Title
Fiscal Year 2026-27 Proposed City Manager's Trial Budget and Fiscal Year 2026-31 Preliminary Five-Year Capital Improvement Program - Citywide
Description
This report transmits a balanced proposed Fiscal Year (FY) 2026-27 City Manager's Trial Budget for community review and comment. It also includes the Preliminary Five-Year Capital Improvement Program (CIP), as required by City Charter.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
The Trial Budget is an important step in the City's budget development process. It provides the Mayor, City Council, and community an opportunity to review a proposed balanced budget months in advance of final budget adoption in June. This report provides the proposed FY 2026-27 General Fund (GF) Trial Budget, which includes new and expanded programs and services for the community, increases to employee compensation, and set-asides to ensure future City budgets remain balanced.
The City of Phoenix is committed to engaging residents in the budget process, and this year there are many opportunities for residents to provide feedback outside of regularly scheduled City Council meetings. Between March 30 and April 16, the proposed FY 2026-27 Trial Budget will be presented to Phoenix residents for input at 12 community budget hearings. A complete list of hearing dates and times is included in Attachment D and is available on our website at https://www.phoenix.gov/budget. All resident feedback received will be provided to the City Council, so it may be used in budget decision making. As a result of public input, changes could be made to the Trial Budget and reflected in the proposed City Manager's Budget, scheduled to be presented to City Council on May 5.
This report also includes the Preliminary Five-Year CIP for City Council review (Attachment E). The City Charter requires the City Manager to submit the Preliminary CIP prior to adoption of the final budget.
The CIP represents investments in the long-term needs of the community through infrastructure development and maintenance. The five-year program totals $11.4 billion, with a $2.7 billion program for 2026-27. The full report is available on the Budget and Research Department website at phoenix.gov/budget.
Summary
As presented at the February 24, 2026, Policy meeting, the GF multi-year forecast reflects an overall positive budget outlook, thanks to previous strategic actions by the City Council and continued economic growth. After taking into account resources needed for operational and financial continuity, the FY 2026-27 available surplus was estimated at $62 million, including $36 million in ongoing resources and $26 million in one-time resources. The multi-year forecast reflected a baseline surplus in FY 2027-28 of $14 million and a deficit in FY 2028-29 of $(9) million.
Staff have completed the annual 7+5 technical expenditure and revenue review process, and approximately $8 million in adjustments have been made to the FY 2026-27 GF Status, primarily reflecting updated primary property tax and state-shared sales tax revenue forecasts, as well as minor adjustments to anticipated user fee revenues. These adjustments result in a gross surplus of $163 million; however, the net available surplus is projected at $70 million, after accounting for resources needed for operational and financial continuity, including a $75 million set-aside to balance FY 2027-28 and resources of $18 million needed for the Office of Homeless Solutions due to expiring American Rescue Plan Act funding, as well as operating costs for new parks. The revised FY 2026-27 projected available surplus of $70 million includes $43 million in ongoing resources and $27 million in one-time resources.
The proposed FY 2026-27 GF Trial Budget recommends allocating approximately $35 million of the surplus to key Council priority areas, including Community Health and Safety; Children, Youth, and Families; Homeless Service Continuity; Housing Affordability; and Planning and Development Customer Service Enhancements. It also recommends allocating $53 million for investing in employees through compensation increases to maintain competitiveness in hiring and retention and setting aside $75 million to help ensure the FY 2027-28 budget remains balanced. These allocations are reflected in Attachment A. The proposed FY 2026-27 Trial Budget also includes several small increases to the Aviation Department, which are reflected in Attachment B.
The proposed FY 2026-27 Trial Budget also includes administrative position additions and conversions of temporary full-time equivalent (FTE) positions to ongoing positions. Funding for these positions has been identified and accounted for in department operating budgets. Details on each position can be found in Attachments A and B. Finally, this report includes the annual GF Revenue Estimates Report (Attachment C) and the schedule of upcoming community budget hearings to engage residents and gather feedback (Attachment D).
