffic Speed Monitor Trailer 23,591 From Available Workers' Comp Internal Service Fund $ 23,591
633
633 5404 62611 Utilities - Electric 90,000 From Available Facilities Maintenance Internal Service Fund 62613 Utilities - Water 30,000 From Available Facilities Maintenance Internal Service Fund 62631 Utilities - Telephone 15,000 From Available Facilities Maintenance Internal Service Fund $ 135,000
TOTAL OTHER FUNDS EXPENDITURES $ 363,174
Los Gatos Theatre
GFAR
Gas Tax
Facilities Maintenance
Liability Self Insurance
Workers' Cmpensation
Gas Tax
Library Trust
Other Fund Expenditures
Workers' Compensation
Equipment Replacement
Los Gatos Theatre
Liability Self Insurance

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25 SUMMARY OF KEY RECOMMENDED BUDGET ADJUSTMENTS
 General Property Tax and Motor Vehicle in Lieu Fee: Staff recommends an increase in projected revenues of approximately $144,267 in General Property Tax and an increase of $213,320 Motor Vehicle in Lieu fee which are in line with the estimates and forecasts provided to the Town from Santa Clara County.
 ERAF: Staff recommends a $297,000 revenue budget increase to reflect current estimates and forecasts provided to the Town from Santa Clara County.  Sales and Use Tax: Staff recommends a $915,383 revenue budget decrease to reflect current sales tax trends based on MuniServices’ current projections.  Measure G – District Sales Tax: Staff recommends a $36,802 revenue budget decrease to reflect the current trends of the one-eight cent sales tax based on MuniServices’ projections.  Transient Occupancy Tax (TOT): Staff recommends a $156,472 revenue budget decrease based on the current trends and past receipts.
 PG&E Franchise Fee:: Staff recommends an increase in projected revenues of approximately $94,530 in cable franchise fee based on last year’s actuals.  Garbage Franchise Fee: Staff recommends an increase in projected revenues of approximately $1,097,703 to restore prior levels based on the new agreement.  Attorney Services – Reimbursement: Staff recommends a $20,989 revenue budget increase based on current reimbursements.
 Leadership Los Gatos: Staff recommends a $3,450 revenue budget increase in fee revenue based on current receipts and a $13,000 increase in expenditures based on revised estimates.  Unhoused Initiative Grant: Staff recommends a $5,000 revenue and expenditure budget increase based on an anticipated additional contribution.
 ARPA Passthrough Tracking: Staff recommends a $100,000 revenue and expenditure budget decrease based on funds expended in the prior year.
 Business License Tax: Staff recommends a $11,347 revenue budget decrease based on revised estimates and current receipts.
 Interest Earnings: Staff recommends a $531,287 revenue budget increase based on a higher interest rate environment than expected.
 Planning Permits and Council Appeal Fees: Staff recommends a $86,500 revenue budget increase for planning permits and a $3,000 budget increase for council appeal fees based on current receipts.

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26  Plan Check Fees: Staff recommends a $19,800 revenue budget decrease based on the current plan check activities.
 Code Compliance – Admin Citations: Staff recommends a $7,500 revenue budget increase based on the current receipts collected.
 Affordable Housing Program: Staff recommends a $85,000 revenue budget increase based on current escrow funds from the purchase of 137 Bersano Ln and an expenditure budget increase of $65,918 for building repairs and HOA Dues and services for 137 Bersano Ln.  Police Foundation: Staff recommends a $33,000 revenue and expenditure budget increase based on additional donations.
 Prop 172 – Public Safety Sales Tax: Staff recommends a $40,100 revenue budget decrease to reflect the current trends of the tax based on MuniServices’ current projections.  Alarm Registration: Staff recommends a $5,500 revenue budget decrease due to alarm registration trending down for the year.
 Parking Permits: Staff recommends a $12,000 revenue budget decrease for parking permits and a $7,500 budget decrease for online parking permits based on a change in the business parking permit process.
 Online Parking Ticket System: Staff recommends a $150,000 revenue budget increase to reflect revised estimates based on citations collected.
 Parking Bail: Staff recommends a $5,000 revenue budget increase to reflect revised estimates based on current collections from Santa Clara County.
 Excess SLESF: Staff recommends a $43,079 revenue and expenditure budget increase to to create a pass-through account. This action is recommended and consistent with the intent of the Citizens Option for Public Safety (COPS) program for use of SLESF funds.  Opioid Settlement Proceeds: Staff recommends a $10,422 revenue budget increase to recognize the receipt of Opioid Settlement funds. The Settlement requires funds be used primarily for opioid abatement; the Police Department will follow the fiscal guidelines outlined in the Settlement agreement.
 Metal Recycling: Staff recommends $209 revenue budget increase to recognize receipt of funds for metal recycling.
 Street Paving Project Management: Staff recommends a $23,875 revenue budget increase based on additional engineering support.
 Encroachment Permits: Staff recommends $50,000 revenue budget increase to recognize incoming increased development fees.

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27  Dumpster Permits: Staff recommends $700 revenue budget decrease based on less applications submitted than expected.
 Utility Underground Fee: Staff recommends $3,000 revenue budget increase to recognize an increase in encroachment permit inspections.
 Subdivision Map Checking Fees: Staff recommends $7,600 revenue budget increase based on the current engineering subdivision map checking activities.  Engineering Development Services: Staff recommends $60,000 revenue budget decrease based on the current trends for misc. engineering service fees.  Engineering Review Surcharge: Staff recommends $130,000 revenue budget increase based on the current trends for applications.
 Public Improvements & Grading Inspection Fees: Staff recommends a revenue budget increase of $55,000 based on the current trends for inspections.  National Pollutant Discharge Elimination System (NPDES): Staff recommends a revenue budget increase of $40,000 based on the current trends for NPDES inspection and permit services.  Los Gatos Parks Use Agreements: Staff recommends a revenue budget increase of $5,884 to recognize contracted annual use fee increases.
 LGS-Rec Lease Landscape Services: Staff recommends a revenue budget decrease of $3,972 to recognize a reduction in the rent.
 West Valley Solid Waste Management Authority JPA: Staff recommends a revenue budget increase of $216,125 to recognize the current Authority Administrative portion of the Authority Reimbursement paid by WVCR to each Member Agency, and then each Member Agency pays that to the Authority.  ChargePoint Flex Billing: Staff recommends a $13,424 revenue budget increase to recognize the current trend of usage and reimbursements received.
 JPA Safety Grant: Staff recommends a $54,696 revenue budget increase to recognize the receipt of safety grant for sidewalk repairs.
 Property Damage Claims: Staff recommends a $18,562 revenue budget increase to recognize the receipt of reimbursement for playground structure, and damaged streetlight, pole and sign; and $6,216 expenditure budget increase for misc. service and repairs.  Library Operating Grants: Staff recommends a $43,500 revenue budget increase based on grant reimbursements that crossed the fiscal year.
 Retiree Medical: Staff recommends a $18,506 expenditure budget increase based on current estimates.
 IRS Pension Trust: Staff recommends an expenditure budget increase in the amount of $300,000 for an additional payment to the IRS Pension Trust from available Pension/OPEB Reserve.

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28  Legal Services Support: Staff recommends a $150,000 expenditure budget increase based on hiring a firm to assist with part-time legal support.
 Boards and Commissions: Staff recommends a $2,500 expenditure budget allocation to the Diversity, Equity, and Inclusion Commission.
 Development Review Expenditures: Staff recommends budget expenditure increases for office supplies ($1,000), postage ($2,500), and membership fees ($1,000) based on current expenditures.
 Dues and Subscriptions: Staff recommends a $12,635 expenditure budget increase for the PowerDMS annual subscription agreement.
 Legal Services: Staff recommends a $48,000 expenditure budget increase based on additional investigative needs.
 Recruitment Services: Staff recommends a $78,429 expenditure budget increase based on an increase in recruitment activity and the Police Department has been actively planning for upcoming staff transition. This multi-faceted request is for three vendors services. The first vendor provides law enforcement agencies digital recruiting services using a multi-dimensional approach to officer recruiting combining effective communication, public relations, branding, marketing, and analytics, to engage with potential candidates. The two other vendors are assisting with the Police Captain recruitment and upcoming hiring and promotional process for the ranks of Corporal and Sergeant.
 Temporary Employees: Staff recommends a $100,000 expenditure budget increase based on temporary/hourly compensation for four planned police recruits attending the police academy.  Safety Uniforms: Staff recommends a $21,000 expenditure budget increase based on additional staffing of four police recruits, one lateral police officer, and three sworn promotional positions.  Training: Staff recommends a $16,000 expenditure budget increase based on additional training expenditures for four police recruits attending the police academy.  Court Fee Expenses: Staff recommends a $28,000 expenditure budget increase based on parking citations trending higher than expected.
 Miscellaneous Services and Repairs: Staff recommends $10,000 expenditure budget increase to recognize the cost of personnel related contracted services.  Park Use Lease: Staff recommends an expenditure budget increase of $1,500 annually for the LG Creek Trail Lease with Dept. of Transportation.
 Park Utilities: Staff recommends an expenditure budget increase of $64,000 based on the current trends for water costs.
 Defund Lead Park Maintenance Worker: Staff recommends an expenditure budget decrease of $196,904 to defund the Lead Park Maintenance Worker due to this hire-ahead position being budgeted and the retirement crossed fiscal years.

