Los Gatos City Council
June 16, 2026

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 3/ 20/ 2025 Additional Discretionary Payment (" ADP")
What is it? City makes ADP directly to CaIPERS and CaIPERS eliminates payments associated with the portion of the UAL paid off, essentially giving the City credit at the discount/ interest rate ( currently 6. 8%) Advantages:

Reduced UAL/ higher CaIPERS funding ratio
Reduced future payments
Broader, less restrictive CaIPERS investment portfolio has potential for higher returns Disadvantages:

Requires reserves/ surplus to fund
Re- investment and market timing risk with ADP funds
Less budgetary flexibility and investment control ( vs. Section 115 Trust option) gp°jp 45
NHA! ADVISORS
45 Section 115 Trust vs. CaIPERS ADP Comparison
OPTION Section 115 Trust CaIPERS ADP
Reduced UAL& UAL Payments
with CaIPERS
No Yes
Reduced Pension Liability in No ( Show up as an asset on the Financial Report( ACFR) City' s financial statements)
Yes
Control of Investment
Strategy
Yes No
Funds Managed By Trust Administrator CaIPERS
Flexibility in Uses Yes No
Enhanced Budgetary
Flexibility
Yes Na
Immediate; Length of time
Varies; Depends on when City varies based on which
Savings
utilizes funds to pay liabilities amortization component is paid off
g
WALNUT 46

NHAIADVISORS
46 23

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) APPENDIX B: SAMPLE OF WILDFIRE BUFFER ZONE BUDGET MODELING FOR THE

GREATER PARADISE AREA
N HA I ADVISORS Page24
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C 1 C

DRAFT BUDGET AND POTENTIAL PARCEL TAX ANALYSIS

FOR WILDFIRE BUFFER ZONE FOR THE GREATER PARADISE
AREA

PRELIMINARY ESTIMATES ON HOW TO FUND BOTH ACQUISITION OF A WILDFIRE BUFFER ZONE AND

LONG- TERM TREATMENT

N HA I ADVISORS
Financial & Policy Strategies.

Delivered.

July 30, 2025

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Our Goals for this Analysis
Define sustainable, long- term wildfire fuel reduction funding Identify major cost drivers
Recommend tax structure to meet funding needs
Outline governance for funding + operations
Set timeline for governance setup and tax measure
sti,r
1 c)
2 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Constraints on the Analysis
Wide variation in treatment costs per acre
No consensus on best treatment by region/ vegetation/ topography No proven link between mitigation spending and insurance benefits No regional governance entity ready to implement large- scale buffer zone 1111010Sts
3 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Draft Budget for Wildfire Risk Reduction for the Greater Paradise Area: Background
PRPD has worked with both the Butte Fire Safe Council and Xyloplan to develop a list of priority parcels for wildfire fuel reduction Targeted parcels protect structures in the Paradise, Concow and Magalia areas The Xyloplan parcels are the result of a comprehensive fire spread model based on wind- storm patterns
The Butte Fire Safe Council parcels are based on local knowledge of local fire safety professionals I1,
The PRPD team merged both parcel lists to come up with an approximately 900 parcel combined list comprising nearly 3, 000 acres.

Nevertheless, the original study in 2023 funded by The Nature Conservancy identified about 30,000 acres of area on the periphery of Paradise, Concow and Magalia that may require treatment
The prioritization process enables a more cost- efficient budget to be developed for long term wildfire risk mitigation
4 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Determining Treatment Costs for Target Parcels
Multiple sources on treatment costs per acre for different treatments, landscape, and topography:

CalFire
Butte Fire Safe Council
County of Plumas
Sierra Nevada Conservancy
California Air Resources Board and many others
There is no consensus regionally or statewide on treatment types, recurrence intervals or treatment costs for different climate zones and types of terrain Approach: use relatively high treatment costs per acre, and lower ( more frequent) recurrence intervals for a conservative budget 5 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Wide Rang of Treatment Cost Estimates
6, 000
5, 000
4,000
3, 000
2, 000
1, 000 11
44b 44
0 46
iill
e
I
56 4\
be'
l
iI,4l 0% yy
b'c• . Cc\•
1 l•i
l0,5.c4
I
tG
Ja`••%` 4a` . ` ate\ C,,`,
G QJ a i
4z b,
1/ 40-
c c,
IPa a
4 1,
Q
ry
CalFire ( Forest) CalFire ( Shrubland) CalFire ( Herbaceous) CalFire ( Woodland) 2C Land ECO Firestorm Paul Roen
Atlas IN Bella GE Forestry Mountain View Reforestation
Professional Slahbusting BK& Son Red Mtn. Butte County
Plumas County SNC ( High)
6 N HA I ADVISORS Strategies. For more detailed cost estimates, see Appendix. Financial& Policy Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Prevailing wage, Prescribed Burn and Grazing, First Treatment Prevailing wage likely to add 20% to costs for state/ local wildfire treatments First- time treatment costs r'j2. 5x higher than long- term CalFire provides a liability insurance policy of $2 million for each prescribed burn
In the very unlikely event of an " escape", for a prescribed burn on private land, this limit is inadequate
While prescribed burns, notwithstanding the shortage of experienced staff, are scalable on public property, such burns are not scalable on private property Grazing, where appropriate, is a very effective low- cost treatment but scalability is uncertain
For purposes of a draft budget, we assume no prescribed burns and minimal grazing
7 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463 BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Treatment Costs and Recurrence Interval Assumptions Used in this Analysis
Emergent
Developed Developed Developed Developed
Evergreen
Open Low Medium High 5hrubland
Grassland/ Mixed Deciduous Herbaceous Fallow
Forest Pasture Forest Forest Vietlands/ Woody Cropland
Space Intensity Intensity Intensity
Wetlands
Treatment
Acres 1, 238. 66 143.28 33. 01 5. 41 0. 99 1, 190. 43 295. 54 2. 13 27.11 11. 86 1. 15 Cost per
acre 3, 000 1, 000 1, 000 1, 000 1, 000 2, 500 800 3, 000 3, 000 800 Treatment
cost for land
use category 3, 715, 981 143, 279 33. 010 5. 408 988 2. 976. 063 236. 434 6. 397 81. 331 921 Recurrence
Interval 5 5 3 3 3 5 3 5 5 5 3
Annualized
treatment
costs 743, 196 28, 656 11. 003 1, 803 329 595. 213 78. 811 1. 279 16.266 307 8 N HA ! ADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Treatment Cost Overview
Treatment costs are on the high side of the range
Recurrence intervals are on the low side of the range
Annualized costs are about $ 1. 5 million/ year
These annual costs do not include administration — we estimate this at 500, 000/ yea r
Consequently, we estimate that annual operating cost budget to be $ 4. 5 million/ year for the first 5 years, and then about $ 2 million per year thereafter
These figures do not include any inflation assumptions
9 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Administrative Costs
Fully scaled treatment for 600+ acres per year ( 3, 000 acres on a 5- year recurrence interval) requires administrative organization The treatment crews need management, prescribed burns need liability insurance
Acquisition of easements or fee title for nearly 3, 000 acres will require experienced property negotiators, similar to those used for ROW acquisition There will be legal expenses for acquisitions of easements or fee title If eminent domain needs to be used, this can be an expensive process so NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Operational Cost Assumptions
Annualized Treatmenmt
Costs (long term) 1, 477,168
First time treatment costs
multiplier mud 2. 5
LAnnualized
first time —
treatment costs 3, 692,921
Annual Administrative Costs
kilo 500, 000
pi Combined long term
treatment and
administrative costs 1, 977, 168
Combined treatment and
administrative costs for first
5 years 4, 192, 921
11 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Target Parcel Acquisition Cost Assumptions
PRPD retained Integra Realty to do a high- level appraisal of the costs of acquiring access to the circa 900 target parcels for treatment While PRPD and Butte Fire Safe Council have had good experience using " good will" to gain access for treatment, we do not believe that a long term fully scaled budget should rely on 100% good will to provide access to key parcels on a regular basis There are three options for securing access
Purchase of fee title
Purchase of an easement c014' AIN
Long-term access to a parcel through the good will of the parcel owner Integra valued both fee title and easement acquisition costs, establishing a range from low to high for such costs
12 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Parcel Access Acquisition Cost Assumptions
Integra Cost Estimates
Fee Title Easement
Low 20, 187, 713 8, 075, 085
High 39, 906, 818 15, 962, 727
Total Access Acquisition Cost Budget,
Including Goodwill
Per cent Cost ( low) Cost ( high)
Acquisition 25% 5, 046, 928 9, 976, 705
Easement 65% 5, 248, 805 10, 375, 773
Good will 10aic
Total 100% 10, 295, 734 20, 352, 477
Annualized
over 5 years 2, 059, 147 4, 070, 495
13 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Why Debt Financing for Access Acquisition and First Treatment Costs?
Costs for both access acquisition and first-time treatment costs make annual funding need much higher in the first 5 years
Assumes all 3, 000 acres are " acquired" for access purposes in the first 5 years Assumes all 3, 000 acres receive a treatment, likely their first treatment, in the first 5 years.

Expenses funded on " pay- go" basis means the annual tax requirements are much higher over the first 5 years
Ballot approval will require disclosure of the highest potential tax, not an " average" tax over the life of the exaction
The higher tax for the first 5 years will result in more " no" votes on a ballot measure Debt Financing
Spreads costs evenly over time
Steadier tax rate
More electable measure
Bottom line: debt financing makes a tax measure more electable 14 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Debt Financing Assumptions
No Grant Funding 50% Grant Funding
Low Cost Scenario High Cost Scenario Low Cost Scenario High Cost Scenario Extra first time treatment costs 18, 001, 812 18, 001, 812 18, 001, 812 18, 001, 812 Access acquisition cost 10, 295, 734 20, 352, 477 10, 295, 734 20, 352, 477 Grant Funding Amount 14, 148, 773 19, 177, 145
Total to be financed 28, 297, 546 38, 354, 289 14, 148, 773 19, 177, 145 Annual Interest Rate 6. 5% 6. 5% 6. 5% 6. 5%
Annual debt service for first 5
years 3, 460, 000 4, 340, 000 2, 210, 000 2, 320, 000
Annual debt service for next 15
years 1, 980, 000 2, 870, 000 730, 000 840, 000
Assumes all bonds are issued with a taxable interest rate., Debt service is higher in the first 5 years because the higher initial treatment costs are being funded by the bond issue. This means no treatment costs are funded on a " pay-go" basis over the first 5 years.
15 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Use of Grants
FEMA and Prop 4 grants could significantly reduce access acquisition and firsttime treatment costs, further reducing both the debt required and the annual budget
There is uncertainty over the future of the FEMA BRIC program Cal OES recommends that we consider applying for FEMA grants for access acquisition in a phased or " batched" process
Several Prop 4 authorizations can potentially be used to fund either access acquisition or first-time treatment costs
16 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Tax Levy Options
Local jurisdictions may raise funds, with voter approval, through the following mechanisms:
scalubility to meet
Voter up prowl Tax Levy sensiterityto Land use, paltel annual funding Tax Levy Option requirement Key legal constraints size, vutnerability, etc reyuirernerrts Governance Requirement Maximum sensitivityof all potential tag:

Needs to be structured to allow both measures. Any objectively measurable Any jurisdiction can create Mello- Roos/ parcel tax by 2; 3 vole of voters in capital funding through bonds and metric can be used except for assessed and administer a Mello Boa rdlCouncilvote area to be taxed an nualmainte' lance valuation Fully scalable Roos district Maximum sensitivityof all potential tax
Simple majority of Needs to be structured to allow both measures. Any objectivety measurable AnyjuriJiction can create Mello- Roo s/ parceltaxby voters in area to be capital funding through to nds a nd metric can be used except for assessed and administer a Mete citizen circulated petition taxed annual maintenance valuation Fully scalable Roos district Can only be used for
Ad valorem tax to r general. 2/ 3 vote olvoters in Tax levy is based solely on assessed Assessed valua lion is the only access acquisition, not Can be authorized by any obligation bonds area to be taxed value. No other factors can be used parameter for annual maintenance local government entity Assessment levy must be directly pro
rata to levelol special benefit received
Majority protest or Must be solely for spec ial benefir. by each parcel Defining this for wildfire parcel owners within Community scale forkisnot luelreduct ion in the community would Can be authorized by any Assessment District district considered' specialbenefit'. be very difficult. Not scalable local government entity Tax levy is based solely on taxable
sales within retail outlets within the Tax base may be too it dedicated solely to taxing jut isdiction. Only County of small- gross taxable Only the County or the Sate staxdedeatedto widfirerisirreduction, Butte has the authority within the Gross taxable sales is the only sale are about$ 150 lownolParadise have this wildfire risk reduction 213 vote isrequired area otthe prioritized parcels parameter milton/ year power Tax levy is based solely on taxable
sales within retail out Lets within the Tax base may be too taxinTgjurisdiction. Only County of small- gross taxable Only the County or the Sate stax for generat Butte has the a uthori ty w it hi n the Gross taxable sales iS the only sale are about 5150 TownolParadise have this purposes Simple nlaj [ ity area of the prioritized parcels parameter in power Tax levy is based solely on gross room
IC ve nues on hotelimoteb VH Rs within Tax base may be too Transient occupancytaot Ii dedicated solely to the taxingjur isdition. Onty County of small- gross room Only the County or the dedicated to wildfire Hsk wildfire risk reduction. Butte has the authori ty wit hi n the Gross room revenues is tlxonly revenue is about S3 TavnolParadise have this reduction 213vote is required areaofthe prioritized parcels] parameter million, year paver 17 NHA ADVISORS
i
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Parcel Tax is Better than a Sales Tax or TOT increase The tax base for both sales tax and TOT in the Town of Paradise ( where nearly all the outlets producing sales and TOT are located) is too small to support the projected annual budget requirement
Only a parcel tax (otherwise known as a Mello Roos tax) allows for great flexibility in how the tax is levied on a given parcel ( land use, parcel size, vegetation, vulnerability, etc.

Sales Tax Trensient Occupancy Tax
Annual budget required with Annual budget required with debt but no grants: 4, 000, 000 debt but no grants: 4. 000, 000 Approximate annual gross Approximate annual gross room
taxable sales in Town of revenue in Tiown of Paradise 3. 000. 000 Paradise 150, 000, 000 TOT tax rate required to fully
Sales tax rate required to fully fund budget 133. 3%
fund budget 2. 7% Current TOT tax rate in Town 6. 00%
Current com bined sales tax rate New combined tax rate 139. 3% in Town 8. 75%
New combined tax rate 11. 4%
18 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C What is the potential tax base for a parcel tax?
Four public entities overlap the general area where the prioritized parcels for treatment are located:

Paradise Recreation and Parks District — 21,869 parcels Paradise Unified School District — 20, 639 parcels
Town of Paradise — 11, 978 parcels
Paradise Irrigation District — 11, 788
While we believe that the actual boundaries for any tax to fund treatment for the prioritized parcels will need to be carefully considered, for purposes of this analysis, we will use the parcel count for PRPD
We included unsecured parcels as well as secured parcels because the unsecured parcels oftentimes represent leasehold estates
All parcel count figures are from the County of Butte for FY 2023- 2024 19 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Scenario Design
The key determinants of long- term annual costs are shown below:

Level of grant support
Whether or not debt is issued
Whether access acquisition costs are on the " low" or " high" side of the range determined by Integra
If bonds are issued, whether the bonds can be issued on a tax exempt or taxable basis Since we determined that the overall difference in annual budget requirements resulting from the use of tax- exempt interest rates vs. taxable interest rates was less than 5%, we are just showing the taxable interest rate scenarios
20 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Scenarios Modeled for a Draft Budget
Low Access Acquisition High Access Acquisition
Grants Debt Grants Debt
None None None None
50% None 50% None
INIk\-
414)
None First 5 Years None First 5 Years
50% First 5 Years 50% First 5 Years
21 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 1 Estimated Cash Flows: Low Acquisition Costs, No Grant Funding, No Debt
Year 1 2 3 4 5 6 7 8 9 10
Acquisition/ easement
cost Ai 2, 059, 147 2, 059. 147 2, 059, 147 2, 059, 147 2, 059, 147 Operational 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 Administration 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Total 6, 252, 067 6, 252, 067 6252, 067 6, 252, 067 6, 252, 067 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 Number of taxable II
parcels 21, 869 21, 869 21. 869 21, 869 21369 21. 369 21, 869 21, 869 21, 869 21. 869 Average annual
tax/ parcel 286 286 286 286 286 90 90 90 90 90
Annual budget requirement ranges from about $ 2 million/ year to $6. 25 million/ year 22 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 84638A3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 2 Estimated Cash Flows: Low Acquisition Costs, 50% Grant Funding, No Debt
Year 1 2 3 4 5 6 7 8 9 10
Acquisition/ easement
cost 2, 059, 147 2, 059, 147 2, 059, 147 2, 059, 147 2, 059, 147 Operational 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 1, 477, 168 1, 477, 168 1, 477, 168 1. 477, 168 1, 477, 168 Overhead/ Admin 500, 000 500. 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Less grant funding 2, 876. 034 2, 876, 034 2, 876. 034 2, 876. 034 2, 876. 034 ----- Total 3, 376, 034 3, 376, 034 3, 376, 034 3, 376, 034 3, 376, 034 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 Number of taxable
parcels 21, 869 21, 869 21, 869 21, 869 21, 869 21, 869 21. 869 21, 869 21, 869 21. 869 Average annual
tax/ parcel 154 154 le 154 154 154 90 90 90 90 90
I
Annual budget requirement ranges from about $ 2 million/ year to $3. 4 million/ year 23 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 3 Estimated Cash Flows: Low Acquisition Costs, No Grant Funding, Debt for First 5 Years Costs
Year 1 2 3 4 5 6 7 8 9
Annual Debt Service 3A57. 075 3, 455, 475 3, 457, 050 3, 456, 150 3, 457, 450 1, 980, 300 1, 980, 250 1, 981, 950 1, 980, 075 Acquisition/ easement
cost
Operational 1, 477, 168 1, 477. 168 1, 477, 168 1. 477, 168 Overhead/ Admin 500. 000 500, 000 500, 000 500. 000 500. 000 500, 000 500, 000 500, 000 500, 000 Total 3, 960, 000 3, 955, 475 3, 957, 050 3, 956, 150 3, 957, 450 3, 960, 000 3, 957, 418 3. 959, 118 3, 957, 243 Number of taxable
parcels 21, 869 21, 869 21, 869 21, 869 21, 869 21. 869 21, 869 21, 869 21, 869 Average annual
tax/ parcel 181 181 181 181 181 181 181 181 181
Annual budget requirement is about $ 4 million/ year
24 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 4 Estimated Cash Flows: Low Acquisition Costs, 50% Grant Funding, Debt Financing for First 5 Year' s Costs
Year 1 2 3 4 5 6 7 8 9
Years 10
through 20
Annual Debt Service 2. 210. 600.00 2. 212. 075. 00 2. 213. 025. 00 2. 213. 125. 00 2. 212. 050. 00 734. 475. 00 735. 950.00 736. 125. 00 735. 000. 00 735, 475 Acquisition/ easement
cost
Operational 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 Overhead/ Admin 500, 000 500. 000 500. 000 500. 000 500. 000 500, 000 500, 000 500, 000 500, 000 500, 000 Total 2, 710, 600 2, 712, 075 2, 713, 025 2, 713, 125 2, 712, 050 2, 711, 643 2, 713, 118 2, 713, 293 2, 712, 168 2. 712. 643 Number of taxable
parcels 21, 869 21. 869 21. 869 21. 869 21, 869 21, 869 21, 869 21. 869 21. 869 Average annual
tax/ parcel 124 124 124 124 124 124 124 124 124 124
Annual budget requirement is about $ 2. 7 million/ year 25 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 5 Estimated Cash Flows: High Acquisition Costs, No Grant Funding, No Debt
Year 1 2 3 4 5 6 7 8 9 10
Acquisition/ easement cost 4, 070, 495 4, 070, 495 4, 070, 495 4, 070, 495 4, 070, 495 Operational 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 3, 692, 921 ' 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 Overhead/ Admin 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Total IM 8, 263, 416 8, 263, 416 8, 263, 416 8, 263, 416 , 8, 263, 416 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 Number of taxable parcels 21. 869 21, 869 21, 869 21. 869 21. 869 21, 869 21. 869 21. 869 21. 869 21, 869 Average amual t• •-rcel 378 378 378 378 378 90 90 90 90 90 Annual budget requirement ranges from about $ 2 million/ year to $8. 25 million/ year 26 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C Scenario 6 Estimated Cash Flows: High Acquisition Costs, 50% Grant Funding, No Debt
Year 1 2 3 4 5 6 7 8 9 10
Acquisition/ easement cost 4, 070, 495 4, 070, 495 4, 070, 495 4, 070, 495 4, 070, 495 Operational 3. 692,921 3, 692,921 3.692, 921 3, 692,921 3. 692.921 1, 477, 168 1, 477. 168 1. 477. 168 1. 477, 168 1. 477. 168 Overhead/ Admin 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Less grant funding 3, 881, 708) ( 3, 881, 708) ( 3, 881, 708) ( 3, 881, 708) ( 3, 881, 708) Total 4, 381, 708 4, 381, 708 4,381, 708 4, 381, 708 4, 381, 708 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 1, 977, 168 Number of taxable parcels 21, 869 21, 869 21, 869 21, 869 21. 869 21, 869 21. 869 21, 869 21, 869 21, 869 Average annual tax/ parcel 200 200 200 200 200 90 90 90 90 90 Annual budget requirement ranges from about $ 2 million/ year to $4. 4 million/ year 27 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Scenario 7 Estimated Cash Flows: High Acquisition Costs, No Grants, Includes Debt
Year 1 2 3 4 5 6 7 8 9 10
Annual Debt Service 4. 340. 825. 00 4. 342. 975.00 4. 342. 000.00 4. 342. 575. 00 4. 344.050. 00 2.865. 775. 00 2.863.300. 00 2. 866.275.00 2.864. 050. 00 2,864, 380 Acquisition/ easement
cost
Operational 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 1, 477, 168 Overhead/ Admin 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Total 4, 845, 000 4,842, 975 4,842, 000 4,842, 575 4,844, 050 4, 845, 000 4, 840, 468 4,843, 443 4, 841, 218 4,841, 548 Number of taxable
parcels 21, 869 21, 869 21, 869 21. 869 21. 869 21, 869 21, 869 21, 869 21, 869 21, 869 Average annual
tax/ parcel 222 221 221 221 222 222 221 221 221 221
Annual budget requirement is about $ 4.85 million/ year 28 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Scenario 8 Estimated Cash Flows: High Acquisition Costs, 50% Grant Funding, Includes Debt
Year 1 2 3 4 5 6 7 8 9
Yearss 10
through 20
Annual Debt Service 2. 315. 675. 00 2, 315, 200.00 2,319, 200.00 2,317, 025. 00 2, 318, 675. 00 838, 500. 00 842, 375. 00 R19, 625. 00 840, 575. 00 840, 270 Acquisition/ easement
cost
Operational 1, 477, 168 1, 477. 168 1. 477, 168 1, 477, 168 1, 477, 168 Overhead/ Admin 500. 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 500, 000 Total 2, 820, 000 2, 815, 200 2, 819, 200 2, 817, 025 2, 818, 675 2, 820, 000 2, 819, 543 2, 816, 793 2, 817, 743 2, 817, 438 Number of taxable
parcels 21, 869 21. 869 21. 869 21, 869 21. 869 21. 869 21. 869 21, 869 21. 869 21. 869 Average annual
tax/ parcel 129 129 129 129 129 129 129 129 129 129
Annual budget requirement is about $ 2. 8 million/ year 29 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Summary of Estimated Average Annual Tax Per Parcel
400
350
300
250
200
150
100 1
50il 1I
No grants With With debt With debt No grants With With debt With debt Grants and grants Grants and grants
Low Low Low Low High High High High
First 5 Years Next 15 Years
30 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Major Cost Drivers
50% grant funding for access acquisition costs and first-time treatment costs reduce the annual budget requirements long- term by about 1/ 3 Assumes debt is used to fund access acquisition costs and first-time treatment costs Use of debt reduces the required budget over the first 5 years by about 40% Assuming the use of debt, the combined annual budget required for the low" access acquisition costs is about 20% lower than the combined annual budget for the " high" access acquisition costs
The annual budget for high acquisition costs, with both grants and debt, is 65% lower than the annual budget for high acquisition costs without grant and debts over the first 5 years
Taxable interest rates on debt lower the annual budget by 5% compared with tax exempt interest rates
31 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Governance Requirements for the Wildfire Buffer Zone
Governance entity needs the following powers:

Levy and administer a parcel tax
H ire staff and/ or subcontractors to do wildfire risk reduction work Acquire and own fee title or access easements for parcels in the buffer zone Power of eminent domain to acquire and own fee title or access easements where required for wildfire risk reduction ‘ 4 ‘.‘
Power to legislate and mandate wildfire risk reduction standards on private property owners
The governance entity jurisdiction should include the following:

All parcels prioritized for treatment
All parcels benefitting from such treatment
32 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Governance Options
The following stakeholders should be considered for collaboration under a new governance entity
Paradise Recreation and Park District
Town of Paradise
County of Butte
Butte Fire Safe Council
Camp Fire Collaborative
Rebuild Paradise 040911111‘
California' s Joint Powers Authority law allows NGO' s to be voting members of a J PA
The NGO members cannot vote on amending the JPA, but can vote on budget and staffing issues
We recommend that these stakeholders begin a dialogue on forming a governance entity to implement the wildfire buffer zone 33 N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Joint Powers Authority — Some Details
JPA powers are limited to the powers share in common by all members of the JPA
This means its powers are the same as its least powerful member ( excluding NGO' s) There is often a concern amongst member public entities of a " loss of power" by turning over a key function to a JPA
Cost sharing amongst the parties can become an issue
These concerns can be resolved by seeking special State legislation to address loss of power concerns. Examples:

Requiring a super majority to approve certain actions
Specifying which types of projects can be undertaken by the JPA, and which can only be done by a member, but with JPA funding
Locking in" the role of NGOs in the JPA
34 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Ballot Measure in November, 2026?
There is more than sufficient time to prepare a November 2026 regional ballot measure and governance entity for a wildfire buffer zone in the greater Paradise area
If there is sufficient community support to get the measure on the ballot through a petition, approval would only require a simple majority There is also discussions in Sacramento about a statewide ballot measure for wildfire risk reduction on the November 2026 ballot
What if the statewide ballot measure matched local ballot measures with revenues? What if CDI mandated a dollar or dollar reduction in insurance premium for parcel owners paying a parcel tax dedicated solely to wildfire risk reduction? Key question: is there enough community support to not only do a successful citizen initiative for a ballot measure, but to get a 50%+ 1 successful vote?
35 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Next Steps
We begin the polling process
Survey question design
Polling system: phone calls, focus groups or both
Determine the potential tax base
Identify zone of benefit for prioritized parcels
Get detailed parcel data on all parcels within potential tax base Using polling data, develop an " electable" tax structure and levy maximum Present findings to all public, private and NGO stakeholders Start dialogue on implementation, including potential governance entity and ballot measure
36 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C AP'S
4904V1).

APPENDIX
NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C A Wide Range of Treatment Cost Estimates: CalFire Treatment Cost Assumptions
Costs per acre
CalFire Treatments Forest Shrubland Herbaceous Woodland Manual Thinning 1, 461 2, 534 1, 851 2, 683
Mechanical Thinning ' 957 2, 500 N/ A 2, 807
Mechanical Piling 640 1, 521 N/ A 251
Mastication 1, 788 1, 669 1, 813 1, 198
Lop and Scatter 1, 616 1, 263 N/ A 1, 217
Herbicide 325 675 396 667
Pile Burn 810 2, 303 3, 125 N/ A
38 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C A Wide Range of Treatment Cost Estimates: Butte Fire Safe Council Treatment Cost Bid Results
Bid Range for Treatment Costs Per Acre
Hand thin and chip Mastication Mechanica
2C Land 2. 800- 3, 200 _ 1 . 650 1 . 650- 1 . 750
ECO 800- 3, 200 950- 3. 800 800- 2. 500
Firestorm 1 2, 100-4, 200 1 , 470- 4, 200 1 , 800- 3, 500 Paul Roen 3. 600 2, 400 2, 950
Atlas 3. 141 1 . 331 1 . 689
Bella 4365-5592 4. 365 4. 770
GE Forestry 1 . 800 800 1 , 220
Mountain View
Reforestation 1 . 800- 3, 400 2, 800 2, 600
Professional
Slashbusting none 725- 1 , 100 none
BK& Son none 1 , 800 none
Red Mtn. 4. 489 2. 489 3. 989
Average low 2, 766 1 , 889 2, 385
Average high 3. 625 2, 396 2. 774
39 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C A Wide Range of Treatment Cost Estimates: Butte Fire Safe Council Treatment Cost Assumptions
Butte County
Cost per acre
Treatments
Mastication 3500
Underburn ing 200
Grazing 600
Chipping and hauling
for biomass
500
Pile burning in place 150
Wildland fire
403
management
40 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C A Wide Range of Treatment Cost Estimates: Plumas County Treatment Cost Assumptions
Plumas County
Evergreen Forest cost
per acre
Manual Thinning 2, 000
Mechanical Thinning 1, 750
Mastication 1, 788
41 NHAIADVISORS
Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463B©. 3F- D38D- 4CDC- A1D6- 2ABE915A. 0C1C A Wide Range of Treatment Cost Estimates: Sierra Nevada Conservancy
Costs 0
SNC Treatments Average
Mastication 600 1, 500 3, 500
Hand Thinning 600 1, 800 3, 500
Pile Burning 50 N/ A 1, 000
42 NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) APPENDIX C: RESUMES FOR ASSIGNED NHA TEAM
N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Staff Resumes — NHA Advisors, LLC
Mark Northcross, Principal
During a California public finance career that spans back to 1981, Mark Northcross has structured debt for nearly every kind of issuer and nearly every kind of revenue source legally available in the State.

