Title
City Council Decision on the 2023-24 Budget
Description
This report transmits a balanced budget for Fiscal Year (FY) 2023-24. Following the presentation of the Trial Budget on March 21, 2023, 12 Community Budget Hearings held April 3 through April 15, 2023, and a presentation of the City Manager's Proposed Budget on May 2, 2023, staff recommends approval of the FY 2023-24 budget.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
The FY 2023-24 City Manager's Proposed Budget presented to City Council on May 2, 2023, included a General Fund (GF) surplus of $134 million. No changes have been made to the projected surplus or to the proposed supplemental additions. As presented, it was proposed to allocate $114 million of the surplus for employee compensation increases, to address retention and hiring challenges occurring in all City departments. Additionally, agreements have been negotiated with labor groups, and approved by City Council on May 3, 2023, for next fiscal year. The proposed budget accounts for the negotiated employee compensation increases. The remaining $20 million GF surplus is proposed to be allocated to add programs and services for the community, totaling $15 million, and to increase the contingency fund by $5 million to ensure resources are available in the event of an economic downturn. In keeping with the important practice of engaging the community on the proposed budget, during the month of April staff solicited feedback at 12 community budget hearings, via the FundPHX interactive budget tool, and received comments via phone and email directly to the Budget and Research Department. This feedback from residents was taken into consideration and changes to the proposed budget are reflected in this report.
Summary
Due to the leadership of the City Council and the strategic use of resources, the $134 million GF surplus represents a solid financial standing for the upcoming fiscal year. Phoenix is an economic leader in the country due to strong job and population growth, along with a diversified employment and business sector. However, there is reason to be cautious as we look forward due to continuing high inflation, actions by the Federal Reserve that may impact the economy, softening of the labor market, and credit tightening in the banking industry, all of which has caused economic experts to predict a recession or slowdown in 2023. The FY 2023-24 Trial Budget proposed to reserve $1 million for potential changes resulting from community feedback. Based on resident input over the past several weeks, the City Manager's Proposed Budget presented on May 2, 2023 recommended allocating the $1 million to community priorities. The proposed changes to the Trial Budget and additions to the FY 2023-24 Budget are included and summarized in this report.
The proposed FY 2023-24 GF supplementals totaling $134 million are detailed in Attachment A. Also included are proposed FY 2023-24 Non-GF supplementals totaling $1.5 million, detailed below and in Attachment B. No changes have been made to the proposed additions.This report also includes detailed schedules on the FY 2023-24 Proposed Budget for all City funds (Schedules 1-11).
Community Feedback on the FY 2023-24 Proposed Budget
Resident input was solicited at 12 community budget hearings held between April 3, 2023, and April 15, 2023. Residents also provided feedback online using the FundPHX tool, and comments were received directly to the Budget and Research Department via email and voicemail. In total, between March 1, 2023, and May 5, 2023, staff received 720 comments from 362 individuals on the Proposed Budget. Several residents commented multiple times on the same topic. A summary of the number of resident comments by topic is listed below. The public can access all comments received on the budget, including the written minutes and video recordings of completed budget hearings, at phoenix.gov/budget.
Comments for additional funding/support of the budget:
- (160) additional funding to create cricket fields and amenities.
- (33) additional funding for park improvements.
- (33) additional funding for public bathrooms.
- (31) additional funding for Arts and Culture.
- (31) additional funding to provide free public transit.
- (29) additional funding for individuals experiencing homelessness and vulnerable populations.
- (29) additional funding to provide free public WiFi.
- (24) additional funding for home weatherization efforts.
- (19) additional funding for bike lanes and infrastructure.
- (17) additional funding for 24/7 park ranger coverage.
- (17) additional funding for public safety.
- (14) additional funding for street improvements.
- (13) additional funding for Rogers Ranch Park.
- (12) additional funding for the Gated Alley Program.
- (10) additional funding for library services and hours.
- (9) support for additional types of budget hearings.
- (9) additional funding to address neighborhood and community blight.