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29  Engineering Position Changes: Staff recommends an expenditure budget decrease of $134,160 to defund the Transportation & Mobility Manager, an expenditure budget decrease of $237,389 to defund an Associate Engineer, and an expenditure budget increases to add a Senior Engineer ($274,229) and Senior Engineer Planner ($121,195) to better align Department needs and workloads. The total net cost is $23,875 and offset from revenue from the Street Maintenance Capital Project.
 Signs: Staff recommends $20,000 expenditure budget increase related to the costs for modified signage supplies
 Traffic Signalization: Staff recommends $37,897 expenditure budget increase to recognize increased property damages to streetlights.
 Membership Fees: Staff recommends an expenditure budget increase in the amount of $1,000 for increase in costs for participation in Pacific Library Partnership resource sharing.  Office Equipment Maintenance: Staff recommends an expenditure budget increase in the amount of $1,200 for additional upholstery repair to Library furniture.  General Collections: Staff recommends an expenditure increase in the amount of $6,000 for increased public usage of library media platforms.
 Computer Supplies: Staff recommends a one-time expenditure increase of $15,000 for replacement of failing radio frequency ID tag readers for circulation of library materials.

Other Fund Revenues and Expenditures
 Theatre Tenant Rent: Staff recommends a $51,445 revenue budget increase based on anticipated rent payments.
 Tenant Utility Reimbursement: Staff recommends a $54,155 revenue budget increase based on projected utility bills.
 Insurance Claim Reimbursement: Staff recommends a $5,000 revenue budget increase based on current receipts.
 Worker’s Compensation – Excess Insurance Claim Reimbursement: Staff recommends a $140,379 revenue budget increase based on higher-than-expected claim activity.  Equipment Sharing Revenue: Staff recommends a $8,900 revenue budget decrease based on funds not received.
 Gas Tax: Staff recommends $73,138 revenue and expenditure budget decrease based on California City Finance Projections.
 Library Trust: Staff recommends a $18,300 revenue budget increase to recognize additional donation received from the Friends of the Library ($17,300) and other parties ($1,000).

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30  Equipment Replacement Fund: Staff recommends $18,590 revenue budget increase and $23,591 expenditure budget increase to recognize the receipt of insurance reimbursement and the purchase of traffic speed trailer caused by a hit and run.  Theatre Utility Costs: Staff recommends a $73,068 expenditure budget increase based on the current trends for electric costs, a $108 expenditure budget increase based on the current trends for gas costs, and a $4,188 expenditure budget increase based on the current trends for water costs.
 GFAR Project Costs: Staff recommends a $23,875 expenditure budget increase based on project expenditures.
 Liability Self Insurance: Staff recommends a $49,482 expenditure budget increase in insurance premiums and a $120,000 expenditure budget increase in Employee Risk Management Authority Insurance based on an increase in insurance costs.
 Ergonomic Evaluations: Staff recommends a $7,000 expenditure budget increase based on catching up on staff evaluations.
 Facilities Maintenance: Staff recommends $90,000 expenditure budget increase based on the current trends for electric costs, $30,000 expenditure budget increase based on the current trends for water costs, and $15,000 expenditure budget increase for the increase of Town telephone costs (Frontier and Verizon).

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 2023/24 which includes comparison information from the prior year.

The FY 2023/24 Adjusted Budget as of 12/31/2023 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 2023/24 Adjusted Budget as of 2/20/2024 column includes the adopted budget and items that Council approved during the course of the first two quarters of the fiscal year and the budget adjustment requested with this report.

The FY 2023/24 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 2023/24 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 2023/24 year-end estimated revenue and expenditure numbers and an update will be provided with the presentation of the Proposed Fiscal Year 2024/25 Operating Budget.

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31 The table below provides the details of the Revenues and Use of Reserves and Total Expenditures and Reserve Allocations.

FINANCIAL SUMMARIES OF OTHER FUNDS
FY 2022/23 FY 2022/23
2Q % of
FY 2022/23
2Q % of
FY 2023/24 FY 2023/24 FY 2023/24 FY 2023/24 FY 2023/24
Actuals Q2 Actuals Adjusted
Budget
as of
12/31/2023
Q2 Adjusted
Budget
as of 12/31/2023
Adjusted
Budget
as of 2/20/2024
Year End
Estimates
Revenues
Property Tax $ 18,187,388 $ 6,155,317 33.8% 34.7% $ 6,446,869 $ 18,556,631 18,997,898 $18,997,898 VLF Backfill Property Tax 4,555,700 - 0.0% 0.0% - 4,692,680 4,906,000 4,906,000 Sales & Use Tax 7,507,068 2,398,925 32.0% 28.6% 2,250,056 7,876,233 6,960,850 6,960,850 Measure G Sales & Use Tax 1,299,409 426,496 32.8% 32.5% 415,004 1,276,545 1,239,743 1,239,843 Franchise Fees 3,074,624 1,044,055 34.0% 51.0% 1,079,717 2,116,470 3,308,703 3,308,703 Transient Occupancy Tax 2,228,190 857,715 38.5% 33.9% 819,683 2,419,000 2,262,528 2,264,484 Business License Tax 2,361,862 97,974 4.1% 14.4% 352,611 2,440,766 2,429,419 2,429,419 Licenses & Permits 3,268,498 1,614,760 49.4% 59.0% 1,726,270 2,925,230 3,262,655 3,239,593 Intergovernmental 1,553,397 493,329 31.8% 60.0% 735,280 1,224,466 1,100,945 1,356,699 Town Services 4,646,675 3,299,202 71.0% 76.4% 3,375,872 4,416,250 4,615,797 5,166,743 Fines & Forfeitures 416,951 151,615 36.4% 111.2% 226,280 203,450 358,450 367,700 Interest 602,592 145,003 24.1% 22.8% 235,922 1,035,097 1,567,130 1,567,130 GASB 31 to Market 3,197 1,577,168 49332.7% 1,573,971 - - - Use of Property 38,126 - 0.0% - - - -
Miscellanious Other 859,578 551,234 64.1% 40.8% 826,265 2,026,716 2,124,634 2,306,791 Park Construction Tax 6,454 - 0.0% 109.7% 7,680 7,000 7,000 8,280 Debt Service - Entry Eliminated for ACFR 1,893,713 1,893,713 100.0% 0.0% - 1,894,550 1,894,550 1,894,550 ARPA Income Replacement - Entry Eliminated for ACFR 471,664 - 0.0% - - - - Pension Trust Income - Entry Eliminated for ACFR 690,000 - 0.0% - - - - Measure G for Operations - Entry Eliminated for ACFR 629,065 - 0.0% - - - - Proceeds for Sales of Assets 2,162 - 0.0% - - - -
Fund Transfer In 4,153,408 102,000 2.5% 21.3% 114,499 538,536 562,411 562,411 Total Revenues & Transfers In $ 58,449,721 $ 20,808,506 36% 38% $ 20,185,979 $ 53,649,620 $ 55,598,713 $56,577,094 Use of Other Funding Sources:

