LONG-RANGE FINANCIAL FORECAST UPDATE PACKET - WSS 02 26 26.PDF

1 
MEMORANDUM – ISSUE REVIEW SESSION 
TO:
Mayor and Council
THROUGH:
Lisette Camacho, Deputy City Manager, (480) 350-8505
FROM: 
Robert Baer, Municipal Budget Director, (480) 350-8697 
DATE:
02/26/2026 
AGENDA ITEM: 3A 
SUBJECT:
Long-Range Financial Forecast Update
PURPOSE: 
To provide an update to the City’s long-range financial forecast for the City’s major operating funds. 
RECOMMENDATION OR GUIDANCE REQUESTED: 
The City Council is invited to provide comments and suggestions regarding the City’s long-range financial 
strategies. 
CITY COUNCIL STRATEGIC PRIORITY AND RELATED PERFORMANCE MEASURE: 
Maintaining a long-range financial forecast and eliciting City Council feedback on financial policies relate 
directly to City Council priority #5 – Financial Stability and Vitality, and are critical strategies to achieving 
the following performance measures: 
5.04 Bond Rating 
Achieve bond ratings of AAA for the highest organizational financial strength as measured by S&P Global 
and Fitch credit rating agencies. 
5.05 Unassigned Fund Balance 
Maintain a General Fund unassigned fund balance at a minimum of 20% and a maximum of 30% of 
General Fund revenue. 
BACKGROUND INFORMATION: 
The last long-range financial forecast was presented to the City Council on November 13, 2025. 
FISCAL IMPACT or IMPACT TO CURRENT RESOURCES: 
No financial commitments will be made during this presentation to the City Council; only direction for 
budget development and long-term financial planning will be elicited. 
ATTACHMENTS: 
PowerPoint Presentation

2 
Introduction 
This is the initial update to the long-range financial forecast for the City’s major operating funds, 
beginning the process for developing the FY 2026/27 operating and capital improvement program (CIP) 
budgets. We will use the projections contained in this forecast to establish parameters for current 
budget decisions and to plan for future operating and capital needs. Although projections of future 
revenues and service costs can never be exact, the models utilized by the Municipal Budget Office 
have proven to be good indicators of potential resources and costs. 
General Economic Conditions and Projections 
The overall economy remains relatively stable with low unemployment. Based on information from our 
forecasting partner, Eller College of Management, Arizona’s economic growth is expected to accelerate 
in 2026, but gains will be modest compared to historical trends. This is due to constraints on growth 
imposed by federal economic policy uncertainty and rising costs, partly driven by increased tariffs. 
Through the first half of 2025, Arizona's personal income was up just 4.5% over the year, but slower 
than the national pace of 5.1%. Consumer price inflation in the Phoenix metropolitan area has 
moderated to well below the national average. Growth in retail sales, including from remote (online) 
sellers, has accelerated strongly so far this year, and taxable sales in restaurants and bars have also 
rebounded statewide.  
For the current fiscal year (FY 2025/26), the City’s overall financial condition remains stable. The 
General Fund resulted in a higher ending unassigned fund balance for FY 2024/25 than we originally 
projected in the February 2025 forecast.  
We anticipate slightly lower overall revenues in the current and future fiscal years, primarily due to the 
loss of residential rental income, estimated at $21.0 million in the current fiscal year and reductions in 
state-shared revenues from the incorporation of San Tan Valley, and legislation that aligns the State of 
Arizona tax code with changes in the federal tax code. Commercial and residential development activity 
has bolstered both construction sales tax and building and trades/planning and zoning revenues in 
recent years and is projected to continue to maintain around current levels during the forecast period. In 
addition, proactive budget-balancing measures were implemented to mitigate the revenue losses, 
including using available resources, suspending recurring and non-recurring supplementals in the 
General Fund in the current and future years, and utilizing the planned drawdown of reserves.  
Projections for interest income from the City’s cash and investments were lowered due to the planned 
drawdown of the fund balance. Additionally, the Federal Reserve lowered interest rates by 0.75% 
between September 2025 and December 2025. 
Current, long-term memoranda of understanding (MOUs) with our four employee groups have 
stabilized forecasted personnel cost increases, with fair and steady salary increases projected over the 
forecast period. Although current MOUs will expire during the forecast period, we have assumed that 
salary increases will continue. 
The forecast does not anticipate a recession or other major economic slowdown. This is consistent with 
information from our forecast partners, including the Eller College of Management Forecasting Project 
and Municipal Budget Office regression modeling. The revenue losses discussed above have prompted 
additional budget-balancing strategies, as explained in more detail below.    
Legislative changes could affect the amount of funding received in future years. The forecast assumes 
no additional legislation will be enacted that could negatively affect the City’s major revenues, other 
than legislation that aligns the State of Arizona tax code with changes in the federal tax code.