Mr. Northcross is a leader in statewide work on climate change adaptation.

He managed the delivery of a comprehensive funding guide for Resilience by Design, a Rockefeller Foundation funded program for the Bay Area. He works Public Finance
Professional Since: with the Bay Conservation and Development Commission, Bay Area Regional 1981
Collaborative, the Southern California Association of Governments and the Resources Legacy Fund on climate change adaptation issues. Mr. Northcross Expertise also serves on special climate change committees under the aegis of the City of Sacramento, the West County Wastewater District and the Coastal Public Policy Hazards Adaptation Resiliency Group. With expertise in wildfire risk Utility Financing mitigation and funding, Mr. Northcross was invited by the Federal Reserve Climate Change Bank of San Francisco to prepare an article on that subject for their Infrastructure
Community Development Innovation Review publication, which was Development/ Land—
published in October 2019. A link to that article is available here:

Secured Financing
https:// www. frbsf. org/ community- development/ publications/ community- development_ Economic investment- review/ 2019/ october/ rebuild-to-fail- or-rebuild- to-adapt- how-cra- lending- canDeve to pment guide- climate-change- disaster- response/ Developer
Mr. Northcross was an integral team member for the California Resilience Negotiations
Pension Financing
Challenge project in the Town of Paradise. That project was completed in April 2023 and featured groundbreaking work quantifying potential reductions in fire related losses and in insurance premiums in the wildlandEducation urban Interface through fire mitigation methods. More detail about that T T T
project can be found here: httrs:// www. bavareacouncil. org/ press- releases/ new- studvUU1RVINE shows- haw- communities- in- the- wiIdland- urban- interface- can- drastically- reduce- fire- risk- andreduce- i nsura nce-° rem i ums/ B. A. Social Sciences Mr. Northcross is also leader in negotiating both public- private partnerships and the workout of defaulted debt. He has negotiated public- private Licenses & Registrations partnerships for the successful development of major mixed- use projects, including such diverse communities as Davis, Fort Ord Reuse Authority, Registered with the
Hemet, Mammoth Lakes, Palmdale, Rocklin, South Lake Tahoe, and West SEC and MSRB
Covina. He is also a leader in negotiating joint ventures between different Series 50 License public agencies — with notable success in putting together bond funded risk sharing programs for cities, counties, and school districts in California.

With a practice in water and sewer financing dating back to 1983, Mr.

Northcross is very active in water and sanitation policy issues in California.

He presently serves on the California Association of Sanitation Agencies SRF committee.

Mr. Northcross also has hands- on experience as a CFO, serving since 2001 as N H A I ADVISORS treasurer for the West Point Inn Association, which runs a 117- year- old hikeFinancial& Policy strategies. in hotel in the parklands of Marin County.

Delivered.

ITEM NO. 7.

Do cus ig n Envelope ID: 8463 BA3F- D38D- 4CDC- A1 D6- 2ABE 915A0 C 1 C Staff Resumes— NHA Advisors, LLC
Mike Meyer, Vice President
Since 2003, Mr. Meyer has been providing a high level of support to California municipalities as an advisor, consultant, and an investment banker. He manages NHA's Pension and Fiscal Sustainability Group.

Mr. Meyer has executed all types of financings available to California municipalities, including pension obligation bonds, utility revenue ( water/ wastewater/ storm Public Finance drain), general fund backed leases, tax increment, general obligation, Professional Since: transportation, land secured, housing and sales tax transactions. 2003
As the firm's resident pension expert, Mr. Meyer also manages NHA's Pension and Expertise Fiscal Sustainability Group, which has advised over 80 California local agencies on topics ranging from basic CaIPERS education, to UAL cost management strategies Fiscal Sustainability Section 115 Trusts, Additional Discretionary Payments, etc.), to UAL restructuring General Fund projects. In 2015, he led the firm's efforts to pioneer some of the first UAL Financing smoothing" transactions, which were executed as privately placed lease revenue Pension Obligations
bonds given that POBs were not feasible at that time. During the re- emergence of the POB market, Mr. Meyer worked on over $ 2. 0 billion of pension bond Project Management transactions for cities, utilities districts and fire districts. This experience includes all Financial Modeling types of UAL financing structures: both privately placed debt as well as publicly Credit Analysis and offered, validated and non- validated POBs, as well as alternative structured like Presentations lease revenue bonds and utility revenue bonds.

Mr. Meyer has worked on several unique financing programs in his career including Education
the 2004 Vehicle License Fee ( VLF) pooled financing (> 100 different city participants), 2009 Beverly Hills OPEB Buyout, 2016 Berkeley Parking Revenue UCSan Diego Bonds for a new downtown garage, transportation revenue secured financings ( gas tax and local sales tax return) for Oxnard and Lancaster, and lease bonds to fund B. S. Management
CaIPERS UAL in the cities of Torrance, Ukiah, West Covina, Lakeport and Arcata.

Science
Prior to NHA Advisors, Mr. Meyer served as a Principal with Eric Scriven ( NHA partner) at p2 Capital Advisors ( 2012 to 2014), providing independent consulting Licenses & Registrations and advisory work to numerous California public agencies. Prior to that, he served Registered with the
as a Vice President at De La Rosa Investment Bankers.

SEC and MSRB
From 2013 to 2017, Mr. Meyer also helped coach the Division I UC Davis Men' s Series 50 License Tennis team and obtain the program' s first national ranking and NCAA tournament berth. Mr. Meyer enjoys being active and in nature, spending his free time backpacking, hiking, surfing, playing sports and is a dedicated practitioner of yoga and meditation.

N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Do cus ig n Envelope ID: 8463 BA3F- D38D- 4CDC- A1 D6- 2ABE 915A0 C 1 C Staff Resumes— NHA Advisors, LLC
Matt DeFilippis, Senior Analyst
1 Since joining NHA in 2021, Mr. DeFilippis has provided quantitative, research, and t. management support to his colleagues so that NHA can best serve California f
special districts and cities. His work has covered a variety of assignments, including CaIPERS pension liability analysis and modeling, coverage analysis for utility financings, refinancing discovery and analysis, and more. Mr. DeFilippis has assisted on multiple financings for California agencies, totaling over$ 450 million in par.

Public Finance
Professional Since: Most recently, Mr. DeFilippis provided municipal advisory services on two California 2021 utility bond transactions that closed in late 2024 for the City of Gonzales and Laguna Beach County Water District. Mr. DeFilippis also assisted the city of Fort Expertise Bragg and Rincon del Diablo Municipal Water District in financing solar panels through an equipment lease/ purchase agreement.

General Fund
Financing Mr. DeFilippis has provided advisory services to multiple California fire districts, Pension Obligations including Sonoma County Fire District ( 2022 Pension Liability Refunding), San Utility Financing Miguel Consolidated Fire Protection District (2022 Pension Liability Refunding), and Financial Modeling North County Fire Protection District in San Diego County (CaIPERS pension analysis Credit Research and and financial forecast modeling).

Presentations
When not working on bond financings, Mr. DeFilippis provides support for a variety of NHA's other projects, including financial forecast modeling and CaIPERS pension Education liability analysis and education for public agencies. 0Berkeley Mr. DeFilippis received his B. A. in Applied Mathematics from the University of

UNIVERSITY OF CALIFORNIA
California, Berkeley.

B. A. Applied In his spare time, Mr. DeFilippis enjoys exploring the outdoors, both on foot and on Mathematics bike. Some of his favorite trips include backpacking Southern Oregon/ Northern California, climbing Mount Shasta, and watching the sunrise from Half Dome.

Licenses & Registrations
Registered with the
SEC and MSRB
Series 50 License
N HA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C ak.;• tl
Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) APPENDIX D: NHA' s REQUIRED MUNICIPAL ADVISOR DISCLOSURES NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) Fiduciary Duty
NHA Advisors, LLC (" NHA") is registered as a Municipal Advisor with the U. S. Securities and Exchange Commission (" SEC") and Municipal Securities Rulemaking Board (" MSRB"). As such, NHA has a fiduciary duty to the Town and must provide both a Duty of Care and a Duty of Loyalty that entail the following.

Duty of Care:
a) exercise due care in performing its municipal advisory activities; b) possess the degree of knowledge and expertise needed to provide the Town with informed advice;
c) make a reasonable inquiry as to the facts that are relevant to the Town' s determination as to whether to proceed with a course of action or that form the basis for any advice provided to the Town; and
d) undertake a reasonable investigation to determine that NHA is not forming any recommendation on materially inaccurate or incomplete information; NHA must have a reasonable basis for:
i. any advice provided to or on behalf of the Town;
ii. any representations made in a certificate that it signs that will be reasonably foreseeably relied upon by the Town, any other party involved in the municipal securities transaction or municipal financial product, or investors in the Town securities; and iii. any information provided to the Town or other parties involved in the municipal securities transaction in connection with the preparation of an official statement.

Duty of Loyalty:

NHA must deal honestly and with the utmost good faith with the Town and act in the Town' s best interests without regard to the financial or other interests of NHA. NHA will eliminate or provide full and fair disclosure ( included herein) to the Town about each material conflict of interest ( as applicable). NHA will not engage in municipal advisory activities with the Town as a municipal entity, if it cannot manage or mitigate its conflicts in a manner that will permit it to act in the Town' s best interest.

Conflicts of Interest and Other Matters Requiring Disclosures As of the commencement date of the Project, there are no actual or potential material conflicts of interest, other than those potential conflicts noted below, that NHA is aware of that might impair its ability to render unbiased and competent advice or to fulfill its fiduciary duty. If NHA becomes aware of any material potential conflict of interest that arises after this disclosure, NHA will disclose the detailed information in writing to the Town in a timely manner.

Pursuant to MSRB Rule G- 42, on Duties of Non- Solicitor Municipal Advisors, Municipal Advisors are required to make certain written disclosures to clients which include, amongst other things, Conflicts of Interest and any Legal or Disciplinary events of NHA and its associated persons.

The following are potential conflicts of interest to be considered.

NHA represents that in connection with the issuance of municipal securities, NHA may receive compensation from the Town for services rendered, which compensation is contingent upon the successful closing of a transaction and/ or is based on the size of a transaction. Consistent with the NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) requirements of MSRB Rule G- 42, N HA hereby discloses that such contingent and/ or transactional compensation may present a potential conflict of interest regarding NHA' ability to provide unbiased advice to enter into such transaction. The contingent fee arrangement creates an incentive for NHA to recommend unnecessary financings or financings that are disadvantageous to the Town, or to advise the Town to increase the size of the issue. This potential conflict of interest will not impair NHA' ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Town.

NHA' fees under this potential agreement may be based on hourly fees of NHA' personnel, with the aggregate amount equaling the number of hours worked by such personnel times an agreedupon hourly billing rate. This form of compensation presents a potential conflict of interest because it could create an incentive for NHA to recommend alternatives that would result in more hours worked. This conflict of interest will not impair NHA' ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Town.

NHA' fees under this potential agreement may be a fixed amount established at the outset of this potential agreement. The amount is usually based upon an analysis by the Town and NHA of, among other things, the expected duration and complexity of the transaction and the scope of services to be performed by NHA. This form of compensation presents a potential conflict of interest because, if the transaction requires more work than originally contemplated, NHA may suffer a loss. Thus, NHA may recommend less time- consuming alternatives, or fail to do a thorough analysis of alternatives. This conflict of interest will not impair NHA' ability to render unbiased and competent advice or to fulfill its fiduciary duty to the Town.

The fee paid to NHA increases the cost of investment to the Town. The increased cost occurs from compensating NHA for municipal advisory services provided.

NHA serves a wide variety of other clients that may, from time to time, have interests that could have a direct or indirect impact on the interests of another NHA client. For example, NHA serves as municipal advisor to other municipal advisory clients and, in such cases, owes a regulatory duty to such other clients just as it does to the Town. These other clients may, from time to time and depending on the specific circumstances, have competing interests. In acting in the interests of its various clients, NHA could potentially face a conflict of interest arising from these competing client interests. NHA fulfills its regulatory duty and mitigates such conflicts through dealing honestly and with the utmost good faith with the Town.

Gerald Craig Hill, the Managing Principal of NHA is currently serving as an outside director for the HdL Companies based in Diamond Bar, CA. HdL Companies is a software and professional services consulting company providing revenue data and collections information to local governments, potentially including NHA' s clients. HdL Companies have affiliates including, but not limited to, HdL Coren & Cone. From time to time, NHA utilizes the services of HdL Coren & Cone for its clients. NHA is mindful of this conflict of interest and fulfills its regulatory duty and mitigates such conflicts through dealing honestly and with the utmost good faith when this situation arises.

NHA does not have any affiliate that provides any advice, service, or product to or on behalf of the Town that is directly or indirectly related to the municipal advisory activities to be performed by NHA.

NHA has not made any payments directly or indirectly to obtain or retain NHA' municipal advisory business.

NHA has not received any payments from third parties to enlist NHA' recommendation to the Town of its services, any municipal securities transaction, or any municipal finance product.

NHA has not engaged in any fee- splitting arrangements involving NHA and any provider of investments or services to the Town.

NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C S14, 1
Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) NHA does not have any legal or disciplinary event that is material to the Town' s evaluation of the municipal advisory or the integrity of its management or advisory personnel.

NHA does not act as principal in any of the transaction( s) related to this potential agreement.

Legal Events and Disciplinary History
NHA does not have any legal events and disciplinary history on its Form MA and Form MA-I, which includes information about any criminal actions, regulatory actions, investigations, terminations, judgments, liens, civil judicial actions, customer complaints, arbitrations and civil litigation. The Town may electronically access NHA' most recent Form MA and each most recent Form MA- I filed with the Commission at the following website:
www. sec. gov/ edgar/ searchedgar/ companysearch. html
There have been no material changes to a legal or disciplinary event disclosure on any Form MA or Form MA- I filed with the SEC.

Recommendations
If NHA makes a recommendation of a municipal securities transaction or municipal financial product or if the review of a recommendation of another party is requested in writing by the Town and is within the scope of the engagement, NHA will determine, based on the information obtained through reasonable diligence of NHA whether a municipal securities transaction or municipal financial product is suitable for the Town. In addition, NHA will inform the Town of:
the evaluation of the material risks, potential benefits, structure, and other characteristics of the recommendation;
the basis upon which NHA reasonably believes that the recommended municipal securities transaction or municipal financial product is, or is not, suitable for the Town; and whether NHA has investigated or considered other reasonably feasible alternatives to the recommendation that might also or alternatively serve the Town objectives.

If the Town elects a course of action that is independent of or contrary to the advice provided by NHA, NHA is not required on that basis to disengage from the Town.

Municipal Securities Rulemaking Board Rule G- 10 Disclosure Pursuant to MSRB Rule G- 10, on Investor and Municipal Advisory Client Education and Protection, Municipal Advisors are required to provide certain written information to their municipal entity and obligated person clients which include the following:

NHA is currently registered as a Municipal Advisor with the SEC and MSRB.

Within the MSRB website at www. msrb. org, the Town may obtain the Municipal Advisory client brochure that is posted on the MSRB website. The brochure describes the protections that may be provided by the MSRB Rules along with how to file a complaint with financial regulatory authorities.

NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Los GATOS— PROPOSAL FOR STUDY 3( ALM) AND OPTIONAL STUDY 4( WILDFIRE RISK MITIGATION) Record Retention
Effective July 1, 2014, pursuant to the SEC record retention regulations, NHA is required to maintain, in writing, all communication and created documents between NHA and the Town for five ( 5) years.

If there are any questions regarding the above, please do not hesitate to contact NHA.

NHA I ADVISORS Financial& Policy Strategies.

Delivered.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C Town of Los Gatos

REQUEST FOR PROPOSALS
FISCAL CONDITION ANALYSIS WITH FIVE- YEAR AND LONGTERM FORECAST, FISCAL IMPACT ANALYSIS, AND ASSET

LIABILITY MANAGEMENT STUDY
Date Issued: 8/ 20/ 2025
Proposal Submittal Deadline: 9/ 22/ 2025, by 4: 00 p. m. Pacific Standard Time Issued By:

Issued By:

Town of Los Gatos — Finance Department
110 E Main Street, Los Gatos, CA 95030
www.losgatosca. gov
Financed los gatosca. gov

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

TABLE OF CONTENTS
A. Purpose
B. Overview
C. Minimum Qualifications
D. General Provisions and Requirements
E. Scope of Services
F. Proposal Format and Submittal Requirements
G. Evaluation Process
H. Additional Information
I. Attachments
ATTACHMENT 1 - CONFLICT OF INTEREST STATEMENT( FOR SUBMITTAL) ATTACHMENT 2 - NON- COLLUSION DECLARATION ( FOR SUBMITTAL) ATTACHMENT 3 - REFERENCES ( FOR SUBMITTAL)
ATTACHMENT 4 - STATEMENT REGARDING INSURANCE COVERAGE AND

WORKER' S COMPENSATION INSURANCE ACKNOWLEDGMENT

CERTIFICATE ( FOR SUBMITTAL)
ATTACHMENT 5 - STANDARD CONSULTANT SERVICES AGREEMENT
Schedule of Activities ( Tentative):

Activity Anticipated Date
RFP Release 8/ 20/ 2025
Deadline for Questions 9/ 15/ 2025
Last Day to Issue Addenda 9/ 17/ 2025
Proposal Submission Deadline ( 4: 00 p.m.) 9/ 22/ 2025
Proposal Evaluation Week of September 22, 2025
Consultant Interviews ( if necessary) Week of September 29, 2025 Contract Negotiation and Execution Week of September 29, 2025 Town Contacts:

Gitta Ungvari, Finance Director
Email: Finance@losgatosca. gov

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C A. PURPOSE
The Town of Los Gatos is seeking proposals from qualified firms to perform one or combined studies including:

1. A Fiscal Condition Analysis with Five- Year and Long- Term Financial Projections, and or

2. A Fiscal Impact Analysis for proposed and planned growth.

And to provide a separate proposal not to be combined for the following

3. An Asset Liability Management( ALM) Study.

Proposers may submit responses for each ofthe first two studies individually and as a combined packaged. For the third study, the Town is looking for a proposal that is not combined with the first two studies.

The three studies are listed in priority order with the most time sensitive being the fiscal condition analysis with five- year and long-term financial projections. Based on the proposals, the Town will determine which ofthe proposals to accept with emphasis on the most time sensitive analysis.

The Town reserves the right, at its sole discretion, to cancel, withdraw, postpone, or modify this RFP at any time, including after receipt of proposals, without incurring any obligation or liability to any proposer. The Town also reserves the right, after contract execution, to terminate the agreement for convenience, without cause, upon thirty ( 30) days written notice, with no liability beyond payment for work satisfactorily performed to the date oftermination.

Issuance ofthis RFP does not commit the Town to award a contract, to pay any costs incurred in the preparation of a proposal, or to procure or contract for any services.

B. OVERVIEW
The Town is undertaking this analysis to obtain an independent, data- driven assessment of its fiscal condition and near- term outlook. Current internal five- year projections indicate structural operating deficits, and the Town seeks third- party validation of assumptions, methodologies, and results to inform decision- making by staff, the Finance Commission, and the Town Council. The selected Consultant will evaluate historical trends and structural drivers, develop a transparent five- year multi- scenario forecast, and quantify risks, sensitivities, and reserve implications, while clearly distinguishing one- time from ongoing resources. The objective is to provide a public- facing foundation for budget strategy, service level planning, and proactive risk management.

Concurrently, the Town faces multiple large development proposals, including affordable housing projects associated with the General Plan and Housing Element. The Town requires a clear understanding ofthe net fiscal effects of this growth revenues and costs, operating and capital, timing and step- cost triggers ( e. g., staffing, equipment, facilities) under best- case, baseline, and worst- case scenarios through 2040. In addition, the Town seeks to inventory and evaluate key asset- liability exposures ( pension, OPEB, bonded debt, and unfunded infrastructure needs) to guide prudent funding strategies, reserve calibration, and long- term sustainability. Together, these efforts will produce integrated tools and findings that support transparent policymaking and durable fiscal health.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C At the April 14, 2025 Finance Commission meeting, the Commission recommended consolidating prior scope efforts for these studies into a single Request for Proposal process. The Commission approved eight key recommendations:

1. Consolidate scopes into a single RFP with three separate line items:
o Fiscal Analysis and Five- Year Forecast
o Long-Term Outlook( to 2040, aligned with the General Plan and Housing Element) o Optional standalone ALM Study

2. Require scenario planning using defined sets of assumptions for:
o Best, worst, and most likely cases
o National and macroeconomic conditions ( e. g., recession, tariffs, labor costs) o Risk and opportunity matrix
o Consultant' s own recommended scenario modifications or additions

3. Stakeholder engagement including interviews with internal staff and external partners ( e. g., Sewer District, Fire Department).

4. Define accounting basis and format( e. g., government- wide vs. fund- based reporting) to ensure clarity, usability, and reconciliation across documents.

5. Include cost as a decision matrix criterion to evaluate overall value of proposals.

6. Require explanation of tools and methodologies, including the use of AI, data sources, forecasting models, and technical platforms.

7. Request work samples similar to proposed scopes to assess consultant capability.

8. Articulate specific questions to be answered:
o What is the Town' s fiscal condition over the next five years? ( Study 1) o What is the long-term financial outlook? ( Study 1 and/ or Study 2) o What is the fiscal impact of projected development under the 2040 Plan and Housing Element? ( Study 2)
C. MINIMUM QUALIFICATIONS
To the satisfaction ofthe Town of Los Gatos, each proposer shall ensure their proposal, as applicable, includes sufficient information to facilitate the following Demonstrated experience conducting fiscal analyses and long- range financial forecasting for California municipalities.

Familiarity with local government budgeting, finance, infrastructure liabilities, pensions, economic development analysis, and General Plan documents.

Experience engaging with a wide variety of constituencies including but not limited to internal departments, elected officials, and other non- Town constituencies.

Strong presentation, communication, and public reporting skills.

Ability to deliver user- friendly financial models and documentation.

D. GENERAL PROVISIONS AND REQUIREMENTS
The Town may establish general provisions and requirements related to the work being performed including but not limited to:

1. Possession of all licenses required to perform services in California, if applicable.

2. Town approval required for any key personnel changes.

3. All deliverables must be provided in PDF and native editable formats.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

4. All materials prepared or supporting prepared deliverables become the property of the Town.

E. SCOPE OF SERVICES
Study 1— Fiscal Condition Analysis with Five- Year Forecast Objective. Provide a rigorous, view of the Town' s current fiscal condition; produce a five- year multiscenario operating forecast; quantify risks and opportunities; and deliver a transparent, staffmaintainable model aligned with GAAP, GFOA, and State Controller conventions. The work product will tie, where applicable, to other authoritative documentation such as the ACFR/ CAFR, adopted budget, State Controller' s Report, or other relevant document. 1) Project Initiation & Workplan
Kickoff meeting: Confirm goals, deliverables, scope boundaries, schedule, and communication cadence; finalize the assumptions governance process ( how assumptions are proposed, reviewed, approved, and versioned).

Detailed workplan: Activities, dates, responsibilities, dependencies, and review milestones; identify critical path items.

Stakeholder map: Identify internal staff, department contacts, and external partners ( e. g., special districts) for interviews and data validation.
2) Data Intake, Validation & Controls
Minimum data (at least 10 years): ACFR/ CAFRs; California State Controller' s reports; adopted budgets and mid- year updates; trial balances; revenue detail ( property, sales, TOT, fees/ permits/ fines, franchise, business license, transfers); labor MOUs; position and pay schedules; CalPERS actuarial reports ( normal cost, UAL, amortization bases, projected employer rates); OPEB actuarial valuations; debt schedules and official statements; CIP, deferred maintenance reports, and life- cycle/ asset management reports; grants and one- time funds; reserve policies.

Data Quality Assurance/ Quality Control: Reconcile to audited financial statements or other applicable document; identify reclassifications and one- time items; maintain a Data Sources Register with date, owner, and quality notes. Implement process to ensure the accuracy, consistency, and completeness ofthe information presented in deliverables.

Accounting basis: Specify fund- based vs. government- wide views used in analysis; provide crosswalks/ reconciliations.
3) Methodology & Assumptions Framework
Method statement: Document forecasting structure, drivers, and equations utilized; define how scenario variants are applied.

Assumptions log: Centralized register for economic ( AV growth, inflation/ CPI, wage growth, medical trend), operational ( vacancy, hiring, service levels), policy ( fees, taxes), financial interest rates, investment earnings), and actuarial ( CalPERS/ OPEB) assumptions. Include source, rationale, date, owner.

Standards compliance: Where applicable, align with guidance from, but limited to, GAAP, GFOA best practices, and State Controller reporting.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 4) Fiscal Condition Assessment( Current State)
Liquidity & reserves: Trends vs. policy targets; one-time vs. ongoing resource use; working capital indicators.

Revenues: Composition, concentration, and volatility of General Fund revenues ( property, sales, TOT, utility/ franchise, fees/ permits, transfers). Analyze seasonality, elasticity, collection risk, and extraordinary items.

Expenditures: Personnel ( base pay, steps, COLA, vacancy/ backfill, overtime), benefits ( health, workers' comp), pension and OPEB contributions, non- personnel ( contracts, utilities, insurance, fleet, fuel), and internal service charges; identify structural cost pressures and unfunded mandates.

Liabilities & commitments: Pensions ( UAL by amortization base, rate trajectories), OPEB pay- go vs. prefunding status), bonded debt( coverage, covenants), leases, and deferred capital/ maintenance backlogs.

Structural balance: Historical ongoing revenues vs. ongoing expenditures; reliance on one- time resources; identification of structural gaps.

Practices Modeling: Provide data showing the historical and current condition based on recognized models, such as the ICMA Fiscal Trend Monitoring System, the League of California Cities Municipal Financial Health Diagnostic, or other tools appropriate to provide collective insight to fiscal condition.

Benchmarking ( if applicable): Contextualize key ratios versus peer agencies and/ or recommended practice ranges.
5) Five-Year Operating Forecast( Baseline, Best-Case, Worst-Case) Baseline(" most likely"): Reflect adopted policies, existing MOUs, known program changes, and consensus macro assumptions.

Best- case: Favorable macro trajectory ( higher taxable sales, steady AV growth, stable TOT), improved investment returns, successful cost containment and vacancy savings.

Worst- case: Recessionary path( s), slower or negative AV growth, elevated wage/ medical inflation, lower TOT/ consumer spending, state takeaways/ mandates, and higher CalPERS rates or revised amortization schedules.

Revenue modeling: Property tax ( AV growth components, Prop 13 reassessment dynamics); sales tax ( category mix, elasticity to income/ price indices); TOT recovery curve; fees/ permits activity volumes/ fee policy); other taxes and intergovernmental sources.

Expenditure modeling: Wage steps/ COLA per MOU; staffing plan and vacancy factors; health trend; CalPERS employer rates and UAL amortization payments; OPEB contributions; operations & maintenance inflation; known contracts and step- cost triggers.

Sensitivity analysis: Run targeted shocks ( e. g., + 1- 2% AV growth, + 0. 5- 1. 0 pts sales growth/ elasticity, + 2- 3% medical trend, + 50- 100 bps investment earnings, pension discount- rate changes) and show fiscal effects. Determine reasonable and appropriate ranges for use in the analysis.

Reserves tracking: Model policy floors, replenishment rules, and draw triggers under each scenario.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 6) Risk, Opportunity & Stress Testing
Risk/ Opportunity Matrix: Probability x impact scoring for high- leverage drivers ( economy, tax base, tourism/ TOT, labor/ benefits, state policy, disasters, grant volatility); quantify fiscal exposure ranges.

Macro stresses: Multi- year recession and recovery paths; interest rate shocks; investment earnings variance; inflation spikes.

Operational stresses: Hiring lag or higher vacancy; higher overtime; insurance/ premium shocks; major contract repricing; supply chain spikes.