- (9) additional funding for parking enforcement.
- (8) additional funding for Public Transit expansion.
- (7) additional funding for affordable housing.
- (7) additional funding for employee compensation.
- (7) additional funding for street cleanups.
- (7) additional funding for street pedestrian bridges.
- (6) additional funding for healthy giving signage.
- (5) additional funding for Community Court.
- (5) additional funding for historic preservation.
- (5) additional funding for trees and shade.
- (5) additional funding for roadway safety.
- (4) support for moving the Community Medical Services methadone clinic on 29th Avenue and Cactus Road.
- (4) additional funding for mental health services.
- (4) additional funding for public safety near 29th Avenue and Cactus Road.
- (4) additional funding for water conservation.
- (3) additional funding for Americans with Disabilities Act improvements.
- (3) additional funding for bus stop improvements.
- (3) additional funding for the Cactus Park Police Precinct.
- (3) additional funding for Citywide infrastructure improvements.
- (3) additional funding for civilian police assistants.
- (3) additional funding for a park in the Lake Biltmore area.
- (3) additional funding and/or support for public education and schools.
- (3) additional funding for public health.
- (2) additional funding for community engagement efforts.
- (2) additional funding for a Parks and Recreation Volunteer Coordinator position.
- (2) additional funding for the park on Samantha Way.
- (2) support for improving the permitting process.
- (2) additional funding for the Phoenix 311 app.
- (2) additional funding for a Police station in Laveen.
- (2) additional funding for Sueño Park.
Comments for reduced funding/opposition of the budget:
- (3) reduce funding for employee compensation.
- (2) reduce funding for Community Bridges, Inc.
- (2) reduce funding for the Gated Alley Program.
- (2) reduce/oppose funding for 24/7 park ranger coverage.
- (2) reducing funding for the Police Department.
In addition, the following social media statistics were recorded from March 20, 2023, to April 21, 2023:
Facebook - 40 City of Phoenix Facebook Posts
- 3,924 Views
- 135 Likes/Reactions
- 38 Shares
- 62 Comments
Twitter - 61 City of Phoenix Tweets (across three City accounts, including the City’s bilingual account)
- 16,123 Views/Impressions
- 86 Likes
- 17 Comments
- 42 Retweets
YouTube - 12 City of Phoenix Videos
TikTok - 1 City of Phoenix TikTok Post
- 411 Views
- 16 Likes
- 2 Reposts
Proposed Changes and Additions to the City Manager's Budget
As presented, the City Manager's Proposed Budget includes several strategic recommendations that represent investments for the future of Phoenix by addressing community priorities, and provides resources needed to offer competitive employee compensation. Proposed use of the available $134 million GF surplus includes supplemental program additions totaling $15 million and includes changes from the Trial Budget of $1 million previously reserved for resident feedback. Additionally, $114 million is proposed for employee compensation increases, to account for the negotiated labor increases for next fiscal year and includes a $20 million set-aside for potential future increases. Finally, $5 million is included for the GF Contingency Fund necessary to achieve 4.5 percent of operating expenses.
Changes to the FY 2023-24 Trial Budget based on community input are identified in this report as *NEW* and are included in Attachment A and B.
The following is a summary list of the $1 million in proposed GF changes recommended based on community input:
- Community Arts Grants - increase proposed grant funding from $125,000 to $250,000.
- Cricket - $250,000 to provide additional cricket field locations and to explore development of partnerships to expand more sites in the future.
- Park Repairs - add $125,000 for additional maintenance at Sueño Park and other park sites in the City.
- Phoenix Day Early Childhood Education Center - one-time funding of $250,000 to support affordable child care and early education services.
- Street Cleaning - one-time funding of $100,000 to purchase a street sweeper dedicated for bike lanes, and $150,000 to clean and remove debris in up to three additional washes annually and to clean-up medians.
