By Eliza Ridgeway

The Los Altos Hills 2006-2007 budget calls for $2 million in capital spending on pathways and sewers, drawn from both the town’s general fund and project-specific funding. Town revenues are up, due in part to increasing real estate tax income, which has risen nearly 8 percent. The town has included funding accrual for retirement health benefits for town employees in the budget.

The largest capital spending projects planned for the coming year include construction of a $1 million diversion station for a sewer system that will feed into Palo Alto, which has greater capacity than Los Altos. Another $1 million, which includes funding from the Valley Transportation Authority, is directed toward continuing pathways projects.

“We’re in very good shape financially,” said Councilman Jean Mordo, chairman of the finance committee. “The general fund reserves are high and stable, revenues (are) going up nicely and we are spending fund balances that are designated for infrastructure.”

The increased planning for retirement benefits stems from a 2004 change in accounting rules for public agencies. The State Governmental Accounting Standards Board determined that post-employment benefits for current employees must be calculated as current costs rather than deferred costs. Previously, many agencies calculated benefits on a pay as you go basis, budgeting only for former employees actively drawing on the benefits.

An actuarial study commissioned by the finance committee this winter found that the town faces as much as a $1.8 million liability, based on the

new accounting rules. The calculation includes current expenses for retired staff, predicted future retirements and average lifespan.

Town staff, like many California public employees, qualify for health benefits if they retire after age 50 with a minimum of five years’ service. Four former staff members draw retirement health benefits from the town.

This year the council earmarked $178,000 for health benefit accrual, which will either form a reserve or be invested as a pension plan.

Other budget increases include $50,000 for consultation on the update of the General Plan, $75,000 for evaluating and addressing potentially dangerous trees and $27,000 in salary increases.