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: 06/02/2026
ITEM NO: 10
DESK ITEM
DATE: June 2, 2026
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Adopt a Resolution Approving the Town of Los Gatos Fiscal Year (FY) 2026- 27 Operating Budget and FY 2026-27 – 2030-2031 Capital Improvement Program (CIP); Adopt a Resolution Approving Commitment of Fund Balances under GASB 54; and Adopt a Resolution Establishing Gann Appropriation Limit, and Approve FY 2025-26 Budget Adjustments and Reclassifications
REMARKS:
Attachment 8 contains the staff presentation, and Attachment 9 contains public comment.
Attachments Received with the Staff Report:
1. Resolution of the Town Council Approving FY 2026-27 Operating Budget and FY 2026-27 to 2030-31 Capital Improvement Program (Attachment 1), including Exhibit A: Total Town Revenues and Expenditures by Fund
2. Resolution of the Town Council of the Town of Los Gatos Approving Commitments of Fund Balance under GASB 54
3. FY 2025-26 Year-End Budget Adjustments and Reclassifications
4. FY 2026-27 Financial Summaries Fund Balance Narrative Page C-29
5. Facilities Projects List
6. Santa Clara County agencies ERAF survey results
7. Resolution of the Town Council Establishing the FY 2026-27 Appropriations Limit for the Town of Los Gatos
Attachments Received with this Desk Item:
8. Staff Presentation
9. Public Comment
Public Hearing to
Adopt the 2026-27 Final Budget,
Five-Year Forecast, Capital Improvement
Program, and Adjustments to the FY 2025-26
Budget
Town Council
June 2, 2026
ATTACHMENT 8
1.Recommended changes since the
Proposed Budget Hearing
2.Recommended changes to the FY
2025-26 Budget
3.Year-End Budget Estimates
4.Council Recommendations
Changes since the Proposed Budget Hearing (in millions) Annual Average Growth
Rate (AAGR)
• Changes to General Fund Expenses
• ($1.5M) reduced ISF Charges
• $3.8M Increased Transfers Out
• $0.1M Increased PPW contracts
$2.4M increased expenses
• Changes to Internal Services Fund
• ($1.5M) Reduced ISF revenue charges for Vehicles and
Equipment
• $0.8M Increases revenue from transfer into Facilities ISF ($0.7M) decreased revenue
• $0.3M increase in Facilities Projects expenses
Annual Average Growth
Rate (AAGR)
• Changes to Capital Funds
• New fund created “Long Term Community Benefit”
• $3.0M increase revenue from transfer in
• $3.0M Committed Reserve
$3.0M increased revenue
• Other Requests
• Added unassigned narrative to page C-29 (Attachment 4) • Santa Clara County Agencies ERAF Survey (Attachment 6) Changes since the Proposed Budget Hearing (in millions) Recommended FY 2026-27 Final Budget
Fund Type Revenue Expenses Fund Balance
General $64,815,086 $67,418,583 ($2,603,497)
Special Revenue 554,802 475,541 $79,261
Internal Service 8,262,165 6,607,471 $1,654,694
Capital 6,460,439 6,454,919 $5,520
Successor Agency 3,923,926 3,938,045 ($14,119)
Total $84,016,418 $84,894,559 ($878,141)
FY 2025-26 Budget Adjustments
and Estimates
FY 2025-26 Adjustments
FY 2025-26 YEAR END BUDGET ADJUSTMENT REQUESTS - GENERAL FUND Fund Program Account General Fund Revenues Amount Comments 111 1201 41131 Property Tax $ (153,425) Direct Payment to County 111 1201 41211 Sales & Use Tax (345,452) Updated Projections 111 1221 41214 Measure G - District Sales Tax 40,000 Updated Projections 111 1201 45941 Tait Property Sales (3,000,000)
Property Sale is Anticipated to
Close in FY 2026-27
111 5802 43310 VTA - Measure B Education &
Encouragement Grant 54,042 Funds are Anticipated
TOTAL GENERAL FUND REVENUES $(3,404,835)
Fund Program Account General Fund Expenditures Amount Comments 111 Townwide
50000-
59999 Salaries and Benefits Varies
Up to 4.6% Salary Saving
Factor Applied Up to the
Amount of $1,951,624 by
Programs/Departments
TOTAL GENERAL FUND EXPENDITURES Varies
FY 2025-26 Adjustments
FY 2025-26 YEAR END BUDGET ADJUSTMENT REQUESTS – ALL OTHER FUNDS Fund Program Account General Fund Revenues Amount Comments 421 Grant Funded Capital Program
421 8119 43310 VTA - Measure B Education &
Encouragement Grant $54,042 Funds Anticipated
TOTAL OTHER FUNDS REVENUES $54,042
Year-End Estimate Methodologies
Category Current YE Estimate
Methodology
Alternate YE Estimate Methodology
Salaries and Benefits Use Actuals as of 12/31
and use average of
those payrolls
Use actuals as of 3/31, determine avg of
March checks. Multiply by remaining
pay periods and add to YTD actuals
Operating Expenditures Department Estimates Last 4-year actual spent as of 3/31/YE Actuals and determine average % spent,
apply that percent to all accounts. Any
accounts with inconsistent, no data or
data errors assumed no expenses if
none were made to date or 75% spent
Grants & Awards
Fixed Assets Assume Budget
Assume Budget
Assume Budget
Assume Budget
Debt Service
Internal Service Fund Charges
Transfers out
Year-End Estimate $1.3 million surplus $4.9 million surplus Next Steps
• July 2026 Publication of the Adopted Operating and Capital Budgets
• Aug Final NHA Advisor Reports to Finance Commission
• Aug/Sept Final NHA Advisor Reports to Town Council
• Feb 2027 FY 2026-27 Mid-Year Financial Report
Recommendations
• Adopt a Resolution Approving the Town of Los Gatos Fiscal Year (FY) 2026-27 Operating Budget and FY 2026-27–2030-31 Capital Improvement Program (CIP), including new appropriations, minor corrections, and carry-forward appropriations, as presented in Attachment 1 (with Exhibit A: Total Town Revenues and
Expenditures by Fund);
• Adopt a Resolution Approving Commitments of Fund Balances under GASB 54, as listed in Attachment 2; and
• Approve FY 2025-26 Year-End Budget Adjustments and
Reclassifications as listed in Attachment 3; and
• Adopt a Resolution establishing the Fiscal Year (FY) 2026-27 Gann Appropriation Limit for the Town of Los Gatos, as listed in Attachment 7.