Including the above changes to the proposed budget, recommendations for GF supplemental additions in FY 2023-24 total $134 million and focus on critical City Council and community priorities including:
- Employee Compensation Increases - $114 million
- Continuity of Services for Vulnerable Populations - $7.6 million
- Enhanced Public Safety Responsiveness and Criminal Justice Support - $3.8 million
- Healthy Neighborhoods and Community Enrichment - $3.6 million
- Contingency Funds - $5 million
Proposed Non-GF supplementals are summarized below and detailed in Attachment B, no changes have been made to what was presented on May 2, 2023.
Proposed FY 2023-24 General Fund Additions - $134 million and 114.0 positions
Below is a summary highlighting proposed GF additions by City Council priority area. Detailed information about each supplemental, including the number of positions and dollar amount by department, is provided in Attachment A.
Employee Compensation - $114 million
The City is experiencing significant vacancies across all departments due to a combination of the competitive labor market and below-market salaries for many job classifications. The current vacancy rate as of March 2023 for all City funds is 17 percent. Vacancies can impact service delivery to residents and cause existing employees to carry the burden for unfilled positions. It is for this reason that the proposed GF budget allocates 85 percent of the surplus, or $114 million, to increase employee compensation. This amount includes $20 million to be set-aside for potential employee compensation increases in FY 2024-25 and beyond. Additionally, the Human Resources Department will be implementing the results from the Classification and Compensation study in FY 2023-24 in an effort to fill vacant positions and retain existing employees. Estimated costs for implementing the Class & Comp study have been accounted for in the projected expenditures for FY 2023-24 for all City funds.
*NEW* Continuity of Services for Vulnerable Populations - $7.6 million and 0.0 positions
To ensure vulnerable populations can continue receiving vital services at risk due to expiring or reduced funding, $7.6 million is proposed to support the Low-Income Home Energy Assistance Program (LIHEAP), the Victims of Crime Act, and to expand the Behavioral Health Engagement Teams contract. These programs are essential in the continuation of outreach to areas of the City experiencing high instances of substance abuse, behavioral health issues and homelessness, as well as managing domestic violence and sexual assault referrals while maintaining acceptable response times. The funds proposed would also expand the PHX Community Action Response Engagement Services (C.A.R.E.S.) Outreach Program and continue operations at several shelters across the City. Additional funding and partnerships with the state, county and non-profit organizations are being actively pursued to increase collaboration and resources to help individuals experiencing homelessness. *NEW* In addition, one-time funding of $250,000 is proposed for the New Leaf Phoenix Day Early Childhood Education Center to retain and expand teaching staff and provide additional training opportunities. The center provides affordable day care and early education opportunities to a diverse and inclusive population. The center in on pace to increase enrollment and achieve financial sustainability by 2024.
Enhanced Public Safety Responsiveness and Criminal Justice Support - $3.8 million and 88.0 positions
The services, programs and positions reflected in this area are dedicated to ensure public safety response is appropriate, efficient and seamless. To help improve emergency response times across the City, an investment of $3.5 million is proposed for the Phoenix Fire Department to add 31 new sworn positions to fully staff a new Fire Station 74 to be located at 19th Avenue and Chandler Boulevard, and to hire additional firefighters and support staff. In addition, as part of the Phoenix Police Department’s focus on civilization efforts, new positions are included for civilian investigators and police assistants within the department. Additional positions are also included for crime scene specialists, police research analysts, criminal intelligence analysts, and civilian law enforcement training specialists. These additions will provide support to the investigative process, training and civilian response. All new positions for the Police Department will be absorbed within the existing operating budget for the Police Department, using sworn position savings and therefore require no additional costs for FY 2023-24. However, over time as vacancies are filled, additional budget capacity will be required in a future fiscal year. This category also includes conversion of expiring grant fund positions in the Law Department to the GF to assist victims of crime with navigating the judicial system, and six additional positions in Law that will be offset with Police vacancy savings for next fiscal year to facilitate and coordinate immediate and ongoing needs related to the Department of Justice (DOJ) investigation.
