No one wants to be in a position where the bills total more than the paycheck, but that is the conclusion of projections town staff prepared and presented to the Town Council on April 18.

Finance Director Craig Rudolphy estimates the gap between revenue and expenditures will top $8.5 million in the 2026/2027 fiscal year. He said the cumulative gap over the next five years will be $3.7 million (that is down from the $5.5 million shortfall projected a year ago).

Rudolphy admits it is extremely hard to make revenue and expense projections from five or 10 years out. He said it is hard enough to budget one year to the next. However, the council asked for the numbers to consider, along with ideas to help revenue catch up with expenses.

It should be noted that staff has made long-term projections numerous times, and there always seems to be a significant gap, but when it comes down to one year to the next the budget balances (it has to by law).

There was just one year during the recession that the town had to scramble with mid-year adjustments to end the year on balance.

A major driver for the expenses is providing public safety services in the community. Rudolphy estimates the total cost for fire protection and emergency medical services will be $48 million over the next 10 years. The cost for law enforcement services is projected to be $53 million over the decade.

The estimate for fire/emergency medical is based on the Town’s contract with Rural/Metro. That contract includes a 3 percent annual increase.

While the town’s contact with the Maricopa County Sheriff’s Office is actually down for the next fiscal year (a roughly 2 percent drop), Rudolphy estimates an increase of 10 percent over each of the next nine years.

That projection was challenged by Councilman Art Tolis, asking why they were assuming 10 percent when this coming year the fee is actually down.

Town Manager Grady Miller said the law enforcement increase is being driven by public safety pension fund costs. Town Attorney Andrew McGuire said the actual number is unknown, but he said a court has ordered that the state pension plan must be restored.

“A lot of that money is going to come from the cities and towns,” McGuire said.

Councilman Henry Leger noted that based on the overall projections, even if the MCSO increases are “by some miracle” only 3 percent, there is still a significant shortfall.

Outside public safety, staff is estimating the cost of street maintenance and asphalt replacement could total as much as $60 million over the next 10 years. Other street projects beyond maintenance, such as widening, are in the 10-year estimate at $9.5 million.

Some of that might in fact be funded by bonds, which would take it out of the budget shortfall equation, but staff sees it as an expense that must be considered in an overall review.

Revenue

How can the town up its revenues to offset, or at least reduce these potential shortfalls? Rudolphy outlined several potential options, none of which are logistically or politically simple to implement.

The council can act alone to increase the sales tax, which is currently 2.6 percent for the town, part of a total 8.9 percent collected for the state and other entities.

Staff estimates that each one tenth of one percent (.01) increase would bring in $340,000 in additional revenue each year.

The council would have the option to adjust all or just some of the sales tax categories that include retail, bed tax (requires a citizen vote) and commercial rental.

The council also does not want to be in a positon of driving residents to shop in other communities to save on sales tax.

A public safety fee also is an option to study. Everyone, all households and businesses, would pay the same amount; state law says such a fee cannot be based on property value or size of parcel.

This would be similar to the Environmental Fee implemented by the town a year ago.

Revenues based on a $100 annual fee would generate about $1.2 million.

This is also an option the council could act on alone, but the State Legislature could come into play to make it easier, or more difficult to implement such a fee.

Special districts are also a possibility for consideration. However, options are limited as to what can be covered (there is no enabling regulations for forming a public safety special district, for instance). Some such districts, like a fire district or street district, would have a separate elected governing board (like the current FH Sanitary District and School District) taking authority and oversight away from the Town Council.

Also, special district formation would likely require a vote of citizens and such districts are generally funded through a (secondary) property tax.

The town could implement franchise fees for EPCOR Water and Southwest Gas and this requires a vote of citizens. Those fees could generate up to $200,000 annually, and it would take some time to implement.

The council could raise town fees, although revenue generation is not likely significant.

The town already engages a sales tax auditor to assure proper collections, and these revenues are collected for the town by the state Department of Revenue.

A primary property tax option is also a possibility. This requires a vote of citizens and attempts in the past to implement the property tax have failed badly at the polls. The last time a primary property tax was on the ballot in Fountain Hills was in 2008.

Rudolphy prepared a table to illustrate the impact on property owners. If the town were to implement a tax that collected $3 million per year, that would cost the owner of a home with a $500,000 assessed value $254 per year. If you increased the revenue option to $6 million, the cost would go to approximately $708 per year. This would be in addition to current property taxes collected for other entities, including town bond debt.

The proposed new budget shows the Town currently has an outstanding principal on bond debt totaling $8,065,000. This total includes general obligation bonds for the Library/Museum building and the Saguaro Boulevard road construction, a revenue bond for the Community Center and the Eagle Mountain Community Facilities District, which is applied only to those living in the Eagle Mountain subdivision.

A property tax proposal can only go on the ballot for a May election. That means the earliest Fountain Hills voters could consider the option would be May of 2018.

The council has directed staff to continue research on various options and have a report or recommendation by the end of the year. Vice Mayor Alan Magazine asked for November at the latest. This would provide time for staff to take steps necessary to have a property tax question on the ballot next May, if that is an accepted recommendation.