110 E. Main Street Los Gatos, CA 95030 ● (408)354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
TOWN COUNCIL REPORT
MEETING DATE: 01/20/2026
ITEM NO: 18
DESK ITEM B
DATE: January 20, 2026
TO: Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Discussion, consideration, and Possible Action to Provide Direction on Revenue Measure Options and Next Steps Including Engaging Professional Services to Support the Evaluation Effort in an amount Not to Exceed $80,000 RECOMMENDATION:
Staff recommends that the Town Council consider:
1. Authorizing the Town Manager, or designee, to pursue special legislative authorization from the State Legislature in the 2026 session to exempt Los Gatos from the statewide 2 percent combined district sales tax cap, preserving the Town's legal ability to place a general transactions and use (sales) tax measure on the November 2026 ballot.
2. Authorizing the Town Manager, or designee, to engage specialized professional consultants to facilitate special legislative authority to preserve the option for a transactions and use tax and to engage other such professionals to properly inform the Town Council regarding a possible revenue measure not limited to a transaction and use tax for work up to and including potential action related to that specific measure.
3. Allocate $80,000 from the General Fund unassigned fund balance for professional services to continue work related to a possible revenue measure that the Town Council may consider for the November 2026 election.
REMARKS:
Attachment 5 contains the staff presentation.
Attachments Received with the Staff Report:
1. Five-Year Forecast updated on December 29, 2025
2. CIP Agenda Report of November 19, 2024
3. Wildfire Report of December 16, 2025
Attachment Received with the First Desk Item:
4. Public comment received before 11:01 a.m., Tuesday, January 20, 2026.
PAGE 2 OF 2
SUBJECT: Discuss and Provide Input for Potential Revenue Measure DATE: January 20, 2026
Attachment Received with this Desk Item B:
5. Staff presentation
REVENUE TAX MEASURE OPTIONS
Town Council Meeting
January 20, 2026
ATTACHMENT 5
Agenda
• Finance Committee Recommendation
• Important Dates
• Current Financial Status
• Operating and Infrastructure Unmet Needs
• Community Priorities
• Tax Measure Summary
Finance Committee Recommendations
• Supported engaging professional services (up to $80,000) to preserve options for a November 2026 revenue
measure.
• Measure may include special legislative authority for higher transaction & use tax and other revenue options. • Waiting for financial and impact analysis results from NHA Advisors before deciding to proceed.
Important Budget Dates Town Council
5 YEAR FORECAST
ANALYSIS
FY26 MID-YEAR
REPORT
FY27 PROPOSED
BUDGET POSTED
FEB 3, 2026 FEB 18, 2026 APRIL 20, 2026
CURRENT FINANCIAL
STATUS
TOWN IS FINANCIALLY STABLE
TODAY, NOT IN CRISIS
RECENT FUND BALANCE GROWTH
DRIVEN BY ONE-TIME REVENUES
(INTEREST INCOME, VACANCIES)
FY 2025–26 BUDGET RELIES ON
$1.1M IN RESERVES
RISING PERSONNEL COSTS AND
DECLINING INTEREST INCOME
CREATE STRUCTURAL RISK
UNFUNDED NEEDS (in millions)
CATEGORY DESCRIPTION EST COST 2025 DOLLARS
STREETS AND ROADS PAVEMENT AND
INFRASTRUCTURE
$172.7M
PUBLIC SAFETY NEW POLIC OPS BUILDING AND
EOC
$50.4M to $66.0M
TOWN FACILITIES BUILDING MAINTENANCE,
REPAIRS, CAPITAL
$22.7M
PARKS AND ASSETS PARKS DEFERRED
MAINTENANCE
$29.3M
PARK REHABILITIATION SOCCER FILED TURF REHAB ~$2.5M
WILDFIRE CRITICAL INFRASTRUCTURE $6M TO $11M
WILDFIRE OPERATIONS COMPREHENSIVE WILDFIRE
PROGRAM
$2.1M TO $3M
TOTAL $285.7M TO $307.2M
COMMUNTIY PRIORITIES vs FUNDING AVAILABILITY
Residents strongly value:
Public safety
& emergency
preparedness
Streets,
sidewalks &
drainage
Parks, libraries, and core services
Current budget capacity is
insufficient to fully meet =
expectations
THIS MEANS…
• Existing revenues cannot sustain current service levels long-term
• Continued deferral increases cost and risk
• Proactive planning avoids crisis-driven cuts or rushed tax proposals and
• Revenue measures require significant lead time
Summary of Revenue Options
Tax Measure Description Progressive
/ Regressive
Use Burden Approval Potential Revenue
Transactions
and Use Tax
(Sale Tax)
Local tax on taxable retail
sales and certain out-ofarea purchases used in
the Town
Regressive Operating and
Capital
Resident/
Non-Resident
Majority if flexible
2/3 if specific
$1.3M for 1/8 cent
$5.2M for a 1/2 cent
Parcel Tax Flat annual tax on each
parcel
Regressive Restricted based
on purpose stated
on ballot
Resident and
non-resident
owners
2/3 voter approval ~$1.1M from a tax of
$100/parcel
General
Obligation
Bonds
Long-term borrowing
repaid through a voterapproved property tax
override
Progressive Capital Only Resident and
non-resident
owners
Two-thirds voter
approval required
Each $10M of bonds
equates to roughly tens of
dollars per $100,000 of
assessed value
Utility User
Tax
Tax on electricity, gas,
telecommunications, and
cable
Regressive Operating and
Capital
Resident and
non-resident
owners
Majority if flexible
2/3 if specific
Varies by rate and services
taxed; can generate
significant ongoing revenue.
No Town specific estimate
provided
Special
Assessments
Charges on properties
within a defined area to
fund improvements or
services that provide a
specific benefit to those
properties
Progressive Specific only to
those properties
within a defined
area
Residents and
non-resident
owners in the
area
Requires a Prop 218
property-owner
approval process;
Requires a special
election (mail in
ballots)
Depends on district
boundaries, benefit
methodology, and
assessment levels
Other considerations
Sales Tax
• Los Gatos is effectively at the state sales tax cap with only 1/8 cent remains
• Meaningful option (½-cent) requires special legislation • ½-cent ≈ $5.2M/year
STAFF RECOMMENDATIONS
Authorize actions to preserve options, not commit to a tax:
• Seek state legislative authority to exceed 2% sales tax cap
• Engage legal, financial, and legislative consultants
• Allocate $80,000 from General Fund reserves
RECOMMENDED AUTHORITY THIS
EVENING…
DOES
• Preserve legal and timing
flexibility
• Enables informed 2026
decision
• Align with Fiscal Stability
priority
DOES NOT
• Raise taxes
• Place a measure on the
ballot
• Approve projects
QUESTIONS?