Los Gatos got the rarest kind of budget surprise on Tuesday, as town officials told the Town Council that a projected multimillion-dollar shortfall has flipped into a multimillion-dollar surplus. Staff now expect a $4.3 million surplus for the current budget cycle, a dramatic swing from the earlier forecast of a $3.1 million deficit. Councilmembers quickly began reshuffling priorities, focusing on homelessness outreach and traffic projects.
Town Manager Chris Constantin told the council the turnaround stems mostly from one-time savings and stronger-than-expected interest earnings, and he warned that the extra cash could evaporate if vacancies are filled or overtime costs climb. He noted that the town often budgets conservatively and that similar projected shortfalls in past years have closed with better results than initially feared, as reported by the East Bay Times.
How staff say the turnaround happened
Staff credited several factors: salary savings from vacant positions, higher interest income on town funds, and some deferred maintenance that temporarily lowered expenses. The town's agenda packet lays out a five-year forecast and notes that one-time savings like these have helped erase earlier projected deficits. Officials also explained that the town brought in consultants this winter to sharpen a 10-year forecast and help decide whether to lean on reserves or accelerate structural budget cuts, according to the Town of Los Gatos.
Council refocuses priorities after the news
With the midyear numbers in hand, the council used its study session to reset 2025–27 strategic priorities. Homelessness response moved up the list, along with concrete transportation fixes such as bike and pedestrian improvements. Residents pressed for more visible upgrades downtown, including calls for a public restroom.
Mayor Rob Moore suggested tapping as much as $150,000 in opioid-settlement funds to support unhoused residents with substance-use disorders. He also told colleagues that the town's unhoused population is estimated at roughly 25 to 30 people, as noted by East Bay Times.
What this means for the budget process
Town staff stressed that the surplus is not locked in and said the budget team will take a cautious path, mixing planned use of reserves with modest reductions until the consultants finish their longer-term analysis. The agenda packet makes clear that the five-year forecast still shows deficits if current service levels continue, so councilmembers are treating the midyear surplus as breathing room to plan, not as a green light for new ongoing programs, per the Town of Los Gatos.
The council is expected to fold this direction and public feedback into the formal 2026–27 budget process in the coming weeks. Staff plan to return in the spring with more precise numbers and a draft budget for council review.