GF Resources
The revised FY 2026-27 GF Status reflects a projected available surplus of $70 million and includes the beginning fund balance, net transfers, and revenues, which total $2.297 billion or 4.9 percent higher than FY 2025-26 estimated resources. Revenues make up the majority of FY 2026-27 resources and are projected at $1.991 billion, representing 3.5 percent growth compared to FY 2025-26 revised revenue estimates. As discussed in the Preliminary GF Budget Status and Multi-Year Forecast report provided to Council on February 24, revenue projections incorporate information and perspectives from key sources, such as the University of Arizona Economic Business Research Center, Joint Legislative Budget Committee, and Finance Advisory Committee, as well as significant internal analysis. Revenue projections assume no new fee increases and no new sources of revenue.
Increases in FY 2026-27 GF revenues are primarily due to growth in state-shared income tax revenues, which are based on collections from FY 2024-25 and reflect solid wage growth and increased capital gains tax revenues. FY 2026-27 revenue projections also reflect moderate growth in City and state-shared sales taxes, as well as primary property tax revenue growth due to increases in assessed valuations and new construction. Because of the these increases in assessed valuations and new construction, the City's primary property tax rate is forecasted to slightly decrease in FY 2026-27 from $1.2658 to $1.2652.
While FY 2026-27 revenue projections reflect modest growth from the current year, they are tempered by a number of factors, including geopolitical and federal policy uncertainty, ongoing concerns with affordability, and mixed economic data, including weak contracting sales tax data and mild increases in the local unemployment rate. The projections also account for the incorporation of San Tan Valley, which is projected to negatively impact state-shared revenue distributions by more than $10 million in FY 2026-27. Finally, it should be noted that revenue projections do not account for any negative impacts from potential state legislative action. Such action can have significant impact on City revenues and expenditures, and staff continues to work with Government Relations to closely monitor all legislation.
The FY 2026-27 GF estimates for each major revenue category, totaling $1.991 billion, are highlighted below. Comprehensive detail on these categories and their forecast methodologies can be found in Attachment C.
- Local Sales Tax - $834 million;
- State Shared Revenue - $711 million;
- Primary Property Tax - $233 million;
- User Fees - $213 million.
GF Expenditures
FY 2026-27 GF expenditures to continue existing levels of service are projected to be $2.134 billion, or $2.039 billion excluding contingency funds. This compares to the FY 2025-26 GF expenditure estimate of $1.942 billion, representing an increase of $97 million or 5.0 percent excluding contingency funds. The increase primarily reflects continued higher costs due to inflation, additional vehicle replacement costs, lower anticipated salary savings from vacant positions, and increases in employee salaries and fringe benefits, including higher pension costs discussed below and the continued impact of the City Council-approved Classification and Compensation Study. These increases are partially offset by lower planned costs for GF pay-as-you-go capital improvement projects. Expenditure amounts may change over the coming weeks as staff continues to refine final estimates prior to the presentation of the City Manager's Proposed Budget on May 5.
Employee pension costs have consumed a growing share of the City's GF resources over the past 10 years. GF pension costs in FY 2026-27 are estimated to be $486 million or 23.9 percent of total GF operating costs. The GF Multi-Year Forecast included estimated increases of $46 million between FY 2025-26 and FY 2028-29. This increase is primarily caused by rising public safety pension costs. The City is committed, and legally required, to pay 100 percent of our actuarially required contribution every year. Also, under the leadership of the City Council, a pension funding policy has been adopted each year, as required by state statute. Additionally, pension reform for the City of Phoenix Employees' Retirement System (COPERS) is helping to stabilize civilian pension costs. While reform efforts have been successful for the Public Safety Personnel Retirement System (PSPRS), there remains a significant unfunded sworn pension liability of over $3.7 billion, per the PSPRS June 30, 2025, actuarial valuation.