3 
Additionally, the forecast assumes future State-shared revenue and Highway User Revenue Funds 
(HURF) revenue will continue to be distributed per current statute.  
Preparing for Potential Budget Challenges 
As indicated earlier, local tax revenue was reduced in the 5-year forecast primarily due to a slowdown 
in local tax collections, and year-to-date actual revenues are below projections. The forecast includes 
the loss of residential rental tax revenue and a reduction in state-shared income tax revenue in the 
General Fund. Additionally, an economic downturn is inevitable at some point in our cyclical economy; 
we will continue to monitor economic trends for indications of any economic slowdown and monitor 
legislative activities closely. 
A mild recession, like the city experienced from 2001 to 2003, or future legislative changes could 
impact local sales tax revenues. These would have the greatest impact on those City funds that derive 
most of their revenue from local taxes: the General Fund, Transit Fund, and the Arts and Culture Fund. 
While we project healthy fund balances at the end of FY 2025/26 in these funds, reliance on fund 
balance reserves alone would not be sufficient to offset additional reductions in local tax revenue or in 
building and trade collections and other revenues.  
During the Great Recession from 2007 to 2009, drastic measures were required to reduce expenses 
and increase revenues to maintain the stability of the City’s funds, primarily the General Fund. 
However, during a mild recession, most city services, as well as employee salaries and benefits, could 
be maintained while steps are being taken to reduce expenses and minimize reliance on fund balance 
drawdowns.  
The forecast incorporated proactive budget-balancing measures to ensure the General Fund remained 
financially stable and to maintain a fund balance at the policy level. The implementation of these 
measures was a result of the continued weakening of sales tax revenue. 
1. Use available resources, prioritize existing programs and services, and limit supplemental 
funding. 
2. Prioritize completing projects in the current 5-year Capital Improvement Plan (CIP) and limit 
cash funding of capital projects. 
3. Utilize drawdown of Public Safety Personnel Retirement System (PSPRS) reserves to fund 
pension contributions for public safety personnel. 
4. Utilize drawdown of Other Post Employment Benefits (OPEB) reserves to fund post-
employment health benefits. 
5. Reduce General Fund transfer to the Transportation Fund.  
6. Suspend municipal arts transfers from the General Fund. 
7. In March 2025, remaining budgets in the General, Transit and Arts and Culture funds were 
reduced by 10% and select non-crucial positions were frozen for the remainder of fiscal year 
2024/25.  
Additional budget measures will be necessary if there is an economic slowdown or future legislative 
action that impacts local sales tax revenue during the 5-year forecast period. These measures could 
include:  
1. Reduce service levels to reduce costs and mitigate the impact of unfilled (vacant) positions.  
2. Shift resources to the highest priority services and programs. 
3. Identify economic opportunities to increase the tax base.

4 
Staff will closely monitor revenue trends and seek City Council direction on steps to reduce expenses 
during a recession. 
Current Issues Not Included in Forecast 
There are emerging federal and state legislative actions that could negatively impact the city’s revenue 
sources. These actions have not been included in the forecast due to their uncertainty.   
• 
Reduction of federally funded projects and programs – Staff is in the process of assessing the 
budgetary impact resulting from this action, but much remains uncertain as to how a reduction or 
pause would be implemented.

