Title
Fiscal Year 2025-26 City Manager's Proposed Budget
Description
This report transmits a balanced Fiscal Year (FY) 2025-26 City Manager's Proposed Budget. No action is required at this time. Action on the FY 2025-26 budget is scheduled for the May 21, 2025 City Council meeting.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
The FY 2025-26 Proposed City Manager's Budget includes a projected one-time General Fund (GF) surplus of $17 million. Due to significant economic uncertainty and volatility, slowing revenue collections in the current fiscal year, possible further inflationary impacts on costs to deliver services, unknown impacts from the current State legislative session, and potential reductions in federal funding the City Manager recommends the surplus be set-aside in reserve to be available if needed to balance the FY 2026-27 budget. The proposed FY 2025-26 City Manager's Budget also includes detailed schedules for all City Funds (Schedules 1-11).
The City of Phoenix is committed to engaging residents in the budget process and this year there were many opportunities to provide feedback outside of regularly scheduled City Council meetings. Between April 1 and 16, the City hosted 12 community budget hearings to obtain feedback from residents on the proposed FY 2025-26 Trial Budget. Information was made available on the City's website and through social media platforms, the PAYS Newsletter, and via radio advertisements. Community members also submitted feedback through phone and email directly to the Budget & Research Department. The feedback from residents overall indicates support for the proposed budget and requests for more City services in a variety of areas. Attachment C includes information on the City's efforts to address many of the comments by residents, a summary of comments by category, minutes of each budget hearing, and all email and phone comments. The public can access more information on the FY 2025-26 Trial Budget, including video recordings of completed budget hearings, at phoenix.gov/budget. Additionally, $2 million in available one-time American Rescue Plan Act (ARPA) interest earnings will be allocated to the Housing Trust Fund with all future available ARPA interest earnings dedicated to the trust.
Summary
The City of Phoenix continues to be an economic leader in the country due to diverse business and economic opportunities, a strong job market and population growth. Unfortunately, as presented at the February 25, 2025 Policy meeting, the GF budget outlook reflected structural deficits over the next three fiscal years requiring difficult and strategic decisions to balance the budget. The preliminary GF Status for FY 2025-26 reflected a baseline deficit of $(36) million and the forecast reflected projected shortfalls in FY 2026-27 of $(83) million and in FY 2027-28 of $(6) million primarily due to the State's actions to eliminate residential rental sales tax in 2023 via Senate Bill (SB) 1131 and to lower the individual income tax rate in 2021 to the flat tax of 2.5 percent (SB 1828). These actions by the State limit local control and will reduce ongoing City revenues going forward. Staff completed the annual 7+5 technical expenditure and revenue review process and adjustments were made to the FY 2025-26 GF Status of approximately $(3) million primarily to reflect adjustments to property tax and emergency transportation revenue estimates. The revised FY 2025-26 GF Status presented to City Council on March 18 in the Trial Budget reflected a revised projected deficit of $(39) million. Residents can review the February 25 and March 18 City Council reports by visiting phoenix.gov/budget.
The City is required to adopt a balanced budget and the City Council demonstrated strong leadership on March 18 to resolve the projected GF deficit by approving proposed budget balancing strategies discussed further in this report. The strategies to balance the budget were necessary to preserve existing GF programs and services, offset the revenue losses caused by State legislative action, and provide additional resources for critical priorities. The strategies result in a one-time projected FY 2025-26 GF surplus of $17 million recommended by the City Manager to be set-aside and available in the fund balance if necessary to balance the FY 2026-27 budget.
The proposed FY 2025-26 City Manager's Budget includes GF and Non-GF supplementals (Attachment A) for the Fire Department to reduce emergency response times, for the Office of Homeless Solutions to continue efforts helping the unsheltered population and to address impacts of homelessness on neighborhoods, and to add resources to the Water Services Department to reopen the Cave Creek Water Reclamation Plant. The proposed FY 2025-26 budget also includes 38.6 ongoing full-time equivalent (FTE) positions needed in the GF (10.6 FTE) and Non-GF departments (28.0 FTE), and represents conversion of existing budgeted resources for critical position needs. Funding for these positions has been identified and accounted for in department operating budgets and therefore no additional funding is necessary. More information on each position can be found in Attachment A.
Additionally, detailed budget information is included in this report on the FY 2025-26 Proposed Budget for all City funds (Schedules 1-11).
Proposed Strategies to Balance the GF Budget
The proposed FY 2025-26 Trial Budget presented on March 18 included strategies to resolve projected GF budget shortfalls and protect existing programs and services. More information on the FY 2025-26 Trial Budget can be found at https://www.phoenix.gov/content/dam/phoenix/budgetsite/documents/2025-26_Trial_Budget.pdf.
The budget balancing strategies approved by the City Council and included in the FY 2025-26 City Manager's Budget include:
- Increase the Transaction Privilege Tax (TPT) and Use Tax rate 0.5 percent effective July 1, 2025, from 2.3 percent to 2.8 percent, as posted on the City's website. www.phoenix.gov/Documents/2025-PHX-Tax-Notice-Info.pdf.
