The Scotts Valley City Council is reviewing a five-year financial plan that looks rosy this year but shows a decline in revenues beginning in 2021.
The immediate challenge: There is more money going out of city coffers than coming in.
“Right now we’re fine,” said City Manager Jenny Haruyama in an interview this week. “But we need to figure out a replenishment plan.”
Council members opened discussion of the five-year spending plan during February meetings when they established goals of expanding the business tax base, ensuring long-term financial stability, and enhancing city services.
The council reviewed the document further during its May 17 meeting.
Specific shortfalls in the 278-page document include a General Fund forecast showing a “long-term annual structural deficit” of nearly $1.56 million by the 2022-2023 fiscal year, the full year when the Measure U temporary sales tax will no longer be collected.
By 2022, Measure U will have generated $1.3 million in revenue.
If the city replaces equipment annually and fully pays its pension obligations, the General Fund deficit could approach $2.4 million. This would “fully deplete General Fund reserves” by fiscal year 2019-2010.
The document also said the General Capital Improvement Fund (one of 15 funds used to support infrastructure improvements) will be depleted by fiscal year 2021-2022. If this happens, it could mean that money slated for upkeep of city facilities, parks and storm drains could be reallocated.
Wastewater operations revenues are already struggling to meet operating expenses, the report said, with reserves being used to pay for capital improvements. Haruyama said a sewer rate hike is long overdue.
On top of that, Haruyama and her team strongly recommend that the city beef up its reserve funds to stave off an unforeseen fiscal emergency.
This means having two months (17 percent of annual operating budget) set aside for the general fund, a reserve of $500,000 for capital improvements, a reserve of eight months (67 percent) of annual operating expenditures, as well as a stockpile of $1 million for wastewater capital improvements.
The 2017-2018 budget is slated for adoption by July 1, the beginning of the next fiscal year.
Long-term, steady income into the city is difficult to predict, said Haruyama.
About 72 percent of Scotts Valley is residential property, which is forecast to generate about $1.3 million dollars next year from property taxes. The problem is that the cost of city services far outstrips tax dollars.
“Residential doesn’t pay its way,” Haruyama said.
Sales taxes are forecast to generate about $2.1 million next year, but that source of income is highly unstable and difficult to forecast. For example, business sales growth forecast for the coming year just dipped from 3 percent to 2 percent, according to a sales tax consultant working for the city.
The city did receive $500,000 in one-time developer fees from 1440 Multiversity.
The one bright spot is the Transit Occupancy Tax (hotel rooms), expected to generate $1.2 million this year and climb to $2.2 million by 2022.
During its meeting at 6 p.m., June 7, the city council will hold a public hearing to discuss specific budget directions. At that same meeting, non-profit agencies will submit their council budget requests.