Use of Reserves - Capital/Special Projects $ 2,350,000 $ - 0.0% 0.0% $ - $ 2,108,288 $ 2,108,288 $ 1,615,000 Use of Reserves - Council Priorities - Economic Recovery 2,065,302 - - 1,645,281 1,545,281 1,545,281 Use of Reserve - Pension/OPEB 300,000 - - - 300,000
Total Other Funding Sources $ 4,715,302 $ - 0% 0% $ - $ 3,753,569 $ 3,653,569 $ 3,460,281 Total Revenues and Use of Reserves $ 63,165,023 $ 20,808,506 33% 35% $ 20,185,979 $ 57,403,189 $ 59,252,282 $60,037,375 Expenditures
Town Council $ 186,337 $ 92,674 49.7% 51.2% 94,408 $ 184,395 184,395 $ 193,212 Attorney 699,143 332,183 47.5% 43.2% 336,063 777,508 927,508 904,041 Administrative Services 5,302,277 2,435,224 45.9% 48.5% 3,157,872 6,508,065 6,428,565 6,091,006 Non- Departmental 2,641,017 3,230,657 122.3% 42.7% 2,759,192 6,462,904 6,781,410 6,499,660 Community Development 5,065,410 2,394,537 47.3% 47.1% 2,559,684 5,430,624 5,501,042 5,410,008 Police 18,446,040 8,957,541 48.6% 48.8% 9,732,666 19,933,414 20,313,557 20,313,916 Parks & Public Works 8,998,082 4,215,979 46.9% 44.9% 4,574,800 10,177,731 10,144,315 10,519,175 Library 3,096,485 1,442,417 46.6% 52.3% 1,671,000 3,194,842 3,218,042 3,263,710 Capital Outlay 300,000
Principal 156,034 156,034 156,034 156,034
Total Department Expenditures $ 44,890,825 $ 23,101,212 51% 47% $ 24,885,685 $ 52,825,517 $ 53,654,868 $53,350,762 Debt Service - Entry Eliminated for ACFR $ 1,893,713 $ - 0.0% 0.0% $ - $ 1,894,550 $ 1,894,550 $ 1,894,550 ARPA Income Replacement - Entry Eliminated for ACFR 471,664 - - - - Transfer to Pension Trust Fund - Entry Eliminated for ACFR 690,000 - - - - Measure G Transfer - Entry Eliminated for ACFR 629,065 - - - - Transfers Out 7,242,939 - 0.0% 0.0% - 1,615,000 1,615,000 1,615,000 Total Additional Non-Departmental Expenditures $ 10,927,381 $ - 0% 0% $ - $ 3,509,550 $ 3,509,550 $ 3,509,550 Total Expenditures and Transfers Out $ 55,818,206 $ 23,101,212 41% 44% $ 24,885,685 $ 56,335,067 $ 57,164,418 $56,860,312 Allocate to Budget Stabilization/Catastrophis Reserve $ 276,417 $ - $ - $ - Allocate to Compensated Absences 61,476 - - -
Allocate to Carryover Encumbrances 4,553 - - -
Allocate to Economic Recovery 1,556,614 - - -
Allocate to ERAF Risk Reserve 689,608 660,900 750,000 750,000 Allocate to Restricted Pension Trust 690,000 390,000 690,000 690,000 Net Total Revenues, Transfers, and Use of Reserve Less
Total Expenditure and Reserve Allocation $ 4,068,149 ** $ (2,292,706) * $ (4,699,706) * $ 17,222 $ 647,864 $ 1,737,063

SUMMARY OF REVENUES, TRANSFERS INM USE OF RESERVES AND EXPENDITURES, TRANSFERS OUT AND RESERVE ALLOCATIONS

GENERAL FUND
*FY 2022/23 and FY 023/24 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 ($58,449,721) minuesTotal Operating Expenditures ($55,818,206) equals $2,631,515.

Page 246 ends

32 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), several Landscaping Lighting District (LLD) Funds, Theatre Fund, and Library Trusts Funds.

Staff also recommends $105,600 revenue budget adjustment to recognize Theatre tenant lease and utility reimbursement revenues and $77,364 expenditure budget adjustment for Theatre related expenses from available rent proceeds.

Page 247 ends

33 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 $73,138 to reflect decreased gas tax projections. Staff will continue to monitor these revenues and expenditures throughout the remainder of the year and $23,875 expenditure budget increase to support street related engineer work. 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.

Page 248 ends

34 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 $5,000 revenue budget increase for recognize insurance claim reimbursement proceeds and a $169,482 expenditure budget adjustment to cover additional insurance premium expenses in the Self Insurance Fund. The Self Insurance Fund Display a deficit balance because insurance premiums are paid at the beginning of the fiscal year, however Department reimbursement posted on the bi-monthly bases. In addition, increased premium rates and increased claim activities require the Town to increase its Liability Internal Service charges to increase by $450,000 or 58% percent to assure cost recovery. Staff recommend $140,379 revenue budget increase in the Workers’ Compensation Internal Service Fund to recognize insurance claim reimbursement proceeds. Staff recommends increasing the internal service rate by $500,000 or 45% percent to assure cost recovery in the Workers’ Compensation Internal Service Fund. Staff will incorporate the new rates in the Proposed FY 2024/25 Operating Budget for Council consideration.

Page 249 ends

35 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.

Page 250 ends

From: Phil Koen
Sent: Thursday, February 15, 2024 7:59 AM
To: Janette Judd <[email protected]>
Cc: Linda Reiners Laurel Prevetti <[email protected]>: Mary Badame <[email protected]>
Subject: Re: Meeting with Asst. Town Manager, Finance Director, F.C. Chair and Vice Chair ![EXTERNAL SENDER]
Janette,
I have a 10am meeting but would cancel that meeting to meet at 10 am with everyone. Please let me know as soon as possible.

The reason for the urgency is if my analysis is correct, which I believe it is, then an addendum will need to be sent to the TC correcting the Mid Year Report and providing more disclosure.

For sake of clarity, the analysis is using the Town's estimates for the full year which taken as a whole, may be too conservative. Therefore while my analysis shows a decline in the Ending GF Balance, the actual surplus of revenues over expenditures will most likely be much greater. So the projected decline is only a forecast and probably does not reflect the most likely outcome. That's good news.

However the analysis does show almost the entire use of the Economic Recovery Reserve which is not disclosed in the write up and I am sure will be a surprise to the TC. That's the bad news.

Please let me know if we will be able to meet at 10am to discuss the Mid-Year review and ERAF.

Phil Koen
On Feb 15, 2024, at 6:53 AM, Janette Judd <[email protected]> wrote:

I
Caution: External (jjudd@losgatosca gov)
Spam Content
ATTACHMENT 2
Redacted Redacted

Page 251 ends

Good morning,
Unfortunately neither the Finance Director nor Assistant Manager are available this Friday afternoon. There is potential they could meet at 10:00am, however, I will need to confirm with them as I do see other commitments scheduled.

Also I would need to check with the Town Manager on her preference on attending other dates / times offered, but she is not available on Friday.

I will circle back to you both once I hear from staff.

Thank you,
Janette
From: Phil Koen
Sent: Wednesday, February 14, 2024 5:18 PM
To: Janette Judd <[email protected]>; Linda Reiners
Cc: Laurel Prevetti <[email protected]>; Mary Badame <[email protected]>
Subject: RE: Meeting with Asst. Town Manager, Finance Director, F.C. Chair and Vice Chair
[EXTERNAL SENDER]
Hello Janette,
Thank you for your email. I have spoken to Linda,
and we would prefer to meet this Friday at 2pm.

In addition to the ERAF topic, we would like to
discuss the attached documents which address
the Staff’s Mid-Year review work product. Since
the FC was unable to address this at Monday’s
meeting because of time constraints, and the
Mid-Year review is on the TC agenda for this
coming Tuesday, there is urgency to this meeting.

We are concerned with Staff’s conclusion the FY
24 projections reflect an anticipated $1.7m
surplus. While the Staff report does not forecast
an ending GF balance, we take this to mean the
Staff is forecasting the ending GF balance to
increase by $1.7m. Please note the Staff report
Redacted Redacted

Page 252 ends

has a typo in that it indicates the opening GF
balance was $2,631,515 as June 30, 2023, when
in fact the correct balance is $29,528,304.

Based on our analysis, and using the Staff’s
projections, the ending GF balance for FY 24 will
decrease by $283,218 to $29,245,086.

Furthermore, the Staff’s work product indicates
the reserve for Economic Recovery will be
reduced by $1,545,281 leaving an ending balance
of only $11,333. We are unsure if the TC fully
understands the impact of the “planned use of
reserves” as noted in the Staff report.

In addition to having the Asst Town Manager and
Finance Director attending, we respectively
request the Town Manager to attend this
meeting. We think the meeting would be worthy
of her time.

Please let me know if we can meet at 2pm of
Friday.

Thank you,
Phil Koen
FC Chair

Page 253 ends

•
Shared via Adobe Acrobat Get the app to edit, sign, and share PDF files: https://adobeacrobat.app.link/getApp February 6, 2024

TOWN OF LOS GATOS

MID-YEAR BUDGET REPOR T
JULY 1- DECEMBER 31. 2023
FINAN CIAL OVERVIEW AND EXECU TIVE SUM MARY: STATUSOF FY2023/24 ADOP TID BUDGf.7
The purpose of the Mid-Year Report is to provide the Town Council with a status of the Adopted Fiscal Year (FY) 2023/24 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.

EJ
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). Town Council will review these priorities on its February 13, 2024 Special Meeting.

