Los Gatos council hears fiscal 2026–27 budget, adopts staff alternative to close small gap

The Los Gatos Town Council on May 20 reviewed the proposed fiscal year 2026–27 operating and capital budget and approved a staff-recommended alternative to address a projected shortfall. Administrative Services Director Christina Alfaro told the council the proposed townwide budget shows roughly $81.7 million in revenues and $82.1 million in expenditures, producing a modest townwide use of fund balance under the proposed plan. The General Fund showed an initial projected deficit of about $549,000 under staff estimates.

Alfaro said the budget incorporates a new base-budget methodology and updated 10‑year forecasting and stressed three major themes: an improved near-term outlook driven largely by stronger revenues; an improved but still fragile position that requires caution; and continued sensitivity to economic changes such as consumer spending and one‑time sales tax items. She described planned adjustments to internal service fund (ISF) chargeouts and highlighted capital carryforwards of roughly $18.7 million, with paving and roadway projects forming the majority of the CIP.

After questions from council about pension and OPEB options, the town’s treatment of RAF (sales tax settlements) and whether to use Section 115 or OPEB trust funds, staff proposed an alternative to reduce ISF charges by $1.5 million and to transfer $811,334 into the facilities ISF to fund certain facilities projects that had materialized at higher-than-budgeted amounts. Council voted to adopt that staff alternative, including modest contract budget adjustments for four public-works contracts, moving the FY 2026–27 budget toward a balanced position for the coming year.

Why it matters: Council members and staff emphasized that while the near‑term budget position improved, longer‑term structural needs remain — notably unfunded capital needs (estimated in the hundreds of millions) and pension funding risks. The council also set aside policy work for future meetings, including a fuller review of potential uses of the town’s Section 115 trust and the ALM/actuarial findings that could affect longer‑term pension strategy.

What’s next: Staff will return with follow-up material requested by the council (including more detail on RAF treatment, finance-commission recommendations and the pension/OPEB actuarial work). A final budget adoption hearing is scheduled for June 2.

Direct quotes from the meeting include Administrative Services Director Christina Alfaro’s description of the budget themes: “The financial outlook has improved … this improvement is almost entirely driven by stronger revenues and less so on reduced spending.” Vice Mayor Marie Risto, supporting staff’s alternative, said the budget work reflects progress in recruitment, forecasting and fiscal stewardship.

The council also voted separately to commit $3 million of the town’s unassigned fund balance to a newly created “community benefit capital fund” restricted to long‑term capital projects (community center, sports courts, bike/ped improvements, affordable housing) and not for operations; council said the formal allocation will be tied to realized proceeds if and when property sales occur.