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Portola Valley Town Council members were relieved to hear about the town’s balanced budget after Finance Director Tony McFarlane gave a presentation on mid-year budget updates during a council meeting on Feb. 26.
The update comes after the town approved a revised budget in November in the midst of a financial crisis. The new proposed budget estimated town expenses would be reduced by $2.5 million, leaving the town with a surplus of $97,000 for fiscal year 2024-25.
The town’s cash balance is currently at a total of about $22 million and fund balance is around $3.8 million. According to McFarlane, the first half of the current fiscal year ending on Dec. 31 shows a general fund deficit of about $8,500.
“The fund balance is what we use for budgeting purposes and cash balance is what we use to actually pay but very rarely will cash and fund balance equal,” said McFarlane in response to a public commenters question on the difference between funds.
McFarlane clarifies that the current $8,500 deficit lines up with what he considers a balanced budget.
The revenues for the past six months are $3.84 million which is about 50 percent of the annual budget of $7.4 million, according to the staff report. Revenues from planning have already exceeded budget estimates and building revenues are expected to increase from now until the end of the fiscal year.
Biggest concerns on current spendings
Consultant fees are still a concern with staffing vacancies, said McFarlane. Without a permanent town manager, planning and building director, town clerk and town engineer the town is relying on the service of consultants which is putting a strain on the services budget, writes the staff report.
Building permit revenues are falling short of estimations, but McFarlane expects that as the town works through approving backlogged permits, this will increase building activity in town and bring up revenue.
Currently about $1.2 million have been spent on employee salaries due to payments that were made for separation contracts, but staff vacancies will reduce the costs as the town moves into the second half of the fiscal year.
Goals for the 2025-26 fiscal year
For the next month, McFarlane has set a goal for the town to focus on fiscal responsibility. He also will be thinking about the budget, public safety and responsible land use. He foresees that staffing levels and use of consultants will continue to be a challenge moving into the next fiscal year of 2025-26.
McFarlane also plans to increase education about Portola Valley’s finances with the Town Council and the community in future.
The town will be identifying future capital improvement plans, which are projects that enhance the value of the town’s property. These plans include infrastructure maintenance for storm drains and roads. McFarlane said a town culvert failed a few months ago and the repair will be a priority. Others will be identified and discussions will be held with the town engineer and council.
The finance director’s agenda also includes a conversation with the Finance Committee on what the budget policies are and what the reserve levels should be. The town currently has a 60% reserve and a fund balance of $1.9 million, which is not compliant with the fund balance reserve policy. This discussion among the committee will also explore whether the town should focus on building reserves, enhance revenues or lower expenses on services.
The sheriff’s contract has been one of the most expensive items on the town’s budget with previous expectations of a $600,000 increase for the 2025-25 fiscal year.
Responding to Mayor Judith Hasko’s question on when the next payment for the contract would be, McFarlane announced that he was able to meet with the sheriff and agreed on a payment every six months in December and June. This payment schedule will allow the town to use its property tax revenue as the second installment of property taxes is due in May.
Property tax revenue is currently 54 percent of the annual budget, according to the staff report.
Expectations from Town Council
“I’m thrilled that we are still on target and have essentially a balanced budget and looks
like we will have one by the end of the fiscal year,” said Council member Rebecca Flynn. “I feel very comfortable that we will be able to manage the next two years with the team we have in place.”
As the town moves forward under its current budget, Council member Craig Taylor asked McFarlane if he could explain the costs of prioritizing certain projects and budgeting for one item over the other. For example, consultants versus staffing and deferred capital improvement projects compared to those that are considered a priority.
“I totally appreciate the work you’ve done to get us to a balanced budget because that’s what we asked you to do but we’ve done that on the back of reduced staff, reduced office hours and reduced services to the public so I don’t see this as the long-term vision I have for the town,” said Taylor, as he asked for more discussions around budget priorities.
Hasko agreed with Taylor’s statements and emphasized that it will be important to budget wisely on contractors and to continue focusing on the town’s needs.
“This is so much more information and it’s useful information allowing us to have the visibility that I think we are going to need for some hard choices going forward,” Hasko said.
Visit portolavalley.net/departments/town-finance for more information on audits, budgets, finances and more.
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