Staff has started budget development work for the next fiscal year, including an update of the Five-Year Financial Forecast, identification cl 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 2024/25 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 2024/25 Budget on May 21, 2024.

The prior fiscal year closed with approximately $4.1 million in surplus operating revenues, transfers in, and use cl reserves over expenditures, transfers out, and reserve allocations. The General Fund balance was $2,631,515 as of June 30, 2023.

Current fiscal year-end projections for FY 2023/24 reflect an anticipated $1.1 million surplus of operating revenues and planned use of reserves over expenditures in addition to reserving 30% of ERAF and the proceeds to Pension Trust Fund, compared to the anticipated $3.2 million deficit in the Adopted Budget.

ATTACHMENT 1
Page347 �

Page 254 ends

. B � discussed in greater detail later in this Report, the primary drivers of the projected surplus are the increased revenue projection for property tax and the restoration of the garbage franchise fee to prior year levels.

On June 6, 2023, the Town Council balanced the budget with a 4.6" vacancy factor. Staff continues to monitor each Department budget because while overall Townwide savings are predicted due to higher projected revenues, the individual Departments' current expenditure budgets may not be sufficient for the remainder of the year. Staff will recommend the necessary expenditure budget adjustments as needed.

Providing services to the community in this and future fiscal years will require a strong revenue performance of the Town's economically sensitive revenues to offset continued projected cost increases. The FY 2024/25 budget development process will endeavor to maintain essential public services while oontrolling operational costs it light of the five-year fiscal forecast, which predicts operating revenue shortfalls in subsequent fiscal years with certain assumptions.

Page349 3

Page 255 ends

Mid-Vear Update
Summaiy Schedule
Total R� and Transfers In le$$;
>FundTransfetln
>Oebt SeMa: • elmlnated GAN'
Adiu5ffl:I Re,el'M.le
Total Operating upendltures
Surplus (Deficit) rewnues O'lef erpenditllres
01her Soun:es ( Uses)
>Transfers In
> Transfer Out
Net ether sources • total
Change
Remndlatlon
in Fund B.llante
tDStalfWortcsllft1
Add decrease of reserves:
>from Capital Prqects Resenre
>fram Coundl Priorities Reserw:
>from Penslon/OPE8 Reserw
Subtotal cl� in GF ReseM!S
Less Increase to reserves:
>To Economle recovery ResetW
>To
>To
ERAF
Restricted
Risk RPension TNSt Reseive
Subtotalof� inGF Reserws
Total• acree to Staff sdledule
Fund Balance ANtvs&
Non spendable
loan receivable
Restr1cted
land held for sale
Prnslons
Committed
8udp!t Stabli ution
Catastrophl c
Pension/OP£8
MeasureG 2018 Sales Ta•
Assipied
Open 5');1ce
Sustainability
Cac,ltaV$pedalProjects
carryover encumbrances
ERAf Risk
Economic Recover,
Compensated Absence
Sub-Total
Add:

Surplus FY 2024
Fund Transferin
Fund Transferout
Unallocated deduction from ResefW5
>Total
Total Fund Balance
Most Probable
FY24
56,sn,094
562,411
1,894,550
54,120.133
53,350,762
769,371
562,411
1,615,000
(1,052,589)
1,615,000

1.54S,281
300.000
3,4641281
750,000
690,000
1,440,000
1,737.063
Bea1nnln1
159,000
44,338
1,400.163
6,129,774
6,129,775
300.000
590,581
410.000
140,S53
10,359,577
37,698
689,608
1,556,614

1.580,623
29,528,304
29,528.304
Adopted A4asDec23 lluctcet A.dopted¥S
FY24 FY24 chan&e YTt> Most Probable

53.216,570 53,649.620 433.0SO 3,360,524
538,536 538,536 0 23.875
1,894.550 1,894,550 0 0
50,783,484 51.216,S34 63,050 3,336,649

51.005,698 52,825,517 1,819.819 2,345,064
(222,214) (1,608,983) (1,386,769) 991,585
S38.536 538,536 0 23,875
1,615,000 1,615.000 0 0
(1,076,464) (1,076,464) 0 23,875
( 1. 298,678) (2,685,447) (1,386,769) 1,015,460
1,615,000 2,108,288 493,288 0
n9,ooo 1,645,281 866.281 766,281
0 0 300.000
2,394,000 3,753,569 1,359,569 1,066,281
660,900 660,900 750,000
660,900
390.000 390.000 0 300.000
1,050,900 1,050,900 0 389,100
44,422 17,222 (27,200) 1,692,641
Additions Deductions Endlnl Chanp
159,000 0
44,338 0
690,000 2,090,163 690,000

6.129,n4 0
6,129,775 0
300.000 0 (300,000)
590,581 0
410,000 0
140,5S3 0
10,359,577 0
37,698 0
750,000 1,439.608 750.000
1,545,281 11,333 (1,545,281)
1,580,623 0
1,440.000 1.845.281 29,123,023 40> 181)
769,371 769,371 769,371
562,411 562,411 562,411
1,615,000 (1 ,615,000) (1,615,000)
405,281 405,281 405.281
1,737,063 1,615.000 122,063 122.063
3,177,063 3,460,281 29,245,086

Page 256 ends

511_.,d '1ia Adobe Acrobat Ge ' • t the app to edit. sign, and share PDF files: https://adobeacrobat.app.link/getApp El
The table below provides the details of the Revenues and Use of Reserves and Total Expenditures and Reserve Allocations.
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Page 3 ends

Page 257 ends

� ... .. 1·

TOTAL TOWN

REVENUES AND EXPENDITURES

GENERAL FUND
2019/20 2020/21 2021/22 2022/23 2023/24
Actuals Actuals Actuals Estimated Adopted
RFiENUES
Property Tax $ 14,454,513 s 15,826,162 s 16,899,618 s 17,928,118 $ 18,556,631 Vlf Baclcfill 3,875,914 4,052,672 4,229,462 4,556,000 4,692,680 Sales & Use Tax 6,535,034 6,794,218 7,177,597 7,681,444 7,878,061 Measure G-OistrictSales Tax 996,391 1,139,386 1,306,076 1,277,690 1,274,717 Fra nchlse Fees 2,495,792 2,499,463 2,822,515 2,716,470 2,116,470 Transient Occupancy Tax 1,869,685 1,044,820 1,895,064 2,348,547 2,419,000 Other Taxes 1,357,080 1,386,943 1,481,667 2,346,847 2,440,766 Licenses & Permits 2,696,457 2,999,711 4,839,489 2,863,374 2,947,230 Intergovernmental 1,104,075 1,573,697 1,263,352 1,260,731 913,094 Town Services 4,447,213 4,835,962 5,435,769 5,083,801 4,394,250 Internal Sn,c Reimbursement
Anes & Fo�itures 271,117 103,467 319,170 232,129 203,450 Interest 2,266,134 96,061 (1,404,526) 670,021 1,035,097 OtherSources 1,381,187 2,217,072 5,649,767 5,887,554 1,912,038 Debt Service Reimbursement 1,905,024 1,908,494 1,899,850 1,893,713 1,894,550 Transfers In 599,669 1,833.218 633,352 538,536 538,536
TOTAL REVEMJES $ 46,255,285 s 48,311,346 s 54,448,222 s 57,284,975 $ 53,216,570 EXPEM>ITURES
Salaries $ 18,546,018 $ 19,330,626 s 18,847,234 s 20,882,547 $ 20,969,978 Overtime 708,955 882,421 1,134,177 1,568,744 578,856
Benefits-Pension 6,059,646 6,374,119 6,531,958 6,846,834 8,237,154 Benefits-All Other 3,618,950 3,710,338 3,679,378 3,931,663 4,716,655 Retiree-Medical 1,203,101 1,286,285 1,391,296 1,571,930 1,609,200 Operating Expenditures 12,193,929 12,990,318 12,860,383 13,966,816 10,598,891 Grants & Awards 274,249 298,303 606,449 592,600 774,000 Fixed Assets 138,384 2,365
Interest 52,011 156,034 156,034 156,034
Internal Service Chargu 2,188,211 2,314,305 2,607,506 2,636,316 3,364,929 upital Projects
upltal Acquisitions
Debt Service 1,905,024 1,908,494 1,899,850 1,893,713 1,894,550 Transfers Out 8,053,847 4,582,641 1,751,787 2,987,359 1,615,000 TOTAL EXPEMJl1UR£'S $ 54,890,314 s 53,732,226 s 51,466,052 s 57,034,556 $ 54,515,247 Net Jnc,e- toeue-1 (8,635,029) (5,420,880) 2,982,170 250,419 (1,298,677) BeclnnlncFund 11a1mce 37,970,526 29,335,497 23,914,617 26,896,787 27,147,206 Ending Fund Balance $ 29,335,497 s 23,914,617 $ 26,896,787 s 27,147,206 $ 25,848,529 • Yt!ar End Fund Bolonurepresenu General Fund lll {Long Term Compensated Absencl//!S were accounted in ��:,.··-:�·�;;;,
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Page 258 ends

FUND BALANCE Ac11vrrY SUMMARY
FISCAL YEAR 201.3/24
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Page 259 ends

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

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024
ITEM NO: 13

DESK ITEM
DATE: February 20, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Mid-Year Budget Report - July 1 - December 31, 2023:
a. Receive the FY 2023/24 Mid-Year Budget Report; and
b. Authorize Budget Adjustments as Recommended in the Mid-Year Budget Report
REMARKS:

In response to a Council Member’s questions, staff has provided the following responses in Italics.

