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The City receives a very low percentage of the property taxes collected in Scotts Valley. The City’s portion is about 6.5%, which means that 93.5% goes elsewhere. For every dollar paid in property tax, the city receives 6.5 cents. A tax bill of $5,000, for instance, provides $325 to the City.
In total, the City receives $1.5 million annually from the total $23 million in property taxes collected in Scotts Valley.
The statewide average is 11.3%. Locally, the city of Santa Cruz receives 16%, Watsonville receives 13%, the County, 13%, and Capitola, 7.5%
The local allocation of property taxes was set by Proposition 13 and a follow-up 1979 state law. That law fixed local allocations at what the cities, schools and districts were receiving at the time. Scotts Valley was a relatively new city in 1979 (13 years old) with a population of about 6,800, few services and light debt load. As a result, the Scotts Valley founders set up the city to be a low-tax city. In recent years, the City sued to increase its property tax allocation to get to the current rate of 6.5%. Now, despite the city’s population growth and changes in services and financial structure, Scotts Valley is fixed at this low level.
Changing the property tax allocation would require a California Constitutional Amendment or a change in state law. Attempts to do so have been unsuccessful as any increase in one city’s allocation means there is a trade-off with a corresponding decline to another entity’s allocation. As the tax patterns have been set for over 30 years, any “losing” community and its elected representatives at the local and state levels have and would strongly oppose the change. Any changes to the tax allocation structure would require a 2/3 vote in the Legislature. It is generally accepted that the property tax allocation is highly unlikely to change.
There have been legal challenges to Proposition 13 but in 1992, the U.S. Supreme Court upheld the constitutionality of Proposition 13.
The 93.5% of property taxes that Scotts Valley doesn’t receive goes to support local schools (38%), the County (23%), fire district (16%), Cabrillo College (6%), water district (4%), county-library system (3%) and county-school service (3%).
Scotts Valley collects about 1/5 of its General Fund budget from hotel taxes. The current rate is 11%, which matches the rate in Santa Cruz and the County. Capitola and Watsonville’s hotel tax rate is 12%.
A parcel tax is special tax on properties based on either a flat per-parcel rate or a variable rate. Only property owners in the City would pay a parcel tax. With a sales tax, anyone who purchases goods in the City of Scotts Valley pay, and thereby contribute to support general city services, police, streets, sidewalks, parks, that they benefit from.
The utility users tax, or UUT, is a tax on utility services. In Scotts Valley, the UUT is applied only to gas and electric utilities, and at a rate of 4%. This tax provides 6% of the City’s total budget, about $770,000.
In contrast, in Santa Cruz, the UUT rate is 8.5% and applies to a broader scope of utilities, including gas, electric, sewer, water, garbage and some communications. This tax raises $12 million for Santa Cruz. In Watsonville, the rate is 6% and raises about $4 million. The County and Capitola have no UUT in place.