Officials in Los Gatos continue to sound the alarm as the town’s budget remains on track for a deficit in the next few years, when expenses will outpace revenues.

The Los Gatos Town Council unanimously approved a roughly $60 million balanced budget last June for the 2024-25 fiscal year. But in a report presented to the town council on Feb. 18, staff projected a $5.6 million deficit for the 2025-26 fiscal year, which town officials said could be mitigated in the short term with the use of one-time funds.

The report was a midyear update on the status of the current fiscal year’s budget, when the town is likely to see a $0.8 million surplus for the current fiscal year. The council unanimously approved the report as well as a handful of routine budget adjustments.

Revenues are down, but the forecast deficit is “more significant” now than before, town finance director Gitta Ungvari said at the Feb. 18 meeting.

“Over the next few years we have to change the direction, we have to re-look at the services we are providing,” town manager Chris Constantin said at the meeting. “We have to realign what is important and fund those and what is next in the tier of importance, and really consider what level of service needs to be provided.”

The projected deficit has been a topic of conversation for the last few years, and council members have recently discussed various measures to increase the town’s revenues, including a potential sales tax hike. The town spent thousands of dollars on research and polling public opinion on a sales tax. But council last July voted against putting the sales tax hike on the ballot.

The draft budget for the next fiscal year will be available on April 22, according to town staff, and a budget hearing is tentatively scheduled for May 21.