Does the FY 2023/24 Year End Estimates indicate that the GF balance is projected to increase by $1,737,063 year over year?
The estimated General Fund surplus is not an indication of the changes of the current fiscal year end General Fund balance because the projected uses of reserves have to be considered as well.

For example, there might be a scenario in which there is an estimated surplus; however, year end reserves are decreasing because of a planned use of a reserve. The FY 2023/24 Estimated General Fund Year End balance is illustrated in the table below.

Page 260 ends

PAGE 2 OF 3
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2023 DATE: February 20, 2024
REMARKS (continued):

Does $1,545,281 in “Economic Recovery” refer to American Rescue Plan Act (ARPA) funds? If so, where are they being used? Where is the Community Center Development Fund which was supposed to have $866k? Is that related to the “Economic Recovery” funds in the report? Or to the $1,615,000 in Capital/Special Projects Reserves? The Council Priorities – Economic Recovery Reserve has been established to track General Fund revenues freed up from recognizing all ARPA “replacement” revenues to the General Fund for essential government services, for economic recovery and business support, enhanced senior services, capital program augmentations, and other one-time uses as directed by the Town Council. The FY 2023/24 uses are listed in the following table. The Community Center Development is part of the $1,545,281. The staff established a capital project for the Community Center based on the Council’s action on August 15, 2023. 7/1/23 Plus Less 6/30/24
Actual Revenues & Transfers Expenditures & Transfers Use of Estimated Fund Balance Carryforwards In Carryforwards Out Reserves Fund Balance

GENERAL FUND
Unreserved Fund Balances
Undesignated Reserves
Available to be Appropriated $ - $ 56,014,683 $ 562,411 $ 55,245,312 $ 1,615,000 $ 2,020,281 $ 1,737,063 Restricted Fund Balances
Reserve for Encumbrances - - - - - - -
Pension Trust 1,400,163 - - - - 690,000 2,090,163
Advance to RDA - - - - - - -
Actuarial - - - - - - -
Committed to:

Budget Stabilization Reserve 6,129,774 - - - - - 6,129,774 Catastrophic Reserves 6,129,774 - - - - - 6,129,774
Pension/OPEB Reserve 300,000 - - - - (300,000) -
Measure G District Sales Tax - Operating 590,581 - - - - - 590,581 Assigned to:

Open Space Reserve 410,000 - - - - - 410,000
Sustainability 140,553 - - - - - 140,553
Strategy Reserve - - - - - - -
Capital/Special Projects 10,359,577 - - - - (1,615,000) 8,744,577 Authorized Carryforwards 37,698 - - - - - 37,698
Compensated Absences* 1,580,623 - - - - - 1,580,623
Land Held for Sale 44,338 - - - - - 44,338
Market Fluctuations - - - - - - -
Measure G District Sales Tax - Op/Cap - - - - - - -
To Workers Comp -
Vehicle Maintenance & Stores Residual - - - -
ERAF Risk 689,608 - - - - 750,000 1,439,608
Rehab Loan (Nonspendabe) 159,000 - - - - - 159,000
Council Priorities - Economic Recovery 1,556,614 - - - - (1,545,281) 11,333 Total General Fund Reserves $ 29,528,303 $ 56,014,683 $ 562,411 $ 55,245,312 $ 1,615,000 $ - $ 29,245,085 Fiscal Year 2023/24 Adjusted Budget

Page 261 ends

PAGE 3 OF 3
SUBJECT: Mid-Year Budget Performance Report – Six Months Ending December 31, 2023 DATE: February 20, 2024
REMARKS (continued):

Is all $2,500,000 in projected FY 24 Excess Education Revenue Augmentation Fund (ERAF) revenues included in the $18,997,898 of property taxes? If not, how much is included? The full $2,500,000 ERAF is included in the FY 2023/24 Estimated Revenues. Staff also reserved 30% or $750,000 of the estimated proceeds to the ERAF Risk Reserve per prior Council direction.

Attachments previously distributed with the Staff Report:

1. Mid-Year Budget Report - July 1 - December 31, 2023

2. Public Comments Received before 11:00 a.m. on February 15, 2024 One-Time Community Grant (Council Action 2-21-2023) 150,000 One-Time to LGS REC 55+ Program (Council Action 2-21-2023) 225,000 One-Time Unhoused Residents Efforts (Council Action 2-21-2023) 25,000 One-Time Rent Forgiveness LGS REC (Council Action 3-21-2023) 200,000 One-Time Rent Forgiveness NUMU (Council Action 3-21-2023) 21,000 One-Time Unhoused Residents Efforts (Council Action 4-4-2023) 25,000 One-Time - Additional Chambers of Commerce (Council Action 5-2-2023) 33,000 One-time - Adult Recreation Facility Space Improvements (Council Action 8-15-2023) 866,281 Total $ 1,545,281
General Fund Council Priorities – Economic Recovery Reserve Tracking FY 2023/24 Estimated

Page 262 ends

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

TOWN OF LOS GATOS

COUNCIL AGENDA REPORT
MEETING DATE: 02/20/2024
ITEM NO: 14
DATE: February 14, 2024
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review the Five-Year Forecast (Fiscal Year 2024/25 -FY 2028/29) and the Finance Commission Recommendations, Determine Key Assumptions for the Five- Year Forecast, and Provide Direction for the Preparation of the FY 2024/25 Operating Budget
RECOMMENDATION:

Review the Five-Year Forecast (FY 2024/25 -FY 2028/29) and the Finance Commission recommendations, determine key assumptions for the Five- Year Forecast, and provide direction for the preparation of the FY 2024/25 Operating Budget.

BACKGROUND:

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, the Town develops a Five-Year Financial Forecast (“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.

Page 263 ends

PAGE 2 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
BACKGROUND (continued):

Attachment 1 contains the staff report to the Finance Commission with Attachments 1 through

6. The report to the Finance Commission outlines the major assumptions and their sensitivity to more optimistic or pessimistic outlooks. The analysis also includes historical information, particularly pertaining to the elements of property tax revenue.

DISCUSSION:

The initial Forecast (FY 2024/25 – 2028/29) is predicated on estimates derived from the FY 2023/24 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.

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. The forecast based on a point in time information and has to be updated periodically and will differ from final actual numbers.

Base Case
The base case Five-Year Forecast (FY 2024/25 – 2028/29) as presented to the Finance Commission identifies deficits for all future years, using a 2% salary increase assumption, a 4.6% vacancy saving factor as approved by the Town Council for the FY 2023/24 budget, and other assumptions as outlined further in this report.

The deficits are on the order of approximately $2M per year and can currently be resolved through expenditure controls and the use of one-time funds. 5 Year Forecast
"Base Case"
with 4.6% Vacancy Factor
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of
Reserves
$54.5 $56.3 $58.1 $59.6 $61.4
Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($2.3) ($1.8) ($2.0) ($2.1) ($2.4)

Page 264 ends

PAGE 3 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
DISCUSSION (continued):

Finance Commission Recommendations
The Finance Commission discussed the Five-Year Forecast at its February 12th meeting. The Finance Commission unanimously passed the following motion with no specific guidance on the assumptions:

Motion: The Finance Commission recommends the Town Council not accept, nor rely upon, the current version of the FY 2024/25 – 2028/29 5-Year Plan. Given the importance of the Five-Year Forecast in establishing tax policy, the Finance Commission makes a finding that the draft forecast of a 2.9% Compound Annual Growth Rate (CAGR) in total tax revenue is too conservative compared to historic growth rates and the 4.9% CAGR in operating expenditures needs to be reduced through cost containment and productivity measures. The Finance Commission does not agree with staff’s conclusion that “the persistent presence of a deficit indicates that the Town needs to consider new revenues ensures if it wants to maintain high levels of municipal services” as stated on page 1 of the staff report.