Event stresses: Disaster scenarios ( i. e. wildfire/ earthquake/ flood) with plausible cost and revenue effects; state action ( takeaways, deferrals).

Mitigation levers: Revenue measures ( policy options), expenditure pacing, capital deferral windows, position management, reserve deployment/ replenishment strategies, each with indicative fiscal effect, lead time, and dependencies where reasonable. 7) Reserves & Policy Analysis
Adequacy tests: Compare forecast reserves to policy targets under all scenarios and stresses; estimate time to restore reserves if drawn.

Policy review: Evaluate reserve policy structure ( levels, triggers, replenishment) and recommend enhancements consistent with GFOA guidance.
8) Model Specifications ( Editable& Maintainable)
Workbook architecture: Separate Inputs/ Assumptions, Drivers, Revenue Modules, Expenditure Modules, Pensions/ OPEB, Results by Fund, Reserves, Stress/ Sensitivity, Charts & Tables, Reconciliation.

Controls: Version control; cell protections where appropriate; color- coded inputs vs. formulas; scenario toggles; sensitivity sliders; documentation panel/ tooltips.

Reconciliation: Crosswalks to audited financials and to adopted budget for Year 1; one- time vs. ongoing segmentation; fund- to- government- wide alignment notes.

User guide: Embedded data dictionary, instructions for updating, and a checklist for annual refresh.
9) Engagement& Validation
Department interviews: Validate workload/ demand drivers, pipeline initiatives, service level commitments, step- cost triggers, and risks.

Finance collaboration: Agree on key inputs ( e. g., macro path, labor/ benefit assumptions, revenue elasticities); coordinate with actuaries/ auditors as needed.

External partners ( as relevant): Validate assumptions with external partners ( i. e. sewer, stormwater, etc.) on joint cost drivers or pass- throughs. 10) Deliverables
Kickoff packet: Final workplan, data request, and engagement calendar.

Interim Findings Memo: Early condition read- out; emerging risks/ opportunities; preliminary assumptions for staff review.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Five- Year Forecast Model( editable): With scenarios, sensitivities, reconciliation tabs, and print-ready exhibits.

Risk& Opportunity Matrix + Stress- Test Pack.

Final Report( PDF + native): Executive summary; current condition; five- year forecast( all scenarios); long- term outlook; risk/ stress results; reserve analysis; recommended actions ( timing, indicative fiscal effect); appendices ( assumptions log, data sources, reconciliation tables, benchmarking).

Presentations: At least two public meetings ( Finance Commission and Town Council) and staff work sessions.

Training & Handover: Live walktbrough, update playbook, and placement of all files per Town direction.
12) Schedule( Illustrative)
Weeks 1- 2: Kickoff; data intake; interview scheduling; method statement.

Weeks 3- 6: Condition diagnostics; interim findings memo.

Weeks 7- 10: Five- year forecasting; scenario build; sensitivities.

Weeks 11- 12: Reserves/ policy analysis; risk matrix; stress tests.

Weeks 13- 14: Draft report/ model; staff review and revisions.

Weeks 15- 16: Final report/ model; presentations; training and handover. 13) Town Support( Anticipated)
Timely access to financials, audit and actuarial reports, MOUs/ position data, CIP/ backlog, development and fee pipelines, debt/ grants, and reserve policies; scheduling of interviews; facilitation of external partner conversations as needed.

Study 2— Fiscal Impact Analysis
The Consultant will complete a robust Fiscal Impact Analysis mirroring the analytical structure and depth of the 2020 Comprehensive Plan Fiscal Impact Analysis for Annapolis, Maryland or equivalent Attachment 6). The analysis shall include:
1) Growth- Based Cost Modeling
Distinguish fixed vs. variable General Fund operating costs.

Project variable operating and staffing costs by department( e. g., General Government, Police, Parks and Public Works, Library) using appropriate demand bases ( residential population, service population, or employment).

Disaggregate costs into staffing vs. non- staffing components and identify per- unit cost escalators.
2) Revenue Modeling
Property tax and related in-lieu components based on development assumptions ( e. g., housing units, commercial sq. ft.).

Sales and use tax, transient occupancy tax ( TOT), franchise fees, business license tax, and fees/ permits/ fines using Town- specific volumes and policy assumptions.

Other locally controlled revenues ( i. e. third party partners).

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 3) Scenario- Based Forecasts
Develop best- case, baseline, and worst- case scenarios over a 20- year horizon.

Conduct sensitivity testing on service- population growth, property values, cost escalation, and revenue volatility ( including recession simulations).
4) Capital Cost Estimation
Provide rough- order- of-magnitude ( ROM) capital cost estimates tied to infrastructure demands generated by new growth.

Recommend methodologies the Town can reuse for site- specific capital forecasting. 5) Results & Communication
Estimate net fiscal impact( revenues vs. costs) at buildout and annually through 2040.

Present findings with clear charts/ tables comparing revenue/ cost deltas and stress- tested variance bands.

Highlight fiscal implications by development type ( e. g., residential vs. commercial) and intensity/ density.
6) Methodological Transparency
Clearly define data sources, modeling assumptions, and calibration approach.

Collaborate with staff to validate variables and use Town- specific historical financials, land use policies, and demographic projections.

Study 3— Asset Liability Management( ALM) Study
The Consultant shall:

Inventory & Evaluate Liabilities: Provide an inventory and evaluation of key liabilities including but not limited to pension, OPEB, bonded debt, and unfunded infrastructure needs.

Funding Needs & Risk Reduction: Offer a standalone analysis of long- term funding needs and identify strategies to reduce risk.

ALM Modeling: Present model outputs showing fund balance sustainability and risk exposure across scenarios.

Reserve Guidance: Provide guidance on optimal reserves and potential reserve policy enhancements.

Combined Studies— Study 1 and 2
The Consultant shall deliver a unified analysis that:

Integrates the Fiscal Condition & Forecast( Study 1) with the Fiscal Impact Analysis ( Study 2) to provide a coherent picture of short and long-term fiscal sustainability.

Ensure consistency in assumptions across the impact and forecast models, using development assumptions and infrastructure costs as key inputs.

Packages results into a single report with distinct sections, shared assumptions, and harmonized formats.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C All Studies— Required Elements
All proposals for all Studies must include:

Scenario analysis with well- documented assumptions, covering macroeconomic and local risks.

A risk& opportunity matrix that quantifies high- impact variables and their fiscal effects.

Interviews with all Town departments and relevant external agencies ( e. g., Sewer District, Fire Department) to inform assumptions.

Accounting/ Reporting transparency, specifying whether analyses are government- wide or fundbased, source ofthe information, and how they reconcile.

Editable deliverables ( e. g., Excel models, PowerPoint decks) with a documented methodology and user guide.

Public presentations: at least two meetings ( Finance Commission and Town Council), plus staff work sessions as needed.

Work samples of comparable scope and complexity.

Disclosure of AI/data tools: clarify if/how AI or specialized analytics are used in modeling.

Standards compliance: GAAP, GFOA, and California State Controller standards.

Usability & training: a clear plan for long-term usability, including staff training where needed.

F. PROPOSAL FORMAT AND SUBMITTAL REQUIREMENTS
1 Proposal Format and Organization
Proposals shall be clear, concise, and organized in the order below. Provide one ( 1) searchable PDF and any native files specifically requested ( e. g., Excel models), using the section headers shown to facilitate review.

1. Cover Letter( maximum 2 pages)
Briefly summarize qualifications and project understanding; identify the primary contact authorized to bind the firm. Confirm acceptance of the Town' s Sample Consultant Services Agreement( Attachment 5) or list any specific exceptions/ edits requested.

2. Completed Certification Forms ( Attachments 1- 4)
o Attachment 1 — Conflict of Interest Statement
o Attachment 2— Non- Collusion Declaration
o Attachment 3 — References
o Attachment 4— Statement Regarding Insurance Coverage and Worker' s Compensation Insurance Acknowledgment Certificate

3. Scope Comments and Methodology
Comment on the Scope of Services and describe the proposed approach, specialized methods/ tools, milestones, QA/ QC, and how deliverables will be provided to the Town including assumptions governance and documentation practices).

4. Experience and Expertise
Demonstrate experience performing similar studies for California municipalities, including fiscal condition analysis, forecasting, fiscal impact analysis, and ALM. Include relevance to local government budgeting, finance, infrastructure liabilities, pensions/ OPEB, and General Plan/ Housing Element contexts.

5. Key Personnel and Resumes
Identify the Project Manager and key staff; provide brief role descriptions and relevant qualifications. Commit to maintaining the proposed team; note any planned subcontractors.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

6. Timeline and Work Plan
Provide a realistic schedule with major tasks, interim deliverables, review points, and public meetings ( Finance Commission and Town Council). Indicate opportunities for phasing.

7. Samples of Comparable Projects ( 1- 3)
Provide recent examples demonstrating similar scope, scale, and complexity ( links or PDFs).

8. Disclosure of Litigation/ Discipline( last 5 years)
Disclose and explain any relevant matters; indicate status/ outcome.

9. References ( Attachment 3)
Provide a minimum ofthree ( 3) current references from comparable engagements within the past five ( 5) years, including contact information.

10. Preliminary Fee Schedule( itemized by Study)
Provide an itemized fee proposal for Study 1, Study 2, Study 3, and/ or Combined Study 1 and 2 ( as applicable), inclusive of travel and incidental expenses. Identify personnel classifications, hourly rates, estimated hours by task, and optional services.

11. Statement of Insurance Coverage( Attachment 4)
Identify carriers, types, and limits; confirm ability to meet Town requirements if selected.

12. Tools, Data Sources, and Use of AI
Summarize data sources, technical platforms, and any AI/ advanced analytics used in modeling; describe transparency, validation, and human- in-the- loop review. 2 Submittal Instructions
Due Date/ Time: Proposals must be received electronically by 9/ 22/ 2025, 4: 00 p. m. Pacific Time. Late submittals will be deemed non- responsive.

Delivery Method: Email the proposal PDF ( and any required native files) to Finance@losgatosca. gov. If using a file- sharing link, include access permissions that do not expire before award. The Proposer is responsible for confirming receipt due to potential email size limits.

Email Subject Line: " Town of Los Gatos — Fiscal Analysis Proposal ( Studies 1, 2, 3, or Combined 1 and 2)".

Single Proposal: Each Proposer may submit only one proposal; alternate proposals are not permitted unless requested by the Town. Providing separate complete documents for each study option will collectively be considered only one proposal.

Format: One ( 1) searchable PDF is preferred. Provide Excel versions for any financial models included in the submittal. Bookmark major sections and use consistent tab labels in workbooks. 3 Questions and Addenda
Questions: Direct all questions in writing to the Town' s Contact at Finance@losgatosca. gov by 9/ 15/ 2025 ( see Schedule of Activities). Do not contact other Town officials or evaluators.

Responses will be issued only by Addendum.

Addenda: The Town will issue addenda on its website. Proposers are responsible for checking for updates and must acknowledge all addenda in the proposal. The last day to issue addenda is 9/ 17/ 2025 ( see Schedule of Activities).
4 Proposal Conditions

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Responsibility for Delivery: Proposers assume full responsibility for timely delivery. The Town is not responsible for email transmission issues or access restrictions on shared links. Proposals received after the deadline will not be considered.

RFP Schedule: See Schedule of Activities. The Town reserves the right to amend the schedule as necessary.

Use of Town Forms/ Attachments: Proposers shall submit Town forms ( Attachments 1- 4) as provided in this RFP.

Contract Template: The Town' s Sample Consultant Services Agreement( Attachment 5) is provided for reference; proposers shall accept or propose specific exceptions in the Cover Letter.

Acceptance or Rejection: The Town reserves the right to accept or reject any and all proposals for any reason, including but not limited to, lack of budget for studies, etc.

Public Records: All materials may become public records per the California Public Records Act.
5 Acknowledgment of Minimum Qualifications
By submitting, the Proposer affirms it meets the Minimum Qualifications and agrees to the General Provisions and Requirements as stated in Sections C and D of this RFP.

G. EVALUATION PROCESS
Proposals will be evaluated based on:

1. Conflict of Interest/ Non- Collusion Declarations ( Pass/ Fail)

2. Proposal Completeness and Organization ( 15 points)

3. Understanding of Scope and Methodology ( 20 points)

4. Qualifications and Experience ( 20 points)

5. Accessibility and Communication ( 15 points)

6. References and Work Samples ( 10 points)

7. Pricing and Cost- Effectiveness ( 20 points)
The Town reserves the right to conduct interviews. Evaluation is at the sole discretion of the Town.

Selection will be based on best fit as determined by the Town and will not be solely determined on points or price. The point values and evaluation criteria described herein are guidelines only; the Town reserves the right to weigh, interpret, or disregard criteria at its sole discretion. Any changes to the Town' s standard contract for service will also be considered in the evaluation.

The Town may, at its sole discretion, terminate evaluation of any or all proposals at any time and may reopen, cancel, or postpone the procurement process without award. Proposals shall remain valid for a period of one hundred twenty ( 120) days from the proposal due date unless otherwise agreed in writing by the Town. Proposers may not withdraw their proposal within this period without the written consent of the Town. Proposers shall have no claim whatsoever for compensation or reimbursement in such event.

H. ADDITIONAL INFORMATION
All costs incurred in the preparation, submission, or presentation of a proposal in response to this RFP, including but not limited to, travel, interviews, presentations, and negotiation activities,

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C shall be borne solely by the proposer. The Town shall have no obligation for any such costs, regardless of whether a contract is awarded.

All materials may become public under the California Public Records Act( PRA). The Town will not be liable for the disclosure of any materials submitted in response to this RFP that are required to be disclosed under the PRA or other applicable law. The Town reserves the right to reject any or all proposals.

Equal opportunity requirements apply.

All work must comply with local, state, and federal law.

Selection of a proposer and commencement of negotiations does not obligate the Town to execute a contract. The Town may terminate negotiations and select another proposer, issue a new RFP, or take no further action.

Any communication, verbal or written, made by the Town or its representatives during this solicitation process shall be considered non- binding unless incorporated into a formal, written agreement executed by the Town.

Any dispute arising under or related to this RFP shall be governed by the laws of the State of California, and the venue for any legal action shall be the Superior Court of California in and for the County of Santa Clara. The Town' s total liability in connection with this RFP shall be limited to the amount, if any, payable under a duly executed contract.

I. ATTACHMENTS

1. Conflict of Interest Statement

2. Non- Collusion Declaration

3. References Form

4. Insurance Certification

5. Sample Consultant Services Agreement

6. 2020 Comprehensive Plan Fiscal Impact Analysis for Annapolis, Maryland The Town of Los Gatos thanks you for your interest in this important initiative.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C ATTACHMENT 1 - CONFLICT OF INTEREST STATEMENT

THIS FORM MUST BE PRINTED OUT, COMPLETED AND SUBMITTED WITH THE

PROPOSAL

FISCAL CONDITION ANALYSIS WITH FIVE- YEAR AND LONG- TERM FORECAST,

FISCAL IMPACT ANALYSIS, AND ASSET LIABILITY MANAGEMENT STUDY The undersigned declares:

I/We Insert Name) have the following financial, business, or other relationship with Town of Los Gatos that may have an impact upon the outcome ofthe contract. If none, please specify that no other relationships may have an impact on this contract or Project.

I/We Insert Name) have the following current clients who may have a financial interest in the outcome ofthis contract. If none, please specify that no other clients may have a financial interest with an impact on this contract or Project.

Pursuant to Government Code section 1090 and any other laws, rules and regulations that may apply, the Proposer covenants that neither it, its subcontractors nor employees presently have an interest, and shall not acquire any interest, direct or indirect, financial or otherwise that would conflict in any manner or degree with contract awarded from this RFP. Proposer certifies that to the best of its knowledge, no one who has or will have any financial interest in the contract awarded from this RFP is an officer or employee of the Town. Through its submittal of a proposal, Proposer acknowledges that it is familiar with Section 87100 et seq. and Section 1090 et seq. ofthe Government Code ofthe State of California and will immediately notify the Town if it becomes aware of any facts concerning the contract to be awarded that constitute a violation of said provisions.

Furthermore, ifthere is reason to believe that collusion exists among the Proposers, the Town may refuse to consider proposals from participants in such collusion. No person, firm, or corporation under the same or different name, shall make, file, or be interested in more than one proposal for the same work unless alternate proposals are called for. A person, firm, or corporation who has submitted a sub- proposal to a Proposer, or who has quoted prices on materials to a Proposer, is not thereby disqualified from submitting a sub- proposal or quoting prices to other Proposers. Reasonable ground for believing that any Proposer is

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C interested in more than one proposal for the same work will cause the rejection of all proposals for the work in which a Proposer is interested. Ifthere is reason to believe that collusion exists among the Proposers, the Town may refuse to consider proposals from participants in such collusion. Proposers shall submit as part of their proposals documents the completed Non- Collusion Declaration provided herein.

I, on behalf of the Proposer, declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct and that this declaration is executed on date], at city], state].

Proposer Name Person, Firm, Corp.) Title of Authorized Representative Address Name of Authorized Representative
City, State, Zip
Date) Signed)

ITEM NO. 7.

Docusign Envelope ID 8463 BA3 F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C ATTACHMENT 2— NON- COLLUSION DECLARATION

THIS FORM MUST BE PRINTED OUT, COMPLETED AND SUBMITTED WITH THE

PROPOSAL

FISCAL CONDITION ANALYSIS WITH FIVE- YEAR AND LONG- TERM FORECAST,

FISCAL IMPACT ANALYSIS, AND ASSET LIABILITY MANAGEMENT STUDY The undersigned declares:

I am the Insert Title] of Insert name of
company, corporation, LLC, partnership or joint venture] the party making the foregoing proposal.

The proposal is not made in the interest of, or on behalf of, any undisclosed person, partnership, company, association, organization, or corporation. The proposal is genuine and not collusive or sham.

The Respondent has not directly or indirectly induced or solicited any other respondent to put in a false or sham proposal. The Respondent has not directly or indirectly colluded, conspired, connived, or agreed with any bidder or anyone else to put in a sham proposal, or to refrain from responding. All statements contained in the proposal are true.

Any person executing this declaration on behalf of a respondent that is a corporation, partnership, joint venture, limited liability company, limited liability partnership, or any other entity, hereby represents that he or she has full power to execute, and does execute, this declaration on behalf ofthe respondent.

I declare under penalty of perjury under the laws ofthe State of California that the foregoing is true and correct and that this declaration is executed on date], at city], [ state].

By:

Name:

Title:

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C ATTACHMENT 3 - REFERENCES

THIS FORM MUST BE PRINTED OUT, COMPLETED AND SUBMITTED WITH THE

PROPOSAL

FISCAL CONDITION ANALYSIS WITH FIVE- YEAR AND LONG- TERM FORECAST,

FISCAL IMPACT ANALYSIS, AND ASSET LIABILITY MANAGEMENT STUDY List three( 3) references for work of a similar nature to the Services performed within the last five( 5) years. Use additional sheets as necessary.

1. Name of Agency Agency Address
Contact Name Contact Title
Contact Telephone Contact Email Address
Contract Period Contract Amount
Description of services performed including costs.

2. Name of Agency Agency Address
Contact Name Contact Title
Contact Telephone Contact Email Address
Contract Period Contract Amount
Description of services performed including costs.

3. Name of Agency Agency Address
Contact Name Contact Title
Contact Telephone Contact Email Address
Contract Period Contract Amount

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Description of services performed including costs.

I hereby certify that the Proposer performed the work listed above.

Signature of Proposer Name Date

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C ATTACHMENT 4 - STATEMENT REGARDING INSURANCE COVERAGE AND

WORKER' S COMPENSATION INSURANCE ACKNOWLEDGMENT CERTIFICATE

THIS FORM MUST BE PRINTED OUT, COMPLETED AND SUBMITTED WITH THE

PROPOSAL

FISCAL CONDITION ANALYSIS WITH FIVE- YEAR AND LONG- TERM FORECAST,

FISCAL IMPACT ANALYSIS, AND ASSET LIABILITY MANAGEMENT STUDY PROPOSER HEREBY CERTIFIES that the Proposer has reviewed and understands the insurance coverage requirements specified in the RFP. Should the Proposer be awarded a contract for Services, Proposer further certifies that the Proposer can meet the specified requirements for insurance, including insurance coverage of any subcontractors, and agrees to name the Town as additional insured for the Services specified.

By certifying this form, the Proposer also understands the Worker' s Compensation insurance requirement per the California Labor Code, Sections 1860 and 1861:

I am aware ofthe provisions of Section 3700 ofthe Labor Code, which require every employer to be insured against liability for worker' s compensation or to undertake self- insurance in accordance with the provisions ofthat code, and I will comply with such provisions before commencing the performance ofthe work ofthis contract.

Name of Proposer ( Person, Firm, or Corporation)
Signature of Proposer' s Authorized Representative
Name & Title of Authorized Representative
Date of Signing

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C ATTACHMENT 5- SAMPLE CONSULTANT SERVICES AGREEMENT
ATTACHED BEHIND THIS PAGE]

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

AGREEMENT FOR CONSULTANT SERVICES
THIS AGREEMENT is made and entered into on DATE) by and between TOWN OF LOS GATOS, a California municipal corporation, (" Town") and NAME OF COMPANY, (" Consultant"), whose address is
ADDRESS OF COMPANY. This Agreement is made with reference to the following facts.

L RECITALS

1. 1 The Town desire to engage Consultant to provide XXXXXXXXX.

1. 2 The Consultant represents and affirms that it is willing to perform the desired work pursuant to this Agreement.

1. 3 Consultant warrants it possesses the distinct professional skills, qualifications, experience, and resources necessary to timely perform the services described in this Agreement.

Consultant acknowledges Town has relied upon these warranties to retain Consultant.

II. AGREEMENTS

2. 1 Scope of Services. Consultant shall provide services as described in that certain proposal sent to the Town on ( DATE), which is hereby incorporated by reference and attached as Exhibit A.

2. 2 Term and Time of Performance. This contract will remain in effect from to Consultant shall perform the services described in this agreement as follows:

XXXXXXXX.

2. 3 Compliance with Laws. The Consultant shall comply with all applicable laws, codes, ordinances, and regulations of governing federal, state and local laws. Consultant represents and warrants to Town that it has all licenses, permits, qualifications and approvals of whatsoever nature which are legally required for Consultant to practice its profession. Consultant shall maintain a Town of Los Gatos business license pursuant to Chapter 14 of the Code of the Town of Los Gatos.

2. 4 Sole Responsibility. Consultant shall be responsible for employing or engaging all persons necessary to perform the services under this Agreement.

2. 5 Information/ Report Handling. All documents furnished to Consultant by the Town and all reports and supportive data prepared by the Consultant under this Agreement are the Town' s property and shall be delivered to the Town upon the completion of Consultant' s services or at the Town' s written request. All reports, information, data, and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential until released by the Town to the public, and the Consultant shall not make any of the these documents or information available to any

ITEM NO. 7.

Docusign Envelope ID 8463 BA3 F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C individual or organization not employed by the Consultant or the Town without the written consent of the Town before such release. The Town acknowledges that the reports to be prepared by the Consultant pursuant to this Agreement are for the purpose of evaluating a defined project, and Town' s use of the information contained in the reports prepared by the Consultant in connection with other projects shall be solely at Town' s risk, unless Consultant expressly consents to such use in writing. Town further agrees that it will not appropriate any methodology or technique of Consultant which is and has been confirmed in writing by Consultant to be a trade secret of Consultant.

2. 6 Compensation. Compensation for Consultant' s professional services shall not exceed XXXX, inclusive of all costs. Payment shall be based upon Town approval of each task.

2. 7 Billing. Billing shall be monthly by invoice within thirty (30) days of the rendering of the service and shall be accompanied by a detailed explanation ofthe work performed by whom at what rate and on what date. Also, plans, specifications, documents or other pertinent materials shall be submitted for Town review, even if only in partial or draft form.

Payment shall be net thirty (30) days. All invoices and statements to the Town shall be addressed as follows:

Invoices:

Town of Los Gatos
Attn: Accounts Payable
P. O. Box 655
Los Gatos, CA 95031- 0655
Email preferred: ap@losgatosca. gov

2. 8 Availability of Records. Consultant shall maintain the records supporting this billing for not less than three years following completion ofthe work under this Agreement.

Consultant shall make these records available to authorized personnel ofthe Town at the Consultant' s offices during business hours upon written request of the Town.

2. 9 Assignability and Subcontracting. The services to be performed under this Agreement are unique and personal to the Consultant. No portion ofthese services shall be assigned or subcontracted without the written consent of the Town.

2. 10 Independent Contractor. It is understood that the Consultant, in the performance ofthe work and services agreed to be performed, shall act as and be an independent contractor and not an agent or employee of the Town. As an independent contractor he/ she shall not obtain any rights to retirement benefits or other benefits which accrue to Town employee( s). With prior written consent, the Consultant may perform some obligations under this Agreement by subcontracting, but may not delegate ultimate responsibility for performance or assign or transfer interests under this Agreement. Consultant agrees to testify in any litigation brought regarding the subject ofthe work to be performed under this Agreement. Consultant shall be compensated for its costs and expenses in preparing for, traveling to, and testifying in such matters at its then current hourly rates of compensation, unless such litigation is brought by Consultant or is based on allegations of Consultant' s negligent performance or wrongdoing.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

2. 11 Conflict of Interest. Consultant understands that its professional responsibilities are solely to the Town. The Consultant has and shall not obtain any holding or interest within the Town of Los Gatos. Consultant has no business holdings or agreements with any individual member of the Staff or management of the Town or its representatives nor shall it enter into any such holdings or agreements. In addition, Consultant warrants that it does not presently and shall not acquire any direct or indirect interest adverse to those ofthe Town in the subject ofthis Agreement, and it shall immediately disassociate itself from such an interest, should it discover it has done so and shall, at the Town' s sole discretion, divest itself of such interest. Consultant shall not knowingly and shall take reasonable steps to ensure that it does not employ a person having such an interest in this performance ofthis Agreement. If after employment of a person, Consultant discovers it has employed a person with a direct or indirect interest that would conflict with its performance ofthis Agreement, Consultant shall promptly notify Town ofthis employment relationship, and shall, at the Town' s sole discretion, sever any such employment relationship.

2. 12 Equal Employment Opportunity. Consultant warrants that it is an equal opportunity employer and shall comply with applicable regulations governing equal employment opportunity. Neither Consultant nor its subcontractors do and neither shall discriminate against persons employed or seeking employment with them on the basis of age, sex, color, race, marital status, sexual orientation, ancestry, physical or mental disability, national origin, religion, or medical condition, unless based upon a bona fide occupational qualification pursuant to the California Fair Employment& Housing Act.

III. INSURANCE AND INDEMNIFICATION

3. 1 Minimum Scope of Insurance:
i. Consultant agrees to have and maintain, for the duration of the contract, General Liability insurance policies insuring him/ her and his/ her firm to an amount not less than: two million dollars ($ 2, 000, 000) combined single limit per occurrence for bodily injury, personal injury and property damage. ii. Consultant agrees to have and maintain for the duration of the contract, an Automobile Liability insurance policy ensuring him/ her and his/ her staff to an amount not less than one million dollars ($ 1, 000, 000) combined single limit per accident for bodily injury and property damage. iii. Consultant shall provide to the Town all certificates of insurance, with original endorsements effecting coverage. Consultant agrees that all certificates and endorsements are to be received and approved by the Town before work commences.
iv. Consultant agrees to have and maintain, for the duration of the contract, professional liability insurance in amounts not less than $ 1, 000, 000 which is

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C sufficient to insure Consultant for professional errors or omissions in the performance of the particular scope of work under this agreement.

General Liability:
i. The Town, its elected and appointed officials, employees, and agents, are to be covered as insured as respects: liability arising out of activities performed by or on behalf ofthe Consultant; products and completed operations of Consultant, premises owned or used by the Consultant. This requirement does not apply to the automobile or professional liability insurance required for professional errors and omissions.
ii. The Consultant' s insurance coverage shall be primary insurance as respects the Town, its elected and appointed officials, employees, and agents. Any insurance or self-insurances maintained by the Town, its elected and appointed officials, employees, and agents, shall be excess of the Consultant' s insurance and shall not contribute with it. iii. Any failure to comply with reporting provisions ofthe policies shall not affect coverage provided to the Town, its elected and appointed officials, employees, and agents.
iv. The Consultant' s insurance shall apply separately to each insured against whom a claim is made or suit is brought, except with respect to the limits of the insurer' s liability.

3. 2 All Coverages. Each insurance policy required in this item shall be endorsed to state that coverage shall not be suspended, voided, cancelled, reduced in coverage or in limits except after thirty ( 30) days' prior written notice by certified mail, return receipt requested, has been given to the Town. Current certification of such insurance shall be kept on file at all times during the term of this agreement with the Town Clerk.

