You almost detect a hint of jealousy listening to City of Scotts Valley officials compare the revenue makeup of different local jurisdictions—for example looking longingly at the sales taxes Capitola is able to collect.
But while that seaside city is asking voters to raise the 9% sales tax to 9.25% this fall, Scotts Valley will now ask voters to authorize a change in the way that business taxes are calculated —and local businesses are some of the biggest boosters of the plan.
“I love this city; I love doing business in this city,” said Susan O’Connor Fraser, the co-founder of Tam Communications, which is based at 5610 Scotts Valley Drive, speaking at an Aug. 7 public hearing. “I’m willing to step up and help the City meet the demands of our budgets and keep the quality of life we have here, the safety and services we have here.”
The proposal would shift from a model based on the number of employees a business has to one based on the amount of business the company conducts in Scotts Valley. City officials say the measure is needed to address a looming $2 million structural budget deficit.
The last time the license levy was updated was in 1992.
O’Connor Fraser said she knows there’s been some pushback from other business owners.
“But I don’t think that overall what you’re asking is unreasonable,” she said.
Phil Neuman, the founder and CEO of CyAs Tech, said he believes that an updated business tax would enhance public safety, improve community wellbeing and result in improved infrastructure.
Nick Kurns, who has worked in local government for the last 15 years, said the ballot measure was a “logical” one.
“I understand that the city faces a lot of challenges,” he said, noting he was speaking on his own behalf and not for the Scotts Valley Chamber of Commerce. “Staff has done really important work looking at the longterm financial plan.”
Mayor Randy Johnson said Scotts Valley is in the enviable position of having police respond to calls in “pretty close to three minutes,” which is a far cry from what people in some areas of unincorporated Santa Cruz County can expect.
But, he said, in order for Scotts Valley to maintain this level of service, it’s time to hike the business tax for the first time in decades.
“Is it perfect? No. Nothing really is,” he said. “But at the same time I think it has a way of being fair. It could be phased in if we want to move in that direction.”
When city staff directed accounting firm Baker Tilly to conduct research on how to improve Scotts Valley’s budget situation, the consultant looked to communities on the Silicon Valley side of the hill.
The consultant noted that Los Gatos had just brought in a new “gross receipts” model with no maximum, and Palo Alto adopted a square-foot-based model with a $500,000 top tax level.
Foster City and Redwood City have proposed a maximum tax of $250,000, to be decided by voters in November. Belmont is looking at a “gross receipts” tax with no maximum.
Scotts Valley is going with a $.50-$1.80 per $1,000 of revenue and $5 per $1,000 of storage facility earnings.
It would feature an approximately $87,000 cap.
After consultations with the business community, Scotts Valley added a cap of $50 million of taxable gross receipts and proposed a two-year phase-in (with a 50% rate effective May 1, 2025 and a 100% rate starting March 1, 2026).
The Scotts Valley Council voted unanimously to place the revenue measure on the Nov. 5 General Election ballot,with the two-year phase-in.
The city staff expects, if approved, that the change in the business tax formula would generate $1.1 million per year, about 3% of the cIty’s overall annual budget.
That would be an increase of $750,000 over the current business license tax revenue.