The Commission’s general observation was that the base forecast is too conservative.

Forecasting Approach Consistent with Government Finance Officers Association (GFOA) A "conservative" forecast as described by GFOA is conservative with revenue assumptions and builds in a layer of contingencies for expenditures. This approach might make it harder to balance the budget but reduces the risk of an actual shortfall. The Town’s past forecasting practice represents this conservative approach.

During the last couple of years, staff changed elements of the budgeting and forecasting methodology. Starting FY 2020/21, the salaries are budgeted and forecasted at actual salary plus one step higher. Beginning FY 2023/24 the budget and the forecast included a 4.6% vacancy factor, moving toward less conservative approach.

An "objective" forecast as described by GFOA seeks to estimate revenues and expenditures as accurately as possible, making it easier to balance the budget, yet increasing the risk of an actual shortfall.

It is very important that the approach to the forecast and the underlying assumptions are clear, analyzing the risk between being objective versus conservative. While one-time solutions can solve near term shortfalls, the best practice is to build a structurally balanced forecast where recurring revenues (the portion of the Town’s revenues that can reasonably be expected to

Page 265 ends

PAGE 4 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
DISCUSSION (continued):
continue year to year with some degree of predictability) equal or exceed recurring expenditures (salaries, benefits, and other operational expenditures).

Modifying the Forecast from Conservative to Objective by Changing the Property Tax Assumptions
Given the Finance Commission’s recommendations, this section focuses on the property tax revenue assumptions that would move the forecast from conservative to objective.

The Town is highly dependent on five economically sensitive revenues comprising 70% of General Fund forecasted revenues. The Finance Commission staff report (Attachment 1) includes detailed analysis (Attachment 1, pages 4 to 14) of the Town’s major revenues including property tax, sales tax, business license tax, franchise fees, and transient occupancy tax (TOT).

Property tax is the single largest revenue source for the Town and comprised approximately 42% of total Town estimated General Fund revenues for FY 2023/24. Secured Property Tax, Motor Vehicle in Lieu (VLF), and Excess Education Revenue Augmentation Fund (ERAF) constitutes 91% of the current year property tax proceeds. The following table and graphs illustrate how is the actual year-over-year (YOY) performance for the different property tax categories varies from fiscal year to fiscal year.

Page 266 ends

PAGE 5 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
DISCUSSION (continued):

Secured Property Tax and Motor Vehicle in Lieu (VLF) Property Tax are usually increasing by the growth of the Total Assessment Rolls. The Total 2024 Assessment Roll will be published in July 2024 from the Santa Clara Assessor’s Office. In addition to the annual assessment increases and the reassessed Proposition 13 properties as they changed ownership, the historical growth includes the annexation of 24 pockets from Santa Clara County and property sales from the First Phase of North Forty development. VLF collection based on the assessed roll is included as well. Property Tax and VLF are considered recurring revenues. The base case forecast includes the normalized 5.1% growth rate throughout the forecast years.

Percentage
of Total
Proceeds
Property Tax Categories
FY 2018/19
Actuals
FY 2019/20
Actuals
FY 2020/21
Actuals
FY 2021/22
Actuals
FY 2022/23
Actuals
FY 2023/24
Estimated
Average
YOY
Growth
60% Secured Property Tax 6.9% 5.6% 1.6% 6.1% 12.3% 7.0% 6.6% 21% Motor Vehicle in Lieu (VLF) 6.9% 5.2% 4.6% 4.4% 7.7% 7.7% 6.1% 10% ERAF 90.5% 46.1% 41.4% 16.1% -3.1% 8.8% 33.3%
4% Unsecured Property Tax 16.4% -5.1% 6.9% -7.8% 8.8% 6.1% 4.2% 2% Property Transfer Tax -21.8% -9.2% 76.0% 17.0% -37.8% -23.2% 0.2% 2% Other Property Tax -11.1% -0.2% 10.7% 1.0% -2.6% 4.1% 0.3% 1% Supplemental Property Tax 17.7% -31.8% 40.3% -9.0% 61.1% -40.5% 6.3% FY 2024/25
Assumptions
FY 2025/26
Assumptions
FY 2026/27
Assumptions
FY 2027/28
Assumptions
FY 2028/29
Assumptions
Option A - Lowest YOY over the Last Six Year Period 4.3% 4.3% 4.3% 4.3% 4.3% Option B - Normalized for County Annexation and Other One Time Roll Growth ~$1.5 M 5.1% 5.1% 5.1% 5.1% 5.1%
Option C - Average YOY Property Tax Roll 6.6% 6.6% 6.6% 6.6% 6.6% Option A - Lowest YOY VLF Revenue Growth over the Last Six Year Period 4.4% 4.4% 4.4% 4.4% 4.4%
Option B - Normalized based on Property Tax Roll 5.1% 5.1% 5.1% 5.1% 5.1% Option C - Average YOY VLF Revenue Growth 6.1% 6.1% 6.1% 6.1% 6.1% Secured Property Tax
Motor Vehicle in Lieu (VLF)

Page 267 ends

PAGE 6 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
DISCUSSION (continued):

If Council selects Option C for both Secured Property Tax and VLF, the estimated deficit is reduced as displayed below.

Excess ERAF is not tied to the Total Assessment Roll. 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.

While Excess ERAF grew significantly in the recent fiscal years, there is no guarantee for funding in the future. Santa Clara County has only provided projections for the current fiscal year. FY 2024/25 Excess ERAF projections will not be available until March 2024 and the County has recommended the jurisdictions set aside 30% due to pending litigation. FY 2025/26 estimates will be available in March 2025. The Town has been monitoring and providing periodic updates to the Finance Commission and to the Town Council on the ongoing developments regarding the distribution of excess ERAF funds. Additional information can be found Attachment 1.

If Council assumes 70% of the FY 2024/25 Estimated Excess ERAF proceeds and assumes greater growth (option C) for both the Secured Property Tax and VLF, the estimated deficit is displayed below.

Alternative Scenario Selecting
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers $54.9 $56.9 $59.0 $60.9 $63.1
Total Expenses &
Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($1.9) ($1.2) ($1.1) ($0.8) ($0.7)
Alternative Scenario Selecting
70% of the Excess ERAF and
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of Reserves $55.4 $57.4 $59.5 $61.4 $63.6 Total Expenditures &
Reserve Allocations $56.8 $58.1 $60.1 $61.7 $63.8
Surplus/Deficit ($1.4) ($0.7) ($0.6) ($0.3) ($0.2)

Page 268 ends

PAGE 7 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
DISCUSSION (continued):

If Council assumes 100% of the FY 2024/25 Estimated Excess ERAF proceeds and assumes greater growth (option C) for both the Secured Property Tax and VLF, the estimated result is displayed below.

Other Scenarios
As demonstrated, the Forecast is highly sensitive to the assumptions. If Council were interested in modifying other assumptions as outlined in Attachment 1, the Forecast would change accordingly.

Risk Considerations
It is not unusual for the State to take revenue from local government, such as occurred with the dissolution of the former Redevelopment Agencies (RDA), or for the County to redistribute property tax retroactively based on court rulings. In the recent past (FY 2020/21 and FY 2021/22), the County of Santa Clara withheld approximately $1.6 million over the three fiscal years to recapture excess RDA residual property tax revenues distributed to the Town. This action was necessary to comply with an appellate court decision involving the City of Chula Vista (49 Cal. App. 5th 539 (2020)) that held that any funds remaining in each RDA Property Tax Trust Fund (RPTTF) must be distributed in accordance with the taxing entities’ pro-rata shares without any caps or reductions to the distributions of RPTTF residuals to taxing entities that received pass-through payments. Calculating the redistribution went back three years retroactively.

The Governor's most recent budget assumes the approval of legislation allocating ERAF to charter schools, potentially reversing the recent appellate decision that charter schools do not get ERAF.

Alternative Scenario Selecting
100% of the Excess ERAF and
Secured Property Tax Option C
and VLF Option C
(Greater Growth)
2024/25
Forecast
($M)
2025/26
Forecast
($M)
2026/27
Forecast
($M)
2027/28
Forecast
($M)
2028/29
Forecast
($M)
Total Revenues &
Transfers and Use of Reserves $55.4 $57.4 $59.5 $61.4 $63.6 Total Expenditures &
Reserve Allocations $55.9 $57.1 $59.1 $60.7 $62.7
Surplus/Deficit ($0.4) $0.3 $0.4 $0.7 $0.9

Page 269 ends

PAGE 8 OF 8
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 14, 2024
CONCLUSION:

The Council should review, discuss, and select the assumptions for the initial Five-Year Forecast and provide direction on other budget considerations.

