Impact of Operating Deficits on General Fund Balance – Agenda Item #1 Special Meeting August 11, 2022

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From: Phil Koen
Sent: Wednesday, August 10, 2022 7:41 AM
To: Rob Rennie <RRennie@losgatosca.gov>; Maria Ristow <MRistow@losgatosca.gov>; Marico Sayoc
<MSayoc@losgatosca.gov>; Mary Badame <MBadame@losgatosca.gov>; Matthew Hudes
<MHudes@losgatosca.gov>
Cc: Laurel Prevetti <LPrevetti@losgatosca.gov>; Arn Andrews <aandrews@losgatosca.gov>; Gabrielle
Whelan <GWhelan@losgatosca.gov>; jvannada; Rick Van Hoesen Lee Fagot

 

Subject: Impact of Operating Deficits on General Fund Balance – Agenda Item #1 Special Meeting August
11, 2022

Dear Mayor and Council Members,

I have attached an additional spreadsheet which shows two important pieces of information for your
consideration as you receive the updated Five-Year Financial Forecast.

First, the updated forecast projects that the Town’s General Fund Balance, which as of June 30, 2021,
had a balance of $23,914,618 will be essentially liquidated by the end of fiscal year 2028 assuming no
further changes. Based on this revised forecast, which does not include realistic increases for further
salary increases for Staff beginning in FY 25, the General Fund balance will be approximately $1.1 million
at the end of FY 28 .

The forecast assumes that all of the budget stabilization and catastrophic reserves will be consumed to
fund the operating deficits and only restricted and non- spendable reserve balances totaling $1.1 million
will remain. Receiving this forecast as is, should not be taken lightly and hopefully the weakened
projected financial condition of the Town is not lost on this Council. Additionally, I am unsure of the legal
ramifications of liquidating all of the rainy-day funds since these are committed reserves controlled by
the Council.

Secondly, I have added the project that was shown on the FY 18/19 budget book as a separate
line item. I realize that this was pre- Covid and obviously the Town’s finances have been impacted to
some degree by Covid. As you can see, for FY 24 the FY 19 forecast was projecting a surplus of $.2
million which has now been revised downward to a $3.8m deficit. That is a $4 million turn around in the
FY 24 forecast, which is only two years away.

Substantially all of this decrease can be directly attributed to a $4.9 million increase in salary expenditures for FY 24 when comparing the two forecasts. One simply cannot blame the Town’s dramatic financial reversal solely on the impact of Covid while ignoring financial decisions that have been made by this Council.

Let me close by saying, these forecasts have been produced by the Staff. Presumably, the forecasts are
accurate based on all known data and are a fair representation of the Town’s financial future. It might
have been helpful for the Staff to include the impact on the General Fund in their work product and to
show the forecasted impact of an increase in business license taxes on the General Fund Balance.
Obviously if enacted, the incremental revenue will help, but it will not be sufficient to prevent the
liquidation of the General Fund Balance as shown. It will only delay the timing of when the General Fund
is exhausted.

Thank you.
Los Gatos Community Alliance

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