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: 05/20/2025
ITEM NO: 17
DESK ITEM
DATE: May 20, 2025
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Conduct a Public Hearing on the Town of Los Gatos Proposed Operating and Capital Budget for Fiscal Year 2025-26 and on the Proposed Capital Improvement Program for FY 2025-26 – FY 2029-30
REMARKS:
Attachment 9 contains Public Comment received before 11:00 a.m., Tuesday, May 20, 2025, and Attachment 10 is the staff presentation.
Attachments previously distributed with the Staff Report:
1. Finance Commission Identified Areas for Review in the Five-Year Forecast
2. Forecast History including the Updated Forecast
3. Budget Study Session – Deficit Reduction Staff Report
4. Budget Study Session – Capital Improvement Program Staff Report
5. Town of Los Gatos Donation Policy
6. Town of Los Gatos Donation Opportunities: FY 2025-26
7. Public Comment Received Before 11 a.m. on May 16, 2025 Attachment distributed with Addendum:
8. Public Comment Received Before 11 a.m. on May 19, 2025 Attachment distributed with this Desk Item:
9. Public Comment Received Before 11 a.m. on May 20, 2025
10. Presentation
ATTACHMENT 9
FY 2025-26 Proposed Budget
Town Council
May 20, 2025
Item 17
Agenda and Recommendations
• Discuss the Five-Year Forecast and Results of Finance Commission and Staff Review – Approve Use of Measure G proceeds;
• Provide Direction on the Proposed Operating Budget and Accepting a Recommended Further Reduction of $0.8 million in expenditures for 2025-26;
• Provide Direction on the Proposed Capital Budget to establish a Tiered CIP program, and accept Tier 1 projects for 2025-26; • Approve 2025-26 List of Potential Donations Consistent with Town Donation Policy
Budget Process
• February 11, 2025 – Strategic Priorities reframed and included prioritizing emergency preparedness, prudent financial
management and preserving unique small-town charm.
• Staff and Council discussed projected financial conditions and challenges
• April 21, 2025 – Proposed Operating and Capital Budget Released
• April 22, 2025 – Council Study Session with Direction to Finance Commission
• Review Five-Year Projection
• April 28, May 5, and May 12, 2025 – Finance Commission discussion and Recommendation to Council
Approach to 2025-26 Budget – Structural
• Expenditure and Deficit Reductions – reducing the annual spend for the Town.
• Revenue Increases – identifying and implementing measures increases available revenue to support Town activities. • Gaining efficiencies – optimizing or rethinking service delivery. • Innovation and Economic Development – looking to
opportunities to enhance drivers of primary revenue or
provision of services.
Balanced Approach to 2025-26
• Balancing Reserve Fund Use with Prioritizing Core Service and People • Leaning on reserves to avoid unnecessary reductions in order to continue financial assessment (Risk based and Service focused approach) • Capital Improvement Planning
• Tiered structure focuses on staff capacity and improving prioritization • Additional Controls on Expenditures – internal by management • Position Control – Robust evaluation process balancing operations, financial condition, priorities, and service levels (April 2025)
• Avoid hiring freeze, but requiring departments to provide written impact justifications • Expenditure Control – Vehicle replacement, department budget control, etc. (2025-26)
Discussion of Five-Year Projections
• Government Finance Officers Association recommends
conducing multi-year financial projections as part of long-term financial planning.
• Forecast should be integrated into the budget process • Build transparent, assumption-driven model
• Link to Capital and Policy Planning
• Communicate and Mobilize based on results
Original Five-Year Financial Projection
• Staff prepares Five-Year Projection (conservative)
• Forecast period: FY 2025-26 through FY 2030-31
• Projected structural deficit of $3.7 million in FY 2025-26 • Revenue not keeping pace with rising expenditures
• Deficit driven by general cost escalation, including salaries, pension obligations, and cost of supplies
• Includes 4.6% Vacancy Savings Factor and Measure G Use
Revenue Category 2023-24
Actual
2024-25
Estimated
2025-26
Proposed
2026-27
Forecast
2027-28
Forecast
2028-29
Forecast
2029-30
Forecast
2030-31
Forecast
Total Operating
Revenue (OR) and
Transfer In
$58.5 $58.3 $58.1 $58.8 $60.4 $62.0 $62.4 $64.5
OR with Transfers
and use of reserves
$61.9 $60.8 $58.1 $58.8 $60.4 $62.0 $62.4 $64.5
Total Expenditures $53.6 $57.4 $61.4 $63.4 $65.7 $68.1 $68.3 $69.7 Exp with Transfers
and reserve
allocations
$57.7 $60.8 $61.8 $63.8 $66.1 $68.5 $68.7 $70.1
Net Revenue $4.2 $0.0 ($3.7) ($5.0) ($5.7) ($6.5) ($6.3) ($5.6) Original Five-Year Projection (April 22, 2025)
5/20/2025 Agenda - Attachment 2, Page 8 or
pg. 585 of Agenda Package
Closer Look at Five-Year Forecast
• April 22, 2025 – Town Council Budget Study Session
• Direction to review the Five-year forecast.
