A spending cap of $2.2 billion for next fiscal year’s budget was approved last week by the Tucson City Council in a spending plan that outlines significant local investments while considering the financial volatility of coming years.
The budget for fiscal year 2023-24, which starts on July 1, earmarks millions in funding for key city initiatives like public safety, transportation and core services while continuing to spend down more than $231 million in an investment plan for city programs.
After approving the tentative budget on Tuesday, the spending cap can’t be increased, but funding can be shifted to different areas. The council is set to adopt the final budget for the next fiscal year at its June 6 meeting.
The budget includes $66.5 million throughout the next fiscal year as part of the $231.6 five-year investment plan the city initiated with last year’s budget. The plan puts funding the city has above its necessary reserve levels and invests one-time dollars into key areas. The three areas with the most funding under this year’s investment plan are public safety with $35.4 million, the collector street program with $8 million and information technology with about $5.2 million.
Several speakers at Tuesday’s budget hearing expressed concern the city isn’t putting enough resources behind its new Climate Action Plan council members adopted in March. The tentative budget puts about $1 million toward the first year of the plan for projects like quantifying fugitive emissions, creating an energy usage benchmark study and inventorying greenhouse gas emissions. The city’s also using American Rescue Plan funding to hire two climate resilience positions to help implement the plan.
Arizona Youth Climate Coalition member Tanish Doshi told council members while he appreciated engaging with the city in the years leading up to the climate plan, “without the resources that are necessary … we won’t be able to succeed.”
Mayor Regina Romero said, “I feel absolutely comfortable with the direction that we’re taking,” as the city hires a lead and co-lead to begin implementing the program in the coming fiscal year. She said the city has to “be very aggressive” in going after federal Inflation Reduction Act dollars dedicated to climate resiliency efforts.
But potential financial issues on the horizon have created “structural imbalances” in future years of the investment plan, largely due to the pending implementation of Arizona’s flat tax rate in the 2023 tax year that could result in $27 million in lost funds for Tucson annually, according to early estimates from the Arizona Center for Economic Progress.
The state income tax will drop to 2.5% for all taxpayers and replace the progressive tax rate structure based on income. Tucson will lose a significant amount of the state-shared income tax funding that makes up 12% of its general fund revenues.
To help ease the transition, the state is increasing the proportion of state-shared income tax distributed to cities and towns from 15% to 18%, which Tucson projects will generate $24.3 million above the previous sharing rate, but is considered one-time funding as the city anticipates a net reduction in future years as money lost from the progressive tax structure overcomes the slight boost from the 3% state sharing bump.
The loss of funding the city has historically relied on has led to anticipated expenditures growing greater than revenues, leading to an estimated $18 million shortfall in the investment plan beginning in the fiscal year 2024-2025. City Manager Michael Ortega said, “We are going to have to look at some changes to our expenditure lines, or there could be increases in revenues” to address the shortfall but pointed out the dollars only make up about 2% of the overall budget.
Initial ideas are to cut back on investment plan spending and utilize vacancy savings from unstaffed positions.
“(The state-shared income tax cuts) have a very direct and real impact to our budgeting in those future years,” Ortega said. “I’m not concerned about our ability to reduce the budget by 2% and come into structural balance, but I wanted to highlight that so that we don’t think that ‘Oh, well, that happened at the legislature, but it doesn’t have an impact on us here locally.’”
Staff raises
As part of next year’s budget, about $14.8 million will go toward 5% raises for commissioned line and police officers and 3% raises for all other city employees.
City Council last increased staff wages in November, with a 2% across-the-board pay increase and 7% for commissioned police officers. Before that, the city invested about $30 million in May 2021 to bring Tucson employees’ salaries up to par with other similar government jobs across the state.
The difference this time, Ortega said, is the raises come with consolidating the 550 individual job classifications with different pay ranges into 24 pay grades, a process the city’s spending $1.1 million to implement.
Ortega said the move is the city’s “maintenance of the market” to make sure its pay rates are competitive with similar employers in the region. But Tucson continues to struggle with hiring and retention, in line with a national trend of localities across the nation grappling with unstable employment bases. As of Mach, the city’s vacancy rate across all departments was about 12%.
In addition to the pay raises, Ortega said new Human Resources Department Director Suzette Yaezenko is “really pushing the envelope in terms of how do we get out there and make sure that people are knowing that the city of Tucson is a great place to work and a great place to have a career.”
Core Services
One key effort of this year’s budget plan Ortega sent the council is strengthening internal services to “ensure the organization is in the best position to serve our community,” largely through shoring up efforts in departments like human resources, business services and information technology.
When the 2008 recession hit, the departments that provide key services like contracting, budgeting and cybersecurity were scaled back, but “As the City became able to grow programming and external services, internal services were not proportionately grown to support them,” Ortega wrote in the memo.
“Those are core services that every other department relies on, and so we can’t provide services throughout the city if we can’t do those functions well,” said Chief Financial Officer Anna Rosenberry. “We realize that we need to focus on shoring up those teams so that we can support the entire organization.”
Some of the efforts to bolster the departments include $750,000 to heighten awareness of cybersecurity risk and provide support to city software users. Human resources will use $500,000 to add staffing toward its classification and compensation efforts. The city also plans to put staffing and funding into shortening the backlog of permit requests and code enforcement tasks.
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