For the third year in a row, town staff is projecting a likely 6 percent ($1.4 million) budget shortfall for the 2004­05 fiscal year—and up to a 14 percent ($3.1 million) shortfall in a worst-case scenario. Since the town already made cuts in areas that would least impact services to the public this year, actions the town will take next year could have more dire effects on citizens.

"We're at the point now where with further cuts, the impacts will be noticeable by residents," said Finance Director Steve Conway.

Should the town apply its second, more drastic plan for balancing the budget, up to 10.25 staff positions would be eliminated, and seasonal and other temporary staff would also be reduced next fiscal year.

It's unclear whether the town will have to turn to this more drastic plan, largely because local governments are still hoping the state will backfill, or reimburse, cities the amount lost in car tax revenues. One of the first things Gov. Arnold Schwarzenegger did as head of the state was repeal a recent car tax increase. If this revenue is not replaced by state money, it would mean a loss of $1.6 million to fund public safety and other key town services in the 2004­05 fiscal year. The town lost an estimated $142,000 in December—the first time the car tax repeal is being truly felt by local governments.

"The developments are very troubling for us," Conway said. "We're not going to be able to maintain the high level of service the residents have come to expect."

Hypothetically speaking, a $1.6 million hit next year would equate to losing 13 patrol officers or the town's entire library budget.

Los Gatos­Monte Sereno Police Chief Scott Seaman attended a conference in Sacramento last week in hopes of putting pressure on the state Legislature to restore the backfill.

"If the funding is not restored, it would likely affect positions," Seaman said. "I don't want to create a sense of alarm, but it is possible that we will have to hold positions vacant."

The town's difficulty in balancing its budget is exacerbated by the need to make good on previous contractual agreements to increase employees' salaries and benefits. Specifically, money going toward retirement funds for sworn personnel is anticipated to rise from 16 to 28 percent next fiscal year and to rise even more in subsequent years.

Normally, town staff would not start work on the following fiscal year until January, but with the anticipated cuts that could lead to employee layoffs, work began last month.

Town staff has identified different strategies it considers taking to help balance the budget, including attrition, elimination of services, selling services and partnering with other entities.

"Some of these ideas may not bear any fruit, but we have to try," Town Manager Debra Figone said last month during a report to the town council.

Already this past year, the town has had to deal with hiring freezes, leaving the current staff with increased workloads while at the same time having fewer opportunities to work overtime. With the new fiscal year, the town continues to look at merging job descriptions to increase efficiency.

A resident satisfaction survey conducted this fall indicated that 97 percent of residents find town services to be "good" or "excellent."

"Our goal right now is to demonstrate to the public how efficient our services can be in order to gain public trust," Conway said.