5 
Forecast Model for the General Fund  
The following is the 5-year forecast model for the General Fund.

6 
 
The figure above provides details for budgeted accounts within the General Fund, with “sample” budget 
decisions incorporated from the interactive model appearing below:  
1) Projected growth in annual compensation represents the projected contributions to retirement 
systems, salary increases included in current MOUs, and increases to health, dental, and life 
insurance plans as provided in the detailed assumptions on the last page of this report.  
2) To mitigate the loss of residential rental revenue, the decline in sales tax revenue, and lower 
state shared revenues, funding for existing programs and current staffing levels were prioritized. 
A gradual drawdown of fund balance is required to maintain current service levels, and there is 
no capacity to fund new programs or expand services.  
3) Pay-as-you-go (cash) funding of capital projects was prioritized for approved projects in the 
adopted 5-year CIP. 
4) Increased drawdown of PSPRS reserves to fund public safety pension contributions.  
5) Increased drawdown of OPEB reserves to fund post-employment health benefits.  
6) The General Fund transfer to the Transportation Fund was lowered. The amount of the annual 
transfer is dependent on the General Fund’s financial capacity.  
7) Suspended the municipal arts transfer from the General Fund. 
The models below illustrate the gradual drawdown of fund balance and the revenue and expenditure 
assumptions utilized in the forecast. The graph on the right side of the figure shows that the unassigned 
fund balance is expected to be at 22% by FY 2029/30. Maintaining the fund balance within the policy 
range of 20% to 30% helps address potential revenue losses and future economic uncertainty.  
 
Expressed in thousands ($000)
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Projected
Projected
Projected
Projected
Projected
Revenues
313,451
         
311,725
         
318,952
         
326,499
         
338,115
         
350,738
         
Expenditures
319,955
         
326,474
         
331,446
         
337,872
         
343,443
         
355,332
         
Transfers/Assignments
-
                
-
                
-
                
-
                
-
                
-
                
Initial Estimated Surplus/(Deficit)
(6,504)
           
(14,749)
         
(12,494)
         
(11,373)
         
(5,328)
           
(4,594)
           
Estimated New Funding for Analysis Purposes
Recurring Supplementals
-
                
-
                
-
                
-
                
-
                
-
                
One-Time Supplementals
-
                
-
                
-
                
-
                
-
                
-
                
CIP Cash Funded (Paygo) and CIP Operating Impacts
-
                
-
                
1,489
            
3,069
            
3,072
            
3,075
            
Unassigned Fund Balance
118,510
         
109,943
         
97,449
          
86,076
          
80,748
          
76,155
          
% of Revenue
38%
35%
31%
26%
24%
22%
General Fund - Sample Evaluation of Variable Budget Options
 250,000
 270,000
 290,000
 310,000
 330,000
 350,000
 370,000
 390,000
FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Expenditures & Transfers
Revenues
($000)
0%
10%
20%
30%
40%
50%
60%
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Targeted Unassigned Fund Balance
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

7 
Forecast Models for Individual Operating Funds (other than General Fund) 
Listed below are summary comments regarding the status of the City’s other major operating funds.  
 
Water/Wastewater Enterprise Fund 
 
Consistent with the November 2025 forecast, the Water and Wastewater Fund remains stable, with the 
unassigned fund balance to remain within policy throughout the forecast period. Revenue amounts 
reflect the recommended water, wastewater, stormwater, and flood irrigation rate adjustments as well 
as anticipated future rate adjustments. Consistent with the most recent rate study, the forecast 
assumes pay-as-you-go (cash) funding of CIP projects from FY 2025/26 through FY 2029/30, totaling 
$65.9 million.  
 
 
 
Water/Wastewater Enterprise Fund Forecast - February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
96,297
              
137,041
            
126,760
            
137,317
            
147,743
           
156,114
           
163,225
           
Total Expenditures 
102,003
            
110,370
            
125,269
            
141,222
            
163,050
           
150,626
           
163,275
           
Surplus/(Deficit)
(5,706)
               
26,670
              
1,490
                
(3,905)
               
(15,307)
            
5,488
               
(50)
                   
Unassigned Fund Balance
70,503
              
87,814
              
89,304
              
85,399
              
70,092
             
75,579
             
75,530
             
% of Revenue
73%
64%
70%
62%
47%
48%
46%
 5,000
 25,000
 45,000
 65,000
 85,000
 105,000
 125,000
 145,000
 165,000
 185,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Total Expenditures
Total Revenues
($000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
FY 23/24 FY 24/25 FY 25/26 FY26/27. FY 27/28 FY 28/29 FY 29/30
Policy Target
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