The preparation of the FY 2024/25 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 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 Draft FY 2024/25 Operating and Capital Budgets will be available on April 22, 2024 for the Finance Commission’s consideration and the Council’s budget hearing is tentatively scheduled for May 21, 2024.

Staff looks forward to answering the Council questions and receiving any recommendations for Council consideration for the preparation of the proposed FY 2024/25 Operating Budget that results from the discussion.

COORDINATION:

This Report was prepared in coordination between the Finance Department and the Town Manager’s Office.

ENVIRONMENTAL ASSESSMENT:

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

Attachments:

1. Five-Year Forecast Report to the Finance Commission with Attachments 1 through 6

2. Public comment received after the Finance Commission’s February 12, 2024 meeting and prior to 11 a.m. on February 15, 2024

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PREPARED BY: Gitta Ungvari
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

COUNCIL AGENDA REPORT
MEETING DATE: 02/12/2024
ITEM NO: 4
DATE: February 9, 2024
TO: Finance Commission
FROM: Laurel Prevetti, Town Manager
SUBJECT: Review and Make a Recommendation to the Town Council to Accept as Presented or Accept with Modification the FY 24 Five-Year Forecast and Supporting Work Product
RECOMMENDATION:

Review and provide recommendations to the Town Council regarding the Five-Year Forecast (Fiscal Years 2024/25 – 2028/29), assumptions, and scenarios, and provide input for the FY 2024/25 budget direction.

EXECUTIVE SUMMARY:

The base case Five-Year Forecast (FY 2024/25 – 2028/29) (Attachment 2) identifies deficits for all future years, using 2% salary increase assumption and 4.6% vacancy saving factor approved by the Town Council for the FY 2023/24 budget and other assumptions (see Attachments 3 and 4). The deficits are on the order of approximately $2M 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 Finance Commission can provide recommendations on the assumptions and selections from different options for Council consideration for the FY 2024/25 budget and provide other budget direction as appropriate. The Capital Program is scheduled for a separate discussion at the next Commission meeting.

ATTACHEMENT 1

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PAGE 2 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
BACKGROUND:

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 20, 2024, the Town Council is scheduled to consider the FY 2024/25 Five Year Forecast which is an important component of the annual budget cycle (Attachment 1).

The Commission is welcome to provide comments on the Forecast, its assumptions, and scenarios as well as any comments for consideration in the preparation of the FY 2024/25 Operating Budget. The Finance Commission will have an opportunity to discuss the Capital Program at its March 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 (“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).

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PAGE 3 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

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”).

National and Local Economic Backdrop
The UCLA Anderson School of Business publishes a quarterly 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 December 2023 Report, they mentioned that based on their analysis, the chance of recession in U.S. have diminished. Their assessment was backed by strong consumer and government spending that offset the tightening monetary policy in 2022. Their assumption is that the economy will grow 2.4% in 2023, 1.9% in 2024, and

1.5% in 2025. The report indicates the reason for the slower growth in the upcoming years is due mainly to the monetary policy affecting economic growth.

The US economy’s resiliency is demonstrated by the Gross Domestic Product (GDP) increase of

4.9% in the third quarter and 3.3% in the fourth quarter of 2023 (Advance Estimate). As the graph below illustrates, the 3.3% increase in GDP is comprised of gains in all areas except imports.

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PAGE 4 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

In the quarterly California state report, Anderson indicates that California will outpace the US economy by a small margin. The main areas of concern are the tightened monetary policy and risks of instability in domestic politics and geopolitics. The negative factors are offset by an increase in technical manufacturing and international immigration. Anderson forecasts the state unemployment rate to decline on average from 4.7% in 2023 to 4.5% in 2024 and then

3.8% in 2025. Housing stock is expected to increase based on new building policies. Stock is forecasted to increase to 127,000 net new units in 2024 to 155,000 in 2025.

Operating Revenue Trends and Five-Year Forecast Scenarios The Town is highly dependent on five economically sensitive revenues comprising 70% of General Fund forecasted revenues. Following are summaries of the Town’s major revenues of property tax, sales tax, business license tax, franchise fees, and transient occupancy tax (TOT).

To provide context for the development of the Five-Year Forecast (FY 2024/25 – 2028/29), the prior year’s 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 estimated General Fund revenues for FY 2023/24. The County of Santa Clara provides property tax collection updates and projections quarterly. The following table illustrates the most recent estimates relative to the Adopted FY 2023/24 Budget and FY 2022/23 actuals. The current County estimate indicates $654,587 more than the FY 2023/24 Adopted Budget. The increase is a combined effect of higher-than-expected Redevelopment Agency (RDA) Residual Apportionment, and Motor Vehicle License in Lieu (VLF), Educational Revenue Augmentation Fund (ERAF) estimates and decrease in secured property tax estimates and in property transfer tax.

FY 2022/23
Actual
FY 2023/24
Adopted Budget
FY 2023/24
County Estimates
$22.7 M $23.2 M $23.9 M
Property Tax Revenue &
Vehicle License Fee Backfill

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PAGE 5 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

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 2018. For the 6- year period, the average annual growth rate was 6.6%.

Source: Santa Clara County Assessors Annual Reports
The following table illustrates the Town budget to actuals total Property Tax and VLF proceeds for the same time period.
2018 2019 2020 2021 2022 2023 Six Year Average
Growth
Total Assesment Roll
(Values in Billions) 13.15 13.84 14.9 15.6 16.8 18.1
Percent Growth 6.95% 5.23% 7.70% 4.33% 7.77% 7.72%

6.6%
Budget Budget Budget Budget Budget Budget Adopted
FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 Final Budget $ 15,370,934 $ 16,718,348 $ 18,352,880 $ 18,705,325 $ 20,138,320 $ 22,484,118 $ 23,249,311 Actuals $ 15,958,406 $ 17,321,347 $ 18,330,426 $ 19,878,835 $ 21,129,080 $ 22,743,088 Estimated $ 23,903,989
Final Budget YOY Growth 8.8% 9.8% 1.9% 7.7% 11.6% 3.4%
Actuals YOY Growth 8.5% 5.8% 8.4% 6.3% 7.6%
Estimated YOY Growth 5.1%

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PAGE 6 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

The average YOY Property Tax Budget growth is 7.2% and the Actual Property Tax YOY growth including FY 2023/24 most recent estimates is 7.0%.

The following chart illustrates the major categories of the FY 2023/24 Estimated Property Tax.

Secured Property Tax, VLF Property Tax in Lieu, and ERAF constitutes 91% of the current year proceeds.

The following graphs illustrate the historical amounts based on the major categories and the YOY growth of these categories.

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PAGE 7 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

As the graphs and table illustrate, the YOY performance for the different property tax categories varies from fiscal year to fiscal year.

FY 2018/19
Actuals
FY 2019/20
Actuals
FY 2020/21
Actuals
FY 2021/22
Actuals
FY 2022/23
Actuals
FY 2023/24
Estimated
Average
YOY
Growth
Secured Property Tax 6.9% 5.6% 1.6% 6.1% 12.3% 7.0% 6.6% Unsecured Property Tax 16.4% -5.1% 6.9% -7.8% 8.8% 6.1% 4.2% Supplemental Property Tax 17.7% -31.8% 40.3% -9.0% 61.1% -40.5% 6.3% Property Transfer Tax -21.8% -9.2% 76.0% 17.0% -37.8% -23.2% 0.2% ERAF 90.5% 46.1% 41.4% 16.1% -3.1% 8.8% 33.3%
Other Property Tax -11.1% -0.2% 10.7% 1.0% -2.6% 4.1% 0.3% VLF Property Tax in Lieu 6.9% 5.2% 4.6% 4.4% 7.7% 7.7% 6.1%

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PAGE 8 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

Staff analysis includes the three most significant property tax categories.

Secured Property Tax and VLF Property Tax are usually increasing by the growth of the Total Assessment Rolls. The Total 2024 Assessment Roll will be published in July 2024 from the Santa Clara Assessor’s Office. In addition to the annual assessment increases and the reassessed Proposition 13 properties as they changed ownership, the historical growth includes the annexation of 24 pockets from Santa Clara County and property sales from the First Phase of North Forty development. VLF Property Tax in Lieu collection based on the assessed roll is included as well.

ERAF, as the chart illustrates above, can vary from year to year, and it is not tied to the Total Assessment Roll. 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. The Santa Clara County has only provided projections for the current fiscal year. FY 2024/25 Excess ERAF projections will not be available until March 2024. FY 2025/26 estimates will be available in March 2025. The Town has been monitoring and providing periodic updates to the Finance Commission and to the Town Council on the ongoing developments regarding the distribution of excess ERAF funds. Additional information can be found Attachment 5.

