Portola Valley: Wealthy Peninsula town could soon run out of cash

Officials in Portola Valley , one of California's wealthiest towns, convened this week to discuss its financial situation, which appears to be heading toward a crisis.

Concerned resident Karen Vahtra, who has been closely examining the town's finances, said she was "shocked" upon discovering that cash reserves have reportedly "dwindled."

"I am shocked, as most anyone would be to realize their bank account is down $3.8 million seemingly overnight with no explanation," Vahtra said. "We need a detailed spreadsheet-based analysis of our financials, both for past years and for budgeting purposes, along with enforceable policies and procedures to ensure this never happens again."

While cities like Vallejo , Stockton , and San Bernardino have faced similar challenges and ultimately declared Chapter 9 bankruptcy in the past, such a scenario seems unlikely for Portola Valley. Nestled on the eastern slopes of the Santa Cruz Mountains, this picturesque town is known for its sprawling estates and mansions, which ideally should generate enough tax revenue to support its population of 4,500.

The town is home to several notable tech billionaires and CEOs, including Reid Hoffman, co-founder of LinkedIn; Vinod Khosla, co-founder of Sun Microsystems; and John Donahoe, the current CEO of Nike and former CEO of eBay.

Details of the town's financial state discussed during Portola Valley's Finance Committee meeting on Tuesday indicate that there could be trouble ahead.

Although bankruptcy was not discussed among the committee and residents, if the town's financial situation does not improve quickly, it could be headed in that direction.

"We've known about the structural deficit, which results from expenses associated with the housing element and increases to the sheriff's contract, exacerbated by staff turnover and rising legal and consulting fees," said Portola Valley Mayor Sarah Wernikoff during a Town Council meeting earlier this month.

Among the town's largest expenses are costs associated with its contract with the San Mateo County Sheriff's Office , compliance with state housing requirements, and employee-related costs.

According to the town's Finance Committee, the sheriff's contract, which provides public safety services, is set to increase from $1.7 million to $2.1 million in the next fiscal year. This increase follows a pattern of renegotiated contracts across municipalities in the county and currently accounts for almost 20% of Portola Valley's total $8.8 million budget.

Of the $1,583,948 remaining in the town's general reserves, $1,383,948 is already committed to pensions and retirement benefits.

Additionally, the town recently received a revised property tax revenue projection from the county, indicating lower-than-expected income.

Portola Valley has also incurred unexpected costs for consultancy services to revise its housing plan, known as the housing element, which was decertified earlier this year. This decertification requires planning for affordable housing growth, and the town has spent approximately $1.7 million on consultants and legal fees related to the housing element this fiscal year.

The state's Housing and Community Development Board decertified the town's housing element after delays in rezoning areas to accommodate 253 additional homes — just a small share of the Bay Area's targeted 441,000 homes that it is supposed to build by 2031.

Historically, Portola Valley has restricted the construction of multifamily housing complexes, leading to a largely homogeneous community. Approximately 75% of its residents are white, compared to 35% in San Mateo County overall. The town boasts a median household income of $250,000 and an average home value of $3.8 million. As of 2020, single-family homes comprised 81% of the town's housing stock, with many situated on lots of an acre or larger.

While the Finance Committee did not make a formal recommendation to the Town Council, they discussed several potential solutions, including reducing staffing levels, diverting tax funds, and reallocating utility taxes to the general fund.

The committee also considered the possibility of unincorporating or becoming a charter city. Becoming a charter city could allow the town to implement a Real Estate Transfer Tax for houses bought and sold. Although the committee largely focused on resolving the budget deficit within its current status as an incorporated town, they did briefly touch on the idea of unincorporating.

A committee member argued that unincorporating could "preserve the town's character" by shifting financial obligations from the town to the county.

The town's finance director Anthony McFarlane said he was unavailable for an interview until after the next council meeting on Oct. 23.