8 
Solid Waste Enterprise Fund 
 
The Solid Waste Fund is stable with future planned rate increases reflected in the revenue projections. 
The planned rate increases will help ensure the fund's stability by fully recovering operating and capital 
improvement costs for both residential and commercial solid waste services.  
The unassigned fund balance is projected to be maintained within the fund balance policy of 15 percent 
of revenue during the forecast period. 
The forecast includes an annual transfer from the General Fund to offset the costs of the alley 
maintenance program.  
 
 
Solid Waste Enterprise Fund Forecast - February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
24,022
              
24,541
              
25,565
              
26,406
              
27,206
            
28,159
            
29,194
            
Total Expenditures 
23,282
              
21,370
              
27,788
              
25,149
              
26,518
            
27,538
            
27,343
            
Surplus/(Deficit)
741
                   
3,171
                
(2,223)
               
1,257
                
688
                 
620
                 
1,851
              
Unassigned Fund Balance
11,396
              
9,772
                
7,550
                
8,807
                
9,494
              
10,115
            
11,965
            
% of Revenue
47%
40%
30%
33%
35%
36%
41%
 10,000
 12,000
 14,000
 16,000
 18,000
 20,000
 22,000
 24,000
 26,000
 28,000
 30,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Total Expenditures
Total Revenues
($000)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Policy Target
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

9 
Emergency Medical Transportation Enterprise Fund 
 
The Emergency Medical Transportation Fund captures all revenue and expenditures for the Emergency 
Medical Transportation program, which began in October 2017 and is operating at full capacity with six 
(6) ambulance companies in service. 
 
Revenues have been adjusted to reflect the department's anticipated increased cost recovery, and the 
fund's stable outlook continues. The forecast includes the cost to replace and refurbish existing 
ambulances.  
 
 
 
 
      
Emergency Medical Transportation Fund Forecast -  February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY28/29
FY29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
5,814
                
6,378
                
7,038
                
7,445
                
7,542
                
7,641
                
7,735
                
Total Expenditures
7,122
                
5,861
                
8,466
                
6,797
                
7,011
                
7,180
                
7,349
                
Surplus/(Deficit)
(1,308)
               
517
                   
(1,428)
               
648
                   
531
                   
460
                   
387
                   
Unassigned Fund Balance
4,971
                
5,293
                
3,865
                
4,513
                
5,044
                
5,504
                
5,891
                
% of Revenue
85%
83%
55%
61%
67%
72%
76%
 3,000
 4,000
 5,000
 6,000
 7,000
 8,000
 9,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY28/29 FY29/30
Projected Revenues and Expenditures
Total Expenditures
Total Revenues
($000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY 23/24 FY 24/25 FY 25/26 FY26/27 FY 27/28 FY28/29
FY29/30
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

10 
Transit Special Revenue Fund 
 
Although the unassigned fund balance remains above policy throughout the forecast period, the 
significant annual losses, beginning in FY 2025/26, are primarily due to a) increasing transit operational 
costs and b) elimination of residential rental sales tax. This structural deficit will require long-term 
budget balancing measures in the Transit Fund.  
Currently, there are no additional planned changes in transit services. The passage of Proposition 479, 
which extends the half-cent sales tax for transportation, is expected to increase regional funding in the 
Transit Fund. Despite this increase in transit funding, additional long-term budget balancing measures 
are required to ensure the fund remains stable.  
The forecasted expenditure amounts include operating expenses for the streetcar operations that 
began in May 2022. However, the forecast does not include funding for capital and operating expenses 
for a possible extension of the streetcar into the city of Mesa and the local match required for the 
federal funding we recently received for the Rio Salado upstream pedestrian bridge. The largest 
operating expenses for the Transit program are bus, rail, and streetcar operations provided through 
contracts with Valley Metro.  
 