Questions
ATTACHMENT 9
TOWN OF LOS GATOS
Personal Memorandum — Finance Commission Member
TO: Town Council, Town of Los Gatos
FROM: Phil Koen, Member, Finance Commission
DATE: May 30, 2026
RE: FY 2026-27 Proposed Budget — A Tale of Two Forecasts Note: This memorandum reflects my personal views as an individual member of the Finance Commission.
It has not been reviewed, approved, or endorsed by the Finance Commission as a body.
Two Very Different Pictures of the Same Town
The FY 2026-27 Proposed Budget presents an opportunity to step back and appreciate just how dramatically the Town’s fiscal outlook has changed. Three years ago, the FY 2023-24 Operating Budget projected a Town in chronic financial decline. Today, the numbers tell a fundamentally different story — and the contrast is worth examining carefully.
The FY 2023-24 budget forecast projected five consecutive years of operating deficits, totaling $16.6 million in cumulative shortfalls through FY 2028-29. Translating those deficits into their impact on the General Fund reserve makes the picture even starker: a reserve balance of $24.5 million at the end of FY 2023-24 was projected to erode to just $15.4 million by the end of FY 2026-27 — a loss of more than a third of the Town’s financial cushion in just three years. The specific annual deficits projected were:
• FY 2024-25: $3.1 million deficit
• FY 2025-26: $2.8 million deficit
• FY 2026-27: $3.2 million deficit
• FY 2027-28: $3.5 million deficit
• FY 2028-29: $4.0 million deficit
What happened could not be more different. FY 2024-25 closed with a surplus of $5.8 million. FY 2025-26 is estimated to close with a surplus of $7.0 million. And the General Fund reserve — projected to be shrinking — now stands at a proposed $40.4 million at the end of FY 2026-27. That is a turnaround of more than $25 million from what was projected.
Figure 1 below puts the two forecasts side by side. The contrast speaks for itself.
Figure 1: General Fund Net Surplus / (Deficit) FY 2023-24 Budget Forecast (orange) vs. FY 2026-27 Proposed Budget (green) in $ millions.
Why Such a Dramatic Change in Outlook?
A difference of this magnitude — more than $25 million in projected versus actual fund balance — is not the result of an unpredictable economy or honest forecasting error. The Town’s revenue base did not change. What changed were the assumptions applied to it. In my view, the prior forecasts were built not to reflect the Town’s financial reality, but to support a narrative — one in which chronic deficits made the case for additional taxation as the only path forward. The data was not driving the forecast. The conclusion came first, and the assumptions were shaped to support it.
That is a serious thing to say, and I do not say it lightly. But conservative budgeting produces modest, occasional misses. Biased forecasting produces what we saw:
consistent, large, one-directional errors, year after year, always overstating the Town’s fiscal problems. The current budget is built on assumptions grounded in what the data shows. That single change — letting the facts drive the forecast rather than the other way around — accounts for virtually the entire $25 million swing.
The Role of Independent Oversight
The Finance Commission was established by the residents of Los Gatos through a direct vote — the only Town advisory body created that way, aside from the Planning Commission which exists under State mandate. Its purpose is not to manage the budget, but to provide an independent analytical perspective that helps ensure the assumptions and conclusions presented to the Town Council are well-founded.
Over the past several years, the Finance Commission has collaborated constructively with staff to press for greater rigor in revenue forecasting, more transparent documentation of assumptions, and a closer alignment between budget projections and observed trends. That is not an adversarial role — it is the role the Commission was designed to play. Good analysis gets better when it is evaluated, and the budget process is no different.
The improved forecast accuracy visible in Figure 1 is the product of that collaborative process. When staff and independent oversight engage seriously with the same data and hold each other to a high standard, the result is a budget the community can rely on. That is what has happened here, and it is worth recognizing.
Closing: Thanks to the Staff Who Made This Possible
None of this happens without the work of the people responsible for building the budget.
I want to close by sincerely thanking Town Manager Chris Constantin and Director of Administrative Services Kristina Alfaro for their leadership, their openness to rigorous analysis, and their commitment to presenting the Town Council and the community with a budget that honestly reflects the Town’s financial position. The Budget & Finance team deserves equal recognition for the quality of the work that underpins this document.
The progress reflected in this budget is significant. Three years ago, a reasonable person reading the five-year forecast might have concluded that Los Gatos faced years of fiscal difficulty. Today, the General Fund reserve stands at $40.4 million — its strongest position in years — and the forecast, while not without challenges, is built on a foundation of realistic assumptions and transparent analysis.
There is still work ahead. Pension obligations continue to grow. Expenditure pressures are real and persistent. But the most important thing a town can do to navigate those challenges well is to understand its fiscal position accurately — and for the first time in some time, we do. That is a direct result of the staff’s work, and it should not go unacknowledged.
Phil Koen • Member, Town of Los Gatos Finance Commission • Personal Views Only