*NEW* Healthy Neighborhoods and Community Enrichment - $3.6 million and 26.0 positions
The services, programs and positions reflected in this area will enhance the City’s ability to develop and maintain healthy, vibrant and safe neighborhoods throughout the city. A proposed $571,000 for the Neighborhood Services Department would add funding to expand the Gated Alley Program, providing for a total of 77 gated alley segments each fiscal year, and restore two grant-funded Neighborhood Inspector positions. By restoring these two positions, the department can provide more grant-funded opportunities to low and moderate income residents. *NEW* Additional funding of $125,000 for the Community Arts Grants Program is included in the Trial Budget to increase the City’s efforts toward equity in arts, for a total of $250,000 to support renters at Herberger Theater Center and other local venues such as the Black Theatre Troupe, Phoenix Center for the Arts’ Third Street Theater, Phoenix Theatre, and Valley Youth Theatre. A Project Manager position is also included to help manage and coordinate the Office of Arts and Culture’s model for involving artists in designing and building a better city. The cost of this position will be offset by charging various Capital Improvement Projects. Also, in an effort to increase park security and resident safety, $2 million is proposed for the Parks and Recreation Department to hire 14 Park Rangers and one Park Manager position to create a third-shift for Park Rangers. The addition of a third-shift will provide coverage 24 hours per day, seven days per week at City parks. The proposed funds will also add five staff to expand tree planting and shade canopy efforts Citywide and hire a Volunteer Coordinator to assist in the coordination of volunteer efforts throughout City parks. *NEW* Additional funding for the Parks and Recreation Department is proposed totaling $250,000 to create cricket field opportunities at up to three locations and to explore development of partnerships to expand more sites in the future, and $125,000 for improvements at Sueño Park located at 4401 W. Encanto Blvd., and other park sites around the city. Resources are also proposed for two new Municipal Security Guards for the Library Department to provide additional security at City libraries at a cost of $130,000. *NEW* Finally, additional funding of $100,000 is proposed to purchase a street sweeper dedicated to cleaning bike lanes, and $150,000 for maintenance of three additional washes per year and clean medians.
Proposed FY 2023-24 Non-General Fund Additions - $1.5 million and 8.0 positions
The City budget is made up of three fund sources: the General Fund, Enterprise Funds, and Special Revenue Funds. Recommendations for the General Fund were discussed above. Enterprise Funds include Aviation, Water, Wastewater, Solid Waste and the Convention Center. These funds, with the exception of the Convention Center, are funded with user fees. The Convention Center includes fees paid by those who use the facility and Convention Center parking garages, and certain earmarked sales tax categories. Enterprise funds can only be used for costs directly associated with delivering enterprise services. The Special Revenue Funds category includes federal and state grants, gas taxes (Arizona Highway User Revenues or AHUR), debt service, the Development Services Fund, Public Safety Specialty Funds, Phoenix Parks and Preserve Initiative (PPPI) and voter-approved Transportation 2050 Fund. These funds can only be used in accordance with grant and other statutory rules.
Non-GF proposed additions total $1.5 million and include 13.8 positions. Detailed information about each supplemental, including the number of positions and dollar amount by department, is provided in Attachment B. Below is a summary of the Non-GF additions, which includes adding resources to the Public Transit Department for bus stop cleaning requested by residents:
Aviation (Enterprise Fund) - $0.9 million and 2.0 positions
Additions for the Aviation Department include $917,000 for two new Airport Security Access Agents to provide security badging services and funding to purchase 10 new vehicles for the Airport Police Bureau.
Planning and Development (Special Revenue Fund) - $0.5 million and 5.0 positions
To support the growing online presence of SHAPE PHX and administrative needs, $489,000 is proposed for the Planning and Development Department. The funds would add three positions needed to manage SHAPE PHX, a transformative technology that replaces numerous, highly customized legacy software systems with a consolidated, secure, transparent and modern, land-based planning application. Funds would also add a Chief Engineering Technician and Senior Human Resources Aide to assist the department.
*NEW* Public Transit (Special Revenue Fund) - $0.05 million and 0.0 positions
Increase funding for clean-up, removal of debris and overall maintenance of bus stops. This funding will enable additional services through multiple existing contracts to include bus stop cleaning, repairs, landscaping and other improvements.