 
 
 
Transit Fund Forecast - February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
73,302
              
72,192
              
73,420
              
73,700
              
75,114
          
77,084
          
79,138
          
Total Expenditures 
67,266
              
81,761
              
84,836
              
90,675
              
90,646
          
92,885
          
96,104
          
Surplus/(Deficit)
6,037
                
(9,568)
               
(11,416)
             
(16,975)
             
(15,531)
         
(15,802)
         
(16,965)
         
Unassigned Fund Balance
110,446
            
97,837
              
86,420
              
69,446
              
53,914
          
38,113
          
21,147
          
% of Revenue
151%
136%
118%
94%
72%
49%
27%
 5,000
 15,000
 25,000
 35,000
 45,000
 55,000
 65,000
 75,000
 85,000
 95,000
 105,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Total Revenues
Total Expenditures
($000)
0%
20%
40%
60%
80%
100%
120%
140%
160%
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Policy Target
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

11 
Transportation (HURF) Special Revenue Fund 
 
The Transportation Fund receives the majority of its funding from the distribution of state-shared 
Highway User Revenue Funds (HURF). Revenue projections over the forecast period are consistent 
with the previous forecast and are based on the forecast projections from the Arizona Department of 
Transportation (ADOT) and projections from year-to-date activity. The forecast assumes a reduction in 
cash-funded CIP projects and is consistent with the initial FY 2026/27 CIP submission. These 
adjustments keep the fund stable, with unassigned fund balances projected to remain within the fund 
balance policy (10% of revenues) throughout the forecast period. Staff will continue to monitor 
economic trends to ensure the fund balances remain within policy. 
Future HURF monies are subject to pending legislation that may increase or decrease the amount of 
HURF funds the City receives. The forecast assumes a reduction in the annual transfer from the 
General Fund for street repair and maintenance projects. The actual amount of the transfer each year 
will be based on the General Fund’s financial capacity and Council direction. 
 
 
Transportation (HURF) Fund Forecast -  February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
15,788
              
16,218
              
16,533
              
15,301
              
17,165
             
15,922
             
17,785
             
Total Expenditures
18,272
              
18,656
              
20,596
              
14,984
              
18,850
             
16,754
             
17,426
             
Surplus/(Deficit)
(2,484)
               
(2,437)
               
(4,064)
               
316
                   
(1,685)
             
(832)
                
358
                  
Unassigned Fund Balance
13,090
              
9,418
                
5,354
                
5,670
                
3,986
               
3,154
               
3,513
               
% of Revenue
83%
58%
32%
37%
23%
20%
20%
 5,000
 7,000
 9,000
 11,000
 13,000
 15,000
 17,000
 19,000
 21,000
 23,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Total Expenditures
Total Revenues
($000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY 23/24 FY 24/25 FY 25/26
FY26/27
FY 27/28 FY 28/29 FY 29/30
Policy Target
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

12 
Arts and Culture Special Revenue Fund 
 
 
Despite the loss of residential rental sales tax revenues beginning in January 2025, the Arts and 
Culture Special Revenue Fund remains stable with revenue projections consistent with the February 
2025 forecast, and the unassigned fund balance remains above policy throughout the forecast period.  
The forecast includes the annual debt service payment on revenue obligation bonds issued in August 
2021 to fund repairs to the Tempe Center for the Arts' roof. FY 2025/26 expenditures include a cash 
transfer to the CIP of $1.4 million, and an additional $8.5 million of CIP cash transfers are assumed 
over the ensuing four years. Any planned expanded programs and services outlined in the Tempe Arts 
and Culture Plan are not included in the forecast. Expanded programs and services will be requested 
via the annual budget development process and, if approved, will be reflected in future forecasts. 
 
