In a preliminary budget proposal released Feb. 24, town departments sketched ways of reducing costs, often looking to cut labor and service as a means of dealing with the budget crunch.

Los Gatos faces a revenue shortfall of $1.5 to $3.2 million this year.

Officials say that some of the proposed measures simply adjust for the higher costs of doing business and are steps that should be taken regardless of the economic situation.

As a result, residents may be doling out more for town services. Building permit fees will be adjusted to reflect valuation standards used in other cities, and applicants with time-consuming projects will be asked to pay more in fees. Residents may also have to pay for using the parks in Los Gatos in the future and for breaking town code ordinances.

But officials maintain that these increases are reasonable.

"This is not being done to balance the budget on your backs," said Councilwoman Sandy Decker. "You're going to get your money's worth."

Other proposals aim to reduce the extent of service the town provides. Los Gatos­Monte Sereno Police Chief Scott Seaman may allow his officers to respond to nonemergency situations in a less timely manner, reducing the number of police on the streets.

Some believe this step will reign in excessive use of the police department.

"We may have gotten used to a level of service that is unreasonable. How many barking dog calls do we have a day?" asked Councilman Joe Pirzynski.

The town has been making cutbacks for the past three years, with the cuts totaling approximately $3 million. But there have been few, if any, reductions in services to residents.

This latest round of cutbacks will not be so painless.

"A lot of the low-hanging fruit has been taken," said Town Manager Debra Figone. "The question is, what can we live with?"

In addition to longer response times to nonemergency situations, the police department is considering reducing the number of officers used for traffic and parking issues and reducing the amount of time officers spend at Los Gatos schools.

At the library, patrons might see shorter hours and possibly fewer staff members to assist with checking out books and information services.

The same could hold true for the Los Gatos Neighborhood Center, where department heads might reduce the hours of staff at the facility to save money.

Despite the new visibility of the town's cutbacks, officials say a statewide and local economic malaise has left it with little room to maneuver and that the steps are necessary for the town to remain fiscally sound.

The town's budget depends primarily on two factors: what it earns locally through a combination of taxes—known as the town's general fund—and what the state takes from those earnings.

Since the height of the boom in 2001, the town's general fund has shown little economic growth. The fund is made up of revenue from difference sources such as property taxes, hotel and motel taxes and sales tax.

But the amount generated from these taxes can vary dramatically from year to year, based on factors like consumer confidence and tourism.

For example, during the boom, the town received $9.1 million in sales tax. However, as the economy slipped, sales tax revenues plummeted. The town estimates it will pull in $6.6 million in sales tax this year, up slightly from 2002.

"We have a diverse revenue base, but we are very dependent on economically sensitive revenues," said finance director Steve Conway. "So as the economy goes, so goes the town in terms of the services we can deliver."

Total revenues from the general fund are anticipated to be $300,000 lower than originally projected this year.

The economic picture at the state level is only adding to the town's budget woes. Officials in Sacramento have indicated they will take at least $385,000 in property taxes from the town, in addition to an existing loss of a half-million dollars in taxes to the state this year.

The state may also take funds from the town's redevelopment agency, funds intended for capital improvements and revitalization in the downtown area.

"Local government has been a target in the past and I would be surprised if we weren't in the future," said Conway.

More worrisome is the "triple flip," the state's plan to borrow a portion of cities' sales tax revenue. Expected to begin in July, the state could collect up to $3.4 million from the town's general fund.

Council members have previously expressed concerns over the state's ability to access local government funds; two weeks ago, the council supported a measure attempting to curb this relationship.

"It's a one-way street," said Councilman Mike Wasserman. "The difference between the state and your town is when the state falls short, they pick your town's pocket."

The extent of the state's situation and its impact on the town may not be clear for months. The state must pass its budget by May, but gridlock in the legislature has often caused significant delays, pushing a resolution into early fall.

The town council hopes to have its budget finalized in May.