Proposed GF Budget Additions and Set-Asides
Due to the leadership of the City Council and continued economic growth, the proposed FY 2026-27 GF Trial Budget includes a $70 million available surplus. The Trial Budget includes strategic allocations of $35 million to invest in key Council priority areas, addressing community needs and enhancing City services. It also includes $53 million to increase employee compensation, ensuring the City remains market competitive and is able to recruit and retain our most important asset - our people. Finally, the Trial Budget includes a set-aside of $75 million to help ensure future budget years remain balanced and continue to provide reliable service to residents.
Additional detail on the proposed FY 2026-27 supplementals is provided below and also included in Attachment A.
Community Health and Safety - $1.2 million and 8.5 positions
Community health and safety remains a high priority for the City Council, and the Trial Budget includes several supplementals designed to address this priority. First, it proposes to invest $500K in one-time funds for additional streetlights and streetlighting upgrades in the 27th Avenue Community Safety Plan corridor, to further the progress made in improving safety and quality of life along 27th Avenue and the I-17 corridor. Next, it includes $500K in one-time funds for security lighting enhancements at City parks, helping to promote safe recreational opportunities for Phoenix residents. These improvements include enhanced playground lighting at Buffalo Ridge, Moon Valley, Sueno, and Western Star Parks, and perimeter lighting improvements at Hilaria Rodriguez Park. Finally, the Trial Budget includes $266K in partial-year, ongoing operating costs for the new 2023 GO Bond-funded Esteban Park recreation center and for the new 395-acre Lone Mountain Park. These additions include 8.5 positions, with combined full-year operating costs estimated at $764K.
Children, Youth, and Families - $7.3 million and 0.5 positions
Children, youth, and families are a vital part of the Phoenix community, and the Trial Budget invests in them in several ways. First, childcare costs represent a significant financial challenge for Phoenix families. The Trial Budget includes a $5 million set-aside to address this challenge by exploring potential options to help bring down the cost of childcare for Phoenix families. Next, the Trial Budget includes $1.5 million in one-time funds to provide flexible emergency financial assistance to Phoenix residents. This funding is intended to help prevent homelessness and stabilize housing and food security for low-income individuals and families in light of recent reductions and restrictions in federal funding. The Trial Budget also includes $500K in ongoing funds, including 0.5 part-time positions, for the Parks and Recreation Department to invest in several teen prevention strategies, including tutoring opportunities, enhanced and expanded recreation programming, and to improve program affordability to ensure Phoenix families can participate in Parks programs. Finally, the Trial Budget includes $322K in ongoing funds for a parking lease at Cholla Library. Ongoing redevelopment of the former Metrocenter Mall has reduced parking options for library visitors. This funding will secure a dedicated parking lot for visitors, ensuring they can continue to enjoy the library's offerings.
Homeless Service Continuity - $18.4 million and 0.0 positions
During the pandemic, the City Council strategically deployed American Rescue Plan Act (ARPA) funding to address homelessness in the Phoenix area. As ARPA funding expires, and to ensure progress made in this critical area continues, the Trial Budget includes a total of $18.4 million in ongoing funds to continue key services. This includes $12.9 million to continue shelter operations, both at City-owned facilities such as the Phoenix Navigation Center, Safe Outdoor Space, and Washington Shelter, and through nonprofit partner facilities, such as Rio Fresco, North Mountain Healing Center, and the Central Arizona Shelter Services single adult shelter. Funding of $1.5 million will help continue summer heat relief efforts at the City's 24/7 heat respite sites and three extended hour cooling centers. Additionally, the Trial Budget allocates $1.5 million to support the Keys to Change Key Campus operations, including the Brian Garcia Welcome Center, janitorial services around the campus, and ensuring safe and secure storage of client personal property. Finally, the Trial Budget includes $2.5 million for a master lease program. This program would enable the City to secure master leases for rental housing units, which include on-site support services, to sublease to individuals exiting homelessness to free up shelter bed space.
