FINANCE DEPARTMENT FOLLOW UP QUESTIONS FROM5, SPECIAL MEETING THE TOWN' S BUDGET: PAST, PRESENT AND PROSPECTIVE

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1 X MEMORANDUM FINANCE DEPARTMENT To: Les White, Interim Town From: Stephen Conway, Director of Financry FOLLOW UP QUESTIONS FROM5, SPECIAL MEETING MONEY MATTERS & MORE THE TOWN' S BUDGET: PAST, PRESENT AND PROSPECTIVE Date: On May 5, 2015 a Special study was held to discuss and review the Town' s budget. This study session will be continued on May 19, 2015 as part of the proposed FY 2015/ 16 Budget hearing; however after the May 5 presentation a number of additional questions were asked. Below are the responses to the Council' s questions on May 5, What are some other revenue sources could the Town explore, possibly revenue measures or increases to Franchise Fee' s ( i.e. utilityfees)? Answer. There are a variety of revenue measures the Town could explore more. These include sales tax increases, adoption of a utility user tax ( UUT), increased Transient Occupancy Tax (TOT) which is often popular, as it taxes vistors rather than residents. Bond and parcel taxes with designated purposes would require a 2 /3rds vote of the public for passage. Sales, UUT and TOT would require a simple majority ( 50% plus 1) vote and have no spending restriction. This would be an appropriate subject to bring back during the strategic goals discussion for analysis during the fiscal year. 2. What are the cost - benefits ofpursuing a business licenses amnestyprogram and possible business license audit? Answer. Neighboring jurisdictions, including Cities of Saratoga, Campbell and San Jose, have pursued increased business license audit and/ or amnesty programs with great success. The City of Saratoga contracts with MuniServices, the Town' s sales tax consultant, to conduct a Business License Compliance Audit. While there is an initial fee for these services, this fee is reimbursed through collected fines. The City of Saratoga reports significant increase in business licenses and fees collected resulting from this audit. The City of Campbell hosted a Business License Amnesty ATTACHMENT 3

2 Page 2 May l4, 2015 program about six years ago that generated approximately 100 more licenses which equated to a substantial amount of past due revenue. Based on these responses, the Town asked both the Cities of Saratoga and Campbell for the number of Business Licenses issued by each jurisdiction for FY 2013/ 14 and FY 2014/ 15 to compare against the volume of activity in Los Gatos and rather an amnesty program and /or audit would be beneficial. These figures are outlined in the chart below: Business Licenses Issued FY 2013/ 14 FY 2014/ 15 Los Gatos 4, 386 4, 440 Saratoga 2, 285 1, 941 Campbell Based on this information, it is evident that the Town of Los Gatos has significant more exposure and thus potential for increased revenue by offering an amnesty program and corresponding Business Licenses Compliance Audit. These one -time revenue increases could be dedicate to one -time expenditures, including capital projects. Therefore, staff recommends that the Town consider implementing a similar type program for Town businesses. As a pilot program, Town staff could conduct a smaller scale business license audit in which staff would randomly survey business parks and information from the State agencies to determine if all businesses had required licenses. Staff would utilize interns to perform these tasks which may have a high potential for return for little cost. 3. What impacts will the North 40 project have on the budget with the potential population increase how much will that impact Town costs to provide services to those new residents? Answer: At this point we are unable to determine the exact impact of the North 40 project. Staff anticipates the impact would be minimal with the exception of increased traffic that may be associated with daytime activity at the project site. Staff does anticipate an increase in property tax revenue which would be available to help fund any additional service costs. 4. What 31 Cities respondedfor the Benchmarking slide information provided during the study session and What is the objective of the Benchmarldng materials? Answer: As with most municipalities in California, the Los Gatos Finance Department staff are members of the California Society of Municipal Finance Officers ( CSMFO). Members, of this organization frequently send out surveys on finance- related topics and trends. The surveys are voluntary and member - driven.