3. 3 Workers' Compensation. In addition to these policies, Consultant shall have and maintain Workers' Compensation insurance as required by California law and shall provide evidence of such policy to the Town before beginning services under this Agreement. Further, Consultant shall ensure that all subcontractors employed by Consultant provide the required Workers' Compensation insurance for their respective employees.

3. 4 Indemnification. The Consultant shall save, keep, hold harmless and indemnify and defend the Town, its elected and appointed officials, employees, and agents, from all damages, liabilities, penalties, costs, or expenses in law or equity that may at any time arise or be set up because of damages to property or personal injury received by reason of, or in the course of performing the work described in this contract.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C IV. GENERAL TERMS

4. 1 Waiver. No failure on the part of either party to exercise any right or remedy hereunder shall operate as a waiver of any other right or remedy that party may have hereunder, nor does waiver of a breach or default under this Agreement constitute a continuing waiver of a subsequent breach ofthe same or any other provision ofthis Agreement.

4. 2 Governing Law and Venue. This Agreement, regardless of where executed, shall be governed by and construed to the laws ofthe State of California. Venue for any action regarding this Agreement shall be in the Superior Court ofthe County of Santa Clara.

4. 3 Termination of Agreement. The Town and the Consultant shall have the right to terminate this agreement with or without cause by giving not less than fifteen days ( 15) written notice of termination. In the event of termination, the Consultant shall deliver to the Town all plans, files, documents, reports, performed to date by the Consultant. In the event of such termination, Town shall pay Consultant an amount that bears the same ratio to the maximum contract price as the work delivered to the Town bears to completed services contemplated under this Agreement, unless such termination is made for cause, in which event, compensation, if any, shall be adjusted in light ofthe particular facts and circumstances involved in such termination.

4. 4 Amendment. No modification, waiver, mutual termination, or amendment of this Agreement is effective unless made in writing and signed by the Town and the Consultant.

4. 5 Disputes. In any dispute over any aspect ofthis Agreement, the prevailing party shall be entitled to reasonable attorney' s fees, including costs of appeal.

4. 6 Notices. Any notice required to be given shall be deemed to be duly and properly given if mailed postage prepaid, and addressed to:

Town of Los Gatos CONSULTANT NAME
Attn: Town Clerk Attn:
110 E. Main Street ADDRESS
Los Gatos, CA 95030
or personally delivered to Consultant to such address or such other address as Consultant designates in writing to Town.

4. 7 Order of Precedence. In the event of any conflict, contradiction, or ambiguity between the terms and conditions ofthis Agreement in respect ofthe Products or Services and any attachments to this Agreement, then the terms and conditions of this Agreement shall prevail over attachments or other writings.

4. 8 Entire Agreement. This Agreement, including all Exhibits, constitutes the complete and exclusive statement of the Agreement between the Town and Consultant. No terms, conditions, understandings or agreements purporting to modify or vary this Agreement,

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C unless hereafter made in writing and signed by the party to be bound, shall be binding on either party.

IN WITNESS WHEREOF, the Town and Consultant have executed this Agreement.

Town of Los Gatos by:

Chris Constantin, Town Manager
Recommended by:

Consultant, by:

Gitta Ungvari, Finance Director

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Approved asto Form:

Gabrielle Whelan, Town Attorney

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C bae urban economics
DRAFT 2020 Comprehensive Plan Fiscal Impact Analysis
For the City ofAnnapolis, Maryland
August 8, 2020
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ATTACHMENT 6

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Contents

EXECUTIVE SUMMARY I
Methodology Overview
Summary of Findings
INTRODUCTION 3
METHODOLOGY 5
PROJECTIONS 9
OPERATING COSTS IMPACT 9
REVENUE IMPACT 12
Property Tax Revenue Impact of New Growth, 2020- 2040 12 Income Tax Revenue Impact of New Growth, 2020- 2040 16
Overall Growth- related Impact to General Fund Revenues, 2020- 2040 18 FISCAL IMPACT ANALYSIS OF NEW GROWTH 19
Sensitivity Analysis of Fiscal Impacts 20
OTHER COST CONSIDERATIONS 24
Capital Costs Impact 24
CONCLUSION 27

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

EXECUTIVE SUMMARY
As part of the Annapolis Comprehensive Plan update, BAE Urban Economics has prepared a fiscal impact analysis of new growth in Annapolis between 2020 and 2040. Among the key features of the Comprehensive Plan are the development and growth projections that serve as the basis for the policies and strategies set forth in it. A fiscal impact analysis is a powerful tool to assess whether the new growth assumed in the plan will strain government services or generate net revenues that allow the government to improve and expand services and invest in economic growth. By 2040, Annapolis is projected to grow by 583 new households and 4,347 new residents. The service population is projected to grow by 4, 388. Growth projections are based on population, jobs, and household projections from the Baltimore Metropolitan Council ( BMC), Round 9 projections, published in 2016.

Methodology Overview
This fiscal impact analysis evaluates operating costs and revenues in the General Fund. The analysis uses the Fiscal Year 2020 ( FY20) Adopted Budget as a baseline to estimate the current level of service provided by the city government in terms of operating costs. Operating cost projections are based on the growth in either the residential population demand base or the service population demand base, which is the residential population plus 50 percent of jobs. Revenues other than real property tax and income tax revenue were projected similarly, based on an average revenue per chosen demand base. Real property tax and income tax revenue were calculated based on the development assumptions in the Comprehensive Plan.

The Annapolis property tax rate is applied to the assumed assessed values of new development. Income tax revenue is based on the property values of new residential development and calculating a minimum income required to purchase or rent a given unit.

An estimate of capital costs is provided, but it is not incorporated into the fiscal impact analysis, as the assumptions behind the calculations are more tenuous and less reliable than the evaluation of operating costs and revenues. However, to the extent that growth will generate capital costs, these are expected to be minimal as Annapolis will not require new, additional major capital infrastructure.

Given the recent COVID- 19 outbreak and its potential effects on the economy, various property tax revenue scenarios are tested for impact on the overall growth- related revenue estimate.

Although the crisis may impact the fiscal resiliency of the City, it is important to note the fiscal impact is calculated for the next 20 years.

Summary of Findings
This analysis finds that the growth projected in the Comprehensive Plan update will have an estimated net fiscal impact totaling $ 776, 000 to the City of Annapolis General Fund by 2040, which is calculated by adding approximately$ 3. 3 million in new revenues and subtracting

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

2. 5 million in new operating costs. Capital costs are estimated to be $ 553, 600. This is a marginally positive fiscal impact and a sensitivity analysis suggests the fiscal impact could reasonably turn out negative, although this would also be marginal relative to the size of the FY20 adopted budget. This result is explained by the heavily residential development program assumed in the model, which serves as the basis for the fiscal impact.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

INTRODUCTION
This report presents an analysis of the projected net fiscal impact that the population and employment growth envisioned in the City of Annapolis Comprehensive Plan update will have on the City of Annapolis General Fund between 2020 and 2040. Fiscal impact analysis is a powerful tool to assess the revenues and costs associated with new development within a jurisdiction. New homeowners and businesses generate revenues to local governments by paying taxes, fees, and fines. They also bring about new costs for a jurisdiction in the form of new or improved roads, more schools and parks, and increased investment in public safety.

These costs are comprised of both operating and capital components; growth can require both new infrastructure and an increase in operating capacity to maintain a given level of service.

Fiscal impact analysis allows a jurisdiction to compare the revenues and costs from new growth, which can inform decisions ranging from assessing the feasibility of a new development to updating tax rates and reevaluating existing services.

Fiscal impacts are calculated in terms of impact on the annual budget. In general, the formula for calculating the fiscal impact per land use ( i. e. low-density residential, mixed use, etc.) or development type ( single-family detached, multi-family, office, etc.) is:

Annual Fiscal
Impact Revenues - Operating Costs - Capital Costs
of new growth) of new growth) of new growth) of new growth) fiA fiscal impact analysis of a comprehensive plan allows jurisdictions to assess the feasibility of the new growth projected in the plan. In coordination with the city and the comprehensive planning team, BAE Urban Economics conducted a thorough fiscal impact analysis for the City of Annapolis to estimate the revenues and costs associated with new growth based on the FY20 adopted budget, the Capital Improvement Program ( CIP), and detailed discussions with city department heads and staff. Discussions with city staff focused on how department operations would change in response to new growth, as measured in the revenues and expenditures of each department. These discussions were the basis of deciding how to model revenues and costs with respect to the growth in the Comprehensive Plan.

Critically, a fiscal impact analysis does not account for the economic impacts of the Comprehensive Plan. Most components of the plan are intended to improve the Annapolis economy, whether directly or indirectly. Whether it is through improved environmental and social outcomes or directly through economic development policies, the Comprehensive Plan seeks to make Annapolis a desirably place to live. The economic impacts of the Comprehensive Plan will ultimately be based on more specific notions of, for example, the kinds of new jobs and incomes that come to Annapolis as a result of the plan, and the impact the plan has on resident' s incomes, property values and overall standing. The plan details 3

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C how the city plans to become more efficient and sustainable, which will also deliver economic benefits. Indeed, there are analyses that model these impacts and are useful to conduct as they would give an indication of future fiscal standing. However, a fiscal impact analysis specifically avoids considering the dynamic impact of the Plan on the economy. Instead, it seeks to determine whether the City is projected to accommodate t Ian' s assumed level of new growth at the level of service the government currently extends through its o erns, Atarapital infrastructure without raising taxes or other sources of revenue.

Therefore, the dollar value of the fiscal impact is less important than whether the impact is positive or negative, and what the magnitude of the impact is. The fiscal impact is not a prediction of the annual budget levels in FY2040 but rather, an indication of risks or opportunities presented by the deficit or surplus generated by new growth. 4

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

METHODOLOGY
A variety of methodologies were used to project growth- related impacts to different sources of revenue and for the different departments within the City. In general, through meetings and consultations with city staff, components of the FY2O adopted budget were designated as / fixed' or `variable'; that is, determinations were made regarding which revenues and costs v
would be impacted by growth. Ultimately, only revenues and expenditures from the General Fund were analyzed as Enterprise Funds' are not impacted by growth, and Internal Service i'7
Funds2 are accounted for in the operating costs of departmental budgets in the General Fund.

Operating cost projections are based on the growth in either the residential population demand base or the service population demand base, which is the residential population plus 50 percent of jobs. Revenues other than real property tax and income tax revenue were projected similarly, based on an average revenue per chosen demand base. Real property tax and income tax revenue were calculated based on the development assumptions in the Comprehensive Plan. The Annapolis property tax rate is applied to the assumed assessed values of new development. Income tax revenue is based on the property values of new residential development and calculating a minimum income required to purchase or rent a given unit.

An estimate of growth- related capital costs and school costs is also provided, but these costs are not incorporated into the fiscal impact analysis itself. The city of Annapolis does not bear any schools costs, as schools are provided by Anne Arundel County. Moreover, as the city is built out, there will be limited new capital costs in terms of major infrastructure, which include roads classified as arterials or higher, and new sewer and water line ( not including connections). Sidewalks, road connections to entrances and other site related infrastructure I*114111" are not typically included in the fiscal impact analysis of a comprehensive plan, where the goal is to establish an order of magnitude for the fiscal impact, and the cost of smaller infrastructure can vary considerably.

The costs of smaller infrastructure, to the extent there are any, depend largely on assumptions about development types and potential sites, which is more information than established currently in the Comprehensive Planning process. It is certainly useful to conduct a fiscal impact analysis with more specific assumptions that are informed by proposed development The Enterprise Funds are used to account for those activities of the City that are financed and operated in a manner similar to private business enterprises where costs and expenses, including depreciation, are recovered principally through user charges. Individual operations that the City has designated as enterprise funds include Water, Sewer, Parking, Transportation, Watershed Restoration, and Refuse funds." 2 Internal Services Funds, including Health Insurance, Self-Insurance, Fleet Operations, and Fleet Replacement activities, provide service to the City government, and are paid for primarily through departmental budgets. As a result, increases in operating costs to departmental budgets will account for transfers from those departments to the Internal Service Funds.
5

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C types on a given site or in a given area, but it can only be done when there are proposed or finalized land use changes. In fact, fiscal impact analyses are often used to evaluate individual development projects. For the purposes of the current Comprehensive Plan, a fiscal analysis will be ultimately conducted for specific potential development sites to study the impact of potential zoning changes. Nonetheless, a rough estimate of capital costs is provided in this report based on the average spending in the Capital Improvement Plan for FY20 through FY25. As the estimate is less rigorously conceived than the estimates of revenues and operating costs, it is not included in the fiscal impact result.

As shown in the fiscal impact analysis presented in this report, 87.2 percent of the$ 80.8 million in City FY20 General Fund revenues are held variable, meaning that these revenues will generally increase in relation to the City' s population and employment growth through 2040.

Notably, projecting growth- related real property tax revenues accounts for over 64 percent of potential General Fund revenues based on FY20 levels.

Table 1: FY20 General Fund Revenues Held Variable
Source of FY20 Revenue FY20 Adopted
Revenue Held Variable Budget Variable
Taxes( a) 54,834,000 $ 54,983,800 99.7%
Licenses& Permits $ 3,256,300 $ 3,256,300 100. 0%
Fines& Forfeitures $ 435,000 $ 435,000 100.0%
Interest, Rent, Other $ 1, 549,000 0.0%
Intergovernmental( b) $ 6,343,000 $ 11, 565,000 54.8%
Charges for Service $ 5,626,500 $ 5,626,500 100. 0%
Other 3,423,500 0.0%
Total 70,494,800 $ 80,839, 100 87.2%
Notes:
a) Taxes include real and personal property taxes, and penalties and interest. b) Of intergovernmental sources of revenue, only the income tax is projected.

The fiscal impact analysis presented in this report estimates that 53. 4 percent of the approximately$ 83. 0 million in General Fund operating expenses in the FY20 adopted budget are variable, while the remaining expenditures were determined to be unaffected by new growth. Non-staff operating expenditures and staffing costs were analyzed separately.

Operating expenditure line items were held fixed or variable depending on if they were determined to be affected by growth.

Similarly, operating costs related to staff salaries, wages, and benefits were projected based on the need for new staff, which was based on the level of employed staff per department in FY20. Certain positions in each department, such as chiefs and directors, where held fixed 6

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C while lower level staff were held variable. The percentages of FY20 General Fund expenditures held variable are summarized in Table 2.

Table 2: FY20 General Fund Expenditures Held Variable
Variable Variable FY20 Adopted
Departm ent Expenditures Staff Costs Budget Variable
General Government( a) 1, 363, 650 $ 5, 359, 113 $ 30, 581, 430 22. 0% Police 2, 458, 830 $ 13, 336, 939 $ 19, 620, 830 80. 5% Fre 1, 380, 370 $ 11, 894, 367 $ 19, 286, 270 68. 8%
Emergency Management( b) $ 417, 520 0. 0%
FUblic Works 2, 386, 250 $ 3, 337,587 $ 7, 885, 250 72. 6% Parks 1, 597, 850 $ 1, 155, 655 $ 5, 176, 700 53. 2%
Total 9, 186, 950 $ 35, 083, 661 $ 82, 968, 000 53. 4%
Notes:
a) General government includes: City Council and the Office of the Mayor, Human Resources, Management Information Technology, Finance, Planning& Zoning, and the Office of Environmental Policy. b) Emergency management expenditures were determined to be fixed as they all growth- related needs over the next 20 years will come from non- local allocations.

Operating costs were projected linearly; for each variable line item and staffer within each department, projections of the increased costs generated by new growth were based on the rates of growth in either service population or residential population. The service population, which is defined as the residential population plus 50 percent of jobs, is projected to grow faster over the next 20 years than the growth in the residential population and is a useful proxy to measure the growth- related costs of services provided to residents and workers. For example, public works costs are likely to increase alongside the growth in the service population, as both workers and residents demand public works services. Parks costs, on the other hand, would not be impacted by an increase in workers, and are more appropriately projected by population growth.

A level of service was determined for the non-staff operating expenditures by dividing the amount budgeted for a given variable line item in FY20 by the size of the base year service or residential population. For example, based on the $320,050 appropriated for supplies3 in the Planning& Zoning Department, an average $ 3. 18 is spent per member of the service population ( 55,763 in 2020). The level of service is multiplied by the growth in the given demand base. Growth projections used in this fiscal impact analysis are discussed in the next section.

Similarly, a level of service for staffing is based on dividing the number of employed staff by the appropriate base year population. For example, based on the 14 ' Equipment Operator' positions in the Department of Public Works, there are 0.00025 of them per member of the service population in 2020. This is multiplied by the change in service population to 3 This budget refers to the line item for" Supplies and Other" within the Department budget for Planning& Zoning.

Expenditures within this line item include office supplies, training for staff and memberships. 7

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C determine how many new Equipment Operators are needed, which is then multiplied by the total salary and benefits received by each Equipment Operator to determine a cost. Based on an analysis of salaries, it was found that, on average, city staff across all departments receive benefits (i. e. health insurance) valued at 35 percent of their salary. This cost increase is incorporated into salary levels of staff when calculating the costs of growth- related staff needs.

Capital costs are also estimated, although not incorporated into the fiscal impact as the assumptions about growth- related capital needs are is less rigorously evaluated than the analysis of operating costs and revenues. While it is very unlikely that the city will require new, additional major capital infrastructure to service growth, there may be increased costs due to additional wear and tear on existing infrastructure. Using the average spending in the CIP between FY20 and FY25 per service population, we estimate how much additional spending in the CIP would be required by the growth in the service population by 2040. It is important to note that more detailed analysis of specific capital costs that are sensitive to development type and land use can be conducted once there are reliable assumptions that can be made.

There is no reason, however, to expect that more detailed fiscal impact analyses that are land use- and site-specific will lead to an increase in the estimate of capital costs provided in this report, as it is simply unknown what, if anything, the city would be responsible for in a given development project.

In terms of revenues, real property taxes are calculated directly based on the number of new residential units and nonresidential square footage contained within the comprehensive plan, and their respective market values, which are used as proxies for estimating assessed values.

Furthermore, income tax revenue is based on calculating the household incomes needed to purchase or rent the new residential units, and then applying Annapolis' share of Anne Arundel County' s income tax rate. All other costs and revenues, such fines and fees, are projected based on the existing average levels of revenues per service population today.

All calculations presented for costs, revenues and impacts are rounded to the nearest $ 1, 000. 8

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- AlD6- 2ABE915AOC1C

PROJECTION
Projections of the residential population, jobs, and households are based on growth rates developed by the Baltimore Metropolitan Council ( BMC). As shown in Table 3, the residential population of Annapolis is expected to grow by 4,347 between 2020 and 2040, while jobs are projected to grow by 82 in total. Therefore, the service population, which is defined as the residential population plus 50 percent of jobs, is anticipated to grow by 4,388. It is important to note that household growth is projected to increase at a lower rate than population growth, meaning that existing Annapolis households in 2020 will become larger. Using the average household sizes, new households can account for up to 1, 478 of the 4, 347 new residents, or only one- third of new growth. Therefore, the estimate of income tax revenues in this fiscal impact analysis is conservative as only the incomes of residents in new households are calculated. All projections used in this fiscal impact analysis are based directly on projections within the 2020 Comprehensive Plan.

Table 3: Summary of Demographic Projections
Base Overall Change % Change
Annapolis 2020 2025 2030 2035 2040 2020- 2040 2020- 2040 Population( a)( b) 40, 262 40, 765 40, 918 43, 852 44, 609 4,347 10. 8% Households( a)( c) 16, 426 16, 527 16, 868 16, 929 16, 989 563 3.4% Avg. Household Size 2. 45 2.47 2.43 2.59 2. 63 0. 17 7. 1% Jobs( d) 31, 001 31, 026 31, 041 31, 060 31, 083 82 0.3% Service Population( e) 55, 763 56, 278 56, 438 59, 382 60, 151 4,388 7.9% Notes:
a) Projections for population and households follow trends published in Round 9 of the BMC forecasts. b) Base year data reflects 2018 estimates from Esri, scaled by the BMC Round 9 annual growth rate from 2015- 2020( 0. 06%) c) Household projections account for 132 residential units currently in the construction pipeline as of April 1, 2020. Projections based on the BMC trend and Esri base year estimate include an additional 6. 65 units( 132/20) each year. d) Base year estimate and trends are based on BMC Round 9 estimates, with no adjustments. e) Service population is defined as the residential population plus 50% of jobs.

Source: Baltimore Metropolitan Council, Round 9; Department of Planning& Zoning; Esri; BAE, 2020.

OPERATING COSTS IMPACT
The impact of new growth on operating costs from 2020 to 2040 is based on expenditures in the General Fund. Expenditures were analyzed by department and summarized in categories including General Government, Police, Fire, Public Works, and Recreation and Parks.

Among General Government expenditures, budget items for Management Information Technology( MIT), Finance, and Planning and Zoning were held variable as the needs for these departments are likely to increase as the city grows, based on discussions with city staff.

Projected increases in expenditures in the General Government category were based on the projected growth in service population, as these departments are affected by both residential growth and the presence of jobs and businesses. Providing the same level of service over the 9

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C next 20 years to new growth, as represented by the variable non- staff operating expenditures in these departments, will generate approximately an additional $ 107, 000 in operating costs at plan buildout in 2040. Staffing is also only projected to increase in these departments.

Based on the growth in the service population, General Government will need to hire four or five new staffers to maintain the ratio of these staffers to the service population in 2020. The weighted average salary of these positions is $ 64,000, for a total cost of approximately 396,000, including accounting for an additional 35 percent in benefits.

Police operating expenditures are projected based on the growth in households, and no operating expenditures were held fixed. Household growth is chosen as the demand base because public safety costs can reasonably be expected to increase alongside development, as indicated by the Chief of Police. However, the growth- related impact on police costs realistically lies between the development growth and population growth. As a result, growthrelated impacts of public safety costs are adjusted in a sensitivity analysis of overall findings later in this report.

Staff needs were projected for all administrative positions, while only the Police Chief, Major, and Captain positions were held fixed in terms of uniformed officers. From 2020 to 2040, police operating expenditures will cost approximately $ 84,000. Administrative staff will need to increase by one staffer to maintain the existing level of service, while the number of uniformed officers will need to increase by four or five. In total, including 35 percent for benefits, staffing costs between 2020 and 2040 will be $ 457, 000.

Growth- related operating costs for the Fire Department by 2040 are slightly below the growthrelated operating costs for police. Based on the growth in the service population, Annapolis will need to spend $ 81,000 for operations and $ 408,000 in staff costs. This includes adding four or five firefighters below the rank of Fire Captain.

The FY20 Department of Public Works budget is subdivided into six categories including Administration, Engineering and Construction, Streets, Traffic Control and Maintenance, Snow, and Facilities. All operating expenditures were projected based on the increase in service population between 2020 and 2040 and maintaining the existing level of service. The projected cumulative operating expenditures over the next twenty years would cost approximately $ 188,000. Leadership and management positions within the various departments within Public Works were held fixed, while the rest were projected based on the growth in service population as well. Between 2020 and 2040, this analysis estimates that growth- related Public Works staff costs will be approximately$ 444,000, including benefits.

This represents hiring approximately five new staff.

Recreation and Parks costs round out the General Fund expenditures. Of the 11 subcategories within the Recreation and Parks budget, only costs for Arts in Public Places are held fixed. Recreation and Parks costs are projected based on the growth in the residential io

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C population as growth in nonresident workers will not generate an additional need. Operating expenditures between 2020 and 2040 are estimated to be $ 212, 000. Non- management level employees at the Pip Moyer Recreation Center are projected to increase, as well as custodial and administrative parks workers and harbormaster staff costs. In total, including 35 percent benefits, staff costs for Recreation and Parks will cost in total $ 125, 000 by 2040, representing one to two additional staff. Notably, there are several contractual workers identified in the Recreation and Parks budget, although these staff are accounted for in the projection of contractual services within the operating expenditures, not staff costs.

In total, the cumulative growth- related impact to the General Fund expenditures between 2020 and 2040 is approximately$ 2. 5 million, as shown in Table 4. This includes$ 672, 000 in new operating expenditures and $ 1. 8 million in staff costs. Total projected operating and staffing costs represent a 3. 0 percent increase over the FY20 adopted budget levels. The Police and Fire departments represent 59. 7 percent of the growth-related operating costs, followed by Public Works ( 16.5 percent), General Government ( 15 percent), and Recreation and Parks (8.8 percent).

Table 4: Growth-Related Operating Costs, 2020- 2040
2020 Adopted Operating Expenditure Staff Costs Total Impact, % Total Impact, % Increase Department Budget Impact, by 2040 Impact, by 2040 by 2040 by2040 since 2020 General Government( a) $ 30, 581, 000 $ 107, 000 $ 396, 000 $ 503, 000 20. 1% 1. 6% Police 19, 621, 000 $ 84, 000 $ 457, 000 $ 541, 000 21. 6% 2. 8% Fire 19, 286, 000 $ 81, 000 $ 408, 000 $ 489, 000 19. 5% 2. 5% Public Works 7, 885, 000 $ 188, 000 $ 444, 000 $ 632, 000 25. 3% 8. 0% Recreation and Parks $ 5, 217, 000 $ 212, 000 $ 125, 000 $ 337, 000 13. 5% 6. 5% Total 82, 590, 000 $ 672, 000 $ 1, 830, 000 $ 2, 502, 000 100. 0% 3. 0% Notes:
a) General Government includes: City Council and the Office of the Mayor, Human Resources, Management Information Technology, Finance, Planning& Zoning, and the Office of Environmental Policy.

Sources: City of Annapolis, FY 2020 Adopted Budget; BAE, 2020. 11

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C

REVENUE IMPACT
The impact of growth on Annapolis General Fund revenues will come primarily from real property taxes, which account for 64 percent of FY20 revenues. The other major source of revenue is intergovernmental transfers, which account for 14. 3 percent of FY20 revenues.

While some intergovernmental transfers, such as the utility tax or highway tax, are likely to increase over the next 20 years, these are State- based transfers for which analysis is beyond this report. However, income tax revenue is projected, which accounts for nearly 55 percent of intergovernmental transfers.

Real property tax revenue is calculated directly based on an assumption of the future development in Annapolis by 2040 and associated property values. Importantly, proposed land use changes and development types have not yet been finalized in the Comprehensive Plan at the time of the writing of this report, and the assumptions here are subject to change.

Iterations of the fiscal impact model can be performed as the planning process advances, of after it is complete.

Income tax is based on the incomes of the households that occupy the new projected development. As a result, income tax revenue projections in this fiscal impact analysis are potentially underestimated as new households do not account for all the population growth Annapolis is projected to experience between 2020 and 2040. The BMC Round 9 projections of population for Annapolis assume an increase in the household size of existing households, which will likely result in an increase in income tax revenue from additional residents in existing households. However, this analysis does not estimate this additional income tax revenue associated with additional residents in existing households due to a lack of information in the projections related to the age, employment, and income of these residents.

The income tax revenue calculations shown in this analysis therefore represent a somewhat conservative estimate of income tax revenues attributable to the projected growth. All other revenues to the General Fund are either held fixed or projected by either growth in the service population, residential population, or jobs.

Property Tax Revenue Impact of New Growth, 2020-2040
Property tax revenues are calculated directly based on a preliminary assumption of the development projections in the Annapolis Comprehensive Plan. The Annapolis property tax is applied to the estimated market value of the new development in 2040, which is calculated based on assumptions of rents, sale prices, and vacancy rates. The property tax revenue at buildout in 2040 is shown in order to compare the impact of growth- related operating costs.

However, the assessed property values assumed throughout the development period are the market values assumed, which are based on market conditions in FY19 and do not include 12

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C inflation. A sensitivity analysis accounting for potential recession- level effects of the Covid- 19 crisis on property values is also provided later in this report.

Assumptions for determining the market value of new residential development are shown in Table 5. There will be a total of 600 new homes built. The market value of the for- sale units is based on the market values for new construction from FY19, as reported in the market study for the Annapolis Comprehensive Plan. The market rate values for new construction are higher than the median sale price. The total market value of for-sale units, which is simply the number of units multiplied by the respective sale price by unit type, is $ 317. 6 million.

The market value of for-rent multifamily units is also based on the rents reported in the market study, and in addition, assumes a five percent vacancy rate and average annual expenses based on the National Apartment Association' s ' 2019 NM Survey of Operating Income & Expenses in Rental Apartment Communities.' Using a cap rate of 4. 75 percent, the estimated 13

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C market value of the for-rent multifamily properties is determined. The market value of the all for-rent units, including affordable units, is $ 22. 0 million.