Housing Affordability - $6.6 million and 0.0 positions
The City Council established the Phoenix Housing Trust Fund in May 2025, and adopted the Housing Trust Policy in November 2025, to further the City's commitment to affordable housing. The proposed one-time $6.6 million increase to the Housing Trust Fund would bring its total available resources to $15 million, representing a significant investment in affordable housing. This funding includes $2 million designated for waivers or reductions on affordable housing and related project plan review, permit, and inspection fees, with rules on eligibility and amounts to be determined by the City Council. It also includes $1 million designated for the creation of pre-approved housing plans focused on affordability and the character of the city's villages. Remaining funds would be deployed in accordance with the Housing Trust Policy, furthering affordable housing efforts in Phoenix.
Planning and Development Customer Service Enhancements - $1.5 million and 0.0 positions
The FY 2026-27 Trial Budget includes $1.5 million in one-time funds for customer service enhancements in the Planning and Development Department, focused on two key areas. First, the funding will support improvements to the customer service experience at Phoenix City Hall, including streamlined check-in processes, customer flow, and other potential enhancements to the visitor experience. Additionally, the funding will support continued customer service and process improvement initiatives, which may include website enhancements, additional educational efforts on available services and resources, and technology upgrades.
Set-Aside for Labor - $53 million
Investing in employees to recruit and retain talent remains a priority for the City Council. The FY 2026-27 Trial Budget includes $53 million for employee compensation increases and reflects a mix of ongoing and one-time funds. Current employee contracts expire at the end of the current fiscal year, and management has been negotiating with each bargaining unit. Exact details of the compensation packages will be determined in the negotiations process.
Set-Aside to Balance the FY 2027-28 Budget - $75 million
The FY 2026-27 Trial Budget includes a set-aside of $75 million to help ensure the FY 2027-28 budget remains balanced. This strategic use of one-time funds allows for the continuation of programs and services that residents rely on and helps ensure the GF budget is sustainable into the future.
Non-GF Budget Additions - 1.2 million and 8.0 positions
The proposed FY 2026-27 Trial Budget also includes several Non-GF supplemental budget additions for the Aviation Department, totaling $1.2 million and 8.0 FTEs. These additions will support international airline operations, capital project management, computer technology upgrades, water quality monitoring, and administrative needs. Additional detail is provided in Attachment B.
GF and Non-GF Conversions to Maintain Services - $0 and 69.9 FTE
The Trial Budget includes 45.9 GF and 24.0 Non-GF new ongoing positions to provide critical and sometimes legally required support for City departments. These positions either represent conversions of existing temporary positions to ongoing status or are new ongoing positions funded at no additional cost. Funding for these positions has been identified and programmed in each respective department's operating budget. These positions are reflected in Attachments A and B.
Preliminary Five-Year CIP
The Preliminary Five-Year CIP presented in Attachment E totals $11.4 billion. The first year of the program, totaling $2.7 billion, will ultimately be updated for carryover and resource availability and presented to the City Council for appropriation in June. The remainder of the CIP is presented for responsible planning purposes and is dependent upon resource availability. The full report is available on the Budget and Research department website at phoenix.gov/budget.
Next Steps
In order to engage the community in the budget process, staff will be holding 12 community budget hearings between March 30 and April 16. Attachment D includes the schedule of budget hearings. Residents are also encouraged to contact the Budget and Research Department directly to provide input or ask questions about the budget. More information on the budget and how to submit feedback directly to the City is available at https://www.phoenix.gov/budget.
The remaining key dates in this year's budget process are as follows:
Date Event
May 5, 2026 City Manager's 2026-27 Proposed Budget
May 19, 2026 City Council Budget Decision
June 3, 2026 2026-27 Tentative Budget Ordinance Adoption
June 17, 2026 2026-27 Funding Plan and Final Budget Ordinance Adoption
July 1, 2026 2026-27 Property Tax Levy Ordinance Adoption
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher, Deputy City Manager Amber Williamson and the Budget and Research Department.