Scott Valley budget faces long-term challenges

The City of Scotts Valley has adopted a roughly $12 million budget that maintains services in the short term, while planning for an uncertain future.
General fund expenditures are expected to increase by more than $1 million due to rapid development activity in the third-largest city in Santa Cruz County. This will require more plan-checking and inspection services to meet service demands; one-time expenditures to improve certain parks, and increases in employee salaries and benefits, said City Manager Jenny Haruyama.. 
“To keep our city healthy and prosperous over the long term, the council needs to be focused on doing a great job providing core services,” said Vice Mayor Jim Reed. “While regularly saying “no” to non-essential spending we can’t afford.”
The intent of budget meetings since February has been to discuss projected revenue and expenses and develop a plan to reduce costs, including post-employment benefit obligations.
The city also needs to build up reserves to avoid severe cuts in program when Measure U – a temporary sales tax – expires in 2022, and fund needed capital improvement projects, said Haruyama.
Newly adopted budget policies require a minimum target reserve of two months’ expenses in the city’s general fund, eight months’ reserve in the wastewater fund, and a half-million dollars set aside in the capital improvement fund.
“While the city’s present financial situation looks promising due to increased development activity, our five-year financial plan indicates significant fiscal challenges ahead that will require diligence on the part of council and staff,” said Haruyama.
In  her budget document, she wrote,: “Limited revenue, unfunded liabilities, uncontrollable employee benefit costs and deferred equipment replacement, and maintenance temper the city’s progress.”
To accomplish the city’s belt-tightening, Haruyama is developing a fiscal-sustainability plan, to be unveiled this fall to be used as a springboard for next year’s budget discussions.
Haruyama said every line item in the budget will be explored during the process to seek to reduce expenditures. She declined to any extension of Measure U, which is projected to generate $1.2 million this year in sales tax.
“We need to look internally before having that conversation with the voters,” she said.
Mayor Randy Johnson agreed. “The city’s approach to taxes has always been deliberate and measured,” he said.
“Asking citizens to tax themselves requires both a level of need and history of performance that their tax dollars are being well spent.”
A public hearing is also scheduled for August to discuss a proposed annual 15-percent rate increase for three years for wastewater services.  Increases are expected to raise $1 million to establish an emergency reserve and provide funding for ongoing operations and future equipment replacement needs.
On a positive note,  ongoing development activity is expected to provide some long-term financial relief for the city.
This year, 1440 Multiversity paid about $500,000 in development fees. Within two years, the new Marriott Residence Inn is expected to generate about $590,000 in one-time permit and impact fees.
In addition, there are several residential projects on the horizon — 20 town homes on Lundy Lane, another 25 on Dunslee Way, and six below-market -condos, a six-unit apartment/mixed use development and 19 units on Scotts Valley Drive.
Approximately $750,000 is expected to be generated in one-time revenue over the next 24 months, most of which can only be used for capital improvements.