Table 5: Assessed Value Assumption for New Residential Units, 2020- 2040 Total New Residential Units* 600
Market- Rate Residential
For Rent
Number of New Units 109
Average Monthly Rent( a) 1, 600
Vacancy Rate 5%
Average Annual Expense per Unit( b) 8,661
NOI( per unit) 9,579
For Sale
New Single Family Homes 69
Sale Rice( c) 700,000
New For-Sale Tow nhomes 322
Sale Rice 650, 000
New Condos 100
Sale Rice 600, 000
Summary
For- Rent Residential NOI 1, 044, 111
Residential Capitalization Rate 4. 75%
Estimated Market Value 21, 981, 000
For- Sale Total Value 317,599,000
Notes:
a) Based on the Q3 2019 Asking rents from the' Demographic and Economic Profile and Real Estate Market Analysis.' b) Based on the estimated operating costs for mid& hi- rise rental properties from the National Apartment Association' s' 2019 NAA Survey of Operating Income& Expenses in Rental Apartment Communities.' c) Based on new construction sale price from the' Demographic and Economic Profile and Real Estate Market Analysis.' Sources: City of Annapolis; National Apartment Association; BAE, 2020. 14

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C The estimated market value of new nonresidential development is based on assumptions of NNN rent ( per square foot) from the market study and a 5. 0 percent vacancy rate that are used to determine a net operating income ( N01) per square foot. A 6. 25 cap rate is applied to the NOI multiplied by the projected increase in nonresidential development. The only nonresidential development projected in the Comprehensive Plan is a net 20,000 square feet increase in the retail inventory and a net 20,000 square feet increase in the office inventory.

As shown in Table 6, the estimated market value of new retail development by 2040 is $ 8.5 million, and the estimated market value of new office development is $ 8. 2 million.

Table 6: Assessed Value Assumptions for New Nonresidential Units, 2020- 2040 Nonresidential
Retail
NNN Rent( per sq. ft. per year) 28. 00
Vacancy Rate 5%
NOI( per sq. ft.) 26. 60
Net New Retail( SF) 20,000
Office
NNN Rent( per sq. ft. per year) 27. 00
Vacancy Rate 5%
NOI( per sq. ft.) 25. 65
Net New Retail( SF) 20, 000
Summary
Retail NOI( a) 532, 000
Nonresidential Capitalization Rate 6. 25%
Estimated Market Value 8, 512,000
Office NOI( b) 513, 000
Nonresidential Capitalization Rate 6. 25%
Estimated Market Value 8, 208,000
In total, at plan buildout in 2040, the market value of new development, which represents the assessed value for real property tax revenue purposes, is approximately$ 356.3 million. 15

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Applying the Annapolis real property tax rate of 0. 7380 per $ 100 of assessed value generates annual revenue at buildout of$ 2. 6 million. This is summarized in Table 7.

Table 7: Annual Real Property Tax Revenue at Plan Buildout, 2040 City of
Annapolis
Assessed Value of New Res. Development, 2020- 2040 339,580,000 Assessed Value of New Non- Res. Development, 2020-2040 $ 16,720,000 Assessed Value of Total New Development, 2020- 2040 $ 356,300,000 R-operty Tax( per$ 100 of assessed value) 0. 7380
Annual Property Tax Revenue at Plan Buildout 2,629,000
Income Tax Revenue Impact of New Growth, 2020-2040
This analysis uses the home sale price and rent assumptions shown in Table 5 above to estimate household incomes among new households in Annapolis and applies Annapolis' share of Anne Arundel County' s income tax rate, which is an effective tax rate of 0.7025 percent, to estimate income tax revenues from these households. Income assumptions for the new for-rent units are calculated by assuming a vacancy rate of 5.0 percent and a rent-toincome ratio of 25 percent, which would imply these renters are not cost- burdened. For the new for-sale units, the revenue calculations assume a 20 percent down payment on the median sale price, a fixed 30-year mortgage rate of 4. 50 percent, and a monthly mortgage payment to gross monthly income ratio of 28 percent. The effective Annapolis income rate is applied to the incomes calculated using this method and multiplied by the number of new units. Applying this method to new single- family units with an assumed sale price, for example, of$ 700, 000 would require a household income of$ 121, 604, which is above the 16

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 2019 household median income in Annapolis ($ 80,010). Assumptions for growth- related income tax revenue are shown in Table 8.

Table 8: Growth- related Income Tax Revenue Calculation Assumptions Market- Rate Residential
For Rent
New For- Rent Wits 109
Average Monthly Rent( a) 1, 600
Vacancy Rate 5%
Annual Household Income( b) 76, 800
New Income Tax Revenue ( c) 38, 000
For Sale
New Single Family Homes 69
Sale Rice( d) 700, 000
Loan Amount( e) 560, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 837
Annual Income( f) 121, 604
New Income Tax Revenue ( g) 40, 000
New Townhom es 322
Sale Rice( d) 650, 000
Loan Amount( e) 520, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 635
Annual Income( f) 112, 918
New Income Tax Revenue 174, 000
New Condos 100
Sale Rice( d) 600, 000
Loan Amount( e) 480, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 432
Annual Income( f) 104, 232
New Income Tax Revenue 50, 000
Notes:
a) Based on the Q3 2019 Asking rents from the' Demographic and Economic Profile and Real Estate Market Analysis.' b) Assumption of Rent- to-Income ratio: 25. 00%
c) The Anne Arundel County income tax rate in FY20: 2. 81% Annapolis' percentage of Anne Arundel County Income Tax: 17. 00% d) Based on median sale price from the' Demographic and Economic Profile and Real Estate Market Analysis.' e) Loan amount assumes 20% down payment.
f) Assumes Fixed- rate mortgage.
f) Assumption of monthly mortgage payment as percentage of gross monthly income: 28% gross monthly income multiplied by 12 for annual income) Source: BAE, 2020
17

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C As shown in Table 9, Combining the estimated new income tax revenue from new renteroccupied households ($ 38,000) and the new income tax revenue from new owner- occupied households ($ 264,000) generates a total new incomes tax revenue of$ 302, 000 between 2020 and 2040.

Table 9: Growth- related Income Tax Revenue, 2020- 2040 City of
Annapolis
Income Tax Revenue from For- Rent Wits $ 65, 000
Income Tax Revenue from For- Sale Wits $ 212, 000
New Income Tax Revenue 277, 000
Source: BAE, 2020
Overall Growth-related Impact to General Fund Revenues, 2020-2040 Other revenues in the General Fund were also accounted for in the fiscal impact analysis based on dividing FY20 revenues by a given population and multiplying by the growth in that population. Personal property tax revenue between 2020 and 2040 were projected in terms of jobs growth, as personal property is assessed on businesses. Licenses and Permits and Charges for Services revenue were projected by the growth in residential population, while fines and forfeiture revenues were projected by the growth in service population. All other revenues were held fixed. The impact of growth on other revenues between 2020 and 2040 is approximately $347,000.

Table 10 summarizes the growth- related impact to General Fund revenues. By 2040, new growth will generate an estimated $ 3.3 million in revenue. Real property tax revenue 18

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C generates 80. 2 percent of the total impact, which suggests that the fiscal impact relies heavily on the market value assumptions of new development.

Table 10: Growth- related Impact to General Fund Revenues, 2020- 2040 Source of 2020 Adopted Revenue Im pact, % Total Im pact, Revenue Budget( a) by 2040 by 2040
Real Property Tax( b) 51, 884,000 $ 2,629,000 80.2%
Personal Property Tax( c) $ 2,950,000 $ 8,000 0. 2%
Income Tax( d) 6,343,000 $ 302,000 9. 2%
License& Permits( e) 3,256,300 $ 112, 000 3. 4%
Fines& Forfeitures( f) 435,000 $ 34,000 1. 0%
Charges for Service( g) $ 5,626,500 $ 193, 000 5. 9%
Total 70,494,800 $ 3,278,000 100%
Notes:
a) Revenues shown are only for those revenue sources held variable, so total of FY20 adopted budget levels do not match FY20 General Fund revenues.
b) Property taxes are calculated based on the projections of new residential development for the Comprehensive Plan. The assumed projected' development program' in place currently is a placeholder. c) Projected based on base year personal property tax revenue per job. d) Revenue tax is based on the household revenues of new residential development. As a result, this is a low estimate as new residential development does not account for the entirety of the projected population growth by 2040. e) Projected based on base year licenses and permits revenue per resident. f) Projected based on base year fines and forfeitures revenue' service person.' g) Projected based on base year charges for service revenue per resident.

FISCAL IMPACT ANALYSIS OF NEW GROWTH
Combining the growth- related impacts to operating costs, capital costs, and revenues determines the overall fiscal impact by 2040. As shown in Figure 1, the fiscal impact of new growth will be $ 776,000 by 2040. If new growth generates this fiscal impact by 2040, the impact at plan buildout in 2040 would be a 0.94 percent increase to the FY20 adopted budget of$ 82. 6 million. While this represents a positive fiscal impact, the impact is marginally above 19

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C zero. As the sensitivity analysis will demonstrate, reasonable fluctuations in the operating costs impact and revenue impact can generate a negative fiscal impact.

Figure 1: Fiscal Impact of New Growth, 2020- 2040
Fiscal Impact= $ 776, 000
60%
50%
40%
30% 3, 278, 000
20%
10%
0%
10%
20% 2, 502, 000)
30%
40%
50%
Revenue Operating Costs
Source: BAE, 2020
This relatively marginal impact is owed to the largely residential development program assumed in the comprehensive plan. Job growth over the over the next 20 years is projected to be 82 in total, which is a small overall percentage of the increase in the service population, meaning that growth in residents is driving demand for services. Not only this, but also despite the relatively small increase in nonresidential development projected, this development accounts for 16 percent of the increase in property tax revenues. Therefore, residential development is about fiscally neutral, or potentially an overall cost to the City by 2040 based on the level of service provided in 2020, and new nonresidential development is critical to ensuring fiscal sustainability.

Given this finding about the importance of nonresidential development, it would be wise for the city to consider flexibility in zoning as well as assessing the fiscal impact of growth of significant new developments.

Sensitivity Analysis of Fiscal Impacts
The analysis in this report suggests that Annapolis can expect to generate a fiscal impact of 776, 000 over the next 20 years. Given the assumptions in the methodology, there is some error inherent it. However, we can test realistic limits for vulnerable assumptions to evaluate a range of potential fiscal impacts. As public safety costs may be underestimated, a range of growth rates is applied to operating costs held variable for Police and Fire to assess the impact on growth- related operating costs by 2040. Furthermore, given the recent COVID- 19 outbreak 20

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C and its potential effects on the economy, various property tax revenue scenarios are tested for impact on the overall growth- related revenue estimate.

Public safety costs are unlikely to grow in relation to the growth in the service population and is more likely to be related to development. However, some of the population growth in Annapolis will come from existing development, so projecting public safety costs by household growth alone may be an underestimate if the public safety departments continues to provide the level of service assumed in this analysis. Thus, the current estimate of the percentage increase to Public Safety costs, which at 2. 65 percent is lower than household growth rate, is almost certainly an underestimate. As a result, the sensitivity analysis shows the impact by scaling public safety costs from the current estimated increase of 2. 65 percent to an increase of 10. 8 percent, which is the population growth rate projected over the next 20 years.

Realistically, public safety costs should increase from somewhere between the household growth rate ( 3.43 percent) and the service population growth rate ( 7. 87 percent). If public safety costs increase by 4. 64 percent, the fiscal impact will be exactly $ 0. Table 11 shows the fiscal impact of new growth if the revenue estimate is fixed and costs are adjusted to account for variability in public safety costs.

Table 11: Fiscal Impact Analysis with Public Safety Costs Adjustments Current Estimate - 2. 65% Low Estimate- 3. 43% $ O Estimate- 4.64% High Estimate- 10. 8% Non- Public Safety Public Safety Costs Public Safety Costs Public Safety Costs Public Safety Costs Growth- related Projected byI-HGrowth Increase byHH Increase by4. 641 Increase by Pop.

Fiscal Impact Impact by 2040 with Fixed Costs Growth Rate 0 Fiscal Impact) Growth Rate Revenue 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 Operating Costs $ 1472, 000) $ 2, 502, 000) $ 2, 805, 543) $ ( 3, 278, 000) $ 5, 672, 666) Total Fiscal Impact $ 1, 806, 000 $ 776, 000 $ 472, 457 $ 2, 394, 666) Source: BAE, 2020.

Alternatively, the fiscal impacts assuming the operating costs estimate is fixed accounts for adjustments to revenue estimate Table 12. The current COVID- 19 public health emergency represents a significant threat to the economy. If the effects of COVI D- 19 on home values were to have the same effect that the 2008 recession had on home values and the operating costs estimate in this study is held fixed, the fiscal impact of new growth would range between 107, 000 and $ 266, 887. In Annapolis, based on data obtained from Zillow, the peak of home values was in June 2007, and reached its nadir in June 2012. During this period, home values fell by 25.4 percent. Between June 2007 and June 2009, home values fell by 19.4 percent in Annapolis before levelling off for a few months and declining again overall until June 2012. The revenue estimate in this fiscal impact analysis is adjusted by applying these 21

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C respective declines in home values to the real property tax revenue estimate of$ 2. 5 million by 2040.

Table 12: Fiscal Impact Analysis with Revenue Adjustments Total Projected Scenario: Market Scenario: Market
Growth- related Value of New Growth Value of New Growth Fiscal Im pact Im pact by 2040 Declines by 25.4%( a) Declines by 19.4%( b) Revenue 3, 278, 000 $ 2, 609, 353 $ 2, 768, 887
Operating Costs 2, 502, 000) $ 2, 502, 000) $ 2, 502, 000) Total Fiscal Im pact 776, 000 $ 107, 353 $ 266, 887
Increase over FY20 Adopted Budget82, 590, 000 0. 9% 0. 1% 0. 3% Notes:
a) In this scenario, the market value of new growth is adjusted by the decline in market value in Annapolis from the peak sale price in June 2007 to the lowest sale price in June 2012(- 25. 43%). This reflects the decline in residential sale prices only, but will be applied to the overall market value of new development that includes new retail and office development. b) In this scenario, the market value of new growth is adjusted by the decline in market value in Annapolis from the peak sale price in June 2007 to the sale prince in June 2009, when prices stabilized briefly before falling again. This decline was- 19. 37%.

This reflects the decline in residential sale prices only but will be applied to the overall market value of new development that includes new retail and office development.

Source: Zillow; BAE, 2020.

In Figure 2, the sensitivity analysis of operating costs and revenues are combined to show the range of potential impacts. By showing the change in operating costs resulting from increasing growth- related public safety costs from the household growth as well as the three revenue estimates, the ranges of error that generate a fiscally neutral or fiscally positive impact are revealed. The lowest estimate ( 2. 65 percent) of the increase in public safety costs and the low estimate of revenues that assumes peak recession declines in home values would generate essentially a fiscally neutral result. If new growth generates the revenues estimated in this analysis with no recession- related impacts, public safety costs can increase by up to

4.64 percent in order to generate a fiscally neutral result, which would be higher than the 22

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1C growth in public safety costs currently assumed, but still below the rate of growth in both the service ( 7. 9 percent) and residential population ( 10.8 percent).

Figure 2: Sensitivity Analysis
7, 000, 000
6, 000, 000
1o. aow°
5, 000, 000

7. 87%
CD112
t $4, 000, 000
yO

4. 64% 3, 278, 000
w• $ 3, 000, 000 2. 65% 3. 43% 2. 768. 887
O 2, 609, 353
2, 000, 000
1, 000, 000

2. 0% 2. 6% 3. 0% 3. 4% 4. 0% 4. 6% 5. 0% 6. 0% 7. 0% 7. 9% 8. 0% 9. 0% 10. 0% 10. 8% 11. 0% 12. 0% Increase in Variable Public Safety Costs by 2040
Operating Impact — Prop Tax. Minus 25. 4% Prop. Tax Minus 19. 4% — Current Revenue Estimate Source: BAE, 2020
Therefore, it is reasonable to expect that public safety could increase by enough to generate fiscally neutral, or potentially negative results as public safety costs are likely to be increase somewhere between the rates of growth in households and the residential population, and any increase in public safety costs over 4.64 percent would generate negative fiscal result.

Indeed, if COVID- 19 negatively affects property values, the margin by which public safety costs can increase relative to the household growth rates becomes slimmer. Based on the analysis of the effect the Great Recession had on Annapolis property values, public safety costs increasing at a rate greater than 3.4 percent would yield a negative fiscal result. Notably, the margins of fiscally negative results are still relatively small, and they do not vastly exceed to the magnitude of the marginally positive results that seem likely. 23

ITEM NO. 7.

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OTHER COST CONSIDERATIONS
While excluded from the fiscal impact analysis, it was determined that identifying an order of magnitude for growth- related capital costs would be a useful metric for the city to consider, based on discussion with staff. There is no capital outlay in the General Fund, and growth is not expected to generate a need for new major capital infrastructure, such as new water and sewer systems of roads classified as arterial or above. Additionally, while public schools are provided by Anne Arundel County, a high- level cost estimate of students from new growth in Annapolis is provided.

Capital Costs Impact
In a fiscal impact analysis of a comprehensive plan, capital costs considered are limited to major infrastructure. This includes new, additional roads classified as arterials or higher, as well as new water and sewer lines, pump stations, schools, and vehicles. The reason arterials are the smallest road- type to be considered is that these are the roads for which regular maintenance occurs and can trigger the need for additional staff. Smaller roads and road connections as required by any given development project may or may not accrue as one-time construction costs to the city, and these can be evaluated in more detail with specific assumptions about proposed development projects and their location within the city.

Furthermore, the additional inventory of these kinds of transportation improvements do not trigger the need for new staff on their own. That is, projecting staffing costs based on the number of staff employed today is enough to keep up with additional maintenance costs generated by roads smaller than arterials.

In addition, based on discussion with the Department of Public Works, it was determined that the water and sewer systems have adequate capacity to manage the growth projected in this analysis. While new development requires connection to the system, the utilities charge connections fees and ultimately operate as enterprise funds that generated a net profit in FY20. Vehicles are managed through an internal revenue fund and thus growth- related vehicle needs are captured in the analysis of operating costs. As discussed in the next subsection, school- related capital costs are borne by Anne Arundel County Public Schools.

Nonetheless, there may be growth- related capital costs generated by the additional demand for existing infrastructure. Indeed, roads smaller than arterials can require some capital costs based on wear and tear, even if not as regularly as arterials. The FY20 Five-Year Capital Improvement Plan ( CIP) provides a useful estimate of the capital costs associated with the existing service population. As shown in Table 13, the average size of the CIP between FY20 and FY25 is $ 6. 3 million. The average size of the service population served between 2020 and 2025 is 56,020. Dividing the average annual CIP by the average size of the population of the 5-year CIP yields an average capital cost per service population of$ 113, which multiplied by the projected growth in the service population between 2020 and 2040 equals a growth24

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C related increase to the CIP of$ 553,600. This is notably less than the net revenues estimated in this fiscal impact analysis ($ 776, 000), which implies that if the cost and revenue estimates in this analysis are considered accurate, including this estimate of capital costs would still yield a marginal, fiscally positive result.

Table 13: Estimate of Growth- Related Capital Costs
Five- Year Capital Improvement Program
FY20 FY21 FY22 FY23 FY24 FY25
4, 856, 220 $ 5, 675, 700 $ 7, 397, 500 $ 11, 993, 800 $ 4, 050, 000 $ 4, 050, 000 Average CIP, Average Service Population,
FY20- FY25 FY20- FY40
6, 337, 200 56, 020
CIP Spending Growth in Service Pop.,
per Service Pop. 2020- 2040
113 4, 894
Growth- related
Increase to CIP
553, 600
School Costs Impact
Anne Arundel County Public Schools ( AACPS), which serves Annapolis residents, determines a yield rate for elementary, middle, and high school students based on development type. On average, for the Annapolis High School feeder system, each new household is assumed to generate 0. 142 elementary school students, 0.054 middle school students and 0.063 high school students. Applying these rates to the projected 582 new households yields 151 new students. The AACPS budget is based on developing a cost- per-pupil and in FY20, the costper-pupil was $ 14,473, based on guidelines recommended by the Maryland State Department of Education. The number in new students in Annapolis over the next 20 years will not generate the need for an additional school at any level, so there are no capital costs associated with new growth- related students in Annapolis, although the system overall may 25

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C add more schools. As shown in Table 14, multiplying the cost per pupil by the estimated yield from new growth generates an estimated cost of$ 2. 2 million.

Table 14: Growth- Related Public School Costs
New Households, by 2040 582
ES Student Yield( a) 83
MS Student Yield( b) 31
HS Student Yield( c) 37
Total 151
Cost per Pupil( d) 14, 473
Growth- Related Cost, by 2040 $ 2, 181, 390
Notes:
a) Average Elementary School Student Yield Rate for the Annapolis HS Feeder System: 0. 142 b) Average Middle School Student Yield Rate for the Annapolis HS Feeder System: 0. 054 c) Average High School Student Yield Rate for the Annapolis HS Feeder System: 0. 063 d) The cost per pupil is obtained from the FY20 Anne Arundel Public Schools Operating& Capital Budgets. It is calculated following the guidelines recommended by the Maryland State Department of Education Source: Student Yield Study for Anne Arundel County Public Schools, November 2019; FY2020 Anne Arundel County Public Schools Approved Operating& Capital Budgets; BAE, 2020 26

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CONCLUSION
Based on the methodology and assumptions in this fiscal impact analysis, Annapolis is projected to generate a marginally net positive fiscal impact based on the taxes received by new development and the costs it incurs. While the real property tax is large enough to generate most of the revenues needed to accommodate new growth, new growth incurs enough costs that the City will be unable to increase the level of service it provides. However, if there is more nonresidential development than currently projected, even more revenue will be generated without the incurring the same level of costs, as nonresidential development demands fewer services from the City. Therefore, the City may be more fiscally resilient if it increases the amount of nonresidential development projected over the next 20 years, although the current residential program yields more or less fiscally neutral results. Critically, over 80.2 percent of the revenues estimated in the fiscal impact come from property taxes paid by new development, even though most of the growth in Annapolis over the next 20 years is explained by the increase to the size of the average Annapolis household.

Nonetheless, the overall marginal findings suggest that, as currently projected, new growth itself is neither a huge winner nor a huge loser for the City based on the current levels of service the City provides. With the skew towards residential development, development itself is not an opportunity for the City, although new growth will help to generate economic activity that will promote economic growth, which is ultimately unaccounted for in a fiscal analysis.

Fiscal impact analysis does not consider the impact of growth on income levels, the number of jobs and other measures that reflect the state of the private sector economy, which if positively impacted by growth, would in turn have some effect on the fiscal impact. This dynamic relationship is difficult to model and as a result, fiscal impacts and economic impacts are typically evaluated independently.
27

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C bae urban economics
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ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Contents

EXECUTIVE SUMMARY I
Methodology Overview
Summary of Findings
INTRODUCTION 3
METHODOLOGY 5
PROJECTIONS 9
OPERATING COSTS IMPACT 9
REVENUE IMPACT 12
Property Tax Revenue Impact of New Growth, 2020- 2040 12 Income Tax Revenue Impact of New Growth, 2020- 2040 16
Overall Growth- related Impact to General Fund Revenues, 2020- 2040 18 FISCAL IMPACT ANALYSIS OF NEW GROWTH 19
Sensitivity Analysis of Fiscal Impacts 20
OTHER COST CONSIDERATIONS 24
Capital Costs Impact 24
CONCLUSION 27

ITEM NO. 7.

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EXECUTIVE SUMMARY
As part of the Annapolis Comprehensive Plan update, BAE Urban Economics has prepared a fiscal impact analysis of new growth in Annapolis between 2020 and 2040. Among the key features of the Comprehensive Plan are the development and growth projections that serve as the basis for the policies and strategies set forth in it. A fiscal impact analysis is a powerful tool to assess whether the new growth assumed in the plan will strain government services or generate net revenues that allow the government to improve and expand services and invest in economic growth. By 2040, Annapolis is projected to grow by 583 new households and 4,347 new residents. The service population is projected to grow by 4, 388. Growth projections are based on population, jobs, and household projections from the Baltimore Metropolitan Council ( BMC), Round 9 projections, published in 2016.

Methodology Overview
This fiscal impact analysis evaluates operating costs and revenues in the General Fund. The analysis uses the Fiscal Year 2020 ( FY20) Adopted Budget as a baseline to estimate the current level of service provided by the city government in terms of operating costs. Operating cost projections are based on the growth in either the residential population demand base or the service population demand base, which is the residential population plus 50 percent of jobs. Revenues other than real property tax and income tax revenue were projected similarly, based on an average revenue per chosen demand base. Real property tax and income tax revenue were calculated based on the development assumptions in the Comprehensive Plan.

The Annapolis property tax rate is applied to the assumed assessed values of new development. Income tax revenue is based on the property values of new residential development and calculating a minimum income required to purchase or rent a given unit.

An estimate of capital costs is provided, but it is not incorporated into the fiscal impact analysis, as the assumptions behind the calculations are more tenuous and less reliable than the evaluation of operating costs and revenues. However, to the extent that growth will generate capital costs, these are expected to be minimal as Annapolis will not require new, additional major capital infrastructure.

Given the recent COVID- 19 outbreak and its potential effects on the economy, various property tax revenue scenarios are tested for impact on the overall growth- related revenue estimate.

Although the crisis may impact the fiscal resiliency of the City, it is important to note the fiscal impact is calculated for the next 20 years.

Summary of Findings
This analysis finds that the growth projected in the Comprehensive Plan update will have an estimated net fiscal impact totaling $ 776, 000 to the City of Annapolis General Fund by 2040, which is calculated by adding approximately$ 3. 3 million in new revenues and subtracting

ITEM NO. 7.

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2. 5 million in new operating costs. Capital costs are estimated to be $ 553, 600. This is a marginally positive fiscal impact and a sensitivity analysis suggests the fiscal impact could reasonably turn out negative, although this would also be marginal relative to the size of the FY20 adopted budget. This result is explained by the heavily residential development program assumed in the model, which serves as the basis for the fiscal impact.

ITEM NO. 7.

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INTRODUCTION
This report presents an analysis of the projected net fiscal impact that the population and employment growth envisioned in the City of Annapolis Comprehensive Plan update will have on the City of Annapolis General Fund between 2020 and 2040. Fiscal impact analysis is a powerful tool to assess the revenues and costs associated with new development within a jurisdiction. New homeowners and businesses generate revenues to local governments by paying taxes, fees, and fines. They also bring about new costs for a jurisdiction in the form of new or improved roads, more schools and parks, and increased investment in public safety.

These costs are comprised of both operating and capital components; growth can require both new infrastructure and an increase in operating capacity to maintain a given level of service.

Fiscal impact analysis allows a jurisdiction to compare the revenues and costs from new growth, which can inform decisions ranging from assessing the feasibility of a new development to updating tax rates and reevaluating existing services.

Fiscal impacts are calculated in terms of impact on the annual budget. In general, the formula for calculating the fiscal impact per land use ( i. e. low-density residential, mixed use, etc.) or development type ( single-family detached, multi-family, office, etc.) is:

Annual Fiscal
Impact Revenues - Operating Costs - Capital Costs
of new growth) of new growth) of new growth) of new growth) fiA fiscal impact analysis of a comprehensive plan allows jurisdictions to assess the feasibility of the new growth projected in the plan. In coordination with the city and the comprehensive planning team, BAE Urban Economics conducted a thorough fiscal impact analysis for the City of Annapolis to estimate the revenues and costs associated with new growth based on the FY20 adopted budget, the Capital Improvement Program ( CIP), and detailed discussions with city department heads and staff. Discussions with city staff focused on how department operations would change in response to new growth, as measured in the revenues and expenditures of each department. These discussions were the basis of deciding how to model revenues and costs with respect to the growth in the Comprehensive Plan.

Critically, a fiscal impact analysis does not account for the economic impacts of the Comprehensive Plan. Most components of the plan are intended to improve the Annapolis economy, whether directly or indirectly. Whether it is through improved environmental and social outcomes or directly through economic development policies, the Comprehensive Plan seeks to make Annapolis a desirably place to live. The economic impacts of the Comprehensive Plan will ultimately be based on more specific notions of, for example, the kinds of new jobs and incomes that come to Annapolis as a result of the plan, and the impact the plan has on resident' s incomes, property values and overall standing. The plan details 3

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C how the city plans to become more efficient and sustainable, which will also deliver economic benefits. Indeed, there are analyses that model these impacts and are useful to conduct as they would give an indication of future fiscal standing. However, a fiscal impact analysis specifically avoids considering the dynamic impact of the Plan on the economy. Instead, it seeks to determine whether the City is projected to accommodate t Ian' s assumed level of new growth at the level of service the government currently extends through its o erns, Atarapital infrastructure without raising taxes or other sources of revenue.

