Tucson City Hall

A letter writer thanks the City Council for declaring a climate emergency and urges that the fight against heat-trapping gases includes market-based policies that incentivize cleaner energy technologies.

 Rick Wiley / Arizona Daily Star

Despite the worsening pandemic and expectations that revenues would sharply decrease, the city of Tucson is projecting that its budget will not suffer as much as officials anticipated in fiscal year 2021.

While revenues in some areas did decrease because of the pandemic, city officials said an increase in online purchases as well as construction activity is giving the general fund an unexpected boost. The city has also seen a decrease in costs while working from home, saving money on travel, fuel, maintenance costs and employment vacancies.

With about $17 million in federal CARES Act dollars left to spend before Dec. 30, city officials said they are in a good place financially, but are remaining cautious as the pandemic continues to impact economies throughout the world.

“Tucson is going to be fine,” said the city’s Chief Financial Officer Joyce Garland. “It may not be the same Tucson when we get to the end of it — things will certainly be different — but we’re going to come out of this fine. The mayor and council are making some great decisions on how to move this community forward.”

Pandemic’s economic impact

For fiscal year 2020, which ended June 30, the city’s ongoing revenues were expected to be $558.4 million. According to Garland, the actual revenues for the year were $551.9 million, a decrease of $6.5 million or 1.2%.

This decrease in revenue is largely due to drops in the city’s Transient Occupancy Tax and hotel surcharges, which is attributed to Arizona’s stay-home order and travel restrictions. There were also significant decreases in the city’s Parks and Recreation fees due to the closure of most public facilities as well as ambulance fees, which were collected less during the pandemic.

Even with these decreases, the city saw a 22.5% increase — $1.8 million — in planning and development services revenue due to construction and renovation activity.

They have also made significant cuts in expenses, spending $79.5 million less than the $558.4 million that was budgeted. In particular, the city had more than $11 million in employment vacancy savings due to their plan to only hire necessary positions during the pandemic.

“We’ve really scaled back expenses because of the pandemic, and we’ve held a lot of vacancies so that’s driven down those costs on the expense side,” said City Manager Michael Ortega. “On the revenue side, we’re not exactly sure why, but it seems like the Wayfair decision, which was the sales tax on online shopping, is part of the reason, if not the reason why those revenues have increased. So it really speaks to how people’s shopping habits have changed.”

Since Oct. 1, 2019, online and out-of-state retailers have been required to pay a transaction privilege tax if their annual gross retail sales or income from online sales into Arizona is more than $200,000. Arizona collected an extra $52 million in online sales tax within the first two months of the new law.

“What we didn’t know was the effect the pandemic was going to have on our revenues, because we thought when you’re under a stay-at-home order, no one’s going to be buying anything,” Garland said.

Although the city saw a $2.4 million decrease in expected sales tax revenue overall, Garland said this was much better than they were expecting. They are still seeing an upward trend for retail sales and are expecting this to continue into the holidays.

The Pima County Health Department, Pima Community College and Arizona State University (ASU) are opening three new COVID-19 testing sites over the next few weeks. The PCC-West campus site is open on Mondays, 9:00a.m. to 1:00p.m., starting Nov. 16, 2020. Two other sites, at PCC-Desert Vista campus and PCC-East campus, will open as soon as Dec. 2. Advanced registration is required. Go to pima.gov/covid19testing for more information.

She also acknowledged that stimulus money and higher-than-normal unemployment benefits likely contributed to the city’s unexpected sales revenue. It’s possible that sales could decrease again if additional federal funding is not allocated.

Overall, the city ended the 2020 fiscal year with nearly $73 million in cash-carry forward revenue from the General Fund.

CARES funding

According to documents provided to the Arizona Daily Star by the city, Tucson has received $158 million in direct funds provided by the CARES Act, a $2.2 trillion economic stimulus package passed by the federal government in March.

The majority of the city’s allocation comes from the Coronavirus Relief Fund, which provided $95 million for specific expenses related to the pandemic. The city also received a variety of other CARES Act grants that helped cover payroll costs, public transportation costs, public housing operations and other services.

Of the $95 million in CRF dollars that the city received, nearly half of it has gone back into the community through grant programs for workers, families, small businesses, homeless populations and non-profits. The city also distributed funds for rental, utility and child care assistance.

CRF dollars were also used to help keep the city running, providing funding for personal protective equipment, COVID-19 testing, telework expenses and retrofits for public facilities.

With nearly $17 million left to spend before the end of the calendar year, the Tucson City Council is continuing to allocate that funding as pandemic-related needs arise. At their last meeting, for example, the council voted to spend $2.5 million on assisting utility service customers with delinquent accounts and $1 million on building outdoor recreation centers to protect vulnerable residents who want to exercise.

“We were very fortunate because of the CARES money we did receive, it allowed us to put more dollars into flotation within our community, but it also helped us to head off the second wave of the pandemic that is here now,” Garland said.

What’s next for Tucson’s budget?

When making predictions for how the pandemic would impact spending, city officials said they did not have any historical information to go off of, except for the recessions. Because of this, they chose to be very conservative heading into fiscal year 2021.

When the council approved the city budget in July, it actually expected to have to use more than $30 million in reserves from the prior year’s revenue to avoid a deficit. Officials anticipated spending about $558 million and bringing in $527 million.

However, based on current projections, Garland said the city is actually expected to spend closer to $541 million and bring in $546 million, ending the year with $5 million in revenue.

Nearly halfway through the fiscal year, the city is on track to meet those projections, sitting at $182 million in revenue and $158 million in expenditures so far.

“This governing body has really put ourselves in a position of long-term financial stability,” said Tucson Mayor Regina Romero. “Where we are now has been years in the making. Even though we started in March with concern for how COVID-19 was going to affect our coffers, because this governing body took the steps guided by our city manager and by Joyce Garland and her team, we have been able to be stable in a time of crisis.”

Romero also cautioned that Tucson is not out of the woods, saying they have to be prepared for further economic challenges as the pandemic continues.

“We are going through a situation in our economy where we don’t know what the future will look like,” she said.

“But right now, in this moment, I think we’ve all taken steps to be fiscally prudent and responsible and responsive to the needs of the economy.”

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Contact reporter Jasmine Demers at jdemers@tucson.com

On Twitter: @JasmineADemers