After announcing in January that it is exploring options to deal with a potential budget shortfall, which could include an increase in sales tax or cutting some services to residents, the city of Phoenix held a series of informational budget sessions in February. The city is required to adopt a balanced budget each fiscal year.
At the Feb. 4 event held at Burton Barr Central Library, City Manager Jeff Barton, and Amber Williamson, Budget and Research director, made a presentation about the current and future state of the city’s budget.
“Unlike the federal government, we are required by statute to balance our budget,” Barton began.
On Jan. 15, the city posted notice of a potential sales tax increase equal to half a percent, up to 2.8%, “The reason we are doing that today,” Barton continued, “if you rewind, at this time last year, Amber and I presented a forecast that showed for fiscal year 2025-26 that we have the potential of a deficit of roughly $92 million.”
That number, Barton said, was driven by several factors, one of which was the state’s action last year to eliminate the ability of cities and towns to collect residential rental tax (SB 1131, effective January 2025).
“That has a very detrimental impact on the city’s revenue stream,” he said. “Over the next couple of years, roughly through the 2027-28 fiscal year, we are going to lose about $300 million as a result of just that action alone.”
In addition, Barton indicated that a Ducey-era tax change (SB 1828) from a graduated income tax rate to a flat 2.5 percent tax will also cost the city an estimated $36 million in the current fiscal year and $43 million in 2025-26.
Other factors include inflation, and the $396 million ARPA (American Rescue Plan Act) funds that have expired, $158 million of which were used to address issues surrounding Phoenix residents who are experiencing homelessness. The city will have to find a way to include those services in the general budget. Going forward, homeless services is expected to be around $25 million per year. Additional funds are also needed to meet the growing needs of the Phoenix Fire Department, which is struggling to bring down response times in an ever-growing city, as well as an increase in community requests for programs and services.
At press time, a General Fund Status and Multi-Year Forecast was scheduled to be presented to Council Feb. 25 and Public Notice of Intent to raise the sales tax would be posted Feb. 27. The city manager is scheduled to present the 2025-26 City Manager’s Trial Budget for a public hearing and Phoenix City Council consideration, Tuesday March 18, at 2:30 p.m. The Preliminary 5-Year Capital Improvement Program (CIP) also will be presented.
Learn more about the budget process at www.phoenix.gov/budget.
