Title
Fiscal Year 2024-25 City Manager's Proposed Budget
Description
This report transmits a balanced Fiscal Year (FY) 2024-25 City Manager's Proposed Budget for community review and comment. No action is required at this time. Action on the FY 2024-25 budget is scheduled for the May 21, 2024 Council meeting.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
The FY 2024-25 Proposed Trial Budget presented to City Council on March 19, 2024, included a General Fund (GF) one-time surplus of $80 million. The City Manager's Proposed Trial Budget recommends the surplus be set-aside in reserve, due to projected future deficits in FY 2025-26 and FY 2026-27 as presented to the City Council at the Feb. 27, 2024 Policy Meeting. The future deficits are due to the state's actions to reduce the tax base as discussed further in this report. To ensure the GF budget remains balanced and to preserve existing programs and services for residents, it is critical the surplus remain in the fund balance. In keeping with the important practice of engaging the community on the proposed budget, staff solicited feedback at 11 community budget hearings, via the FundPHX interactive budget tool, and received comments directly to the Budget and Research Department. The feedback from residents overall indicates support for the proposed budget and requests for more City services in a variety of areas. This report summarizes resident feedback and includes information on the City's efforts to address community input in Attachment A.
Summary
The City Council has demonstrated strong fiscal leadership and Phoenix continues to be an economic leader in the country due to diverse business and economic opportunities, a strong job market and population growth. Over the past three fiscal years, the City has benefited from strong revenue growth and the Council has made strategic decisions to responsibly allocate available resources to community priorities, and to invest in our City employees by approving competitive pay increases. Significant GF additions have been made over this time, totaling $365 million, to enhance a variety of programs and services for residents, implement recommended changes from the Classification and Compensation Study, and for negotiated labor increases. Unfortunately, there are budget challenges ahead due to actions by the state's legislative and executive branches to eliminate residential rental sales tax effective January 2025 (SB 1131) and to reduce the individual income tax rate to the current "flat tax" (SB 1828). These actions significantly reduce ongoing GF revenues while the City faces financial pressures due to continuing inflation and necessary compensation increases to ensure a high-quality workforce. Baseline deficits are projected in FY 2025-26 of $(92) million, and in FY 2026-27 of $(31) million. For these reasons, the City Manager's Proposed Budget recommends a responsible FY 2024-25 budget that maintains existing service levels and saves the one-time $80 million surplus to help balance the FY 2025-26 budget.
The proposed FY 2024-25 budget includes 30.0 ongoing full-time equivalent (FTE) positions needed in the GF (28.0 FTE) and Non GFs (2.0 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. Details on each position can be found in Attachment B.
This report also includes detailed schedules on the FY 2024-25 Proposed Budget for all City funds (Schedules 1-11).
Community Feedback on the FY 2024-25 Proposed Budget
Resident input was solicited at 11 community budget hearings held between April 2, 2024, and April 16, 2024. 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, 2024, and April 22, 2024, staff received 359 comments from 172 individuals on the Proposed Trial Budget. Several residents commented multiple times on the same topic. A summary of resident comments by topic is listed below for those with more than one comment received. Attachment A includes more information on the City's efforts to address many of the comments received from the community.
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/hearings.
Comments for additional funding/support of the budget:
- (36) additional funding for legal counsel for individuals facing eviction.
- (33) additional funding to increase the number of drinking fountains in City parks and facilities.
- (30) additional funding for library services and hours.
- (30) additional funding for Fire Department positions and equipment.
- (29) additional funding for affordable housing.
- (24) additional funding for homeless services.
- (17) additional funding for road safety initiatives like Vision Zero and street preservation projects.
- (9) additional funding for Arts and Culture.
- (7) additional funding for permanent housing.
- (7) additional funding for park safety.
- (7) additional funding for the Police Department.
- (6) additional funding for cricket fields and lighting in South Phoenix parks.
- (5) support for the budget surplus.
- (5) additional funding for public safety.
- (5) additional funding for park infrastructure and improvements.
- (4) additional funding for heat initiatives that include heat resiliency and tree planting.
- (3) additional funding for neighborhood clean-ups.
- (3) additional funding for the Office of Homeless Solutions.
- (3) additional funding for youth programs.
