Los Altos’ financial status update warns of looming litigation fees

Screenshot from City of Los Altos Staff Report
Los Altos ended the 2020 fiscal year with an unassigned fund balance of $3.2 million and $26.8 million in its general fund reserves.

Los Altos ended fiscal year 2020 with a fund balance above its projection, but city officials estimated a large decrease in transient occupancy taxes in the upcoming fiscal year as a result of the COVID-19 pandemic.

At a city council study session on Tuesday (Oct. 14), staff also warned the council of the incoming budgetary effects of several litigation cases in which the city is involved.

In recommendations to council, staff cautioned that the city should “budget realistically for litigation fees and possible judgments” and note the dollar-for-dollar impact. Currently, no funds are reserved for judgments that might result in legal fees or settlements.

“We don’t have the money to do it all, and we don’t have the money to do it all at the same time,” said Sharif Etman, the city’s administrative services director. “We only have a finite amount of reserves and we only have a finite amount of cash that we are working with.”

The city was projected to have an available balance of $2.35 million but ended the fiscal year at the end of September with $3.2 million. Expected decreases in sales-tax revenue ($500,000), transient occupancy tax revenue ($870,000) and community development ($270,000) were in line with projections due to the pandemic. Recreational revenue decreased by $622,000, higher than the $400,000 projected loss. Property taxes, which account for half the city’s revenue, remained stable.

Staff indicated that Los Altos’ revenue and expenses “are trending as expected” for fiscal year 2021, with the exception of the transient occupancy tax revenue. The city is expecting a $2.8 million loss, more than the projected $1.9 million decrease given the lack of traveling during the pandemic. The projected fund balance is $414,000 after spending on capital improvement projects, and the city is on target to lose $660,000 in sales-tax revenue and $740,000 in recreation revenue.

Staff noted that because Los Altos has fewer hotels, retail and restaurants than neighboring cities, its sales-tax base is not too high. Property-tax revenue, which is expected to increase by 6% this fiscal year, remains stable because there is usually a two-year lag after a recession.

Los Altos is expected to receive $383,000 in federal stimulus from the CARES Act this year. It is also budgeted to take out $700,000 as part of an expected total $10 million loan toward the community center.


Three expenditures that staff pointed to council were a $2.8 million purchase of a property on 999 Fremont Ave., $250,000 in loans to local small businesses and a $490,000 settlement on litigation involving the 40 Main St. development. The litigation also could result in at least $1 million in legal fees and means the city would have to highlight the payment as a significant note disclosure on its financial report, which could impact its future credit and bond ratings.

The city has more than $63 million in its investment portfolio, split among checking, savings and investment accounts.

Some council members, including Mayor Jan Pepper, expressed concern over a lack of forecasting presented in the staff report. Pepper asked for a long-term projection, but Etman believed it was unrealistic given the uncertainties presented by the pandemic.

“I’m sorry, you can,” Pepper said. “You can give us a range. The council and the community needs to be able to see a forecast a couple years out of where things could or could not go, just so we know in general how we can make decisions and whether we should be spending things or not.”

Etman responded that perhaps the city should pay a consultant to project out 10 years.

“I don’t know where we’re going to be next month,” Etman said. “I’m going to need some assistance with a 10-year plan during a COVID-19 pandemic – with an election year for not only for the city of Los Altos, but also the president of the United States, and also nine pending lawsuits. A 10-year plan is going to be very difficult.”

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