Tempe forecasts revenue shortfalls after residential rental sales-tax loss but says reserves cover services for now

Lisette Camacho, Tempe's deputy city manager and chief financial officer, and municipal budget director Robert Baer presented a long-range financial forecast that reflected a material drop in sales-tax revenue tied to the loss of residential rental tax starting in January 2025.

Camacho said the 2023 forecast first identified an annualized $21 million loss across the General, Transit and Arts & Culture funds; in the current forecast staff lowered sales-tax assumptions and state-shared revenues, and recommended additional balancing measures to preserve fund balances. "We have sufficient reserves to fund existing programs and maintain the current staffing level that we have," Camacho said, while adding the forecast does not assume a recession.

Baer reviewed fund-specific impacts: enterprise funds (water, wastewater, solid waste, ambulance) are projected to remain within policy with planned rate adjustments; the transit and arts and culture funds face revenue declines tied to the residential rental tax loss but are forecasted to remain within fund-balance policy over the period shown. The forecast does not include funding for streetcar expansion capital or operating costs.

Camacho and Baer outlined potential balancing steps if conditions worsen, including freezing vacant positions with limited hiring for critical roles, reducing service levels, shifting resources to priorities, and identifying economic opportunities to expand the tax base. Councilors asked for clarification on federal funds for streetcar planning; a Valley Metro representative said $13 million was received for planning but final federal approvals remain pending.