• The Finance Commission and Staff worked collaboratively to tighten assumptions and to integrate more up to date
information which changed the financial projection.
• Note of Caution: projections are estimates. Budget
conservatism is still necessary.
Changes Incorporated
Based on Finance Commission Recommendations
• Increased Property Tax revenue by $200,000
• Increased Interest Income revenue by $180,000
• Increased Planning Permit revenue by $15,000
• Increased Business License revenue by $50,000
• Reduced anticipated CalPERS benefits expenditures by
$255,000
Changes Incorporated
Based on New Information Available for Staff
• Increased Licenses and Permit revenue by $668,000 due to increases in encroachment fees assessed by the solid waste joint powers authority.
• Increased Sales Tax Revenue by $163,000 based on updated sales tax estimates for the most recent quarter from the Town’s Sales Tax consultant.
• Increased License and Permit revenue by $360,000 based on the updated Town’s Fee Schedule approved by Council on May 6, 2025.
Updated Five-Year Financial Projection
• Based on the Finance Commission Recommendation and the new information available for staff
• Projected deficit reduced to $1.8 million in FY 2025-26 Revenue Category 2023-24
Actual
2024-25
Estimated
2025-26
Proposed
2026-27
Forecast
2027-28
Forecast
2028-29
Forecast
2029-30
Forecast
2030-31
Forecast
Total Operating
Revenue (OR) and
Transfer In
$58.5 $58.3 $59.6 $59.8 $61.6 $63.1 $63.4 $65.5
OR with Transfers
and use of reserves
$61.9 $60.8 $59.6 $59.8 $61.6 $63.1 $63.4 $65.5
Total Expenditures $53.6 $57.4 $61.0 $63.2 $65.5 $67.9 $68.1 $69.5 Exp with Transfers
and reserve
allocations
$57.7 $60.8 $61.4 $63.6 $65.9 $68.3 $68.5 $69.9
Net Revenue $4.2 $0.0 ($1.8) ($3.8) ($4.3) ($5.2) ($5.1) ($4.4) Updated Five-Year Projection (May 20, 2025)
5/20/2025 Agenda - Attachment 2, Page 3 or
pg. 580 of Agenda Package
Use and Impact of
Deficit on General Fund Balance
• The General Fund balance is used to ensure liquidity, stability, and policy compliance. Two uses include:
• Maintain Liquidity & Smooth Cash Flow – The unassigned (unrestricted) balance provides working capital to bridge timing gaps between irregular revenue receipts and steady operating outflows—avoiding short-term borrowing just to meet payroll or pay vendors.
• Mitigate Risks & Handle Emergencies – Reserves protect against revenue shortfalls (economic downturns, state aid cuts) and unanticipated expenditures (natural disasters, infrastructure failures), so core services can continue uninterrupted.
Impact of
Changes in
Projected
Deficit on
General
Fund
Balances
Considering Budget Balancing Options to
Reduce Operational Deficit
• Recommended Approach – Balance use of reserves with
deficit reduction options
• Net reduction of deficit $810,000
• Use of reserves: $1 million* (Staff report states $700,000) • Rationale
• Avoid Over Cutting and protect core services and people • Provide the opportunity to conduct an external Five-Year Forecast and Financial Condition analysis
• Provides opportunity to become more efficient and identify ways to improve financial condition while minimizing impact to core services Expenditure Reduction Options –
$0.8 million Savings
• All Tier 1 Reductions - $295,000
• Some Tier 2 Reductions - $355,000
• Some Tier 3 Reductions - $160,000
• Total: $810,000
• Staff reviewed the proposed reduction items to minimize core service impacts.