Regional Wireless Cooperative (Special Revenue Fund) - $0.05 million and 1.0 position
Add one full-time equivalent Accountant I position to the Regional Wireless Cooperative (RWC) office to support the administrative and accounting responsibilities of the Very High Frequency (VHF) Conventional Radio Network. This position was approved by the RWC Board of Directors on Dec. 1, 2022.
GF and Non-GF Position Conversions to Maintain Services - $0.0 and 62.8 positions
The proposed City Manager's Budget includes converting 57.0 GF and 5.8 Non-GF existing temporary positions to ongoing status. These positions provide critical and sometimes legally or statutorily required administrative support for City departments. Funding for these positions has been identified and programmed in each respective department's operating budget and therefore represent a no-cost conversion.
FY 2023-24 GF City Manager's Budget Status
The proposed balanced FY 2023-24 GF budget is $2,028.7 million. This is a $249.2 million increase or 14.0 percent from the adopted FY 2022-23 GF Budget of $1,779.4 million. The increase accounts for the proposed additions detailed earlier in this report and higher costs associated with employee salaries and fringe benefits, including health insurance and pension, increased costs for vehicle replacements and Fire apparatus, cost increases in capital equipment and expected pay-as-you-go projects, estimated costs for implementation of the classification and compensation study, and a higher contingency amount to achieve 4.5 percent of operating costs. Inflation has also dramatically impacted several expenditure categories including commodities and contractuals such as fuel, compressed natural gas, electricity, motor vehicle parts, plumbing supplies, custodial and security services, machinery and equipment repair, and facility maintenance costs.
The increase also accounts for higher costs for public safety pensions, detailed in the Trial Budget report and presented to City Council on March 21. Projected GF resources are estimated at $2,028.7 million and includes the estimated beginning balance of $204.0 million, estimated revenue of $1,830.9 million and net interfund transfers and recoveries of -$6.3 million, which include interfund transfers for central services, in-lieu property taxes, capital equipment and projects, debt service, infrastructure repayment agreements, resources to support the Public Safety Specialty Funds and Pension Reserve Fund. GF revenues of $1,830.9 million represent annual growth of 10.3 percent over FY 2022-23 and is largely due to growth in state shared income tax, which is based on collections from two years prior and is artificially high as a result of the State's decision to increase the percentage share with cities and towns from 15 to 18 percent to mitigate impacts from reducing the individual income tax rate. Revenue growth also includes estimated increases in City and state sales taxes. 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 2023-24 budget is $6,750.0 million. The final proposed budget reflects adjustments to account for changes in operating costs primarily due to carryovers for capital pay-as-you-go projects previously anticipated to occur in FY 2022-23 that will now occur in FY 2023-24. Details on the FY 2023-24 proposed budget for all City funds is attached to this report in Schedules 1-11 and include:
- Resources and expenditures by Fund for FY 2021-22 actual; FY 2022-23 estimate; and FY 2023-24 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.
- Preliminary FY 2023-24 Capital Improvement Program budget financed by operating funds.
- Proposed interfund transfers.
- Proposed full-time equivalent (FTE) positions by department.
- Preliminary FY 2023-24 Capital Improvement Program resources and expenditures by capital fund, program and fund source.
- Summary of proposed property tax levy and rate information.
Additional Information
Phoenix residents requested a variety of initiatives at the recent budget hearings, including food programs, public transportation, public Wi-Fi, heat relief programs, affordable housing and shelters, mental health services, park repairs, education and bicycle infrastructure. Staff determined many of the requests align with current City goals and programs. For example, American Rescue Plan Act (ARPA) funds are addressing several key areas as seen in the strategic plan: Nearly $120 million is allocated to address affordable housing and homelessness and includes 15 programs; $52 million is allocated to neighborhood sustainability programs such as parks programs and refugee and asylee services; over $23 million is dedicated to education and includes Head Start expansion, tuition assistance, and Wi-Fi access; $30 million is allocated to heat relief, including infrastructure for the unsheltered, weatherization, and tree and shade programs; $12 million was dedicated to the 2022 Family Assistance Resource program which provided 1,000 families assistance; $11.5 million is allocated to address food insecurity and food assistance programs; and $10.5 million is providing mental health and substance abuse services. Staff continue to analyze all programs with unused, underspent, or reprioritized funding that may be used for other ARPA eligible uses and will provide reallocation information to City Council after the summer break.
