In the SCAP, a wealth of information is given for the stats of the most recurring NPCs and how they will equipped at every level up to 20.
But how do you justify the improvement in level of NPCs? Why would an NPC's level change if all they do is sit in the temple or pick plants in their grove all day? In the SCAP especially, do you justify the fact that the PCs are running around killing all the bad guys and your NPCs are somehow keeping pace with them in level terms? Or do you leave the more static NPCs (Jenya for instance, who does not appear to adventure) at low level and just account for her political strength being due to her position?
For NPC's that the party hasn't interacted with yet, I'd say their abilities are keeping pace as suggested--if they haven't had to deal with somebody yet, it doesn't matter whether he's 3rd level or 30th. He's just an NPC out there in town doing stuff.
For people they have interacted with, it's a little trickier. Some of them, like the Stormblades, are out there actively adventuring, so it's perfectly reasonable for them to level up. If there's any justification for people to be out in the world or under the city, there are plenty of opportunities to gain some experience.
However, people like the priestess of St. Cuthbert, who are described as holding down a day job and not adventuring call for a little suspension of disbelief and iron-clad application of the RAW. For the priestess, I would say that the mace she's carrying as head of the local church is feeding her the necessary experience to keep pace with local level requirements--it would be a sad thing for Cuthbert to say he's going to support her, then send her out into the city to fight major demons & dragons at 3rd level...
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Gaining levels in any game is already abstract. Who's to say that adventuring is the only way to gain experience? For the purpose of players playing the game yes, it's the way they advance. But don't you think being the high priestess of a temple like St Cuthbert's is taxing, allowing one to grow in her knowledge and experience in serving her god? People in reallife further their skills by learning on the job or through formal education or any number of other ways.
My point is D&D is already all about suspension of disbelief. I don't think allowing NPCs to advance is any extra stretch. They are in fact doing things, just not necessarily adventuring.