Tier 1 Reductions - $295,000
In this tier, the team focused on efficiency and realigning resources with core service delivery.
Staff hours were intentionally preserved and only reduced where part-time positions were either unfilled or currently filled by retired annuitants providing extra help.
The reductions may mean that staff may not have funding available to address unusual or unexpected circumstances.
o Implement Efficiency and Realignment of Resources (approx. $251,000)
o Reduce Unfilled Part-Time or Retired Annuitant Hours (approx. $31,000)
o Remove Commission Budgets, reallocating $5,000 to fund the bulk purchase of giveaway items ($12,500)
Tier 2 Reductions - $355,000
o Reduce Hotel Program funding to $20,000 (approx. $8,700) o Reduce part-time emergency coordinator hours (approx. $18,000) o Reduce outside legal services (approx. $110,000). May result in 2-4 week response delays.
o Remove decorative tree wrap lighting downtown (approx. $68,000) o Remove doggie bags in parks (approx. $10,000)
o Reduce Library offerings including streaming media, e-resource databases and e-magazines. Due to the timing of contracts, these reductions have already been implemented (approx. $50,000).
o Reduce Library printed quarterly programs/brochures and the number of media and book additions and replacements in the Library’s collection (approx. $34,000).
o Reduce memberships and other operational reductions (approx. $56,000).
Tier 3 Reductions - $160,000
o Reorganize the Community Police Complaints process (approx. $60,000).
o Management will be working with the Police Department and Town Attorney on defining a more efficient process that attains Councils policy goals. o Reduce block pruning and tree management by 50% (approx. $100,000).
o Staff will evaluate alternate service delivery models and consider how an urban forest management plan can shore up this program.
Community Grant Program
o The proposed budget includes $126,800, which increases sustaining and reduces one-time grants.
o Staff recommends defining an investment amount and allow Library staff to present a new grant program model in Aug 2025.
What total funding amount is desired?
Fiscal Year One-time
competitive grants
Sustaining grants Innovation
grants* (program
ended 2024)
Total
FY21-22 $78,013 $57,000 $4,500 $139,513
FY22-23 $81,100 $62,000 $6,000 $149,100
FY23-24 $229,000 $66,000 $6,000 $301,000
FY24-25 $230,000 $73,800 $0 $303,800
FY25-26
(proposed)
$0 $126,800 $0 $126,800
Revenue
Options
Revenue
Audits
Reduce
Subsidy
New Revenue
Other Measures Efficiencies and Innovation
Reducing expenses and increasing revenues are not the
only options necessary to address structural imbalances within the Town. The Town needs to look to gain
efficiency, leverage technology, and invest in efforts that return more through economic development and
innovation.
• Internal Service Fund Reduction
• Right-Size Vehicle Fleet
• General Liability and Workers’ Compensation Programs
Review to reduce cost and liability
Questions on Operating Budget
Capital Improvement Budget
Presented by Nicolle Burnham
FY 2025-26 CIP
• Capital budget switches to Tier system focused on staff capacity and appropriating only Tier 1 projects.
• Staff recommend that the Town Council affirm the
Finance Commission’s recommendation and direct the
use of all Measure G proceeds for operational
expenditures.
• Staff recommends that the Town Council approve the
direction to establish a Tiered CIP program and to
accept the Tier 1 projects in the 2025-26 Capital
Improvement Program.
