The first six months of the current fiscal year reflect a fairly positive financial position for the Town, according to Finance Director David Pock. Reporting to the Town Council at its annual planning retreat on Feb. 22, Pock said nearly all revenue categories are ahead of budget projections for the first six months of the fiscal year.

Pock did point out what he described in his report as “financial headwinds” that will require careful budget planning going forward. Those challenges include inflation and increased pressure on the Federal Reserve to address inflationary concerns, a possible recession caused by interest rate hikes, sales tax categories that remain susceptible to economic conditions such as restaurants, bars and services, potential reduction in Fountain Hills’ share of state shared revenues, fewer development opportunities in town and increasing costs of maintaining infrastructure.

Mayor Ginny Dickey also noted that the Arizona State Legislature’s agenda may impact the Town’s ability to collect transaction privilege tax (sales tax) particularly in the category of construction materials.

On the positive side of the forecast, Pock said the Town’s conservative approach to revenue projections and close oversight of expenditures has led to budget savings at the end of each fiscal year.

He also said the Town’s sales tax base is relatively stable. Also, there is an increased number of hotel rooms, and that along with short-term rentals make up 57% of the Town’s TPT revenue from the services category. Federal stimulus received has relieved some pressure on funding for the Town’s immediate infrastructure needs.

The numbers

By the end of December, the Town had collected $6.77 million in local sales tax, compared to the $6.47 million that was anticipated in the budget. The services sector including restaurants/bars, utilities and communications were the primary drivers behind the revenue, according to Pock.

Intergovernmental revenue was $3.36 million for the period compared to a budget of $3.3 million. Pock said state shared sales tax revenue was better than expected, but there was a slight dip in income tax revenue for FY 20 (there is a two-year lag in income tax numbers).

Other revenue categories collected $1.28 million compared to an anticipated $1.13 million.

Pock also reported on fund balances as of Dec. 31, 2021, which are reserves including restricted, committed, assigned and unassigned funds. The total of the four categories as of the end of last calendar year was nearly $29 million.

Budget plan

Pock outlined where staff will be focused as budget planning begins for the 2022/2023 Fiscal Year. Besides consideration of the “headwinds” and “tailwinds” mentioned above, budget assumptions also include maintaining existing service levels in all departments, slight increase in sales tax as activity returns to pre-pandemic levels, a 3% increase in the Rural/Metro contract for fire and emergency medical services and a 6% increase to the contract with Maricopa County Sheriff's Office for law enforcement.

The General Fund revenue forecast for FY 23 is $23 million including $17.3 million from TPT. The expenditure forecast for the year is $19 million.

Pock also announced during the retreat session that the Town will be working on an update to its Facilities Reserve fund program. Willdan Financial will review and assist in updating the current Facilities Reserve. They will focus on revising estimates related to replacement costs, include a more aggressive future value rate for estimating future costs and provide a suggested funding strategy to assure adequate resources are available when they are needed.

Federal dollars

In his reporting to council, Pock also reviewed potential uses for General Fund savings resulting from the American Rescue Plan (ARPA).

The Town received $4.2 million in July 2021 with an additional $4.2 million expected in July 2022. That funding was confirmed by Treasury Final Rule in January.

Pock said the funding may be used toward any governmental service; however, the Town will remain consistent with how previous federal stimulus funding was used for public safety. For the current fiscal year 80% of the money will be used for the Rural/Metro contract due to the pandemic related costs of emergency medical services. The remaining 20% will be used for the MCSO contract.

Staff is recommending the same breakdown be used for FY23.

The resulting General Fund savings will be used per council direction. Potentially that savings may be used for community support grants ($300,000 for current fiscal year and $100,000 for future pandemic related expenses).

Additionally remaining funds may be added to Streets Fund budget.

The Town assembled a committee of 13 volunteers to assess and discuss the long-term street needs within the town. The committee has met since September and expects to bring a report and recommendations to the council later this spring.