3 Page 3 One such survey was conducted last month (April 2015), regarding General Fund Expenditures by Department. Thirty -one cities responded to the survey question and given the timely nature of this survey, staff felt it would be useful to include the data as background information, as a measure of how other cities in the state are allocating budget resources. The responding cities ranged in population from 4,807 residents in Lakeport to 206, 785 in the largest responding city of Modesto (obtained from Department of Finance figures as of 1/ 1/ 2014) Responding cities are as follows: Gridley Santa Maria Marysville La Palma Mission Viejo Simi Valley Sebastopol Salinas San Dimas* Signal Hill Sausalito Truckee Hemet Red Bluff Modesto La Mesa San Fernando Corona Westminster Suisun City* Santa Rosa Auburn Piedmont Cloverdale Lemon Grove* Yuba City Lakeport Ojai Orange Willows St. Helena Cities with populations between 25,000 and 35,000. Staffs intention in providing the benchmarking materials included in the Money Matters & More presentation was to be responsive to Council inquiries regarding comparisons to our neighbors and comparable jurisdictions. Benchmarking is difficult in public sector agencies as there is no common, standard basis for comparison and each jurisdiction is unique in terms of funding and priorities. While understanding that these comparisons are challenging, staff recognizes and understands the need for some baseline measures to see how the Town is doing, or allocating resources, as compared to our neighboring jurisdictions. Staff has analyzed and reviewed comparable city budgets and smoothed out each cities bases' to be the most neutral comparison as possible. This effort was made to provide Council with a measure which would indicate how the Town compares to our surrounding jurisdictions in terms of allocating resources and services provided. 5. There has been talk about the Town having unfunded road repairs of $40 million. Is this a valid number, what document was this derivedfrom, and how was that derived? Answer: A comprehensive list of traffic and transportation improvements needed to meet existing transportation system deficiencies and accommodate growth in vehicle trips resulting from new jobs and housing as set forth in the Town' s General Plan was developed as part of the 2014 Traffic Impact Fee update. The total cost of

4 Page 4 these identified improvements is $47.95 million, and is one of the factors used for calculating the Town' s Traffic Impact Fees. Approximately $22. 8 million of the costs of these projects is anticipated to be funded from Traffic Impact Mitigation Fees ( collected over time with new development). The balance of the project costs will need to come from other sources, including grants, special revenues ( e. g., gas tax) or general fund reserves. 6. Bring back to Council a plan to support local businesses and increase /generate sales tax through the Town' s Economic Vitality Program. Answer: In order to give this the thought and attention it deserves to develop a comprehensive plan, staff recommends this be discussed as a strategic goal at the June 2, 2015 meeting. 7. What is the percentage ofsales tax receivedfrom county poolfor internet sales as well as breakout ofsales tax receipts by segment? Answer: The Town' s sales tax consultant, MuniServices, provides quarterly updates to Town staff regarding Town sales tax performance for the prior quarter as well as updated projections for the out years. The Town receives 1 cent for every 8. 75% of sales tax paid per dollar for purchases made in Los Gatos. With the growing popularity and trend towards on -line retail, the State implemented a county pool sales tax sharing allocation for all on -line retail sales. Under this methodology the Town receives a prorate share of all county on -line purchase transactions. This share is based on the Town' s overall sales tax percentage when compared to the County as a whole. For instance, the four quarter period from April 2014 through March 2015 Santa Clara County municipalities generated 396,801, 341 in sales tax revenue. During the same period The Town of Los Gatos generated $8, 266,057 in sales tax revenue, or 2. 1% of the County total. The county pool for on -line generated sales tax total $15,771,569 for the 4th quarter of 2014 and therefore the Town received 2. 1% or $325, 766 of the pooled money. As part of the quarterly update, MuniServices provides updates as to how the various business segments are performing with respect to sales tax revenue generated. Per the most recent report provided to Town Staff for the calendar year comparison of 2013 to 2014 ( with comparable statistics for San Francisco Bay Area and Statewide),the Town' s Business Activity sales tax is as follows:

5 Page 5 Business Activity Miscellaneous Jan 13 - Dec 13 to Jan 14 - Dec 14 Los Gatos SF Bay Area Statewide Retail* 7. 5% 3. 4% 3. 7% Restaurants 3. 2% 7. 5% 6. 9% Auto Sales - New 2. 1% 6.7% 8. 1% Service Stations 1. 9% 2. 8% 2. 3% Food Markets 4. 0% 3. 2% 2. 7% Furniture/Appliances 3. 8% 2. 5% 3. 8% Apparel Stores 0. 1% 1. 9% 3. 6% Drug Stores 1. 4% 0. 5% 0. 1% Auto Parts/ Repair 3. 0% 2. 5% 3. 2% Bldg. Matls- Retail 8. 1% 1. 1% 3. 1% Light Industry ** 30. 8% 10.3% 4.0% Leasing 3. 2% 9. 5% 13. 0% Business Services * ** 20. 1% 8. 7% 5. 9% Office E ui ment 2. 2% 1. 1% 2. 4% Includes Netflix Medical equipment, including dental labs Business to Business wholesale As indicated in the chart above, the Town' s restaurants, food markets and light industry perform quite well, however miscellaneous retail is declining and behind the local and state trends. 8. Who gets chargedfor which library is visited (some people go to county library and its free some have to pay)? Answer: The Los Gatos Library offers library cards and services free of charge to all California residents. Until FY 2011/ 2012, the California Library Services Act provided transaction -based reimbursement (TBR) funding to California libraries throughout the state to encourage libraries to cooperate and offer library services to all state residents. This collaboration created excellent resource sharing among California libraries. Most California libraries have chosen to remain part of this resource sharing model, even after the elimination of transaction based reimbursement. Our Cooperative Library System, the Pacific Library Partnership, requires that we be part of this universal borrowing to be eligible to participate in grants and programs offered at the local level as well as the state level. It is through this partnership that we are eligible for things such as the new high speed internet service at a fraction of market rate, innovation grants that have funded ebook self - publishing labs, as well as extensive staff training, development and networking

