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Consultants warn Los Gatos of a manageable but growing structural deficit; pension, impact fees and capital priorities highlighted
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Summary
Consultants presented a 10‑year financial model showing expenditures growing faster than revenue under the base case, producing a structural deficit that rises from about $200,000 in FY26 to several million by 2036; consultants urged the town to model scenarios using pension/OPEB trusts, development impact fees and capital prioritization.
Los Gatos — Consultants retained to evaluate the town’s fiscal condition delivered a detailed long‑term forecast and fiscal‑impact analysis, telling the council the town faces a manageable structural deficit unless policy changes are made.
Jonathan Ingram of Raftelis and Mark Northcross of NHA Advisors presented a base‑case model that anticipates general fund revenues growing roughly 3.6% per year and expenditures growing roughly 4.1% per year. In the model the gap produces an initial shortfall of about $200,000 in fiscal year 2026 that grows over time; by 2036 the cumulative annual shortfall could reach several million dollars under current assumptions.
Key drivers are personnel costs (salaries, overtime and benefits), pension and OPEB obligations, and long‑term capital needs. Ingram said the base case holds authorized staffing flat (152.5 FTEs) so the model isolates the cost of maintaining current service levels and shows the impact of rising personnel and benefits costs. Consultants said property tax and BLF (backfill) are the largest revenue source and used county assessment data to project a blended annual growth rate of about 5.4% for property valuation under conservative assumptions.
“The town does face a structural deficit that is real, but it is manageable and it’s not emergent,” Ingram said. He emphasized that the base case is a starting point for policy discussions and scenario testing, not a prescriptive budget. Mark Northcross highlighted three policy levers that could materially change the outlook: targeted use of the town’s Section 115 pension trust to smooth or reduce CalPERS contributions, updated development impact fees tied to the town’s capital plan, and prioritization or deferral of major capital projects (notably discussion of a Highway 17/9 interchange local share).
Consultants flagged the interchange as an example of a high‑cost capital item: a preliminary planning estimate used in the presentation suggested a ~$175 million interchange with a local share that could be $17.5–$35 million depending on grant match assumptions. That local share would require substantial funding strategies (grants, bonds, parcel taxes, or other mechanisms). Consultants and councilors discussed the role of VTA and other grant sources in reducing a town‑funded share.
Council feedback focused on refinement of assumptions: property‑tax growth (post‑pandemic turnover versus long‑term averages), salary and MOU escalation assumptions (the team used a ~3.9% blended salary growth), and conservative grant expectations for operating revenues. Several councilors asked the consultants to model alternative scenarios that use some of the town’s pension trust funds to reduce future CalPERS peaks and to layer the fiscal‑impact analysis for housing element sites and buildout scenarios.
Why it matters: The forecast provides an early warning about a growing structural gap that can be addressed through policy choices — including pension trust strategies, refined impact fees for new development, service‑level changes and capital planning — giving the council time to act before deficits become structural and acute.
Next steps: Consultants will refine the model with follow‑up data requested by the council (FTE and overtime details, alternative property tax assumptions, and scenario runs that include pension trust use and development impact fee adjustments) and return with scenario analyses to inform upcoming budget and capital decisions.
