Oro Valley council hears conservative five-year forecast pointing to capital pinch and options including debt

Oro Valley officials discussed a conservative five-year financial forecast Tuesday that projects tighter recurring revenues and constrained capital spending unless the town secures new funding or trims operating costs.

Mr. Gephardt, who presented the forecast, said staff prepared two scenarios: a baseline and one that includes an $11 million placeholder debt issuance to illustrate how additional funding could affect the capital program. "This year is being presented earlier than in years past," he said, adding the presentation is intended "to really drive the budget process" and give council more time to consider choices.

The forecast highlights two principal drivers of fiscal stress: a projected near-term decline in state-shared revenues and elevated operations-and-maintenance (O&M) inflation assumptions that staff modeled at about 6 percent for the forecast window. "A difference in O&M assumptions is costing us roughly $11 million over five years," Mr. Gephardt said, and the shortfall has the capital fund showing negative balances in the mid-outer years without augmentation.

Council members repeatedly pressed staff on the assumptions and potential fixes. Council Member Solomon warned the 5-year plan excludes a proposed $40 million police station and sketched the borrowing cost: "Assuming we had to borrow it ... that would be $2,600,000 a year in principal plus $2,000,000 a year in interest for a total of $4,600,000 a year," he said, urging caution about offloading large projects without dedicated funding.

Vice Mayor Barrett called the O&M assumption "overly conservative" and requested sensitivity testing: "I'd be really interested in seeing what this looks like if we brought that O&M inflation closer to actual inflation of 3.5 percent," she said. Council also requested scenarios using historical employee-pay adjustments and other inputs to see how outcomes change.

Debate touched on specific funds. Staff said the highway fund will require transfers from other town funds to maintain pavement preservation and larger overlays, and that transfers out of the general fund are projected to decline from roughly $12.3 million this year to about $3.7 million within two years—placing additional pressure on the capital program. Gephardt noted the placeholder $11 million debt issuance would ease some pressure but ‘‘it kind of leaks out the backside’’ because transfers to the highway fund remain necessary.

Several council members raised questions about the community center fund and expenditures related to golf and the community center. Vice Mayor Barrett urged reducing annual golf-related capital spending and reallocating funds toward other parks and road needs. Staff clarified that the budget and the forecast treat the Vistoso Trails allocation differently: the $2 million set aside for the preserve is included in the capital forecast but the manager's recommended budget places that money in the grants fund to be used as a fifty–fifty match if grant awards come through.

Council members also asked for more detail on rising pavement-preservation costs after staff said the forecast increases the program baseline (not lane miles) and assumes a modest year-over-year cost increase; staff committed to providing unit costs and more granular CIP detail at upcoming budget study sessions.

Gephardt and staff proposed near-term options to reduce pressure on recurring budgets, including freezing new full-time positions for next year (the manager's recommended budget assumes no new FTEs for FY25), holding vacancies open where appropriate, and aggressively pursuing grant funds. They said any bond issuance to support capital would need to be repaid from recurring operating revenues and that council should balance new borrowing against debt that rolls off in future years.

The council did not take formal budget votes during the session but directed staff to return with sensitivity analyses—alternate inflation and pay-adjustment assumptions, and more detailed CIP breakout—at the scheduled budget study sessions next week.

What's next: Council members asked staff to return with sensitivity scenarios showing lower O&M inflation and historical employee-pay assumptions, unit costs for pavement preservation, and a clearer mapping of CIP items to funding sources before final budget decisions.