Projected annual budget deficit grows by $1 million

Town taking `conservative approach' despite expected surplus of $700K this fiscal year

Los Gatos staffers are projecting a $3 million annual budget deficit over the next five years, which could threaten the town's services, town staffers said at a Feb. 21 council meeting.

This figure is $1 million higher than last year's fiveyear forecast, which identified a $2 million annual budget shortfall, and comes as several community organizations are asking for more funding or rent abatement.

Cutting costs and dipping into one-time funds like the American Rescue Plan Act can reduce or eliminate the budget deficit, staffers said at the meeting. The council will be reviewing the capital improvements budget in March and voting on the next fiscal year's budget sometime in May, town manager Laurel Prevetti said.

“We can't have a deficit going forward. … We need to get to something that's sustainable,” Councilmember Rob Rennie said. “That's either got to be another tax measure or it needs to be cutting ongoing expenses somehow.”

Gitta Ungvari, the town's finance director, said the projected deficit for fiscal year 2023-24 is $2.7 million, and deficit forecasts for the following four years are $3.1 million, $3 million, $3.1 million and $3.2 million.

The news isn't all bad. Instead of the $3.2 million deficit projected for the 2022-23 fiscal year, the town is looking at a $700,000 surplus.

Ungvari said this is because property, business and hotel taxes brought in more money than expected, and the town spent less on staff salaries because of open positions such as assistant town manager.

The finance commission, after reviewing the five-year forecast, said that trend is likely to continue over the next five years.

“It's really good news that we're doing better than expected,” Mayor Maria Ristow said. “I actually appreciate a conservative approach to budgeting because there's so much unknown as we're coming out of the pandemic.”

Council voted to allocate an additional $150,000 to the community grant program, bringing the donation total to $300,000, and to allocate an additional $25,000 to the unhoused population using ARPA funding. Another $100,000 was allocated to KCAT for its senior services.

New Museum Los Gatos and Los Gatos Saratoga Recreation both previously asked the town council to waive their rent payments of approximately $400,000 and $715,000 respectively.

Council voted to allocate $225,000 to LGS Recreation to help it operate while the Town Council considers its budget for the next fiscal year and potential rent abatement for both the rec center and NUMU. Last year the council allocated $360,000 to LGS Recreation.

Ungvari said the town will need to identify revenue sources to cover the deficit. Los Gatos voters in November approved a business license tax increase that is estimated to bring in an additional $1 million annually.

Council considered legalizing cannabis stores downtown last year, which could have brought in as much as $570,000 annually but decided to uphold the town's ban on such businesses after several residents spoke up in opposition.

In 2016, the town increased its transit occupancy tax, also known as the hotel tax, from 10% to 12% to generate more revenue. In 2018, the town increased its sales taxes as well.

The draft FY 2023-24 budget are set to be presented to staff on May 16.