Nogales staff warn water fund is $1.2M short; council told rates likely must rise

Sergio, the city’s budget presenter, told the Nogales mayor and council at a May 11 special workshop that the water enterprise is “in the hole” and needs about $1,200,000 to remain solvent. He said the city can either loan the money from the general‑fund reserve or the sewer‑fund reserve but emphasized legal structure and repayment terms must be worked out.

“The water fund is going to need about a $1,200,000 infusion,” Sergio said, adding that funding agencies expect the city to show “skin in the game.” He told council members the draft budget does not include wage adjustments and urged the governing body to review multiple wage scenarios before the tentative budget vote next week.

Staff showed the roughly $3.1 million of projected water revenues versus about $4.3 million in proposed water expenditures, leaving the roughly $1.2 million gap. City staff and several council members agreed any permanent fix would likely require raising rates; staff recommended bringing a rate‑study consultant to present staged options rather than making a single large increase.

“We need to balance the fund and at the same time be mindful of how quickly we phase rate adjustments,” a staff member said. Council members pressed staff on timing, repayment expectations and auditor guidance; staff said auditors have signaled they will be more comfortable if a rate plan is adopted alongside any internal loan.

Next steps: staff will work with the finance consultant Willdan (scheduling a presentation and modeling session), draft loan paperwork if council directs a transfer, and bring refined scenarios for council consideration before the tentative budget adoption. No formal action or votes occurred during the workshop.

The workshop continues with follow‑up briefings planned; the tentative budget adoption is scheduled for next week.