In addition to ARPA funding, the City has several departments working on programs to address mental health and substance abuse. The Community Assistance Program (CAP) is a group of dedicated, professionally trained adults who provide 24-hour on-scene crisis intervention and/or victim assistance services to residents. CAP alternative response units respond from fire stations and other locations throughout the greater Phoenix area, and work in partnership with the Phoenix Fire and Police departments and social service agencies. As well, the City recently created the Office of Public Health to work with City departments to achieve public health objectives. One of the initial priorities of this office is to support the development of an opioid response plan for the City as part of the One Arizona Agreement for Opioid Settlement dollars. The City will receive a settlement of approximately $41 million over the next 18 years to use on approved programs to address opioid related harms.
Finally, requests from residents were received for bicycle infrastructure projects, street safety and park repairs. In response, the Street Transportation Department will prioritize existing funding in FY 2023-24 to initiate design work on the 3rd Street, Rio Salado to Lincoln Street Connector project. This will help ensure this project runs in parallel with the Rio Reimagined 3rd Street Bicycle/Pedestrian Bridge project, which was awarded a $25 million federal Rebuilding American Infrastructure with Sustainability and Equity (RAISE) grant in 2022. At several of the Citywide budget hearings, speakers voiced concerns about traffic speeding and safety issues along 19th Avenue, south of Dobbins Road. The Street Transportation and Police departments have been working with community members over the past several months to evaluate and respond. Phoenix Police has engaged in targeted enforcement and conducted speed studies along the corridor. Street Transportation is evaluating speed limit reductions along 19th Avenue that would allow the City to consider additional traffic mitigation options, and staff are also developing roadway striping options that could improve safety and help lower speeds and traffic volumes along this section of 19th Avenue. The Parks and Recreation Department’s budget contains funding from various sources for repairs of flatland parks and facilities. Included in the GF proposed additions, and mentioned earlier in this report, $125,000 will be used for improvements at Sueño Park and for other park sites. The department’s proposed FY 2023-24 budget with the additional GF supplemental includes $16.4 million allocated for construction, renovation and repairs of park amenities and facilities.
Next Steps
The remaining key dates in this year's budget process are as follows:
Date Event
May 31, 2023 FY 2023-24 Tentative Budget Ordinance Adoption
June 14, 2023 FY 2023-24 Funding Plan and Final Budget Ordinance Adoption
July 3, 2023 FY 2023-24 Property Tax Levy Ordinance Adoption
On July 3, 2023, City Council is scheduled to adopt 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 the bonded debt service for facilities like libraries, police and fire stations, storm drains and parks. The total combined primary and secondary property tax rate for FY 2023-24, of $2.0992, represents a 0.7 percent reduction from the FY 2022-23 combined rate of $2.1130. The proposed primary property tax rate for FY 2023-24, of $1.2851, is one percent lower than the FY 2022-23 primary property tax rate of $1.2989, and is consistent with City Council policy to maximize the primary rate within City Charter Limits. The primary property tax rate decreased due to the state constitutional two percent levy limit, which limits the Primary Property Tax of a city, county or community college district to an amount two percent greater than the prior-year levy on previously-taxed properties. The secondary property tax rate remains unchanged at $0.8141.
Although the primary property tax rate decreased by one percent, the primary property tax revenue estimate increases for FY 2023-24 to $206.9 million, which is $6.7 million or 3.4 percent more than the FY 2022-23 revenue estimate of $200.2 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 14, 2023.
Department
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research Department.