INTENT OF FY 2025/26 – 2029/30 CIP
• Support Core Goals of Good Governance and Fiscal Stability • Take First Steps to Ensure Prudent Financial Management and Fully Funded Five-Year Capital Improvement Plan
• Build on Prior Work to Define Deferred Capital Improvement Programs for Town Facilities and Lifecycle Assets
28 TIER 1 / TIER 2 / TIER 3
• Projects in Past CIP’s – Tier 1 or Tier 2
• Other Known Needs – Tier 3 (Reference Section of Proposed Budget Document)
• Tier 1 – In Progress, Grant Funded, Substantial Progress Expected in FY 25-26
• Tier 2 – All Remaining Projects in Prior CIP’s
• Recognizes Staffing Levels are Limited and that Carryforward Funding has Been Excessive in Recent Years
29 TIER 1 PROJECTS - STREETS
• Street Repair & Resurfacing - Annual
• Annual Street Restriping - Annual
• Downtown Parking Lots Seal Coat &
Restriping
• Unanticipated Repairs - Annual
• Curb, Gutter & Sidewalk Maintenance -
Annual
• Shannon Road Repair
• Roadside Fire Fuel Reduction - Annual
• VMT Mitigation Program
• Measure B Education and Encouragement
• Shannon Road Ped & Bikeway
Improvements
• Parking Program Implementation
• Highway 17 Bicycle & Pedestrian Bridge -
Design
• Blossom Hill Rd - Union to Camden
Improvements
• Stormwater System - Pollution Prevention
Compliance
• Storm Drainage Mapping
• Annual Storm Drain Improvements
• Loma Street Drainage
• Storm Drainage System Mapping
• 709 University Avenue Drainage System
Replacement
• Vasona Oaks Drainage Failure Repair
30 TIER 1 PROJECTS - PARKS
• Oak Meadow Bandstand
Area Improvements
• Parks Playground Fibar
Project - Annual
• Vegetation Management -
Town-wide - Annual
• Sport Court Resurfacing
31 TIER 1 PROJECTS – PUBLIC FACILITIES
• ADA Compliance Work - Annual
• Public Art Gateway Project
• Emergency Preparedness
• Civic Center HR Offices
• Civic Center Plumbing and HVAC
Repair
• POB Space Study
• Battery Power Supply - Library
• Fleet Service Outdoor Work Area
(Design Phase)
• Auto Gate Replacements at PPW
and PD
• EV Chargers at 41 Miles Avenue
• IT Disaster Recovery Improvements
• Enterprise Resource Planning
Upgrade
• EOC Communications Upgrade
• IT Disaster Resiliency Project
32 NEW TIER 2 PROJECTS
• Traffic / Travel Demand
Model
• Parks and Trails Master Plan
• Condition Assessment of Civic
Center
• Village Lane Trash Enclosure
Photo Credit: Penner/ Los Gatan Howes Playlot (Staff Photo) 33
FINANCE COMMISSION RECOMMENDATIONS
1. Develop Time Phased Capital Program
2. Connect Annual Paving to Target Pavement Condition
Index
3. Stop Work on Highway 17 Overcrossing Project
34 FISCAL IMPLICATIONS OF PCI
• Optimal Pavement Condition Index (PCI) Target – 841
• Current Town PCI Level – 82 (“Good”)
• Current $3.7M Annual Funding Will Reduce PCI to 80 by 2029; Deferred Maintenance Would Increase from $13.4M to $17.4M • Maintaining Current PCI at 82 Requires Annual Paving Budget of $5.2M
• Cuts to Paving Budget May Impact Annual Funds Received from SB1
Staff recommends holding a study session on pavement management in the coming months
1. Metropolitan Transportation Commission (MTC) Pavement Management Plan recommends prioritizes improving the overall condition of the network to low and mid 80’s and then sustain it at that level. 35 Highway 17 Overcrossing
• Design is Fully Funded
• 65% Design to be Complete June 2025; Construction Documents Complete January 2026
• Approximately $1.4M Measure B Reimbursement Received Must be Refunded to VTA if Project is Cancelled
• Remaining Construction Match Projected at $1,342,120 for $29M Total Cost (2024 Dollars)
• Project has Excess Budget of $601,745 to Apply to Match or Refund VTA
• Staff Recommends Submitting Application for Federal SS4A Grant in June Using $42,805 of Excess Budget for Consultant Fees to Prepare the Application
36 QUESTIONS
Actions Requested
o Approve use of 2025-26 Measure G sales tax for operations o Provide direction on Proposed Operating Budget
o Accept list of $810,000 Proposed Reductions
o Determine total funding amount for Community Grants
o Propose any other changes
o Utilize unassigned fund balance to close the gap
o Provide direction on the Capital Improvement Budget
o Affirm Tiered CIP program
o Accept Tier 1 projects recommend for 2025-26
o Propose any changes
o Approve the 2025-26 List of Potential Donations Attachment 6 Donations List