Town officials are comfortable with the budget picture for the next fiscal year, but staff is projecting that by the 2020/21 fiscal year, expenditures will eclipse projected revenues by more than $2 million.

At the Town Council’s annual planning retreat on Feb. 11 they began discussions on how they will offset that expected shortfall. A municipal finance consultant will be contacted about a study.

The town has faced wave after wave of budget shortfalls through the recession but have made due with deferred maintenance, staff cuts and curtailing services.

Town Manager Grady Miller told the council he believes that staff cuts and maintenance deferrals are no longer an option.

A study completed in January is recommending the town set aside $1 million per year as a reserve for maintenance and replacement of facilities over the next 30 years. It is expected to cost about $5 million alone to replace the lake liner in 2030.

Currently, the town is setting aside nothing to meet these needs.

Also, Miller told the council there simply is no more room to reduce staff. Staff has been cut by 40 percent since 2008, when the recession first hit.

“We are at bare bones for staff, and have no depth in personnel,” Miller said.

Shortfall

Finance Director Craig Rudolphy outlined the budget projections for the next five years and displayed the graphic evidence that expenditures will rise much faster than projected revenues. That is based on expected reductions to state shared revenues and about 2 percent for inflation.

Revenues are expected to increase from $13.9 million this fiscal year to roughly $15.3 million in the 20/21 year. At the same time, Rudolphy says expenses will go $13.9 million this year to $17.4 million in five years.

Options

The council discussed its options for increasing revenue, including sales tax rates. It could pick and choose categories to increase, such as retail, bed tax (which would require a public vote) or commercial rental.

While the current sales tax rate for Fountain Hills lies in the middle for Maricopa County communities at 2.5 percent for local and 8.9 percent overall, most of the communities Fountain Hills is lower than are located in the West Valley.

Fountain Hills is higher than many nearby communities, including Scottsdale (8 percent) and Mesa (8.1 percent). Cave Creek and Carefree (both 9.3 percent) are both higher than Fountain Hills.

An increase in the sales tax of .1 percent in all categories would generate an additional $340,000 annually.

With public safety services – including law enforcement, fire and emergency medical – and the court accounting for more than half the town’s general fund budget, a public safety fee was mentioned as a possibility.

However, with the town’s current experience with the environmental fee, the council is not likely to rush to expand that option.

A primary property tax is always an option to consider. It requires a vote, and citizens have soundly defeated such requests in the past. At this time, there is nothing to indicate that might change.

Looking ahead

The current VisionFH process, which is to culminate in early summer, may provide a fresh look at citizens’ attitudes toward the primary property tax.

Miller said they could explore the contracting of more town services. That, however, would require the time and money for extensive RFP documents, and may not result in significant savings to the town.

Another idea would be to reduce the contract services of Rural/Metro and the Sheriff’s Office, however, Miller said those entities are currently operating a near minimum recommended levels.

Miller said the town could save $300,000 by reducing staffing from 3.8 beats to 3.4 beats.

Over the next five years the town may have to look at transitioning to operating the fire department itself, and Miller believes that could cost an additional $450,000 over current annual expenses.

Rural/Metro was recently purchased by an ambulance company headquartered in Colorado. The long-term plans for fire service in the company are unclear at this time, but Miller said staff will need a plan to transition if it is necessary.

Miller also believes the town could more aggressively pursue sales tax payment. He believes there are some areas, such as rental tax, where there is leakage. He cited such entities as Airbnb as services that are difficult to track for sales tax collections.

Raising town fees would not offer significant revenue increases, according to Miller.

The town will look into the hiring of a financial advisor to assess town finances and recommend strategies to increase revenues.

Studies

A study done for the town in 2007 by TL Hocking & Associates, made recommendations similar to the ones staff outlined at the retreat.

The Hocking report compared Fountain Hills to several other similar cities in Arizona and around the country. It was found at that time that the town’s per capita sales tax revenue was well below the comparison cities, and the town’s growth was below average.

The onset of the recession soon after the Hocking study was released precluded implementation of some recommendations and stifled others.

The staff budget recommendations for the 2016/2017 year are a base budget, according to Miller.

The proposal is for $31,091,747, which is down from $37,947,273. Much of the reduction comes from the capital improvement side after the completion of the Shea and Saguaro Boulevard improvement projects.

Staff expects a 2 percent reduction in the town’s share of state shared revenues. That may even be more after the calculations are done based on the mid-decade census done by some cities.

Staff is looking to increase staff by one position in the Parks Department. Miller said maintenance is lacking due to short staffing and the town is hearing complaints about the condition of parks.

The council will receive the preliminary budget for review beginning in April. Final approval will come in June ahead of the start of the new fiscal year on July 1.