- (2) additional funding for the Gated Alley Program.
- (2) additional funding for Camelback Corridor Revitalization.
- (2) additional funding to build more community centers.
- (2) additional funding to develop properties on 24th Street to 28th Street to be used as a “hub” for youth and youth programs.
- (2) additional funding for the preservation of historic assets Citywide.
- (2) additional funding for regular cleaning of public restrooms at City parks.
- (2) additional funding to bring retail space to South Mountain Village.
- (2) additional funding to add a traffic light at Cave Creek and Desert Cove roads.
Comments for reduced funding/opposition of the budget:
- (8) reduce funding for police.
- (4) reduce funding for road initiatives like Vision Zero.
- (2) reduce General Obligation (GO) Bond amounts so property taxes don’t increase.
- (2) reduce funding for Green New Deal.
- (2) reduce/oppose the budget surplus.
- (2) reduce/oppose funding for homeless services.
In addition, the following social media statistics were recorded from March 25, 2024, to April 22, 2024:
Facebook - 14 City of Phoenix Facebook Posts
- 409 Views
- 54 Likes/Reactions
- 16 Shares
- 5 Comments
X (Twitter) - 3 City of Phoenix Tweets (across three City accounts)
- 40 Views/Impressions
- 2 Retweets
- 6 Likes
YouTube - 11 City of Phoenix Videos
FY 2024-25 GF City Manager's Budget Status
The proposed balanced FY 2024-25 GF budget is $2,099.9 million. This is a $71.2 million increase or 3.5 percent from the adopted FY 2023-24 GF Budget of $2,028.7 million. The increase accounts 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. 27, 2024), and a higher contingency amount to achieve 4.75 percent of operating costs. Inflation continues to impact several expenditure categories including commodities and contractuals such as electricity, motor vehicle parts, custodial services, machinery and equipment repair, and facility maintenance costs.
Projected GF resources are estimated at $2,099.9 million and includes the estimated beginning balance of $244.7 million, estimated revenue of $1,843.6 million and net interfund transfers and recoveries of $11.6 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 $1,843.6 million represent annual growth of (3.1) percent over FY 2023-24, and is largely due to a decrease in state shared income tax based on collections from two years prior, and reflects the impact of SB 1828 which lowered the individual income tax rate to the current "flat tax" of 2.5 percent. Negative growth also accounts for the elimination of residential rental sales tax due to SB 1131 effective January 2025. The combined negative impact to City revenues from the state's actions is estimated at $(54) million in FY 2024-25 and $(86) million in FY 2025-26. Revenue projections assume no further impact from the current legislative session, and includes increases in local and state sales taxes and certain non-tax categories. 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 2024-25 budget is $6,447.7 million. Details on the FY 2024-25 proposed budget for all City funds is attached to this report in Schedules 1-11 and include:
- Resources and expenditures by fund for FY 2022-23 actuals; FY 2023-24 estimate; and FY 2024-25 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 2024-25 Capital Improvement Program budget financed by operating funds.
- Proposed interfund transfers.
- Proposed full-time equivalent (FTE) positions by department.
- Preliminary FY 2024-25 Capital Improvement Program resources and expenditures by capital fund, program and fund source.
- 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, 2024 City Council Budget Decision
May 31, 2024 FY 2024-25 Tentative Budget Ordinance Adoption
June 12, 2024 FY 2024-25 Funding Plan and Final Budget Ordinance Adoption
July 1, 2024 FY 2024-25 Property Tax Levy Ordinance Adoption
On July 1, 2024, 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 General Obligation (GO) Bond Programs. 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 2024-25, of $2.0799, represents a 0.9 percent reduction from the FY 2023-24 combined rate of $2.0992 The proposed primary property tax rate for FY 2024-25, of $1.2658, is 1.5 percent lower than the FY 2023-24 primary property tax rate of $1.2851, 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 2 percent levy limit, which limits the Primary Property Tax of a city, county or community college district to an amount 2 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 1.5 percent, the primary property tax revenue estimate increases for FY 2024-25 to $215.4 million, which is $7.4 million or 3.6 percent more than the FY 2023-24 revenue estimate of $208.0 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 12, 2024.
Department
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research Department.