PREPARED BY: Kristina Alfaro
Administrative Services Director
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 04/21/2026
ITEM NO: 10
DESK ITEM
DATE: April 21, 2026
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Receive the Fiscal Condition Assessment and Fiscal Impact Analysis for Proposed and Planned Growth Memorandums and Provide Feedback REMARKS:
Attachment 3 includes the consultant's presentation for this evening’s meeting.
Attachments Received with the April 21, 2026, Staff Report:
1. Fiscal Condition Assessment with Five-Year and Long-Term Financial Projections Assumption Memo
2. Updated Fiscal Impact Analysis for Proposed and Planned Growth Attachments Received with this Desk Item:
3. Presentation
Los Gatos
Fiscal Condition and Long-Term Forecast
Project Update
April 21, 2026
ATTACHMENT 3
Agenda
2 1. Process Overview
2. Core Assumptions
3. Base Case Outlook - Findings
4. Critical Policy Decisions
Study 2 – Fiscal Impact Analysis
Study 3 – Asset Liability Management (ALM)
Scope of Work
3 Study 1 – Fiscal Condition Analysis with Long-Term Forecast Develop Initial Assumptions
Presentation to Finance Commission
February 2nd
Detailed Assumptions Memo
Provided to Finance Commission in
March
Base Outlook
Projected long-term trend and
identification of key policy issues for
scenario modeling
Work Completed
to Date
4 1
2 3
4 Financial Condition Assessment
Review historical trends and key
economic factors
Work in
Progress
5 Fiscal Condition and Forecast
Model • Constrained and Growth
-based
scenarios
• Sensitivity analysis and stress testing • Final Report 1 Asset Liability Management • Incorporate the results of study 1 and study 2
• Funding needs and risk reduction • ALM modeling
3 Fiscal Impact Analysis • Finalize revenue and growth
-based
cost modeling
• Capital cost estimation • Scenario-based forecasts
2 6
Core Assumptions
Long-Term Forecast and Annual Budget
Long-Term
Financial Model Annual Budget Process
Primary Objective
Identify long-term trends and project
reasonably predictable conditions
across a multi-year landscape.
Mechanism for making near-term
adjustments to maintain fiscal
balance.
Decision Scope
Frames the high-level policy and
investment conditions for executive
leadership and governing bodies.
Involves difficult, specific choices
regarding staffing levels, service
delivery, and infrastructure
investment.
Outcome Warning system Incremental solution
Primary Revenue Sources
Sets resourcing available to provide Town services
Revenue Category
Share of Total
General Fund
Revenue
Methodology / Underlying Data Sources Assumption(s)
Property Tax and
VLF 45%
ERAF allocation percentages, per Santa Clara County; Actual property tax revenue, assessment value, new construction, and property tax sales as reported by the County
Average of 5.4% property value growth
per year, weighted based on
assumptions on rates of new
construction, property sales, and overall
assessment growth
Sales Tax 15% Los Gatos Economic Review prepared by MuniServices with actual revenue by industry; HdL revenue forecasts
Aggregate of 2% revenue growth per
year, averaging trends by industry
Other Taxes 8% HdL Business License Tax projections; actual Transient Occupancy Tax revenue per establishment
Business License Tax: 1.5% growth
Transient Occupancy Tax: 3% growth
Licenses, Fines,
and Fees 13% Actual revenue per department; actual permit fee revenue (provided by the Town)
Aggregate of 2.2% revenue growth per
year, averaging trends by department
(largely driven by Community Dev.,
Police, and Parks and Public Works)
Other Revenue 19%
Investment earnings based on actual rates of return on Town average investment balance, adjusted for projected change in fund balance. Remaining sources based on historical trend.
Investment earnings of 3-4% annually,
remaining sources revenue growth of
0.9% per year, averaged across revenue
sources
Expenditure Drivers
The cost to provide services
Expenditure
Category
Share of Total
General Fund
Expenditures
Methodology / Underlying Data Sources Assumption(s)
Salary and
Overtime 40% Actual wage expenditures by bargaining unit, with contractual growth based on existing bargaining unit agreements
Assumed growth of 3.8% per year,
blended average across units (assumes
no change to number of positions)
Benefits 28% Foster and Foster Actuarial Analysis of benefits contributions, actual salary growth experience
Assumed growth of 5% per year for
benefits overall, based on actuarial
analysis and salary cost assumptions
Internal Service
Charges 11%
Department-provided anticipated investment needs for
technology, vehicles, and facilities; historical claims and cost trends for workers compensation, and general insurance
Average growth of 3.5% per year, based
on projected future internal needs
Debt Service 3% Town debt service schedules Payments are based on existing schedules; no new debt assumed
Other Operating
Expenditures 16% Actual expenditures by department
Aggregate of 2.2% expenditure growth
per year, averaging trends by
expenditure type (e.g., utilities,
purchased services)
Transfers Out 2% Adopted Capital Improvement Plan; actual offsetting revenue; Town staff input on projected future needs
Assumes $1 million per year, based on
net sources and anticipated capital uses.