 
Arts and Culture Fund Forecast - February 26, 2026
Expressed in thousands ($000)
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Actual
Actual
Projected
Projected
Projected
Projected
Projected
Total Revenues
13,157
              
13,124
              
12,965
              
13,328
              
13,586
              
13,976
              
14,442
              
Total Expenditures
11,597
              
11,729
              
14,339
              
16,411
              
15,200
              
14,853
              
15,361
              
Surplus/(Deficit)
1,560
                
1,395
                
(1,374)
               
(3,083)
               
(1,614)
               
(877)
                  
(919)
                  
Unassigned Fund Balance
12,129
              
13,734
              
12,360
              
9,277
                
7,663
                
6,786
                
5,867
                
% of Revenue
92%
105%
95%
70%
56%
49%
41%
 3,000
 5,000
 7,000
 9,000
 11,000
 13,000
 15,000
 17,000
 19,000
FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 FY 29/30
Projected Revenues and Expenditures
Total Expenditures
Total Revenues
($000)
0%
20%
40%
60%
80%
100%
120%
FY 23/24
FY 24/25
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Policy Target
Percent of Revenue
Unassigned Fund Balance as a Percentage of Revenue

13 
Listed below are the forecast growth rate assumptions utilized in the forecast models. 
 
Revenues
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Taxable Sales Growth
-0.2%
3.9%
3.7%
3.8%
3.9%
General Fund Sales Tax Revenue
-0.2%
3.9%
3.7%
3.8%
3.9%
Total Sales Tax Rate
1.8%
1.8%
1.8%
1.8%
1.8%
General Fund
1.2%
1.2%
1.2%
1.2%
1.2%
Transit Fund
0.5%
0.5%
0.5%
0.5%
0.5%
Arts & Culture Fund
0.1%
0.1%
0.1%
0.1%
0.1%
Primary Property Tax Levy Growth
3.1%
1.2%
4.0%
4.0%
4.0%
Bed Tax Revenue Growth
12.4%
4.9%
3.9%
4.9%
6.4%
Bed Tax Rate
5.0%
5.0%
5.0%
5.0%
5.0%
City Population Growth
1.3%
1.3%
1.3%
1.2%
1.2%
State Population Growth
1.3%
1.3%
1.3%
1.3%
1.2%
State Shared Income Tax Growth
-8.2%
7.1%
4.5%
4.3%
4.8%
State Shared Sales Tax Growth
-1.2%
0.3%
3.5%
3.6%
3.7%
State Vehicle License Tax Growth
2.4%
1.4%
2.7%
3.0%
2.9%
Building and Trades Growth
0.5%
-8.8%
2.2%
2.2%
2.3%
Cultural and Recreational Growth
-0.3%
1.6%
2.8%
2.7%
2.8%
Fees, Fines, Forfeitures Growth
19.3%
20.6%
3.5%
3.5%
3.6%
Licenses Growth
1.7%
34.5%
2.2%
2.2%
2.3%
Expenditures
FY 25/26
FY 26/27
FY 27/28
FY 28/29
FY 29/30
Personnel Costs Growth
6.0%
2.3%
2.5%
2.4%
2.4%
FICA (% of payroll)
7.7%
7.7%
7.7%
7.7%
7.7%
State Retirement (% of payroll)
12.0%
11.9%
11.8%
11.7%
11.7%
Police Retirement (PSPRS Tiers 1 & 2)
30.1%
29.8%
31.3%
32.8%
34.5%
Police Retirement (PSPRS Tier 3)
24.0%
27.9%
27.9%
27.9%
27.9%
Police Retirement (% of payroll) (1)
68.9%
68.6%
68.0%
67.1%
67.5%
Fire Retirement (PSPRS Tiers 1 & 2)
32.9%
33.9%
35.6%
37.4%
39.3%
Fire Retirement (PSPRS Tier 3)
24.3%
27.9%
27.9%
27.9%
27.9%
Fire Retirement (% of payroll) (1) (2)
72.8%
71.1%
68.8%
67.2%
67.0%
Health, Dental, Life Actives
8.4%
8.4%
8.4%
8.4%
10.0%
Health, Dental, Life Retirees
1.2%
4.0%
-0.3%
4.1%
0.0%
Mediflex Growth
8.4%
8.4%
8.4%
8.4%
10.0%
General Inflation
2.7%
2.4%
2.2%
2.2%
2.3%
Electricity Inflation
7.0%
7.0%
7.0%
7.0%
7.0%
Water Inflation
11.0%
9.5%
7.0%
3.0%
3.0%
Sewer Inflation
9.5%
9.5%
9.5%
9.5%
9.5%
Gasoline Inflation
-6.6%
9.0%
4.9%
3.1%
5.0%
Notes:
(2) Net of Fire Insurance Premium Tax credit
Forecast Growth Rates - February 26, 2026
(1) Police & Fire Retirement percentages include the annual required payment on the Taxable 
Municipal Bonds.