- Re-prioritize spending and reduce ongoing GF costs by $24 million with no direct impacts to service delivery (Attachment B).
- Use of excise tax bond proceeds to pay for public safety and other GF capital needs totaling $175 million to reduce the up front cost burden to the GF (approved by City Council on April 9).
- Set-aside $92 million in FY 2025-26 to be available to balance FY 2026-27.
- Use of Non-GFs to reduce GF costs for major maintenance and citywide street transportation and construction services.
The above strategies are estimated to offset the revenue losses caused by State actions, protect existing programs and services, and provide additional resources for critical additions to the GF budget detailed below and included in Attachment A.
Phoenix Fire Department (PFD)
The PFD provides lifesaving services to all Phoenix residents and visitors and includes emergency medical and transportation services, all-hazards incident management, property protection through fire suppression, and community risk reduction efforts. The recent fire catastrophe in Los Angeles, CA serves as a reminder of the importance of adequately resourcing the PFD to ensure sufficient levels of staffing, equipment and facilities are ready to respond to emergencies. A critical measurement of the PFD effectiveness in operations is emergency response time and is measured from the time of dispatch of an emergency apparatus to when the unit arrives on scene. The National Fire Protection Association (NFPA) establishes the standard fire departments utilize to measure performance. Currently, the PFD’s response times exceed the NFPA established standards. While the department continuously evaluates innovative ways to improve response times, additional resources are needed to increase the number of fire stations and facilities, personnel, and equipment to keep pace with the significant growth in geographic area and population the department must serve. Supplemental needs for the Fire Department (Attachment A) include conversion of 32 grant funded sworn positions to the GF estimated at $3 million in FY 2025-26 and $5 million ongoing, add 24 sworn personnel to staff the new General Obligation Bond funded Fire Station 15 at 45th Avenue and Camelback Road estimated at $2 million in FY 2025-26 and $4 million ongoing, and provide a dedicated $25 million in GF resources going forward to add 134 sworn and 19 civilian personnel to reduce emergency response times.
Once fully implemented, the estimated impact of additional sworn personnel will be an improvement in localized and citywide fire response times based on 2024 incident data at the 90th percentile. Fire critical emergency medical services (CEMS) response times are projected to improve from 8 minutes and 30 seconds to 4 minutes and 25 seconds in the localized communities where the units will primarily serve. Fire ambulance response times are projected to improve from 10 minutes and 42 seconds to 4 minutes and 44 seconds in the localized communities. Based on the estimated citywide impacts of the budget additions, Fire CEMS response times are projected to improve from 7 minutes and 23 seconds to 7 minutes and 14 seconds. Based on the estimated citywide impacts of the budget additions, Fire ambulance response times are projected to improve from 9 minutes and 38 seconds to 9 minutes and 29 seconds. These response times could vary based on any future adjustments to unit placement and the hours of service to meet the community's needs. The additional sworn personnel will staff new apparatus to be placed in service around the City, and new Fire stations including Station 71 located at 60th Street and Mayo Boulevard, and Station 93 at Metrocenter (location site to be determined). The additional apparatus and fire stations will be funded by excise tax bond proceeds (approved by City Council on April 9).
Office of Homeless Solutions (OHS)
The OHS has made tremendous progress in addressing homelessness over the last two years. Investments in the infrastructure of the region’s homeless services system have been monumental. As we move out of pandemic-era funding, OHS has unfunded needs necessary to continue its momentum and ensure the transformational projects and services implemented in the last two years can continue. Also important to note on November 5, 2024, voters passed Proposition 312 Property Tax; Refund; Nuisance Enforcement that allows property owners beginning in Tax Year 2025 to apply to the Arizona Department of Revenue for a property tax refund if the owner documents expenses caused by a city, town, or county that either (1) declines to enforce existing laws prohibiting illegal camping, obstructing public thoroughfares, loitering, panhandling, public urination or defecation, public consumption of alcoholic beverages or use of illegal substances, or (2) maintains a public nuisance. The City is unable to project the potential impacts to revenue or costs associated with Proposition 312 but will have to identify a funding source. The passage of this proposition furthers the need for the City of Phoenix to address and provide ongoing resources for homelessness.
GF resources will be needed in 2025-26 for homelessness with revised estimates at $4.5 million due to the expiration of ARPA funding. Funding is necessary for a portion of OHS operational costs, operational costs at an affordable housing site for very low-income older adults, operational costs at three emergency shelters (Rio Fresco, North Mountain Healing Center, and the temporary Washington Shelter) and heat relief efforts. The need in 2026-27 and going forward is estimated at $26.0 million and will fund a portion of OHS operational costs, the temporary Safe Outdoor Space, operational support for five emergency shelters (Rio Fresco, North Mountain Healing Center, the temporary Washington Shelter, Central Arizona Shelter Services, and the Phoenix Navigation Center), some operational costs at the Key Campus and heat relief efforts. Staff will continue to seek additional external funding for these programs, and evaluate other City funding sources, which if received would offset the need for a portion of the ongoing General Fund request.