Therefore, the dollar value of the fiscal impact is less important than whether the impact is positive or negative, and what the magnitude of the impact is. The fiscal impact is not a prediction of the annual budget levels in FY2040 but rather, an indication of risks or opportunities presented by the deficit or surplus generated by new growth. 4

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METHODOLOGY
A variety of methodologies were used to project growth- related impacts to different sources of revenue and for the different departments within the City. In general, through meetings and consultations with city staff, components of the FY2O adopted budget were designated as / fixed' or `variable'; that is, determinations were made regarding which revenues and costs v
would be impacted by growth. Ultimately, only revenues and expenditures from the General Fund were analyzed as Enterprise Funds' are not impacted by growth, and Internal Service i'7
Funds2 are accounted for in the operating costs of departmental budgets in the General Fund.

Operating cost projections are based on the growth in either the residential population demand base or the service population demand base, which is the residential population plus 50 percent of jobs. Revenues other than real property tax and income tax revenue were projected similarly, based on an average revenue per chosen demand base. Real property tax and income tax revenue were calculated based on the development assumptions in the Comprehensive Plan. The Annapolis property tax rate is applied to the assumed assessed values of new development. Income tax revenue is based on the property values of new residential development and calculating a minimum income required to purchase or rent a given unit.

An estimate of growth- related capital costs and school costs is also provided, but these costs are not incorporated into the fiscal impact analysis itself. The city of Annapolis does not bear any schools costs, as schools are provided by Anne Arundel County. Moreover, as the city is built out, there will be limited new capital costs in terms of major infrastructure, which include roads classified as arterials or higher, and new sewer and water line ( not including connections). Sidewalks, road connections to entrances and other site related infrastructure I*114111" are not typically included in the fiscal impact analysis of a comprehensive plan, where the goal is to establish an order of magnitude for the fiscal impact, and the cost of smaller infrastructure can vary considerably.

The costs of smaller infrastructure, to the extent there are any, depend largely on assumptions about development types and potential sites, which is more information than established currently in the Comprehensive Planning process. It is certainly useful to conduct a fiscal impact analysis with more specific assumptions that are informed by proposed development The Enterprise Funds are used to account for those activities of the City that are financed and operated in a manner similar to private business enterprises where costs and expenses, including depreciation, are recovered principally through user charges. Individual operations that the City has designated as enterprise funds include Water, Sewer, Parking, Transportation, Watershed Restoration, and Refuse funds." 2 Internal Services Funds, including Health Insurance, Self-Insurance, Fleet Operations, and Fleet Replacement activities, provide service to the City government, and are paid for primarily through departmental budgets. As a result, increases in operating costs to departmental budgets will account for transfers from those departments to the Internal Service Funds.
5

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C types on a given site or in a given area, but it can only be done when there are proposed or finalized land use changes. In fact, fiscal impact analyses are often used to evaluate individual development projects. For the purposes of the current Comprehensive Plan, a fiscal analysis will be ultimately conducted for specific potential development sites to study the impact of potential zoning changes. Nonetheless, a rough estimate of capital costs is provided in this report based on the average spending in the Capital Improvement Plan for FY20 through FY25. As the estimate is less rigorously conceived than the estimates of revenues and operating costs, it is not included in the fiscal impact result.

As shown in the fiscal impact analysis presented in this report, 87.2 percent of the$ 80.8 million in City FY20 General Fund revenues are held variable, meaning that these revenues will generally increase in relation to the City' s population and employment growth through 2040.

Notably, projecting growth- related real property tax revenues accounts for over 64 percent of potential General Fund revenues based on FY20 levels.

Table 1: FY20 General Fund Revenues Held Variable
Source of FY20 Revenue FY20 Adopted
Revenue Held Variable Budget Variable
Taxes( a) 54,834,000 $ 54,983,800 99.7%
Licenses& Permits $ 3,256,300 $ 3,256,300 100. 0%
Fines& Forfeitures $ 435,000 $ 435,000 100.0%
Interest, Rent, Other $ 1, 549,000 0.0%
Intergovernmental( b) $ 6,343,000 $ 11, 565,000 54.8%
Charges for Service $ 5,626,500 $ 5,626,500 100. 0%
Other 3,423,500 0.0%
Total 70,494,800 $ 80,839, 100 87.2%
Notes:
a) Taxes include real and personal property taxes, and penalties and interest. b) Of intergovernmental sources of revenue, only the income tax is projected.

The fiscal impact analysis presented in this report estimates that 53. 4 percent of the approximately$ 83. 0 million in General Fund operating expenses in the FY20 adopted budget are variable, while the remaining expenditures were determined to be unaffected by new growth. Non-staff operating expenditures and staffing costs were analyzed separately.

Operating expenditure line items were held fixed or variable depending on if they were determined to be affected by growth.

Similarly, operating costs related to staff salaries, wages, and benefits were projected based on the need for new staff, which was based on the level of employed staff per department in FY20. Certain positions in each department, such as chiefs and directors, where held fixed 6

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C while lower level staff were held variable. The percentages of FY20 General Fund expenditures held variable are summarized in Table 2.

Table 2: FY20 General Fund Expenditures Held Variable
Variable Variable FY20 Adopted
Departm ent Expenditures Staff Costs Budget Variable
General Government( a) 1, 363, 650 $ 5, 359, 113 $ 30, 581, 430 22. 0% Police 2, 458, 830 $ 13, 336, 939 $ 19, 620, 830 80. 5% Fre 1, 380, 370 $ 11, 894, 367 $ 19, 286, 270 68. 8%
Emergency Management( b) $ 417, 520 0. 0%
FUblic Works 2, 386, 250 $ 3, 337,587 $ 7, 885, 250 72. 6% Parks 1, 597, 850 $ 1, 155, 655 $ 5, 176, 700 53. 2%
Total 9, 186, 950 $ 35, 083, 661 $ 82, 968, 000 53. 4%
Notes:
a) General government includes: City Council and the Office of the Mayor, Human Resources, Management Information Technology, Finance, Planning& Zoning, and the Office of Environmental Policy. b) Emergency management expenditures were determined to be fixed as they all growth- related needs over the next 20 years will come from non- local allocations.

Operating costs were projected linearly; for each variable line item and staffer within each department, projections of the increased costs generated by new growth were based on the rates of growth in either service population or residential population. The service population, which is defined as the residential population plus 50 percent of jobs, is projected to grow faster over the next 20 years than the growth in the residential population and is a useful proxy to measure the growth- related costs of services provided to residents and workers. For example, public works costs are likely to increase alongside the growth in the service population, as both workers and residents demand public works services. Parks costs, on the other hand, would not be impacted by an increase in workers, and are more appropriately projected by population growth.

A level of service was determined for the non-staff operating expenditures by dividing the amount budgeted for a given variable line item in FY20 by the size of the base year service or residential population. For example, based on the $320,050 appropriated for supplies3 in the Planning& Zoning Department, an average $ 3. 18 is spent per member of the service population ( 55,763 in 2020). The level of service is multiplied by the growth in the given demand base. Growth projections used in this fiscal impact analysis are discussed in the next section.

Similarly, a level of service for staffing is based on dividing the number of employed staff by the appropriate base year population. For example, based on the 14 ' Equipment Operator' positions in the Department of Public Works, there are 0.00025 of them per member of the service population in 2020. This is multiplied by the change in service population to 3 This budget refers to the line item for" Supplies and Other" within the Department budget for Planning& Zoning.

Expenditures within this line item include office supplies, training for staff and memberships. 7

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C determine how many new Equipment Operators are needed, which is then multiplied by the total salary and benefits received by each Equipment Operator to determine a cost. Based on an analysis of salaries, it was found that, on average, city staff across all departments receive benefits (i. e. health insurance) valued at 35 percent of their salary. This cost increase is incorporated into salary levels of staff when calculating the costs of growth- related staff needs.

Capital costs are also estimated, although not incorporated into the fiscal impact as the assumptions about growth- related capital needs are is less rigorously evaluated than the analysis of operating costs and revenues. While it is very unlikely that the city will require new, additional major capital infrastructure to service growth, there may be increased costs due to additional wear and tear on existing infrastructure. Using the average spending in the CIP between FY20 and FY25 per service population, we estimate how much additional spending in the CIP would be required by the growth in the service population by 2040. It is important to note that more detailed analysis of specific capital costs that are sensitive to development type and land use can be conducted once there are reliable assumptions that can be made.

There is no reason, however, to expect that more detailed fiscal impact analyses that are land use- and site-specific will lead to an increase in the estimate of capital costs provided in this report, as it is simply unknown what, if anything, the city would be responsible for in a given development project.

In terms of revenues, real property taxes are calculated directly based on the number of new residential units and nonresidential square footage contained within the comprehensive plan, and their respective market values, which are used as proxies for estimating assessed values.

Furthermore, income tax revenue is based on calculating the household incomes needed to purchase or rent the new residential units, and then applying Annapolis' share of Anne Arundel County' s income tax rate. All other costs and revenues, such fines and fees, are projected based on the existing average levels of revenues per service population today.

All calculations presented for costs, revenues and impacts are rounded to the nearest $ 1, 000. 8

ITEM NO. 7.

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PROJECTION
Projections of the residential population, jobs, and households are based on growth rates developed by the Baltimore Metropolitan Council ( BMC). As shown in Table 3, the residential population of Annapolis is expected to grow by 4,347 between 2020 and 2040, while jobs are projected to grow by 82 in total. Therefore, the service population, which is defined as the residential population plus 50 percent of jobs, is anticipated to grow by 4,388. It is important to note that household growth is projected to increase at a lower rate than population growth, meaning that existing Annapolis households in 2020 will become larger. Using the average household sizes, new households can account for up to 1, 478 of the 4, 347 new residents, or only one- third of new growth. Therefore, the estimate of income tax revenues in this fiscal impact analysis is conservative as only the incomes of residents in new households are calculated. All projections used in this fiscal impact analysis are based directly on projections within the 2020 Comprehensive Plan.

Table 3: Summary of Demographic Projections
Base Overall Change % Change
Annapolis 2020 2025 2030 2035 2040 2020- 2040 2020- 2040 Population( a)( b) 40, 262 40, 765 40, 918 43, 852 44, 609 4,347 10. 8% Households( a)( c) 16, 426 16, 527 16, 868 16, 929 16, 989 563 3.4% Avg. Household Size 2. 45 2.47 2.43 2.59 2. 63 0. 17 7. 1% Jobs( d) 31, 001 31, 026 31, 041 31, 060 31, 083 82 0.3% Service Population( e) 55, 763 56, 278 56, 438 59, 382 60, 151 4,388 7.9% Notes:
a) Projections for population and households follow trends published in Round 9 of the BMC forecasts. b) Base year data reflects 2018 estimates from Esri, scaled by the BMC Round 9 annual growth rate from 2015- 2020( 0. 06%) c) Household projections account for 132 residential units currently in the construction pipeline as of April 1, 2020. Projections based on the BMC trend and Esri base year estimate include an additional 6. 65 units( 132/20) each year. d) Base year estimate and trends are based on BMC Round 9 estimates, with no adjustments. e) Service population is defined as the residential population plus 50% of jobs.

Source: Baltimore Metropolitan Council, Round 9; Department of Planning& Zoning; Esri; BAE, 2020.

OPERATING COSTS IMPACT
The impact of new growth on operating costs from 2020 to 2040 is based on expenditures in the General Fund. Expenditures were analyzed by department and summarized in categories including General Government, Police, Fire, Public Works, and Recreation and Parks.

Among General Government expenditures, budget items for Management Information Technology( MIT), Finance, and Planning and Zoning were held variable as the needs for these departments are likely to increase as the city grows, based on discussions with city staff.

Projected increases in expenditures in the General Government category were based on the projected growth in service population, as these departments are affected by both residential growth and the presence of jobs and businesses. Providing the same level of service over the 9

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C next 20 years to new growth, as represented by the variable non- staff operating expenditures in these departments, will generate approximately an additional $ 107, 000 in operating costs at plan buildout in 2040. Staffing is also only projected to increase in these departments.

Based on the growth in the service population, General Government will need to hire four or five new staffers to maintain the ratio of these staffers to the service population in 2020. The weighted average salary of these positions is $ 64,000, for a total cost of approximately 396,000, including accounting for an additional 35 percent in benefits.

Police operating expenditures are projected based on the growth in households, and no operating expenditures were held fixed. Household growth is chosen as the demand base because public safety costs can reasonably be expected to increase alongside development, as indicated by the Chief of Police. However, the growth- related impact on police costs realistically lies between the development growth and population growth. As a result, growthrelated impacts of public safety costs are adjusted in a sensitivity analysis of overall findings later in this report.

Staff needs were projected for all administrative positions, while only the Police Chief, Major, and Captain positions were held fixed in terms of uniformed officers. From 2020 to 2040, police operating expenditures will cost approximately $ 84,000. Administrative staff will need to increase by one staffer to maintain the existing level of service, while the number of uniformed officers will need to increase by four or five. In total, including 35 percent for benefits, staffing costs between 2020 and 2040 will be $ 457, 000.

Growth- related operating costs for the Fire Department by 2040 are slightly below the growthrelated operating costs for police. Based on the growth in the service population, Annapolis will need to spend $ 81,000 for operations and $ 408,000 in staff costs. This includes adding four or five firefighters below the rank of Fire Captain.

The FY20 Department of Public Works budget is subdivided into six categories including Administration, Engineering and Construction, Streets, Traffic Control and Maintenance, Snow, and Facilities. All operating expenditures were projected based on the increase in service population between 2020 and 2040 and maintaining the existing level of service. The projected cumulative operating expenditures over the next twenty years would cost approximately $ 188,000. Leadership and management positions within the various departments within Public Works were held fixed, while the rest were projected based on the growth in service population as well. Between 2020 and 2040, this analysis estimates that growth- related Public Works staff costs will be approximately$ 444,000, including benefits.

This represents hiring approximately five new staff.

Recreation and Parks costs round out the General Fund expenditures. Of the 11 subcategories within the Recreation and Parks budget, only costs for Arts in Public Places are held fixed. Recreation and Parks costs are projected based on the growth in the residential io

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C population as growth in nonresident workers will not generate an additional need. Operating expenditures between 2020 and 2040 are estimated to be $ 212, 000. Non- management level employees at the Pip Moyer Recreation Center are projected to increase, as well as custodial and administrative parks workers and harbormaster staff costs. In total, including 35 percent benefits, staff costs for Recreation and Parks will cost in total $ 125, 000 by 2040, representing one to two additional staff. Notably, there are several contractual workers identified in the Recreation and Parks budget, although these staff are accounted for in the projection of contractual services within the operating expenditures, not staff costs.

In total, the cumulative growth- related impact to the General Fund expenditures between 2020 and 2040 is approximately$ 2. 5 million, as shown in Table 4. This includes$ 672, 000 in new operating expenditures and $ 1. 8 million in staff costs. Total projected operating and staffing costs represent a 3. 0 percent increase over the FY20 adopted budget levels. The Police and Fire departments represent 59. 7 percent of the growth-related operating costs, followed by Public Works ( 16.5 percent), General Government ( 15 percent), and Recreation and Parks (8.8 percent).

Table 4: Growth-Related Operating Costs, 2020- 2040
2020 Adopted Operating Expenditure Staff Costs Total Impact, % Total Impact, % Increase Department Budget Impact, by 2040 Impact, by 2040 by 2040 by2040 since 2020 General Government( a) $ 30, 581, 000 $ 107, 000 $ 396, 000 $ 503, 000 20. 1% 1. 6% Police 19, 621, 000 $ 84, 000 $ 457, 000 $ 541, 000 21. 6% 2. 8% Fire 19, 286, 000 $ 81, 000 $ 408, 000 $ 489, 000 19. 5% 2. 5% Public Works 7, 885, 000 $ 188, 000 $ 444, 000 $ 632, 000 25. 3% 8. 0% Recreation and Parks $ 5, 217, 000 $ 212, 000 $ 125, 000 $ 337, 000 13. 5% 6. 5% Total 82, 590, 000 $ 672, 000 $ 1, 830, 000 $ 2, 502, 000 100. 0% 3. 0% Notes:
a) General Government includes: City Council and the Office of the Mayor, Human Resources, Management Information Technology, Finance, Planning& Zoning, and the Office of Environmental Policy.

Sources: City of Annapolis, FY 2020 Adopted Budget; BAE, 2020. 11

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C

REVENUE IMPACT
The impact of growth on Annapolis General Fund revenues will come primarily from real property taxes, which account for 64 percent of FY20 revenues. The other major source of revenue is intergovernmental transfers, which account for 14. 3 percent of FY20 revenues.

While some intergovernmental transfers, such as the utility tax or highway tax, are likely to increase over the next 20 years, these are State- based transfers for which analysis is beyond this report. However, income tax revenue is projected, which accounts for nearly 55 percent of intergovernmental transfers.

Real property tax revenue is calculated directly based on an assumption of the future development in Annapolis by 2040 and associated property values. Importantly, proposed land use changes and development types have not yet been finalized in the Comprehensive Plan at the time of the writing of this report, and the assumptions here are subject to change.

Iterations of the fiscal impact model can be performed as the planning process advances, of after it is complete.

Income tax is based on the incomes of the households that occupy the new projected development. As a result, income tax revenue projections in this fiscal impact analysis are potentially underestimated as new households do not account for all the population growth Annapolis is projected to experience between 2020 and 2040. The BMC Round 9 projections of population for Annapolis assume an increase in the household size of existing households, which will likely result in an increase in income tax revenue from additional residents in existing households. However, this analysis does not estimate this additional income tax revenue associated with additional residents in existing households due to a lack of information in the projections related to the age, employment, and income of these residents.

The income tax revenue calculations shown in this analysis therefore represent a somewhat conservative estimate of income tax revenues attributable to the projected growth. All other revenues to the General Fund are either held fixed or projected by either growth in the service population, residential population, or jobs.

Property Tax Revenue Impact of New Growth, 2020-2040
Property tax revenues are calculated directly based on a preliminary assumption of the development projections in the Annapolis Comprehensive Plan. The Annapolis property tax is applied to the estimated market value of the new development in 2040, which is calculated based on assumptions of rents, sale prices, and vacancy rates. The property tax revenue at buildout in 2040 is shown in order to compare the impact of growth- related operating costs.

However, the assessed property values assumed throughout the development period are the market values assumed, which are based on market conditions in FY19 and do not include 12

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C inflation. A sensitivity analysis accounting for potential recession- level effects of the Covid- 19 crisis on property values is also provided later in this report.

Assumptions for determining the market value of new residential development are shown in Table 5. There will be a total of 600 new homes built. The market value of the for- sale units is based on the market values for new construction from FY19, as reported in the market study for the Annapolis Comprehensive Plan. The market rate values for new construction are higher than the median sale price. The total market value of for-sale units, which is simply the number of units multiplied by the respective sale price by unit type, is $ 317. 6 million.

The market value of for-rent multifamily units is also based on the rents reported in the market study, and in addition, assumes a five percent vacancy rate and average annual expenses based on the National Apartment Association' s ' 2019 NM Survey of Operating Income & Expenses in Rental Apartment Communities.' Using a cap rate of 4. 75 percent, the estimated 13

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C market value of the for-rent multifamily properties is determined. The market value of the all for-rent units, including affordable units, is $ 22. 0 million.

Table 5: Assessed Value Assumption for New Residential Units, 2020- 2040 Total New Residential Units* 600
Market- Rate Residential
For Rent
Number of New Units 109
Average Monthly Rent( a) 1, 600
Vacancy Rate 5%
Average Annual Expense per Unit( b) 8,661
NOI( per unit) 9,579
For Sale
New Single Family Homes 69
Sale Rice( c) 700,000
New For-Sale Tow nhomes 322
Sale Rice 650, 000
New Condos 100
Sale Rice 600, 000
Summary
For- Rent Residential NOI 1, 044, 111
Residential Capitalization Rate 4. 75%
Estimated Market Value 21, 981, 000
For- Sale Total Value 317,599,000
Notes:
a) Based on the Q3 2019 Asking rents from the' Demographic and Economic Profile and Real Estate Market Analysis.' b) Based on the estimated operating costs for mid& hi- rise rental properties from the National Apartment Association' s' 2019 NAA Survey of Operating Income& Expenses in Rental Apartment Communities.' c) Based on new construction sale price from the' Demographic and Economic Profile and Real Estate Market Analysis.' Sources: City of Annapolis; National Apartment Association; BAE, 2020. 14

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C The estimated market value of new nonresidential development is based on assumptions of NNN rent ( per square foot) from the market study and a 5. 0 percent vacancy rate that are used to determine a net operating income ( N01) per square foot. A 6. 25 cap rate is applied to the NOI multiplied by the projected increase in nonresidential development. The only nonresidential development projected in the Comprehensive Plan is a net 20,000 square feet increase in the retail inventory and a net 20,000 square feet increase in the office inventory.

As shown in Table 6, the estimated market value of new retail development by 2040 is $ 8.5 million, and the estimated market value of new office development is $ 8. 2 million.

Table 6: Assessed Value Assumptions for New Nonresidential Units, 2020- 2040 Nonresidential
Retail
NNN Rent( per sq. ft. per year) 28. 00
Vacancy Rate 5%
NOI( per sq. ft.) 26. 60
Net New Retail( SF) 20,000
Office
NNN Rent( per sq. ft. per year) 27. 00
Vacancy Rate 5%
NOI( per sq. ft.) 25. 65
Net New Retail( SF) 20, 000
Summary
Retail NOI( a) 532, 000
Nonresidential Capitalization Rate 6. 25%
Estimated Market Value 8, 512,000
Office NOI( b) 513, 000
Nonresidential Capitalization Rate 6. 25%
Estimated Market Value 8, 208,000
In total, at plan buildout in 2040, the market value of new development, which represents the assessed value for real property tax revenue purposes, is approximately$ 356.3 million. 15

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C Applying the Annapolis real property tax rate of 0. 7380 per $ 100 of assessed value generates annual revenue at buildout of$ 2. 6 million. This is summarized in Table 7.

Table 7: Annual Real Property Tax Revenue at Plan Buildout, 2040 City of
Annapolis
Assessed Value of New Res. Development, 2020- 2040 339,580,000 Assessed Value of New Non- Res. Development, 2020-2040 $ 16,720,000 Assessed Value of Total New Development, 2020- 2040 $ 356,300,000 R-operty Tax( per$ 100 of assessed value) 0. 7380
Annual Property Tax Revenue at Plan Buildout 2,629,000
Income Tax Revenue Impact of New Growth, 2020-2040
This analysis uses the home sale price and rent assumptions shown in Table 5 above to estimate household incomes among new households in Annapolis and applies Annapolis' share of Anne Arundel County' s income tax rate, which is an effective tax rate of 0.7025 percent, to estimate income tax revenues from these households. Income assumptions for the new for-rent units are calculated by assuming a vacancy rate of 5.0 percent and a rent-toincome ratio of 25 percent, which would imply these renters are not cost- burdened. For the new for-sale units, the revenue calculations assume a 20 percent down payment on the median sale price, a fixed 30-year mortgage rate of 4. 50 percent, and a monthly mortgage payment to gross monthly income ratio of 28 percent. The effective Annapolis income rate is applied to the incomes calculated using this method and multiplied by the number of new units. Applying this method to new single- family units with an assumed sale price, for example, of$ 700, 000 would require a household income of$ 121, 604, which is above the 16

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C 2019 household median income in Annapolis ($ 80,010). Assumptions for growth- related income tax revenue are shown in Table 8.

Table 8: Growth- related Income Tax Revenue Calculation Assumptions Market- Rate Residential
For Rent
New For- Rent Wits 109
Average Monthly Rent( a) 1, 600
Vacancy Rate 5%
Annual Household Income( b) 76, 800
New Income Tax Revenue ( c) 38, 000
For Sale
New Single Family Homes 69
Sale Rice( d) 700, 000
Loan Amount( e) 560, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 837
Annual Income( f) 121, 604
New Income Tax Revenue ( g) 40, 000
New Townhom es 322
Sale Rice( d) 650, 000
Loan Amount( e) 520, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 635
Annual Income( f) 112, 918
New Income Tax Revenue 174, 000
New Condos 100
Sale Rice( d) 600, 000
Loan Amount( e) 480, 000
Mortgage Rate( f) 4. 50%
Loan Term( months) 360
Monthly Payment 2, 432
Annual Income( f) 104, 232
New Income Tax Revenue 50, 000
Notes:
a) Based on the Q3 2019 Asking rents from the' Demographic and Economic Profile and Real Estate Market Analysis.' b) Assumption of Rent- to-Income ratio: 25. 00%
c) The Anne Arundel County income tax rate in FY20: 2. 81% Annapolis' percentage of Anne Arundel County Income Tax: 17. 00% d) Based on median sale price from the' Demographic and Economic Profile and Real Estate Market Analysis.' e) Loan amount assumes 20% down payment.
f) Assumes Fixed- rate mortgage.
f) Assumption of monthly mortgage payment as percentage of gross monthly income: 28% gross monthly income multiplied by 12 for annual income) Source: BAE, 2020
17

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C As shown in Table 9, Combining the estimated new income tax revenue from new renteroccupied households ($ 38,000) and the new income tax revenue from new owner- occupied households ($ 264,000) generates a total new incomes tax revenue of$ 302, 000 between 2020 and 2040.

Table 9: Growth- related Income Tax Revenue, 2020- 2040 City of
Annapolis
Income Tax Revenue from For- Rent Wits $ 65, 000
Income Tax Revenue from For- Sale Wits $ 212, 000
New Income Tax Revenue 277, 000
Source: BAE, 2020
Overall Growth-related Impact to General Fund Revenues, 2020-2040 Other revenues in the General Fund were also accounted for in the fiscal impact analysis based on dividing FY20 revenues by a given population and multiplying by the growth in that population. Personal property tax revenue between 2020 and 2040 were projected in terms of jobs growth, as personal property is assessed on businesses. Licenses and Permits and Charges for Services revenue were projected by the growth in residential population, while fines and forfeiture revenues were projected by the growth in service population. All other revenues were held fixed. The impact of growth on other revenues between 2020 and 2040 is approximately $347,000.

Table 10 summarizes the growth- related impact to General Fund revenues. By 2040, new growth will generate an estimated $ 3.3 million in revenue. Real property tax revenue 18

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C generates 80. 2 percent of the total impact, which suggests that the fiscal impact relies heavily on the market value assumptions of new development.

Table 10: Growth- related Impact to General Fund Revenues, 2020- 2040 Source of 2020 Adopted Revenue Im pact, % Total Im pact, Revenue Budget( a) by 2040 by 2040
Real Property Tax( b) 51, 884,000 $ 2,629,000 80.2%
Personal Property Tax( c) $ 2,950,000 $ 8,000 0. 2%
Income Tax( d) 6,343,000 $ 302,000 9. 2%
License& Permits( e) 3,256,300 $ 112, 000 3. 4%
Fines& Forfeitures( f) 435,000 $ 34,000 1. 0%
Charges for Service( g) $ 5,626,500 $ 193, 000 5. 9%
Total 70,494,800 $ 3,278,000 100%
Notes:
a) Revenues shown are only for those revenue sources held variable, so total of FY20 adopted budget levels do not match FY20 General Fund revenues.
b) Property taxes are calculated based on the projections of new residential development for the Comprehensive Plan. The assumed projected' development program' in place currently is a placeholder. c) Projected based on base year personal property tax revenue per job. d) Revenue tax is based on the household revenues of new residential development. As a result, this is a low estimate as new residential development does not account for the entirety of the projected population growth by 2040. e) Projected based on base year licenses and permits revenue per resident. f) Projected based on base year fines and forfeitures revenue' service person.' g) Projected based on base year charges for service revenue per resident.

FISCAL IMPACT ANALYSIS OF NEW GROWTH
Combining the growth- related impacts to operating costs, capital costs, and revenues determines the overall fiscal impact by 2040. As shown in Figure 1, the fiscal impact of new growth will be $ 776,000 by 2040. If new growth generates this fiscal impact by 2040, the impact at plan buildout in 2040 would be a 0.94 percent increase to the FY20 adopted budget of$ 82. 6 million. While this represents a positive fiscal impact, the impact is marginally above 19

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C zero. As the sensitivity analysis will demonstrate, reasonable fluctuations in the operating costs impact and revenue impact can generate a negative fiscal impact.

Figure 1: Fiscal Impact of New Growth, 2020- 2040
Fiscal Impact= $ 776, 000
60%
50%
40%
30% 3, 278, 000
20%
10%
0%
10%
20% 2, 502, 000)
30%
40%
50%
Revenue Operating Costs
Source: BAE, 2020
This relatively marginal impact is owed to the largely residential development program assumed in the comprehensive plan. Job growth over the over the next 20 years is projected to be 82 in total, which is a small overall percentage of the increase in the service population, meaning that growth in residents is driving demand for services. Not only this, but also despite the relatively small increase in nonresidential development projected, this development accounts for 16 percent of the increase in property tax revenues. Therefore, residential development is about fiscally neutral, or potentially an overall cost to the City by 2040 based on the level of service provided in 2020, and new nonresidential development is critical to ensuring fiscal sustainability.

Given this finding about the importance of nonresidential development, it would be wise for the city to consider flexibility in zoning as well as assessing the fiscal impact of growth of significant new developments.