6 Page 6 opportunities. Our neighboring Santa Clara County Library District, which includes Monte Sereno, opted out of this universal borrowing during the economic downturn. However, as of FY 2015/ 2016, they will stop charging non - residents for cards and will once again be part of our universal borrowing network, allowing our residents wider access to free library materials. 9. What is the objective of the Benchmarking materials provided in the May 51h budget study session? Answer: Staff' s intention in providing the benchmarking materials included in the Money Matters & More presentation was to be responsive to Council inquiries regarding comparisons to our neighbors and comparable jurisdictions. Benchmarking is difficult in public sector agencies as there is no common, standard basis for comparison and each jurisdiction is unique in terms of funding and priorities. While understanding that these comparisons are challenging, staff recognizes and understands the need for some baseline measures to see how the Town is doing, or allocating resources, as compared to our neighboring jurisdictions. Staff has analyzed and reviewed comparable city budgets and smoothed out each cities bases' to be the most neutral comparison as possible. This effort was made to provide Council with a measure which would indicate how the Town compares to our surrounding jurisdictions in terms of allocating resources and services provided. 10. Please outline the Town' s proposed budget training expenditures for FY and staff's plan to use training to mitigate on thejob injuries as they impact workers compensation? Answer: With the assistance of a Safety Specialist and the Town' s Employee Health and Safety Committee (staffed by Parks and Public Works and Human Resources, with representatives from all departments), the Town has completed an analysis of OSHA - mandated, as well as best - practice safety training for each job classification. Some training courses have been implemented or is in progress (e.g., CPR/ First Aid, hazardous materials, hearing conversation). The Health and Safety Committee is in the process of prioritizing the remaining training to address the high risk areas, subject to available funding. The Town also continues to explore ways to leverage web based training to reduce cost where possible. The Proposed FY 2015/ 16 budget includes a General Fund allocation of $75, 000 for employee training, which is a 9. 4% increase over the budgeted amount for FY 2014/ 15. In addition to safety - related training, the $75, 000 also funds general training, including technical, skills - based, state - mandated and other related training ( e. computer skills, written /oral g.,

7 Page 7 communication, anti - harassment and workplace violence protection). Presently, the identified training needs for safety and general training exceed the budgeted amount. 11. What is the Town' s total unfunded Pension Liability ifwe are currently 72 %funded? Answer: The Town' s latest actuarial valuation, dated June 2013, indicates the following status for the Town' s safety and miscellaneous plans: Description PERS Safety Plan PERS Miscellaneous Plan Market Value of Plan Assets 47. 6M 58. 6M Total Liability 66. 3M 81. 2M Unfunded Liability (Liability minus Assets) 18. 7M 22. 6M The total unfunded pension liability for both plans totals approximately $41.3 million. The funded ratio is obtained by dividing the market value of plan assets by the total liability for the plan. Description PERS Safety Plan PERS Miscellaneous Plan Market Value of Plan Assets 47.6M 58. 6M Total Liability 66. 3M 81. 2M Funded Ratio 71. 8% 72. 2% 12. What has the vector been for unfunded liabilities are we doing better or worse in terms offunding? Answer: As discussed during the May 5, 2015 study session, the Town' s unfunded liability is subject to market volatility and CalPERS rates of return on investments. As illustrated in the chart below, over the last three years the Town' s unfunded pension liability has fluctuated with a variance of $7.8 million dollars.

8 Page 8 TOWN OF LOS GATOS THREE YEAR UNFUNDED PENSION LIABILITY 50A0,000,00 45,( X)0, , 000, , 826, 750 4;, , 2 79, , 000, , 000, , 000, ,W0, Total Safety all Total Miscellaneous 15,000, ,W0, ,OW,WO. 00 M Also, as discussed during the study session, it is important to consider funded ratio along with the unfunded liability amounts. As is with the unfunded Liability, the unfunded ratios are subject to the same market volatility as illustrated in the chart below: TOWN OF LOS GATOS THREE YEAR FUNDED RATIO 20] % Funded Ratio Safety Funded Ratio MISC 201t 71. 7% 65. 0% 66.0% 6]. 0% 680% 69.0% 70.0% 71. 0% 72. 0% 739% 13. What amount ofour pension payment isfor Police? Answer: The Town' s total employer PERS costs for FY 2015/ 16 are budgeted at 4, 097,808. Of that amount, 40. 5% or $1, 657,759 is for public safety employees. 14. Why have the calls.for service in PD gone up? Answer: As illustrated in the chart below, Los Gatos is not unique in experiencing an increase in calls for service. While Los Altos reported a significant decline in calls for service, both Morgan Hill and Campbell experienced a similar increase in calls for service over the five year period sampled (FY 2010/ 11 FY 2014/ 15).