The following table illustrates potential growth factors to choose in the development of the Five-Year Forecast (FY 2024/25 – 2028/29) based on the historical information provided. For each of the three largest revenue categories, staff is asking Finance Commission to select which option to recommend for inclusion in the Forecast.

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PAGE 9 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

Secured Property Tax:

Option A – Represent the lowest YOY growth rate the last six-year period.

Option B – Represent the normalized (24 County Packet annexation and North 40 First Phase of housing sale, approximately $1.5 million) YOY growth over the last six-year period.

Option C – Represent the average YOY growth rate the last six-year period.

Staff recommendation is Option B highlighted in orange.

Motor Vehicle in Lieu (VLF):

Option A – Represent the lowest YOY growth rate the last six-year period.

Option B – Represent the normalized total assessed roll YOY growth rate.

Option C – Represent the average YOY growth rate the last six-year period.

Staff recommendation is Option B highlighted in orange.

FY 2024/25
Assumptions
FY 2025/26
Assumptions
FY 2026/27
Assumptions
FY 2027/28
Assumptions
FY 2028/29
Assumptions
Option A - Lowest YOY over the Last Six Year Period 4.3% 4.3% 4.3% 4.3% 4.3% Option B - Normalized for County Annexation and
Other One Time Roll Growth ~$1.5 M 5.1% 5.1% 5.1% 5.1% 5.1% Option C - Average YOY Property Tax Roll 6.6% 6.6% 6.6% 6.6% 6.6% Option A - Lowest YOY VLF Revenue Growth over the
Last Six Year Period 4.4% 4.4% 4.4% 4.4% 4.4%
Option B - Normalized based on Property Tax Roll 5.1% 5.1% 5.1% 5.1% 5.1% Option C - Average YOY VLF Revenue Growth 6.1% 6.1% 6.1% 6.1% 6.1% Option A - No ERAF $0 M $0 M $0 M $0 M $0 M
Option B - 50% of FY 2023/24 Estimated $1.25 M $1.25 M $1.25 M $1.25 M $1.25 M Option C -70% of FY 2023/24 Estimated based on
County Recommendation $1.75 M $1.75 M $1.75 M $1.75 M $1.75 M Unsecured Property Tax 4% of Total Property Tax Collections 3.0% 3.0% 3.0% 3.0% 3.0% Supplemental Property Tax 1% of Total Property Tax Collections varies by sales activity 3.0% 3.0% 3.0% 3.0% 3.0%
Property Transfer Tax 2% of Total Property Tax Collections varies by sales activity 3.0% 3.0% 3.0% 3.0% 3.0%
Other Property Tax 2% of Total Property Tax Collections 3.0% 3.0% 3.0% 3.0% 3.0% Secured Property Tax
VLF Property Tax in Lieu
ERAF

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PAGE 10 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

Excess ERAF:

Option A – Since the ERAF is not guaranteed and the FY 2024/25 ERAF estimates are not published until Marh 2024, one of the options is not to include estimates this time.

Option B – Represent the 50% of the FY 2023/24 Estimated ERAF Option C – Assumes that the Town will receive 100% of the ERAF proceeds; however, per prior Council direction and the Santa Clara County Assessor’s Office advice, 30% is set aside until the lawsuits and audit findings are resolved.

Staff recommendation is Option B highlighted in orange.

Unsecured, Supplemental, Other Property Tax, and Property Transfer Tax:

This category represents 9% of the current proceeds. Staff recommends growing them by 3%.

Staff recommends growing the rest of the property tax (Unsecured, Supplemental, Other Property Tax, and Property Transfer Tax) that represent 9% of the current proceeds by 3%.

For purposes of the Forecast, the “Base Case” utilizes the Option B growth factor for Secured Property Tax, VLF Property Tax in Lieu and Option B (50% of the FY 2023/24 Estimates) for Excess ERAF reflecting the volatility of the revenue source. Option A represent the “Lower Growth” and Option C represent the “Greater Growth” scenarios.

Sales Tax
Sales tax is the second largest revenue source for the Town and comprised approximately 15% of total Town estimated General Fund revenues for FY 2023/24. The following table illustrates the most recent projections from the Town’s sales tax consultant MuniServices relative to the Adopted FY 2023/24 budget and FY 2023/24 actuals.
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth $22.17 $23.10 $24.08 $25.09 $26.15 Option B - Base Case $23.57 $24.67 $25.82 $27.03 $28.31 Option C - Higher Growth $24.34 $25.74 $27.23 $28.81 $30.49 Property Tax
(Property Tax & VLF)

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PAGE 11 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

Current total sales tax estimates include $6,960,850 ($915,383 decrease) in proceeds from regular sales tax and $1,239,843 ($36,802 decrease) in proceeds from the Measure G oneeighth cent district tax compared to the Adopted budget. Overall growth rates vary due to the anticipation of when and to what extent inflation may begin to decline. The current forecast incorporates a Recession Inflation Scenario, with the Consumer Price Index for all Urban Customers hitting a target of 2.8% at the middle of 2025. Taxable sales for general retail and transportation are expected to see the greatest impacts. Increased interest rates impact business to business activities, while increased mortgage rates leaves customers with less disposable income. In addition, gas service stations are projecting decreased activity due to the popularity of electric vehicles. The most recent forecast also reflects the change of Netflix discontinuing DVD rentals in September 2023. Actual receipts net of administrative fees collected by the State will be confirmed at the close of the fiscal year. Per prior Council direction, the Measure G funds are allocated 50% for capital improvement projects and 50% for operating expenses.

The following tables illustrates MuniServices Most Likely scenario relative to their “Conservative” and “Optimistic” scenarios. For both sales tax categories, staff is asking Finance Commission to select which option to recommend for inclusion in the forecast.

FY 2022/23
Actual
FY 2023/24
Adjusted Budget
January 2024
MuniServices
Estimate
Base Sales Tax $7.5 M $7.8 M $6.9 M
FY 2021/22
Actual
FY 2022/23
Adjusted Budget
January 2024
MuniServices
Estimate
Measure G – 1/8 District Tax $1.3 M $1.3 M $1.3 M
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Conservative $6.54 $6.64 $6.74 $6.83 $6.91
Option B - Most Likely $7.04 $7.15 $7.26 $7.35 $7.43
Option C- Optimistic $7.54 $7.66 $7.77 $7.87 $7.96
Base Sales Tax

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PAGE 12 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
DISCUSSION (continued):

Staff recommendation is Option B highlighted in orange.

Further Information related Sales Tax context is included as Attachment 6.

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 $2.3 million for FY 2023/24. 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 2022/23 actuals, the FY 2023/24 Adjusted Budget, and year-end collection estimates.

TOT is an important revenue source for the Town and comprises approximately 4% of total Town estimated revenues in the amount of $2.3 million for FY 2023/24. 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.

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, TOT collections were recovering but current quarter is trending lower than prior year. Based on the current trend, staff is recommending a $154,516 decrease to this revenue source.

Measure G
1/8 District Tax
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Conservative $1.22 $1.26 $1.29 $1.32 $1.35
Option B - Most Likely $1.28 $1.32 $1.35 $1.39 $1.42
Option C- Optimistic $1.33 $1.37 $1.41 $1.45 $1.48
FY 2023/24 Actual FY 2023/24
Adjusted Budget
FY 2023/24 Year-end
Estimate
TOT $2.2M $2.4 M $2.3 M

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PAGE 13 OF 22
SUBJECT: Five-Year Forecast (FY 2024/25 – 2028/29)
DATE: February 9, 2024
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 2% differential from the Base Case.

TOT:

Staff is asking Finance Commission to select which option to recommend for inclusion in the forecast.

Staff recommendation is Option B highlighted in orange.

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 projections provided by HdL are trending slightly lower than the adopted budget. Staff is recommending a $11,347 decrease to this revenue source. 2024/25 2025/26 2026/27 2027/28 2028/29
Forecast Forecast Forecast Forecast Forecast
Proposed Growth 3% 3% 3% 3% 3%
Estimated Revenues $2.3 M $2.4 M $2.5 M $2.6 M $2.6 M
TOT
2024/25
Forecast
2025/26
Forecast
2026/27
Forecast
2027/28
Forecast
2028/29
Forecast
($M) ($M) ($M) ($M) ($M)
Option A - Lower Growth 1% $2.29 $2.31 $2.33 $2.36 $2.38 Option B - Base Case 3% $2.33 $2.40 $2.47 $2.55 $2.63
Option C- Greater Growth 4% $2.36 $2.45 $2.55 $2.65 $2.76 TOT

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Los Gatos City CouncilFebruary 20, 2024

Los Gatos City Council
February 20, 2024