Sensitivity Analysis of Fiscal Impacts
The analysis in this report suggests that Annapolis can expect to generate a fiscal impact of 776, 000 over the next 20 years. Given the assumptions in the methodology, there is some error inherent it. However, we can test realistic limits for vulnerable assumptions to evaluate a range of potential fiscal impacts. As public safety costs may be underestimated, a range of growth rates is applied to operating costs held variable for Police and Fire to assess the impact on growth- related operating costs by 2040. Furthermore, given the recent COVID- 19 outbreak 20

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C and its potential effects on the economy, various property tax revenue scenarios are tested for impact on the overall growth- related revenue estimate.

Public safety costs are unlikely to grow in relation to the growth in the service population and is more likely to be related to development. However, some of the population growth in Annapolis will come from existing development, so projecting public safety costs by household growth alone may be an underestimate if the public safety departments continues to provide the level of service assumed in this analysis. Thus, the current estimate of the percentage increase to Public Safety costs, which at 2. 65 percent is lower than household growth rate, is almost certainly an underestimate. As a result, the sensitivity analysis shows the impact by scaling public safety costs from the current estimated increase of 2. 65 percent to an increase of 10. 8 percent, which is the population growth rate projected over the next 20 years.

Realistically, public safety costs should increase from somewhere between the household growth rate ( 3.43 percent) and the service population growth rate ( 7. 87 percent). If public safety costs increase by 4. 64 percent, the fiscal impact will be exactly $ 0. Table 11 shows the fiscal impact of new growth if the revenue estimate is fixed and costs are adjusted to account for variability in public safety costs.

Table 11: Fiscal Impact Analysis with Public Safety Costs Adjustments Current Estimate - 2. 65% Low Estimate- 3. 43% $ O Estimate- 4.64% High Estimate- 10. 8% Non- Public Safety Public Safety Costs Public Safety Costs Public Safety Costs Public Safety Costs Growth- related Projected byI-HGrowth Increase byHH Increase by4. 641 Increase by Pop.

Fiscal Impact Impact by 2040 with Fixed Costs Growth Rate 0 Fiscal Impact) Growth Rate Revenue 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 $ 3, 278, 000 Operating Costs $ 1472, 000) $ 2, 502, 000) $ 2, 805, 543) $ ( 3, 278, 000) $ 5, 672, 666) Total Fiscal Impact $ 1, 806, 000 $ 776, 000 $ 472, 457 $ 2, 394, 666) Source: BAE, 2020.

Alternatively, the fiscal impacts assuming the operating costs estimate is fixed accounts for adjustments to revenue estimate Table 12. The current COVID- 19 public health emergency represents a significant threat to the economy. If the effects of COVI D- 19 on home values were to have the same effect that the 2008 recession had on home values and the operating costs estimate in this study is held fixed, the fiscal impact of new growth would range between 107, 000 and $ 266, 887. In Annapolis, based on data obtained from Zillow, the peak of home values was in June 2007, and reached its nadir in June 2012. During this period, home values fell by 25.4 percent. Between June 2007 and June 2009, home values fell by 19.4 percent in Annapolis before levelling off for a few months and declining again overall until June 2012. The revenue estimate in this fiscal impact analysis is adjusted by applying these 21

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C respective declines in home values to the real property tax revenue estimate of$ 2. 5 million by 2040.

Table 12: Fiscal Impact Analysis with Revenue Adjustments Total Projected Scenario: Market Scenario: Market
Growth- related Value of New Growth Value of New Growth Fiscal Im pact Im pact by 2040 Declines by 25.4%( a) Declines by 19.4%( b) Revenue 3, 278, 000 $ 2, 609, 353 $ 2, 768, 887
Operating Costs 2, 502, 000) $ 2, 502, 000) $ 2, 502, 000) Total Fiscal Im pact 776, 000 $ 107, 353 $ 266, 887
Increase over FY20 Adopted Budget82, 590, 000 0. 9% 0. 1% 0. 3% Notes:
a) In this scenario, the market value of new growth is adjusted by the decline in market value in Annapolis from the peak sale price in June 2007 to the lowest sale price in June 2012(- 25. 43%). This reflects the decline in residential sale prices only, but will be applied to the overall market value of new development that includes new retail and office development. b) In this scenario, the market value of new growth is adjusted by the decline in market value in Annapolis from the peak sale price in June 2007 to the sale prince in June 2009, when prices stabilized briefly before falling again. This decline was- 19. 37%.

This reflects the decline in residential sale prices only but will be applied to the overall market value of new development that includes new retail and office development.

Source: Zillow; BAE, 2020.

In Figure 2, the sensitivity analysis of operating costs and revenues are combined to show the range of potential impacts. By showing the change in operating costs resulting from increasing growth- related public safety costs from the household growth as well as the three revenue estimates, the ranges of error that generate a fiscally neutral or fiscally positive impact are revealed. The lowest estimate ( 2. 65 percent) of the increase in public safety costs and the low estimate of revenues that assumes peak recession declines in home values would generate essentially a fiscally neutral result. If new growth generates the revenues estimated in this analysis with no recession- related impacts, public safety costs can increase by up to

4.64 percent in order to generate a fiscally neutral result, which would be higher than the 22

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1C growth in public safety costs currently assumed, but still below the rate of growth in both the service ( 7. 9 percent) and residential population ( 10.8 percent).

Figure 2: Sensitivity Analysis
7, 000, 000
6, 000, 000
1o. aow°
5, 000, 000

7. 87%
CD112
t $4, 000, 000
yO

4. 64% 3, 278, 000
w• $ 3, 000, 000 2. 65% 3. 43% 2. 768. 887
O 2, 609, 353
2, 000, 000
1, 000, 000

2. 0% 2. 6% 3. 0% 3. 4% 4. 0% 4. 6% 5. 0% 6. 0% 7. 0% 7. 9% 8. 0% 9. 0% 10. 0% 10. 8% 11. 0% 12. 0% Increase in Variable Public Safety Costs by 2040
Operating Impact — Prop Tax. Minus 25. 4% Prop. Tax Minus 19. 4% — Current Revenue Estimate Source: BAE, 2020
Therefore, it is reasonable to expect that public safety could increase by enough to generate fiscally neutral, or potentially negative results as public safety costs are likely to be increase somewhere between the rates of growth in households and the residential population, and any increase in public safety costs over 4.64 percent would generate negative fiscal result.

Indeed, if COVID- 19 negatively affects property values, the margin by which public safety costs can increase relative to the household growth rates becomes slimmer. Based on the analysis of the effect the Great Recession had on Annapolis property values, public safety costs increasing at a rate greater than 3.4 percent would yield a negative fiscal result. Notably, the margins of fiscally negative results are still relatively small, and they do not vastly exceed to the magnitude of the marginally positive results that seem likely. 23

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

OTHER COST CONSIDERATIONS
While excluded from the fiscal impact analysis, it was determined that identifying an order of magnitude for growth- related capital costs would be a useful metric for the city to consider, based on discussion with staff. There is no capital outlay in the General Fund, and growth is not expected to generate a need for new major capital infrastructure, such as new water and sewer systems of roads classified as arterial or above. Additionally, while public schools are provided by Anne Arundel County, a high- level cost estimate of students from new growth in Annapolis is provided.

Capital Costs Impact
In a fiscal impact analysis of a comprehensive plan, capital costs considered are limited to major infrastructure. This includes new, additional roads classified as arterials or higher, as well as new water and sewer lines, pump stations, schools, and vehicles. The reason arterials are the smallest road- type to be considered is that these are the roads for which regular maintenance occurs and can trigger the need for additional staff. Smaller roads and road connections as required by any given development project may or may not accrue as one-time construction costs to the city, and these can be evaluated in more detail with specific assumptions about proposed development projects and their location within the city.

Furthermore, the additional inventory of these kinds of transportation improvements do not trigger the need for new staff on their own. That is, projecting staffing costs based on the number of staff employed today is enough to keep up with additional maintenance costs generated by roads smaller than arterials.

In addition, based on discussion with the Department of Public Works, it was determined that the water and sewer systems have adequate capacity to manage the growth projected in this analysis. While new development requires connection to the system, the utilities charge connections fees and ultimately operate as enterprise funds that generated a net profit in FY20. Vehicles are managed through an internal revenue fund and thus growth- related vehicle needs are captured in the analysis of operating costs. As discussed in the next subsection, school- related capital costs are borne by Anne Arundel County Public Schools.

Nonetheless, there may be growth- related capital costs generated by the additional demand for existing infrastructure. Indeed, roads smaller than arterials can require some capital costs based on wear and tear, even if not as regularly as arterials. The FY20 Five-Year Capital Improvement Plan ( CIP) provides a useful estimate of the capital costs associated with the existing service population. As shown in Table 13, the average size of the CIP between FY20 and FY25 is $ 6. 3 million. The average size of the service population served between 2020 and 2025 is 56,020. Dividing the average annual CIP by the average size of the population of the 5-year CIP yields an average capital cost per service population of$ 113, which multiplied by the projected growth in the service population between 2020 and 2040 equals a growth24

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C related increase to the CIP of$ 553,600. This is notably less than the net revenues estimated in this fiscal impact analysis ($ 776, 000), which implies that if the cost and revenue estimates in this analysis are considered accurate, including this estimate of capital costs would still yield a marginal, fiscally positive result.

Table 13: Estimate of Growth- Related Capital Costs
Five- Year Capital Improvement Program
FY20 FY21 FY22 FY23 FY24 FY25
4, 856, 220 $ 5, 675, 700 $ 7, 397, 500 $ 11, 993, 800 $ 4, 050, 000 $ 4, 050, 000 Average CIP, Average Service Population,
FY20- FY25 FY20- FY40
6, 337, 200 56, 020
CIP Spending Growth in Service Pop.,
per Service Pop. 2020- 2040
113 4, 894
Growth- related
Increase to CIP
553, 600
School Costs Impact
Anne Arundel County Public Schools ( AACPS), which serves Annapolis residents, determines a yield rate for elementary, middle, and high school students based on development type. On average, for the Annapolis High School feeder system, each new household is assumed to generate 0. 142 elementary school students, 0.054 middle school students and 0.063 high school students. Applying these rates to the projected 582 new households yields 151 new students. The AACPS budget is based on developing a cost- per-pupil and in FY20, the costper-pupil was $ 14,473, based on guidelines recommended by the Maryland State Department of Education. The number in new students in Annapolis over the next 20 years will not generate the need for an additional school at any level, so there are no capital costs associated with new growth- related students in Annapolis, although the system overall may 25

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C add more schools. As shown in Table 14, multiplying the cost per pupil by the estimated yield from new growth generates an estimated cost of$ 2. 2 million.

Table 14: Growth- Related Public School Costs
New Households, by 2040 582
ES Student Yield( a) 83
MS Student Yield( b) 31
HS Student Yield( c) 37
Total 151
Cost per Pupil( d) 14, 473
Growth- Related Cost, by 2040 $ 2, 181, 390
Notes:
a) Average Elementary School Student Yield Rate for the Annapolis HS Feeder System: 0. 142 b) Average Middle School Student Yield Rate for the Annapolis HS Feeder System: 0. 054 c) Average High School Student Yield Rate for the Annapolis HS Feeder System: 0. 063 d) The cost per pupil is obtained from the FY20 Anne Arundel Public Schools Operating& Capital Budgets. It is calculated following the guidelines recommended by the Maryland State Department of Education Source: Student Yield Study for Anne Arundel County Public Schools, November 2019; FY2020 Anne Arundel County Public Schools Approved Operating& Capital Budgets; BAE, 2020 26

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C

CONCLUSION
Based on the methodology and assumptions in this fiscal impact analysis, Annapolis is projected to generate a marginally net positive fiscal impact based on the taxes received by new development and the costs it incurs. While the real property tax is large enough to generate most of the revenues needed to accommodate new growth, new growth incurs enough costs that the City will be unable to increase the level of service it provides. However, if there is more nonresidential development than currently projected, even more revenue will be generated without the incurring the same level of costs, as nonresidential development demands fewer services from the City. Therefore, the City may be more fiscally resilient if it increases the amount of nonresidential development projected over the next 20 years, although the current residential program yields more or less fiscally neutral results. Critically, over 80.2 percent of the revenues estimated in the fiscal impact come from property taxes paid by new development, even though most of the growth in Annapolis over the next 20 years is explained by the increase to the size of the average Annapolis household.

Nonetheless, the overall marginal findings suggest that, as currently projected, new growth itself is neither a huge winner nor a huge loser for the City based on the current levels of service the City provides. With the skew towards residential development, development itself is not an opportunity for the City, although new growth will help to generate economic activity that will promote economic growth, which is ultimately unaccounted for in a fiscal analysis.

Fiscal impact analysis does not consider the impact of growth on income levels, the number of jobs and other measures that reflect the state of the private sector economy, which if positively impacted by growth, would in turn have some effect on the fiscal impact. This dynamic relationship is difficult to model and as a result, fiscal impacts and economic impacts are typically evaluated independently.
27

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4 CDC- Al D6- 2ABE915A0C 1C S TOWN OF LOS GATOS MEETING DATE: 10/ 21/ 2025
Jpt.1t COUNCIL AGENDA REPORT ITEM NO: 7
DATE: October 16, 2025
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Authorize the Town Manager to Negotiate and Execute an Agreement with NHA Advisors, LLC( NHA) to deliver Fiscal Condition Analysis, Fiscal Impact Analysis, Asset Liability Management, and Wildfire Risk Mitigation Studies, including any optional services as directed by the Town Council, in the Amount Not to Exceed Amount of$ 250,500 and Authorize an Expenditure Budget Adjustment up to$250, 500 from the Available Unassigned fund Balance
RECOMMENDATION: Authorize the Town Manager to enter into an Agreement with NHA Advisors, LLC ( NHA) to deliver Fiscal Condition Analysis, Fiscal Impact Analysis, Asset Liability Management, and Wildfire Risk Mitigation Studies including any optional services as directed by the Town Council, in the not to exceed amount of$ 250,500; and authorize an Expenditure Budget Adjustment of$ 250, 500 from the available Unassigned fund Balance.

FISCAL IMPACT:

The requested budget adjustment in the amount of$ 250,500 will reduce the Town' s Unassigned Fund Balance. This amount reflects the full cost of all proposed services, including optional components. The final agreement amount may be lower, depending on the specific services selected by the Town Council.

STRATEGIC PRIORITY:

This initiative supports the Town' s strategic priority of ensuring prudent financial management to result in structurally balanced five-year forecasts and fully funded five-year Capital Improvement Plans, managing liabilities such as pension costs and leveraging the Town' s assets, efficiencies, partnerships, and revenue streams. The study is a material component in identifying the path to support this priority.

PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager and Town Attorney
110 E. Main Street Los Gatos, CA 95030• ( 408) 354- 6832 www. losgatosca. gov Page 577
ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C PAGE 2 OF 6
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 14, 2025
This initiative supports the Town' s core goals of:

Fiscal Stability: Providing independent, data- driven forecasts and risk assessments to ensure sustainable financial planning.

Community Character: Evaluating fiscal impacts of growth to balance economic vitality with quality- of-life considerations.

Good Governance: Developing clear, auditable tools for decision- making and aligning long-term fiscal strategies with policy objectives.

BACKGROUND:

At its meeting on April 14, 2025, the Finance Commission discussed draft scopes of work for a Fiscal Impact Analysis and a Fiscal Condition Analysis with a Five- Year Projection. After reviewing the objectives and overlaps between the two scopes, the Commission recommended consolidating them into a single RFP process with three separate line items: ( 1) Fiscal Condition Analysis and Five- Year Forecast, ( 2) Long- Term Outlook to 2040 aligned with the General Plan and Housing Element, and ( 3) a standalone Asset Liability Management Study.

The Commission emphasized scenario planning, stakeholder engagement, transparency in methodology, and clear articulation of questions to be addressed regarding the Town' s shortand long- term fiscal condition and the fiscal impacts of projected development under the 2040 General Plan and Housing Element. Based on the Commission' s feedback, staff prepared a draft RFP ( Attachment 2), which was approved on August 11, 2025. The RFP was issued on August 20, 2025, and closed on September 22, 2025. Responses to questions were posted publicly Attachment 3).

DISCUSSION:

The Town received five proposals in response to the RFP. While the RFP did not require firms to address all three studies, it was encouraged where feasible. Of the five proposals submitted, two firms did not demonstrate experience in the State of California.

Three staff members independently reviewed and evaluated the proposals, ranking them based on quality. Upon comparison, the rankings were found to be consistent across all three reviewers. NHA ranked the highest with the reviewers. The highest- ranked firm submitted proposals for all three studies and also included an optional Fire Risk Assessment Study Attachment 1). If the Council wishes to include this additional study, staff will work with the firm to determine the most appropriate level of optional services for the Town.

NHA Advisors, LLC submitted a proposal to provide Study 1: Fiscal Condition Analysis and Study 2: Fiscal Impact Analysis for the Town of Los Gatos. Their proposal represents a collaborative effort among three experienced firms:

NHA Advisors, LLC— Lead advisor and project manager for Studies 1 and 2

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C PAGE 3 OF 6
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 14, 2025
Raftelis Financial Consultants, Inc.— Subconsultant for Study 1 Willdan —Subconsultant for Study 2
NHA has previously worked with both Raftelis and Willdan on similar projects in California.

Their approach emphasizes collaboration, scenario- based modeling, and practical tools that Town staff can use independently.

NHA Advisors, LLC also submitted a separate proposal to provide Study 3: Asset Liability Management ( ALM) services as requested in the Town' s RFP. For this task, NHA is the sole service provider, independent of the team assembled for Studies 1 and 2. In addition, NHA included an unsolicited proposal for an optional Study 4, which would develop a long- term funding plan for wildfire risk mitigation in Los Gatos.

NHA brings extensive experience advising California public agencies on CaIPERS- related liabilities, debt management, and OPEB strategies. Their approach emphasizes integration with the fiscal condition model developed in Study 1, allowing for scenario planning that accounts for:

CaIPERS performance volatility
Infrastructure impacts from new development
Adequacy of cash reserves to withstand " Black Swan" events ( e. g., wildfires) The proposal highlights NHA' s ability to translate complex financial data into clear, actionable insights for decision- makers and the public.

NHA also reaffirmed acceptance of the Town' s Sample Consultant Services Agreement and designated Mark Northcross as the primary contact authorized to bind the firm.

Proposed Project Timeline by Month After Contract Execution:

Month Study 1: Fiscal Study 2: Fiscal Impact Study 3: Asset Liability Condition Analysis Analysis ( Willdan) Management ( NHA) Raftelis)
Month 1 Project Initiation Project Initiation Project Initiation Month 2 Data Collection and Inventory and Evaluate
Review Liabilities
Month 3 Assess Financial
Condition

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C PAGE 4 OF 6
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 14, 2025
Month Study 1: Fiscal Study 2: Fiscal Impact Study 3: Asset Liability Condition Analysis Analysis ( Willdan) Management ( NHA) Raftelis)
Month 4 Develop Forecasting Develop Fiscal Funding Needs and Risk Model Revenue and Cost Reduction Analysis
Inputs
Month 5 Complete 20- Year ALM Modeling
Fiscal Impact Analysis
Month 6 Final Reporting& Finalize Fiscal Impact Reserve Guidance Knowledge Transfer Model
Contract Cost Summary:

Raftelis proposes to conduct the Fiscal Condition Analysis ( Study 1) for a base cost of$ 105, 500, with optional services— such as gap closure strategies and Council decision support— bringing the total to $165, 000 if selected. Willdan submitted a fixed fee proposal of$ 18, 000 for the Fiscal Impact Analysis ( Study 2), which includes up to two meetings, with additional services billed hourly if needed. NHA Advisors proposes to lead the Asset Liability Management Study Study 3) on a time- and- materials basis, with a not- to- exceed budget of$ 50, 000, covering liability evaluation, risk analysis, modeling, and reserve guidance. NHA also offers an optional Wildfire Risk Mitigation Study (Study 4) for up to $45, 000, which includes GIS analysis and funding strategy development, with additional optional tasks potentially adding up to $25, 000.

In addition, NHA proposes to serve as Team Manager for Studies 1 and 2, coordinating across firms for a not-to-exceed amount of$ 17,500.

Study/ Task Firm Fee Type Estimated Notes
Cost
Study 1: Fiscal Raftelis Fixed Fee $ 105, 500 Includes forecasting Condition base) model, reporting, and
Analysis 165, 000 optional gap
with strategies & Council
options) support
Study 2: Fiscal Willdan Fixed Fee $ 18, 000 Includes 2 meetings; Impact Analysis additional services
billed hourly

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C PAGE 5 OF 6
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 14, 2025
Study/ Task Firm Fee Type Estimated Notes
Cost
Study 3: Asset NHA Time & 35, 055 — Includes modeling,
Liability Materials 49,875 reserve guidance, and
Management Blended Not- to- liability analysis
ALM) Rate: Exceed:
285/ hr) 50, 000
Optional Study NHA Time & Not- to- Includes GIS work;
4: Wildfire Risk Materials Exceed: optional tasks may
Mitigation 45, 000 add up to $ 25,000+
Team NHA Time & Not- to- Approx. 50 hours of
Management for Materials Exceed: coordination across
Studies 1 & 2 17, 500 firms
If all services— Studies 1, 2, and 3 with options, along with the optional wildfire risk mitigation study—are included, the total not-to- exceed amount for the agreement is $ 250, 500.

RECOMMENDATION:

Staff is requesting that the Town Council provide direction regarding which services to include in the agreement. If all services— Studies 1, 2, and 3, along with the optional wildfire risk mitigation study— are included, the total not-to- exceed amount would be $ 250, 500. If the Council chooses to include only selected services, the agreement will be tailored accordingly to reflect those areas.

Based on the Council' s direction regarding optional services, staff will prepare the draft agreement. To ensure timely initiation of work, staff recommends that the Town Council authorize the Town Manager to negotiate and execute an agreement with NHA Advisors for all three requested services, in an amount not to exceed $ 250, 500.

ALTERNATIVES
The Town Council may consider alternative approaches to the proposed scope of work, which would affect total cost and fiscal impact:

1. Proceed with All Studies ( Recommended Option) — Approve all studies including optional components for a not-to-exceed amount of$ 250,500. This option provides the most comprehensive fiscal analysis, aligning with long-term financial planning objectives.

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1D6- 2ABE915A0C1C PAGE 6 OF 6
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 14, 2025

2. Remove Optional Study Components — Excluding the optional elements (Wildfire Risk Mitigation Study and optional tasks within Study 1) would reduce total project costs to approximately$ 180,000 to $190,000, depending on final scope adjustments. This would lower the immediate budget impact by roughly$ 60,000 to $70,000 while maintaining delivery of the three core studies.

3. Select Individual Studies Only — The Council may choose to fund only one or two studies e. g., Fiscal Condition and Impact Analyses) at an estimated combined cost of$ 120, 000 to 130,000. This would provide partial insights but limit integration between financial forecasting and liability management.

Reducing the scope will proportionally reduce the Unassigned Fund Balance adjustment.

However, omitting optional studies may limit the Town' s ability to evaluate long- term wildfire risk and related fiscal exposures, which could affect future budget forecasting accuracy.

COORDINATION:

This item was developed with the coordination of the Town Manager' s Office, the Town Attorney' s Office, and the Community Development Department.

Attachments:

1. NHA Proposals

2. Request For Proposals: Fiscal Condition Analysis With Five- Year and Long- Term Forecast, Fiscal Impact Analysis, and Asset Liability Management Study

3. Date issued: questions and answers provided

ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4 CDC- Al D6- 2ABE915A0C 1C MEETING DATE: 10/ 21/ 2025

TOWN OF LOS GATOS
ITEM NO: 7

COUNCIL AGENDA REPORT

DESK ITEM
DATE: October 21, 2025
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Authorize the Town Manager to Negotiate and Execute an Agreement with NHA Advisors, LLC( NHA) to deliver Fiscal Condition Analysis, Fiscal Impact Analysis, Asset Liability Management, and Wildfire Risk Mitigation Studies, including any optional services as directed by the Town Council, in the Amount Not to Exceed Amount of$ 250,500 and Authorize an Expenditure Budget Adjustment up to$250, 500 from the Available Unassigned fund Balance
RECOMMENDATION: Authorize the Town Manager to enter into an Agreement with NHA Advisors, LLC ( NHA) to deliver Fiscal Condition Analysis, Fiscal Impact Analysis, Asset Liability Management, and Wildfire Risk Mitigation Studies including any optional services as directed by the Town Council, in the not to exceed amount of$ 250,500; and authorize an Expenditure Budget Adjustment of$ 250, 500 from the available Unassigned fund Balance.

REMARKS:

Staff clarifies that the contract cost summary of$ 250,500, as referenced in the staff report, does not include the optional Wildfire Risk Mitigation Study. This study was not part of the original Request for Proposal ( RFP) but was instead offered as an optional service by the prospective vendor.

The $250, 500 amount includes all optional services for Study 1, Study 2, and Study 3 as outlined in the proposal.

PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager and Town Attorney
110 E. Main Street Los Gatos, CA 95030• ( 408) 354- 6832 www. losgatosca. gov Page 583
ITEM NO. 7.

Docusign Envelope ID: 8463BA3F- D38D- 4CDC- A1 D6- 2ABE915A0C1 C PAGE 2 OF 2
SUBJECT: Authorize the Town Manager to Negotiate and enter into Agreement with NHA DATE: October 21, 2025
Study/ Task Firm Estimated Cost Notes
Study 1: Fiscal Condition 105, 500 ( base) Includes forecasting model, reporting, and Raftel is Analysis 165, 000 ( with options) optional gap strategies& Council support Includes 2 meetings; additional services
Study 2: Fiscal Impact Analysis Willdan $ 18, 000
billed hourly
Study 3: Asset Liability NHA $
35, 055—$ 49, 875 Includes modeling, reserve guidance, and Management( ALM) Not-to- Exceed:$ 50,000 liability analysis Optional Study 4: Wildfire Risk Includes GIS work; optional tasks may add NHA Not- to- Exceed:$ 45, 000
Mitigation up to$ 25, 000+
Team Management for Studies Approx. 50 hours of coordination across 1 & 2
NHA Not- to- Exceed:$ 17,500 firms
Total Estimated Cost: 250, 500
In addition, cognizant of the cost, the staff provides an alternative recommendation that includes only the base costs of Study 1, Study 2, along with Team Management for both studies, and Study 3, totaling not to exceed $ 191, 000.

Study/ Task Firm Estimated Cost Notes
Study 1: Fiscal Condition Analysis 105, 500 Includes forecasting model, and reporting Study - OPTIONAL A
Raftelis $
29, 750 Optional Gap Closure Strategies
Study- OPTIONAL B 29, 750 Decesion- Support for Town Council Includes 2 meetings; additional services
Study 2: Fiscal Impact Analysis 18,000
Willdan
billed hourly
Study 3: Asset Liability Management Includes modeling, reserve guidance, and ALM) 50,000 liability analysis, not to exceed amount
Optional Study 4: Wildfire Risk Includes GIS work; optional tasks may add Mitigation
NHA Not-to-Exceed:$ 45,000 up to$ 25,000+
Team Management for Studies 1& 2 NHA $ 17, 500 Approx 50 hours of coordination across firms, not to exceed amount
Total Estimated Cost: 191, 000
Additional services may be added during the course of the studies or after their completion, as needed.

Attachments previously distributed with the staff report:

1. NHA Proposals

2. Request For Proposals: Fiscal Condition Analysis With Five- Year and Long- Term Forecast, Fiscal Impact Analysis, and Asset Liability Management Study

3. Date issued: questions and answers provided

ITEM NO. 7.

PREPARED BY: Cheryl Parkman
Human Resources Director
Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and 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: 06/16/2026
ITEM NO: 8
DATE: June 16, 2026
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Adopt a Resolution Approving the Corrected American Federation of State, County and Municipal Employees (AFSCME) 2026-2027 Salary Schedule and Side Letter Agreement
RECOMMENDATION: Adopt a resolution approving the corrected salary schedule for the American Federation of State, County and Municipal Employees (AFSCME) to reflect the negotiated 4% increase for the 2026-2027 fiscal year, effective July 5, 2026; and approve and authorize the Town Manager to execute a Side Letter of Agreement between the Town of Los Gatos and the American Federation of State, County and Municipal Employees (AFSCME) to correct the 2026-2027 salary schedule.

FISCAL IMPACT:

This is an administrative correction that does not have a fiscal impact.

STRATEGIC PRIORITY:

The correction to the AFSCME salary schedule supports the Town’s strategic priority of prudent financial management.

BACKGROUND:

On August 6, 2024, the Town Council approved and authorized the Town Manager to execute a Memorandum of Understanding (MOU) between the Town of Los Gatos and the American Federation of State, County, and Municipal Employees (AFSCME) (Attachment 1). The term of

ITEM NO. 8.