9 Page 9 Subj ect: While the exact cause for the increase in calls for service or incidents is not clear, there have been various legislative changes and state mandated reporting issues that are believed to be contributing factors. The Public Policy Institute of California recently reported that as a result of the 2011 prison realignment (AB109), state -wide property crimes increased 15% and an additional 24,000 stolen vehicles were reported in the latest comprehensive statistics available (2012). Additionally, and most recently, with the enactment of Proposition 47, numerous felonies have been reclassified to misdemeanors, resulting in an increased street presence of individuals who would have previously been incarcerated as felons. In addition to legislative changes at the State level, the complexity of crime has increased over time. Technology crimes involving the internet and fraud have increased regionally. Locally, mental health calls, which are often highly time and resource intensive, are trending upward. Changes in mandated reporting and the use of more sophisticated data collection systems has also increased the number of documented incidents ( on -line reporting, enhancements in data collection and through Computer Automated Dispatching Systems ( CAD)). Within the last 10 years, the town has upgraded the CAD system twice, each time improving the documentation of incidents and calls for service. Another factor is that the Los Gatos Monte Sereno Police Department provides extensive community engagement, outreach and education, which is in alignment with the principles of effective community policing and a model of best- practices. By design, this approach to policing increases the reporting of lower -level crimes with a desired effect of reducing or preventing higher -level crimes. Thus, it is expected that

10 Page 10 calls for service would increase as community engagement and awareness increases. In summary, it is believed that legislative changes in crime laws, the increasing complexity of criminal activity and the policing model of community engagement, education and awareness contribute to the increased calls for service and corresponding increased workload. 15. The current FY budget added staff. How did that go? Was the staff adds /changes in FY effective? If we aren' t continuing it, does that mean that it didn' t work out? Answer: The Adopted FY 2014/ 15 budget incorporated a myriad of staffing augmentations and reorganizations. Two one -time staffing augmentations were eliminated from the Proposed FY 2015/ 16 budget due to limited available resources to maintain on -going funding, however other augmentations and reorganizations remain funded at the FY 2014 /15 level. Below is a brief synopsis of the reorganization and augmentations adopted in the FY 2014/ 15 budget and the funding or elimination of these changes in the Proposed FY 2015/ 16 budget.

11 Page 11 SUMMARY OF FY 2014 /15 BUDGET STAFFING CHANGES F'Y2014 /15 EvaluallonofAugmentadon /Reorganization' s FY 2015/ 16 Budget Augmentation /Reorganization The consolidated position puts a strain on staffing and needs to be assessed for feasibility and sustainability. This consolidated funding leaves only one Director level position funded and therefore a second Director level position may be brought forth to Council consideration Consolidation ofthe ATM /CDD during the year. level The Town temporar* reassigned staffto fill this position and has identified a body of work sufficient to continue Communication Coordinator funding. Yes The HR Department continues to face increased service demands and has found this reorganization/consolidation Human Resource Specialist successful Yes Clerk Admuvstrator Successfid reorganizationiconsolidation of positions Yes Successfiil increase in staffing howl as the Town continues to face increased Infonnation Technology IT Technician Position service demands Yes Police Department reclassification of vacant positions to a Records and Evidence Manager, 2.0 FTE Records Specialist and 1. 0 FTE Administrative Analyst Successful reorganization/consolidation ofpositions Yes Entry Level Police Officer Successful staffing augmentation Yes During the FY 2015/ 16 budget process the Department requested this position be permanently faded as entry level Officer. Due to continued vacancies with Workers' Compensation and retirements this position remained Patrol hire- ahead position unfilled. No Code Compliance Officer SuccessfW staffing augmentation Yes This position was filled in March 2015 and therefore staffhas proposed to extend funding of this position through December 2016 at which time staffwill assess Funded Yes - Funded at Consolidated Yes - Funded through Part- time Community Service Officer the effectiveness ofthe program December 2016 During the FY 2015/ 16 budget process the Department requested this position be permanently funded as the Department continues to face workload demands with Planning Technician the positive economy. No Assistant Planner Successful reorganbation /consolidationofpositions Yes Increased Economic Vitality Position Successful staffing augmentation Yes Environmenwl Service Coordinator SuccessfW staffing augmentation Yes Lbrar: n Successful reorganization/consolidation ofpositions Yes Community Service Intem- Library Successful staffing augmentation Yes

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