Los Gatos staff expects an annual budget deficit of $3 million over the next five years, which could threaten the city’s services, city staff said at a council meeting on Feb. 21.
This figure is $1 million higher than last year’s five-year forecast, which revealed an annual budget deficit of $2 million, and comes as several community organizations are calling for more funding or rent reductions.
Cutting costs and diving into one-time funds such as the US Rescue Plan Act could reduce or eliminate the budget deficit, staff said at the meeting. The city council will review the capital improvements budget in March and vote on the next fiscal year’s budget sometime in May, city manager Laurel Prevetti said.
“We can’t run short in the future. … We need to get to something that’s sustainable,” said Councilman Rob Rennie. “That either has to be another tax measure or it has to lower running costs in some way.”
Gitta Ungvari, the city’s finance director, said the projected deficit for fiscal year 2023-24 is $2.7 million, and deficit projections for the next four years are $3.1 million, $3 million, $3 .1 million and $3.2 million.
The news isn’t all bad. Instead of the projected deficit of $3.2 million for fiscal year 2022-23, the city is looking at a surplus of $700,000.
Ungvari said this is because property, business and hotel taxes brought in more money than expected, and the city spent less on staff salaries due to open positions such as assistant city manager.
The finance committee, after reviewing the five-year forecast, said the trend is likely to continue over the next five years.
“It’s really good news that we’re doing better than expected,” said Mayor Maria Ristow. “I actually appreciate a conservative approach to budgeting because there’s so much unknown as we come out of the pandemic.”
The Council voted to allocate an additional $150,000 to the community grant program, bringing the total donations to $300,000, and to allocate an additional $25,000 to the displaced population using ARPA funding. Another $100,000 was allocated to KCAT for its senior services.
New Museum Los Gatos and Los Gatos Saratoga Recreation have both previously asked the council to waive their rent payments of approximately $400,000 and $715,000, respectively.
The council voted to allocate $225,000 to LGS Recreation to help it function as the City Council considers its budget for the next fiscal year and potential rent reduction for both the Recreation Center and NUMU. Last year, the council allocated $360,000 to LGS Recreation.
Ungvari said the city needs to identify revenue sources to cover the shortfall. Los Gatos voters approved in November a business license tax increase estimated to bring in an additional $1 million annually.
The city council last year considered legalizing downtown cannabis shops, which could have brought in as much as $570,000 annually, but decided to uphold the city’s ban on such businesses after several residents spoke out against it.
In 2016, the city increased the transit tax, also known as the hotel tax, from 10% to 12% to generate more revenue. In 2018, the city also increased the sales tax.
The draft budget for fiscal year 2023-24 will be presented to staff on May 16.