PAGE 2 OF 2
SUBJECT: Approve corrected American Federation of State, County and Municipal Employees (AFSCME) 2026-2027 Salary Schedule and Side Letter Agreement DATE: June 16, 2026
the MOU is July 1, 2024, through June 30, 2027, and approved general wage increases, as listed below.
 Fiscal Year 2024/2025: Effective the first full pay period in July 2024, the Town will provide a four percent (4%) salary adjustment for all bargaining unit classifications.  Fiscal Year 2025/2026: Effective the first full pay period in July 2025, the Town will provide a four percent (4%) salary adjustment for all bargaining unit classifications.  Fiscal Year 2026/2027: Effective the first full pay period in July 2026, the Town will provide a four percent (4%) salary adjustment for all bargaining unit classifications.

DISCUSSION:

Due to an administrative error, the salary schedule for the 2026-2027 fiscal year was generated using a 5% general increase rather than the 4% increase as agreed upon in bargaining and authorized by Council. Staff identified this error before any overpayment could occur. The error is limited to the attached schedule (Attachment 2) and does not reflect the negotiated intent of the parties. Correcting this error ensures the salary schedule aligns with the authorized budget and Council action.

CONCLUSION:

The Town has met its obligation to notify AFSCME representatives of the salary schedule correction. The attached side letter of agreement has been shared and approved by the union (Attachment 3).

COORDINATION:

This memo has been coordinated with the Town Attorney.

ENVIRONMENTAL ASSESSMENT:

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

Attachments:

1. American Federation of State, County and Municipal Employees Memorandum of Understanding, July 1, 2024 – June 30, 2027

2. Town of Los Gatos Salary Schedule for American Federation of State, County and Municipal Employees Classifications effective July 5, 2026, with corrections

3. AFSCME 2026-2027 Salary Schedule Correction Side Letter of Agreement

4. Council Resolution

ITEM NO. 8.

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Town of Los Gatos AFSCME Classifications
Salary Schedule for Fiscal Year 2026/27
Effective July 5, 2026
Class
Code Classification Title FLSA
Range
AF1
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6
6619 Assistant Equipment Mechanic Non-Exempt 09 $38.6616 $40.5946 $42.6244 $44.7557 $46.9934 $49.3431 6620 Equipment Mechanic Non-Exempt 02 $44.4658 $46.6891 $49.0236 $51.4748 $54.0486 $56.7510 6618 Supervising Equipment Mechanic Non-Exempt 08 $51.1363 $53.6931 $56.3778 $59.1967 $62.1565 $65.2644 6670 Facility Technician Non-Exempt 01 $41.3724 $43.4411 $45.6132 $47.8938 $50.2885 $52.8029 6600 Lead Parks & Maintenance Worker Non-Exempt 07 $47.2106 $49.5711 $52.0496 $54.6521 $57.3847 $60.2540 6650 Parks & Maintenance Worker Non-Exempt 05 $37.9866 $39.8860 $41.8803 $43.9743 $46.1731 $48.4818 6660 Parks & Maintenance Worker Trainee Non-Exempt 04 $31.0237 $32.5749 $34.2036 $35.9138 $37.7095 $39.5950 6605 Senior Parks & Maintenance Worker Non-Exempt 06 $41.3388 $43.4065 $45.5759 $47.8548 $50.2475 $52.7598 6610 Town Arborist Non-Exempt 03 $45.0958 $47.3506 $49.7181 $52.2040 $54.8142 $57.5550 Reflects General Increase of 4%.

Attachment 2

ITEM NO. 8.

Attachment 3

SIDE LETTER OF AGREEMENT

BETWEEN

THE TOWN OF LOS GATOS AND AFSCME
On August 6, 2024, the Los Gatos Town Council approved the Memorandum of Understanding (MOU) between the Town of Los Gatos (Town) and the American Federation of State County and Municipal Employees (ASCME) for the period of July 1, 2024 through June 30, 2027.

Per the MOU at Section 10.1, the Parties agreed that effective the first full pay period of July 2026, the Town will provide a four percent (4%) salary increase for all AFSCME bargaining unit classifications.

In the time since the Council’s approval of the 2024-2027 AFSCME MOU, the parties discovered the salary schedule set forth at Appendix A for Fiscal Year 2026-2027 was calculated in error to reflect a five percent (5%) salary increase in lieu of the agreed-upon four percent (4%) salary increase applicable to AFSCME classifications for Fiscal Year 2026-2027.

Having met and conferred on the error and how to best address the error, the Town and AFSCME agree that;

1. The attached Salary Schedule for Fiscal Year 2026-2027 correctly states the salary increase effective the first full pay period of July 2026; and

2. The attached Salary Schedule should be included in Appendix A of the 2025-2027 AFSCME MOU and the erroneous salary schedule should be removed and discarded.

IT IS HEREBY AGREED.

For the Town of Los Gatos For AFSCME
_________________________________________ _______________________________________ Date Date

ITEM NO. 8.

Draft Resolution Adoption Date

DRAFT RESOLUTION

A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS, CALIFORNIA, APPROVING THE CORRECTED FISCAL YEAR 202-2027 SALARY SCHEDULE FOR

AMERICAN FEDERATION OF STATE, COUNTY, AND MUNICIPAL EMPLOYEES (AFSCME)

EMPLOYEES
WHEREAS, on August 6, 2024, the Los Gatos Town Council approved the Memorandum of Understanding (MOU) between the Town of Los Gatos (Town) and the American Federation of State County and Municipal Employees (AFSCME) for the period of July 1, 2024, through June 30, 2027; and
WHEREAS, per the MOU at Section 10.1, the Parties agreed that effective the first full pay period of July 2026, the Town will provide a four percent (4%) salary increase for all AFSCME bargaining unit classifications.

WHEREAS, in the time since the Council’s approval of the 2024-2027 AFSCME MOU, the staff discovered the salary schedule set forth at Appendix A for Fiscal Year 2026-2027 was calculated in error to reflect a five percent (5%) salary increase in lieu of the agreed-upon four percent (4%) salary increase applicable to AFSCME classifications for Fiscal Year 2026-2027; and WHEREAS, staff identified this error before any overpayment could occur; and WHEREAS, having notified AFSCME of the error and how to best address the error, the Town and AFSCME agree that:

1. The attached Salary Schedule for Fiscal Year 2026-2027 correctly states the salary increase effective the first full pay period of July 2026; and

2. The attached Salary Schedule should be included in Appendix A of the 2025-2027 AFSCME MOU and the erroneous salary schedule should be removed and discarded.

BE IT RESOLVED, by the Town Council of the Town of Los Gatos, County of Santa Clara, State of California, that the AFSCME Salary Schedule, a copy of which is attached hereto, is hereby approved.

PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 16
th day of June 2026, by the following vote:

COUNCIL MEMBERS:

AYES:

NAYS:

ABSENT:

ABSTAIN: SIGNED:
______________________________

MAYOR OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA
ATTEST:
___________________________________

TOWN CLERK OF THE TOWN OF LOS GATOS

LOS GATOS, CALIFORNIA

ITEM NO. 8.

PREPARED BY: Nicolle Burnham
Parks and Public Works Director
Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and 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: 06/16/2026
ITEM NO: 9
DATE: June 16, 2026
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Authorize the Town Manager to Execute a First Amendment to the Agreement for Services with Assure MSP, Inc. to Increase Compensation by $18,898.43 for a Total Agreement Amount of $233,898.43
RECOMMENDATION: Authorize the Town Manager to execute a First Amendment to the Agreement for Services with Assure MSP, Inc. to add the Police Operations Building intercom improvements and a La Rinconada Park security camera installation, and increase compensation by $18,898.43 for a total agreement amount of $233,898.43.

FISCAL IMPACT:

The original agreement was funded through the FY 2025-26 COPS/SLESF grant program within the Police Department Operating Budget (1114818-68515 and 61253). The proposed amendment will be funded by the Adopted FY 2025-26 Capital Improvement Program Budget in the following manner:
 Intercom System - $8,477.15 - Unanticipated Repairs Project (4118151; CIP No. 811- 9904)
 Camera - $10,421.28 – Sport Court Resurfacing Project (4118414; CIP No. 831-4611) STRATEGIC PRIORITY:

This action does not directly support a specific strategic priority but does support the Town’s Core Goal of Public Safety. This item furthers public safety by replacing the intercom system at the POB, restoring communication between visitors to that building and the Police Department

ITEM NO. 9.

PAGE 2 OF 3
SUBJECT: First Amendment to Agreement with Assure MSP, Inc.

DATE: June 16, 2026
dispatch staff, and by adding a camera to the sport court at LaRinconada Park to allow for monitoring of vandalism.

BACKGROUND:

Assure MSP, Inc. (Assure) is a managed service provider that partners with Verkada. Verkada provides a cloud-based physical security platform that integrates video cameras, access control, alarms, environmental sensors, and related tools into a single, centrally managed system. The platform uses a hybrid architecture that combines on-device processing with cloud-based management, reducing reliance on on-premise servers and simplifying deployment across multiple facilities. Verkada systems are widely utilized by municipal agencies and public entities throughout the Bay Area, including several local law enforcement and public sector organizations.

On January 20, 2026, the Town Council authorized the Town Manager to execute an agreement with Assure MSP, Inc to install, configure, and provide Verkada Camera Systems and CloudManagement Systems at various locations in Town.

DISCUSSION:

The Police Operations Building (POB) has an intercom and camera access system that allows dispatch staff located at the Civic Center to observe and converse with POB visitors. The system provides safety and security to staff of the POB. In recent months, the system has become increasingly unreliable, and PPW staff are no longer able to permanently fix the existing hardwired intercom system. Staff have assessed various ways to restore functionality to the intercom system at POB. Verkada Camera can provide a cloud-based system that can connect POB with the dispatchers. The cloud-based system will be a more cost-effective installation than a new wired system between the buildings.

In 2025, acts of vandalism on the sports courts at LaRinconada Park prompted staff to install a solar camera to monitor the area. This installation has proven effective at reducing vandalism, but the selected camera is not performing well. Staff is recommending the installation of a solar Verkada camera system at the court following the reconstruction work planned for summer 2026.

The first amendment to the agreement with Assure will provide the funding needed to replace the intercom system at the POB, restoring communication between visitors to that building and the Police Department dispatch team, and to install a solar camera at LaRinconada to provide for enhanced monitoring.

ITEM NO. 9.

PAGE 3 OF 3
SUBJECT: First Amendment to Agreement with Assure MSP, Inc.

DATE: June 16, 2026
CONCLUSION:

Authorization of the first amendment will allow for the installation of the upgraded equipment during the summer of 2026.

COORDINATION:

This staff report was coordinated with the Police Department, the Town Attorney and the Administrative Services Director.

ENVIRONMENTAL ASSESSMENT:

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

Attachments:

1. First Amendment – Assure

2. Original Agreement

ITEM NO. 9.

AMENDMENT TO AGREEMENT

Amendment to Agreement
Assure MSP, Inc.

This FIRST AMENDMENT TO AGREEMENT amends that certain agreement titled Assure Agreement for Services dated January 28, 2026, made by and between the Town of Los Gatos, ("Town,") and Assure MSP, Inc. (“Contractor”), a Corporation and whose address is 1048 Serpentine Lane, Pleasanton, CA 94588.

RECITALS
A. Town and Contractor entered into an Agreement for Services on January 28, 2026 (“Agreement”).

B. The Parties desire to amend the Agreement in order to add additional services and increase the compensation.

AMENDMENT
A. Section II.A. is amended to include: Contractor shall provide the additional services described in the Scope of Services for Intercom Replacement and Scope of Services for Installation of Solar Camera, which are hereby incorporated by reference and attached as Exhibit B and Exhibit C.

B. Section II.F is replaced and will read: Compensation for all services shall not exceed $233,898.43, inclusive of all costs subject to appropriate of funds, notwithstanding any other provision in this Agreement. Payment shall be based upon Town approval of each task.

C. All other terms and conditions of the Agreement remain in full force and effect.

Attachments:

B - Scope of Services for Intercom Replacement
C - Scope of Services for Installation of Solar Camera
ATTACHMENT 1

ITEM NO. 9.

TOWN OF LOS GATOS ASSURE MSP, INC.
**signature_130768**

SIGNATURE
Chris Constantin

FULL NAME
Town Manager
TITLE
**date_signed_130768**

DATE SIGNED
**signature_130767**

SIGNATURE
Jim Graf

CONTRACTOR SIGNATORY'S FULL NAME
Chief Executive Officer

CONTRACTOR SIGNATORY'S TITLE
**date_signed_130767**

DATE SIGNED
Approved as to form:
**signature_130764**

SIGNATURE
Gabrielle Whelan

FULL NAME
Town Attorney
TITLE
**date_signed_130764**

DATE SIGNED
The execution date is the date on which the last party has signed.

ITEM NO. 9.

Exhibits List
B - Scope of Services for Intercom Replacement
C - Scope of Services for Installation of Solar Camera

ITEM NO. 9.

Exhibit B
Scope of Services for Intercom Replacement

ITEM NO. 9.

Sales Order: ######
Ship To:

Address Address
City, State, Zip City, State, Zip
PO# Delivery Method Delivery Date Payment Terms
Truck 50% MD / 50% UC
Qty Unit Price Line Total
1 $1,799.00 $1,799.00
1 $3,499.00 $3,499.00
1 $399.00 $399.00
1 $1,150.00 $1,150.00
1 $110.00 $110.00
1 $1,200.00 $1,200.00
1 $245.00 $245.00
1 $294.99 $294.99
1 $350.00 $350.00
($1,197.41)
Subtotal $7,849.58
April 28, 2026
Bill To: Los Gatos Police Department Same
110 E Main St
LIC-TD-10Y-CAP Verkada 10-Year Intercom License, Capacity Increase ACC-INT-ANGLE-2 Verkada TD53 Angle Mount
PS-INT-INST01 Intercom cabling, installation, configuration, validation - Level 1 TD53-HW Verkada TD53 Video Intercom Reader
Los Gatos, CA 95030
Salesperson
Dylan Graf
Item # Description
Police Department Intercom
Los Gatos
Job Site
AMI-PS-125UL Access control power supply, 12/24v
PS-AD-1POWERINST Single Door Power supply installation and testing AMI-CBLMNTMAT Cat6 Ethernet cable, Mounts, & Materials
PS-INT-DR-INST Intercom and door reader wiring, configuration, and testing PS-INT-CONFIG Intercom network configuration and training Account Level Promotion
Assure MSP, Inc. භ 1048 Serpentine Ln. භ Suite 304 භ Pleasanton, CA 94566 භ (888) 410-4888 භ CA LIC# 1107485 1 of 2 Page 635 ITEM NO. 9.

Sales Order: ######
April 28, 2026
No. Unit Price Line Total
1 1.1

1.2 1.3

1.4 2
3 Subtotal $0.00
Total $7,849.58
Discount
Sales Tax $602.57
Shipping $25.00
Total $8,477.15
$ 4,238.57
$ 4,238.58
Company Name:

Date:

PO#:

Type Description
Note
Please note that the proposed system requires a high speed internet connection. This provides remote monitoring, system updates and accurate timestamping. Verkada’s technology removes the need for a local DVR/Machine that draws power and requires maintenance and updates.

Note
Pricing in this Sales Order is based on the proposed quantity and scope of work documented herein. If the proposed quantities change, the proposed pricing will be adjusted to reflect the revised quantities and scope of work.

UPS Ground
Exclusion Assure MSP, Inc. is not providing high speed internet or managed services unless otherwise noted in this quote.

Note Each MDF/IDF location will need access to 1 power outlet to provide power to a PoE switch which will provide power to the cameras.

Exclusion
Customer will provide 1 DHCP Enabled, PoE capable switch port for each camera proposed herein for power and network connectivity unless switches are explicitly detailed herein.

Shipping
This Sales Order is subject to our Terms and Conditions which can be found at:
https://www.assuremsp.com/Agreements
Print Name:

Title:

Make all checks payable to Assure MSP, Inc.

Thank you for your business!
Payment Schedule
Mobilization Deposit - Billed Upon Accepted Sales Order: 50% Balance Due - Billed Upon Completion of Project: 50%
Acknowledge and Acceptance
Authorized Signature:

Managed Optional Managed Service Contract priced at $20 per Camera / mo. Includes quarterly performance review & testing to maintain optimal performance.

Assure MSP, Inc. භ 1048 Serpentine Ln. භ Suite 304 භ Pleasanton, CA 94566 භ (888) 410-4888 භ CA LIC# 1107485 2 of 2 Page 636 ITEM NO. 9.

Exhibit C
Scope of Services for Installation of Solar Camera

ITEM NO. 9.

Sales Order: 1091229
Ship To:

Address Address
City, State, Zip City, State, Zip
PO# Delivery Method Delivery Date Payment Terms
Truck 50% MD / 50% UC
Qty Unit Price Line Total
1 $2,974.15 $2,974.15
1 $1,189.15 $1,189.15
1 $228.65 $228.65
1 $424.15 $424.15
1 $1,699.15 $1,699.15
1 $2,750.00 $2,750.00
1 $138.55 $138.55
1 $160.00 $160.00
Subtotal $9,563.80
March 6, 2026
Bill To: Los Gatos Parks & Public Works Same
41 Miles Ave
ACC-SOLP-100W-1 Verkada 100 Watt Solar Panel
ACC-MNT-SOLP-1 Verkada Solar Panel Pole Mount for 100 Watt Solar Panel/ 65 Watt Solar Panel LIC-CAM-10Y-CAP Verkada 10-Year Camera License, Capacity Increase ACC-BAT-430WH-E1 Verkada 430Wh Backup Battery for CR camera Los Gatos, CA 95030
Salesperson
Dylan Graf
Item # Description
CR63-512E-HW Verkada CR63-E Outdoor Remote Camera, 4K, Zoom Lens, 512GB of Storage, Maximum 30 Days of Retention
Los Gatos
Job Site
PS-CAM-INST03 Camera Installation, configuration, alignment, network setup, and labeling - Level 3 AMI-CBLMNTMAT Cat6 Ethernet cable, Mounts, & Materials PS-CAM-CONFIG Camera System Network Configuration & Training Assure MSP, Inc. භ 1048 Serpentine Ln. භ Suite 304 භ Pleasanton, CA 94566 භ (888) 410-4888 භ CA LIC# 1107485 1 of 2 Page 638 ITEM NO. 9.

Sales Order: 1091229
March 6, 2026
No. Unit Price Line Total
1 1.1

1.2 1.3

1.4 2
3 Subtotal $0.00
Total $9,563.80
Sales Tax $615.48
Shipping $242.00
Total $10,421.28
$ 5,210.63
$ 5,210.64
Company Name:

Date:

PO#:

Type Description
Note
Please note that the proposed system requires a high speed internet connection. This provides remote monitoring, system updates and accurate timestamping. Verkada’s technology removes the need for a local DVR/Machine that draws power and requires maintenance and updates.

Note
Pricing in this Sales Order is based on the proposed quantity and scope of work documented herein. If the proposed quantities change, the proposed pricing will be adjusted to reflect the revised quantities and scope of work.

UPS Ground
Exclusion Assure MSP, Inc. is not providing high speed internet or managed services unless otherwise noted in this quote.

Note Each MDF/IDF location will need access to 1 power outlet to provide power to a PoE switch which will provide power to the cameras.

Exclusion
Customer will provide 1 DHCP Enabled, PoE capable switch port for each camera proposed herein for power and network connectivity unless switches are explicitly detailed herein.

Shipping
This Sales Order is subject to our Terms and Conditions which can be found at:
https://www.assuremsp.com/Agreements
Print Name:

Title:

Make all checks payable to Assure MSP, Inc.

Thank you for your business!
Payment Schedule
Mobilization Deposit - Billed Upon Accepted Sales Order: 50% Balance Due - Billed Upon Completion of Project: 50%
Acknowledge and Acceptance
Authorized Signature:

Managed Optional Managed Service Contract priced at $20 per Camera / mo. Includes quarterly performance review & testing to maintain optimal performance.

Assure MSP, Inc. භ 1048 Serpentine Ln. භ Suite 304 භ Pleasanton, CA 94566 භ (888) 410-4888 භ CA LIC# 1107485 2 of 2 Page 639 ITEM NO. 9.

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ITEM NO. 9.

PREPARED BY: Jason Lin
Special Projects Manager
Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and 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: 06/16/2026
ITEM NO: 10
DATE: June 16, 2026
TO: Mayor and Town Council
FROM: Chris Constantin, Town Manager
SUBJECT: Authorize the Town Manager to Execute an Agreement for Professional Services with Sanbell for Engineering Design, Alternatives Analysis, Surveying, Easement Preparation, and Bid-Phase Support for the 709 University Avenue Drainage System Replacement Project in the amount of $98,895
RECOMMENDATION: Authorize the Town Manager to execute an Agreement for Professional Services with Sanbell for engineering design services alternatives analysis, surveying, easement preparation, and bidphase support for the 709 University Avenue Drainage System Replacement Project (4628313; CIP No. 816-0423) in the amount of $98,895.

FISCAL IMPACT:

There is sufficient funding for this agreement through the carryforward of FY2025-26 appropriations into the Town’s adopted FY2026-27 Capital Improvement Program Budget, 709 University Avenue Drainage System Replacement Project (4628313; CIP No. 816-0423).

STRATEGIC PRIORITY:

This item does not directly support a Town’s Strategic Priority but does align with the Town’s Core Goal of Quality Public Infrastructure as it provides improvements to the existing storm drainage system between Winchester Boulevard and University Avenue.

ITEM NO. 10.

PAGE 2 OF 4
SUBJECT: Authorize The Town Manager to Execute an Agreement with Sanbell for the 709 University Storm Drainage Project (CIP No. 816-0423)
DATE: June 16, 2026
BACKGROUND:

The FY 2025–2026 Capital Improvement Program includes funding for the 709 University Avenue Drainage System Replacement Project (709 University Project), which proposes to replace a segment of storm drain between Winchester Boulevard and University Avenue. The Town originally combined design efforts for both the Vasona Oak and 709 University drainage systems because the projects initially appeared to involve straightforward storm drain replacement. As investigation progressed, both projects proved to be more complex than initially anticipated, requiring their own scope, technical analyses, and timeline.

During initial investigation, inspection of the existing storm drain system crossing private property at 709 University Avenue identified sections of the pipe to be failing. Staff determined the deterioration was too extensive to be addressed through routine repairs. Follow-up field investigations confirmed that additional evaluation and design work would be required to determine feasible repair or replacement approaches.

The Town retained Sanbell through its on-call consultant list after informal bids identified them as the best-value, most qualified firm to evaluate drainage concerns at the 709 University and Vasona Oak sites. As part of the investigation, Town staff completed a closed-circuit television (CCTV) inspection of the line with support from Sanbell, and the results indicated more extensive deterioration in the pipe and bedding than originally anticipated. These findings expanded the need for engineering analysis, alternatives development, and further design refinement beyond the original scope.

Because Sanbell had already completed initial survey work and early design development for this project under the previous contract, the Town determined that continuing with Sanbell under a dedicated agreement for the 709 University Project would provide essential continuity and efficiency as the project moves into more detailed analysis and design.

The proposed agreement is below the threshold for the Town Manager’s signature, but when combined with the initial work completed under a separate contract ($49,956), the total amount being paid to Sanbell for this project exceeds $100,000. As such staff is bringing this item forward for Town Council authorization.

DISCUSSION:

Although the work at 709 University and Vasona Oak was originally covered under a single agreement, the projects are now proceeding independently due to their differing scopes and technical needs. Staff is recommending that the 709 University and Vasona Oak projects proceed independently due to differing scope, technical analysis, and timeline. Because of these differing project needs, this current action establishes a separate agreement for the 709

ITEM NO. 10.

PAGE 3 OF 4
SUBJECT: Authorize The Town Manager to Execute an Agreement with Sanbell for the 709 University Storm Drainage Project (CIP No. 816-0423)
DATE: June 16, 2026
University Project. The Vasona Oak Drainage Project will be the subject of a separate agreement and Town Council approval.

Sanbell’s expanded scope includes supplemental utilities research, survey support, and focused evaluation of potential alternatives, including replacing the pipe in its original location or relocating the system out of private property and into a different alignment within the Town’s right-of-way. A technical memorandum will summarize feasibility considerations, preliminary hydraulic evaluation, and planning-level cost impacts.

After the Town selects a preferred alternative, Sanbell will prepare updated design documents, including interim submittals and a final bid-ready plan set with specifications and an engineer’s estimate. The scope also includes preparing a storm drain easement legal description and plat should the selected alignment remain on private property. Limited bid-phase support is included to address contractor questions.

Sanbell has already completed initial survey efforts and early design development for the project, giving them familiarity with the drainage system constraints, existing conditions, and prior Town direction. Because Sanbell completed the initial investigation and early design development for this system, continuing with them qualifies as a single-source selection under Section XV of the Town’s Purchasing Policy, which permits selecting a consultant when prior work provides a compelling reason to do so. Selecting Sanbell under a single-source agreement avoids duplicating previously completed work, maintains project continuity, and minimizes delays associated with re-procurement. This helps maintain project momentum and supports the Town’s goal of advancing the project toward construction within the planned FY 2026–27 timeframe.

CONCLUSION:

The additional engineering design services proposed by Sanbell are necessary to fully evaluate feasible repair approaches and prepare the 709 University Avenue Drainage System Replacement Project for construction. Sanbell’s prior involvement provides continuity and supports efficient delivery of the expanded scope. Staff recommend that the Town Council authorize the Town Manager to execute the proposed agreement with Sanbell in the amount of $98,895.

COORDINATION:

This report was coordinated with the Finance Department and the Town Attorney.

ITEM NO. 10.

PAGE 4 OF 4
SUBJECT: Authorize The Town Manager to Execute an Agreement with Sanbell for the 709 University Storm Drainage Project (CIP No. 816-0423)
DATE: June 16, 2026
ENVIRONMENTAL ASSESSMENT:

Awarding of the engineering agreement is not a project defined under CEQA, and no further action is required. Environmental review for the underlying capital project will be completed as part of the design and permitting process. Preliminary evaluation indicates the project may qualify for a categorical exemption pursuant to CEQA Guidelines Sections 15301 (Existing Facilities) and/or 15302 (Replacement or Reconstruction); however, final CEQA determination will occur following completion of technical studies and environmental review.

Attachments:

1. Agreement for Professional Services with Sanbell

2. Original Sanbell Agreement and Amendment for 709 University and Vasona Oak

ITEM NO. 10.

AGREEMENT FOR PROFESSIONAL SERVICES

Agreement for Professional Services
Sanbell
709 University Avenue Drainage System Replacement Project

PREAMBLE
THIS AGREEMENT is by and between TOWN OF LOS GATOS, a California municipal corporation, (“Town”) and Sanbell (“Contractor”), a Corporation whose address is 390 Willow Pass Rd, Ste 300, Concord, CA 94520. This Agreement is made with reference to the following facts.

I. RECITALS
A. Town desires to engage Consultant to provide professional services for design of the 709 University Avenue Drainage System Replacement Project.

B. Consultant represents and affirms that it is willing to perform the desired work pursuant to this Agreement.

C. Consultant warrants it possesses the distinct professional skills, qualifications, experience, and resources necessary to timely perform the services described in this Agreement. Consultant acknowledges Town has relied upon these warranties to retain the Consultant.

II. AGREEMENT
A. Scope of Services. Consultant shall provide services as described in the Scope of Services, which is hereby incorporated by reference and attached as Exhibit A.

B. Term. The term of this Agreement shall be from upon execution to Wednesday, June 30, 2027.

C. Compliance with Laws. The Consultant shall comply with all applicable laws, codes, ordinances, and regulations of governing federal, state and local laws. Consultant represents and warrants to Town that it has all licenses, permits, qualifications and approvals of whatsoever nature which are legally required for the Consultant to practice its profession. Consultant shall maintain a Town of Los Gatos business license as required in Chapter 14 of the Code of the Town of Los Gatos.

D. Sole Responsibility. Consultant shall be responsible for employing or engaging all persons necessary to perform the services under this Agreement.

E. Information/Report Handling. All documents furnished to Consultant by the Town and all reports and supportive data prepared by the Consultant under this Agreement are the Town’s property and shall be delivered to the Town upon the completion of services or at the Town's written request. All reports, information, data, and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential until released by the Town to the public, and the Consultant shall not make any of these documents or information available to any individual or organization not employed by the Consultant or the Town without the written consent of the Town before such release. The Town acknowledges that the reports to be prepared by the Consultant pursuant to this Agreement are for the purpose of evaluating a defined project, and Town's use of the information contained in the reports prepared by the Consultant in connection with other projects shall be solely at Town's risk, unless the Consultant expressly consents to such use in writing. Town further agrees that it will not appropriate any methodology or technique of Consultant which is and has been confirmed in writing by Consultant to be a trade secret of Consultant.

ATTACHMENT 1