In order to avoid dipping into its retirement account to balance the budget, the Los Gatos Town Council resorted to an “accounting gimmick” where they changed their assumptions about how quickly HR can fill empty positions at Town Hall.
The 2023-24 portion of the five-year fiscal plan comes out to $56.1 million, staff said May 16 at the regularly scheduled meeting.
“The delivery of Town services is highly dependent on recruiting and retaining talent which comprises 64.4% of budgeted General Fund expenditures,” staff said in its report. “Given the high dependence on labor for service delivery, the Town has helped manage salary escalation (and benefits) through the maintenance of lower staffing levels.”
Staff proposed to take $1.6 million out of the Town’s Other Post-Employment Benefits account to pay for the retiree medical expenses.
After a bit of discussion, Council agreed to go with the Finance Commission’s recommendation to add a vacancy rate of 4.6% “to more realistically forecast expected personnel expenses,” which freed up enough to avoid raiding the retirement kitty.
There’s $37.8 million in spending proposed in the first year of the Capital Improvement Program, however this includes $27.6 million in carryover dollars from last year, and just $10.1 million in new funding.
The elephant in the room was that, as the pandemic begins to fade into memory, Los Gatos continues to deal with economic pain.
“The loss of previously projected future growth in revenues in conjunction with increasing expenses continues to illustrate persistent deficits in future years,” is how Town Manager Laurel Prevetti put it in her May 11 report. “The deficits are on the order of approximately $2.8-$4 million per year and can currently be resolved through a combination of expenditure controls and the use of one-time funds.”
Prevetti says the budget positions the organization for continued “excellence in service delivery” for community members.
“However, in the event pre-pandemic revenue growth projections do not return and/or new revenue sources are not identified, the current projected deficits may need to be addressed through service delivery reductions or service outsourcing,” she wrote. “If this occurs, the Council will need continued input from the community to identify acceptable organizational changes and service levels.”
Councilmember Matthew Hudes asked Prevetti how well the Town has been doing in becoming more efficient, which was a direction from Council from last year.
Prevetti said staff has been doing a great job of streamlining operations, but added that hasn’t been adding capacity, because more work keeps falling onto the shoulders of local officials, including due to unfunded State mandates.
Hudes made the motion to accept the new vacancy rate. It passed 3-2 with Mayor Maria Ristow and Councilmember Rob Moore in opposition.
Moore requested that several Los Gatos commissions receive a small discretionary budget, in order to show support for the work they do.
Prevetti noted the Youth Commission and the Arts Commission both have some of that kind of funding already.
“We would just need to know what the dollar amount that you’re interested in (is),” she said.
Moore was ready with his numbers—having calculated that empowering Los Gatos’ “project-based” agencies with $2,500 each would only cost the Town around $10,000 a year.
Rennie seconded the motion, noting it wouldn’t throw the budget into the red again, since doing the vacancy rate financial maneuver was expected to create $1.66 million.
However the Town only had to find $1.6 million to cover the OPEB pension, meaning it still had $60,000 remaining.
“He used 10 of it,” Rennie said. “I don’t see a problem.”
Ristow asked staff if that was an accurate assessment.
Finance Director Gitta Ungvari confirmed that to be the case.
“OK, let’s not go on a feeding frenzy on the rest,” Ristow added.
This motion passed unanimously.
Vice Mayor Mary Badame asked whether Council should be concerned about the low balance in the liability insurance pot.
Town Attorney Gabrielle Whelan said it’s an area the Town is monitoring.
“I will say that the Town’s insurance costs have risen quite a bit,” she said. “In fact, they’ve tripled.”
She added that the Town is also factoring in storm damage claims that could come in as people pick up the pieces from the atmospheric rivers that hammered the region over the winter.
“My concern is that we might not have any fund balances in fiscal 2025,” Badame said. “That would be alarming.”
Ungvari said the premiums went up not necessarily because of anything Los Gatos did, but because of claims filed from across the pool of policy holders.
“This program should be self-recovery,” she said. “In the future that means we will have to charge more for the user…so we have to increase the rates.”