Maintains minimum contribution to
Pension Trust.
10 Findings
Base Revenue Projections ($M)
11 Revenue Category 2026
(Base) 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Property Tax and VLF $27.0 $29.3 $30.9 $32.7 $34.5 $36.5 $38.5 $40.7 $43.0 $45.4 $48.0 Sales Tax $9.1 $9.3 $9.5 $9.7 $9.9 $10.1 $10.3 $10.5 $10.7 $10.9 $11.1 Other Taxes $4.9 $5.0 $5.1 $5.2 $5.3 $5.5 $5.6 $5.7 $5.8 $6.0 $6.1 Licenses, Fines, and Fees $7.8 $7.9 $7.9 $8.0 $8.0 $8.1 $8.1 $8.2 $8.2 $8.3 $8.3 Other Revenue $11.7 $11.9 $11.7 $11.9 $11.9 $12.1 $12.1 $12.3 $12.4 $12.6 $12.8 Total $60.5 $63.3 $65.2 $67.5 $69.6 $72.1 $74.6 $77.4 $80.1 $83.2 $86.4 Percent Change N/A 4.6% 2.9% 3.5% 3.2% 3.6% 3.4% 3.7% 3.6% 3.8% 3.8% Draft – Subject to Change
Base Expenditure Projections ($M)
12 Expenditure Category 2026
(Base) 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Salary and Overtime $24.2 $25.0 $25.9 $26.9 $27.9 $29.0 $30.1 $31.3 $32.4 $33.7 $35.0 Benefits $17.0 $18.2 $19.1 $20.2 $20.9 $22.0 $23.1 $24.3 $25.6 $26.8 $27.6 Internal Service Charges $6.5 $7.0 $7.2 $7.5 $7.7 $7.9 $8.2 $8.4 $8.7 $8.9 $9.2 Debt Service $2.1 $2.1 $2.1 $2.1 $0.8 $0.8 $0.7 $0.0 $0.0 $0.0 $0.0 Other Operating
Expenditures $9.5 $10.1 $10.8 $11.5 $12.2 $13.0 $13.8 $14.7 $15.6 $16.6 $17.7 Transfers Out $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 $1.4 Total $60.7 $63.8 $66.5 $69.4 $71.0 $74.1 $77.2 $80.1 $83.8 $87.5 $90.9 Percent Change N/A 5.1% 4.2% 4.5% 2.2% 4.4% 4.2% 3.7% 4.6% 4.4% 3.9% Draft – Subject to Change
Base Case
Outlook- Key
Findings
14 $50
$55
$60
$65
$70
$75
$80
$85
$90
$95
2026
(Base)
2027 2028 2029 2030 2031 2032 2033 2034 2035 2036
Millions
Total Revenues Total Expenditures
• Revenue increases by an
average of 3.6% per year
• Expenditures increase by
an average of 4.1% per
year
• Average deficit is $2.5
million per year
• Reflects the base case- no changes to staffing, service levels, or revenue streams • Validated underlying structural deficit based on historical trend and forward-looking economic indicators › Expenditure growth has outpaced revenue collection and is expected to continue to do so absent policy intervention Draft – Subject to Change
15 Critical Policy
Decisions
Pension and OPEB Trust Funds
16 Base Case
• Continued annual Pension Trust
deposits of $390,000 per year
• No assumed use of the pension
or OPEB trust balances to
reduce long-term liability
Policy Considerations
• What Trust balance is
appropriate?
• How does investment of trust
fund money reduce ongoing
pension and OPEB operating
costs over time?
Fiscal Impact of Housing Unit Growth
17 Base Case
• Assumes historical trends for
new construction and home
sales
• Does not adjust revenue or
service level costs for anticipated
housing unit growth
Policy Considerations
• What is the appropriate
assumption for growth in
residential units?
• How should anticipated unit
growth be incorporated for a
growth-based scenario?
Future Rate of Capital Investment
18 Base Case
• Base case assumes only Tier 1
(highest priority) projects are
funded
• Average of $4.6M in capital
investment per year
Policy Considerations
• What level of additional infrastructure
investment is appropriate to address:
• Deferred maintenance needs
• Housing unit growth
• What structure(s) can be used for
funding:
• Cash, Debt, Impact Fees etc.
Key Conclusions
• Under the base case (no policy changes),
costs are projected to grow faster than
revenues.
o The average projected deficit is $2.5
million per year.
• Actual costs and revenues will depend on
both external factors (e.g., economic
trends) and internal policy and
management decisions.
• Key policy decisions and assumptions
impacting the projections include:
o Any service level or staffing changes
o Management of the Pension Trust
o Assumptions around future growth and
development
o Future capital investment
Next Steps
20 Final Report – Study 1
Summarize fiscal condition and longterm outlook
Policy Discussion and
Scenario Modeling
Incorporating policy-based scenario
analysis into the base outlook