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Item Number: I.1. CITY COUNCIL REPORT SUBJECT: Resolution No. 2635 proposing a Permanent Base Adjustment MEETING DATE: April 15, 2026 TO: Mayor and Council FROM: Kevin Artz, Chief Financial Officer REVIEWED: Reyes Medrano, Jr., City Manager PURPOSE: The Finance Department is requesting the adoption of Resolution No. 2635, proposing a Permanent Adjustment to the 1979-80 base expenditure limitation of the City of Tolleson. BACKGROUND: The Arizona State Constitution and Arizona Revised Statutes impose an expenditure limitation on every City and Town in the State. The state-imposed limitation uses expenditures of local revenues from Fiscal Year 1979-80 as a baseline. Each year, the Economic Estimates Commission (EEC) adjusts baseline expenditures based on a standard inflation rate and the population growth in the community to establish a new expenditure limitation. Certain revenues are specifically excluded from the state-imposed expenditure limitation. For example, revenues received from the issuance of bonds, revenues received from interest or dividends, revenue from Federal grants, and intergovernmental revenue already subject to another entity’s expenditure limitation, are all exempt from the expenditure limit. If the state-imposed limitation does not allow for the expenditure of sufficient local funds (less the exemptions listed above), State law provides four options to potentially solve this problem: • Alternative expenditure limitation (local home rule option) • A permanent base adjustment • A capital projects accumulation fund • A one-time override All the options require voter approval. If none of the options are approved by the voters, the state-imposed limitation will apply. Home rule option The home rule option allows the City to adopt its own “alternative” expenditure limitation and sets the limit at its adopted budget. In other words, it allows the City to establish its own expenditure limitation without being subject to the state-imposed limitation. It also significantly reduces the City’s reporting burden to the State. Home rule must be approved by the voters and is good for a period of four years. Renewal of home rule must be re-approved by the voters every four years. Permanent Base adjustment option A permanent base adjustment modifies the expenditure limitation base from 1979-80. The permanent adjustment allows the City to increase the base expenditures from 1979-80 and calculates the impact of the population and inflation factor on that new base. This results in an increase of the current and future year’s expenditure limitations. The reporting requirements for the City are more significant than under the Home Rule option. As the name indicates, the adjustment is permanent and requires the approval of the voters one time. Capital projects accumulation fund option A capital project accumulation fund allows the City to exclude funds accumulated to pay for specific capital projects. This option is useful for Cities where the State-imposed limitation is adequate for operating costs, but not for capital outlay costs. A capital projects accumulation fund and the specific projects must be approved by the voters. If new projects are identified by the City, this would require voter approval for the new projects. One-time override option Any City may exceed its State-imposed limitation by a one-time override. This override is effective for one year, and does not affect the expenditure limitation base. The override must be approved by the voters and is good for one year. In 2024, Tolleson voters adopted an alternative expenditure limitation – Home Rule option (first approved in 1980 with ten subsequent extensions). The current Home Rule option expires at the end of Fiscal Year 2028- 2029. The Home Rule option must be approved by the voters every four years. A permanent base adjustment provides more stability for city services than the Home Rule option. With a permanent base adjustment, the expenditure base from 1979-80 is permanently modified and does not require approval every four years. There is also a potential reduction of election costs with a permanent base adjustment. On January 27, 2026, at a Council Work Study, Council directed staff to move forward with a permanent base adjustment election. DISCUSSION: The first step for a permanent base adjustment is to adopt a Resolution proposing a permanent adjustment to the City's 1979-80 base expenditure limitation. The attached resolution proposes to increase the City of Tolleson base expenditure limitation by $39,033,506, which would establish the City's 1979-80 base expenditure limitation at $40,000,000. With a 1979-80 base limitation of $40,000,000, adjusted for inflation (3.8685) and population growth (2.0737), the Tolleson expenditure limitation for Fiscal Year 2026-27 would be $320,884,338 (40,000,000x3.8685x2.0737). Total expenditures for the most recent completed fiscal year totaled $80,753,780. An expenditure limitation of $320M would provide adequate capacity under the expenditure limitation (approximately 4 times coverage). In addition, the expenditure limitation of $320M will continue to grow with inflation and population growth. BUDGET IMPACT: NA RECOMMENDATION: Staff recommends Council adopt Resolution No. 2635, proposing a permanent adjustment to the 1979-80 base expenditure limitation. ATTACHMENTS: 1. Res 2635 Permanent Base Adjustment 04 15 26 2. 04 15 26 Resolution No. 2635 - Permanent Base Adjustment - Chief Financial Officer Kevin Artz 3. 2026 General Election - Permanent Base Adjustment Frequently Asked Questions - FAQs - English and Spanish 4. Home Rule or PBA by City-Town - 2026-02-09