Long-Range Financial Forecast 
Update
Work Study Session – February 26, 2026

City Council Strategic Priorities
5.04 Bond Rating
Achieve bond ratings of AAA for the highest organizational 
financial strength as measured by S&P Global and Fitch 
credit rating agencies.
5.05 Unassigned Fund Balance
Maintain General Fund unassigned fund balance at a 
minimum of 20% and maximum of 30% of the General Fund 
revenue.
2

CAPITAL
OPERATING
Feb/Mar
Public Forums
Public Forums
Feb 26
Proposed Projects
Updated Long-Range Forecast
Mar 23
Initial Recommended Projects
Apr 23
Budget Review Session
Budget Review Session
May 4
Budget Review Follow-up (if needed)
Budget Review Follow-up (if needed)
May 14
Tentative Adoption
Tentative Adoption
Jun 4
Public Hearing/Final Adoption
Public Hearing/Final Adoption
Jun 25
Property Tax Levy
Budget Development Public Meetings
3

Local Economic Update
• Overall economy remains stable
• Household income up over the prior year
• Inflation has moderated to below the national average
• Sales tax outlook
• First full-year impact of the loss of residential rental tax 
collection
• Growth in retail sales tax
• Other business categories are stable
4

General Fund - Sales Tax Update
5

General Fund - Sales Tax Update
6

General Fund - Forecast Assumptions
• Maintained current service levels
• Continued salary plans and employee benefits
• Lowered investment earnings due to planned drawdown of fund 
balance and reserves
• Revenue estimates include losses from:
• Elimination of residential rental sales tax collection 
• Incorporation of San Tan Valley
• Federal Income Tax conformity
• Implemented proactive budget balancing strategies in the 
General Fund
7

General Fund - Forecast Assumptions
• General Fund Budget Balancing Strategies
• Use available resources and prioritize existing programs and services
• Prioritize completing projects in the current 5-year Capital Improvement 
Plan
• Use Public Safety Personnel Retirement System (PSPRS) reserves to 
fund pension contributions for public safety personnel
• Use Other Post Employment Benefits (OPEB) reserves to fund post-
employment health benefits
• Reduce transfer to the Transportation Fund
• Suspend municipal arts transfer from the General Fund
8

General Fund - Other Budget Considerations
• Forecast does not anticipate a recession or other economic 
slowdown
• Freeze vacant positions to reduce personnel expenses. A process could 
be implemented to allow the hiring of crucial positions (e.g., first 
responders).
• Reduce service levels to reduce costs and mitigate the impact of unfilled 
(vacant) positions
• Shift resources to the highest priority services and programs
• Continue to identify economic opportunities to increase the tax base
9

General Fund - Potential Scenario
10

Enterprise Fund Highlights
• Revenue amounts include rate adjustments from latest rate study and future planned adjustments
• Planned cash (pay-go) funding of CIP projects
Water/Wastewater
• Planned moderate rate increases included in revenue estimates
• Fund balance maintained within policy 
Solid Waste
• Fund is stable since inception
• Additional recurring capital appropriation planned to maintain ambulance fleet
Emergency Medical Transportation (Ambulance)
11

Special Revenue Fund Highlights
• Repeal of residential rental tax collection results in 9% tax revenue reduction
• Fund balance declining but forecasted to remain in policy over the forecast period
• Does not include funding for capital and operating expenses related to the streetcar expansion and 
the Rio Salado upstream pedestrian bridge
Transit
• HURF revenue projections are based on ADOT projections
• Future revenues subject to pending legislation
• Continue to monitor fund to ensure expenditures are in-line with revenues
Transportation (HURF)
• Despite residential rental tax collection revenue reduction, fund remains stable with balances 
maintained above policy level
• Facility and programming revenues remain strong
Arts and Culture
12

Direction/Questions/Comments
Thank you
Lisette Camacho, Deputy City Manager
Robert Baer, Municipal Budget Director
13