As mentioned above the proposed strategies also included re-prioritizing $24 million in the existing GF budget to create capacity to add the above critical supplementals. More information on GF proposed cost reductions totaling $24 million is included in Attachment B. The proposed reductions do not include any filled City positions, but elimination of 18.2 vacant positions; and represent lowering costs for non-personal related line items included various contractuals, commodities and minor capital outlay. These reductions will not have a direct impact on service delivery.
The proposed FY 2025-26 City Manager's Budget also includes a Non-GF supplemental budget addition for the Water Services Department to add $5.6 million for 28.0 FTE and 20 vehicles to reopen the Cave Creek Water Reclamation Plant. This addition would allow the City to expand capacity for wastewater treatment and water purification, maintain environmental and safety standards, and uphold technological process control and security standards (Attachment A).
FY 2025-26 City Manager's Budget
The proposed balanced FY 2025-26 GF budget is $2,171.7 million. This is a $39.9 million increase or 1.9 percent from the adopted FY 2024-25 GF Budget of $2,131.8 million. The increase accounts primarily for higher costs associated with employee salaries and fringe benefits, including health insurance and pension (detailed in the Multi-year Forecast presented to City Council on Feb. 25, 2025), and a higher contingency amount to achieve 4.75 percent of operating costs. Inflation also continues to impact certain expenditure categories including the cost to replace vehicles and to maintain facilities.
Projected GF resources are estimated at $2,171.7 million and includes the estimated beginning balance of $188.3 million, estimated revenue of $1,936.9 million and net interfund transfers and recoveries of $46.5 million, which include interfund transfers for central services, in-lieu property taxes, debt service, infrastructure repayment agreements, and resources to support the Public Safety Specialty Funds and Pension Reserve Fund. GF revenues of $1,936.9 million represent annual growth of 6.5 percent over FY 2024-25, and includes the estimated revenue to be collected from the TPT and Use Tax rate increase to 2.8 percent effective July 1, 2025 approved by City Council on March 18. Revenue projections assume no further impact from the current legislative session and are based on the most recent data available to formulate projections. Schedule 2 included in this report provides more information about City revenue estimates for all funds and additional information can be found on the Budget and Research website at phoenix.gov/budget.
For all funds, which includes General, Enterprise and Special Revenue funds such as grants, and all debt service and pay-as-you-go capital costs, the proposed FY 2025-26 budget is $6,859.9 million. Details on the FY 2025-26 proposed budget for all City funds is attached to this report in Schedules 1-11 and include:
- Resources and expenditures by fund for FY 2023-24 actuals; FY 2024-25 estimate; and FY 2025-26 proposed budget.
- Proposed revenues for all City funds by major source.
- Proposed operating expenditures by department, including fund source.
- Proposed debt service by program, source of funds, and expense type.
- Proposed interfund transfers.
- Proposed full-time equivalent (FTE) positions by department.
- Preliminary FY 2025-26 Capital Improvement Program resources and expenditures by capital fund, program and fund source.
- Preliminary FY 2025-26 Capital Improvement Program by source of funds.
- Summary of proposed property tax levy and rate information.
Next Steps
The remaining key dates in this year's budget process are as follows:
Date Event
May 21, 2025 City Council Budget Decision
June 4, 2025 FY 2025-26 Tentative Budget Ordinance Adoption
June 18, 2025 FY 2025-26 Funding Plan and Final Budget Ordinance Adoption
July 2, 2025 FY 2025-26 Property Tax Levy Ordinance Adoption
On July 2, 2025, City Council is scheduled to adopt the property tax as the last step in the legally required budget adoption process. Primary property tax revenues support operating costs for GF programs and services, while secondary property taxes pay debt service for capital projects for the General Obligation (GO) Bond Program. Phoenix voters recently approved the 2023 GO Bond Program that includes 47 projects and will provide the resources needed for new parks and libraries, police and fire stations, regional pools and splash pads, community centers, arts facility improvements, and street and storm drain projects. More information on the 2023 GO Bond Program can be found on our website at phoenix.gov/bond.
The total combined primary and secondary property tax rate for FY 2025-26, of $2.0799, is unchanged from the FY 2024-25 combined rate. The proposed primary property tax rate for FY 2025-26, of $1.2658 remains unchanged. The secondary property tax rate remains unchanged at $0.8141. Although the primary property tax rate remains unchanged from the prior fiscal year, the primary property tax revenue estimate increases for FY 2025-26 to $222.7 million, which is $7.3 million or 3.4 percent more than the FY 2024-25 revenue estimate of $215.4 million, due to increasing net assessed valuations (property values) and new construction.
Additionally, state law requires a Truth in Taxation hearing notice to property owners, which requires notification any time the average primary property tax bill increases, even if the tax rate is not increased. The law does not require notice on the City’s secondary property tax. The hearing is scheduled to take place at the City Council Formal meeting on June 18, 2025.
Department
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research Department.