Staff provides council with lengthy discussion of why new taxes are needed nowThis Wednesday, the Oro Valley Town Council will consider whether to move forward with three new taxes: a commercial rental tax, a telecommunications tax, and a use tax. According to staff estimates, the three taxes together would generate between $930,000 and $1.88 million per year, with $1.88 million as the upper bound. The commercial rental tax would apply to leased commercial property and primarily affect businesses, as the Town already charges a 2% rental occupancy tax on residential rentals. The telecommunications tax would apply to communication services and would affect residents and businesses alike. The use tax would apply to Oro Valley business purchases made outside Arizona for which a sales tax should have been collected but was not. These are items a business buys for its own use.
Town staff believe new taxes are necessary at this time for seven reasons.
Projected revenue shortfall in fiscal 2030The immediate trigger for this discussion was a long-range financial forecast presented last year by Finance Director David Gephart, which showed that, based on a host of assumptions, the Town could face a structural funding gap beginning in fiscal year 2029–30. The forecast indicated that existing revenue sources may not be sufficient to sustain current service levels over the long term as growth-related revenues slow and operating costs continue to rise. Staff identified the need to evaluate potential new, ongoing revenue sources well in advance of that timeframe, leading to the current discussion of possible tax options.
Town staff point to sharply rising costs as a primary justification for the new taxes. Inflation has increased the cost of providing core services, including police, parks, public works, and planning. Staff report that General Fund program costs have increased substantially since 2015, while pavement preservation and public safety costs have risen particularly quickly in recent years. According to staff, these cost pressures are ongoing and cannot be addressed through one-time solutions.
Slowing or constrained revenue growth
Staff also cite weakening revenue trends. Sales tax revenues, which fund a large share of Town operations, have shown little growth in recent years and have declined slightly. At the same time, Oro Valley is nearing residential build-out, which limits future growth-related revenues. Staff argue that this combination creates a structural imbalance between revenues and expenditures that must be addressed with new recurring revenue sources.
Staff also cite weakening revenue trends. Sales tax revenues, which fund a large share of Town operations, have shown little growth in recent years and have declined slightly. At the same time, Oro Valley is nearing residential build-out, which limits future growth-related revenues. Staff argue that this combination creates a structural imbalance between revenues and expenditures that must be addressed with new recurring revenue sources.
State actions limiting local revenues
Another justification raised by staff involves actions taken by the State Legislature. Changes to state income tax rates have reduced the amount of state-shared revenue flowing to municipalities, including Oro Valley. Staff emphasize that these decisions are outside the Town’s control and have permanently reduced an important General Fund revenue source.
Another justification raised by staff involves actions taken by the State Legislature. Changes to state income tax rates have reduced the amount of state-shared revenue flowing to municipalities, including Oro Valley. Staff emphasize that these decisions are outside the Town’s control and have permanently reduced an important General Fund revenue source.
Unfunded obligations and capital pressures
Staff also highlight new and existing obligations that lack dedicated funding. These include increased transfers to the Highway Fund to offset rising road maintenance costs and the recent purchase of a new police headquarters that currently has no funding identified for reconfiguration and build-out. Staff state that without additional revenue, these pressures will continue to strain the General Fund.
Alignment with neighboring communities’ tax structures
Finally, staff argue that Oro Valley is an outlier among nearby communities. Marana, Sahuarita, and Tucson already impose commercial rental taxes, telecommunications taxes, and use taxes. Oro Valley currently does not. Staff contend that adopting these taxes would align the Town’s tax structure with neighboring jurisdictions and capture revenues that other communities already rely on.
Finally, staff argue that Oro Valley is an outlier among nearby communities. Marana, Sahuarita, and Tucson already impose commercial rental taxes, telecommunications taxes, and use taxes. Oro Valley currently does not. Staff contend that adopting these taxes would align the Town’s tax structure with neighboring jurisdictions and capture revenues that other communities already rely on.
Staff believe they are doing all they can to keep spending under control
In their materials to Council, staff state that budget reductions have already occurred, according to staff, and will continue as part of the upcoming budget cycle to address what they describe as structural imbalances. Staff cite reallocations within existing funds, ongoing efforts to manage rising costs through the annual budget process, and steps taken to absorb inflation-driven increases in areas such as pavement preservation and public safety. While acknowledging that costs continue to rise, staff maintain that these measures are necessary but not sufficient on their own, leading them to recommend new revenue sources to sustain current service levels.
In their materials to Council, staff state that budget reductions have already occurred, according to staff, and will continue as part of the upcoming budget cycle to address what they describe as structural imbalances. Staff cite reallocations within existing funds, ongoing efforts to manage rising costs through the annual budget process, and steps taken to absorb inflation-driven increases in areas such as pavement preservation and public safety. While acknowledging that costs continue to rise, staff maintain that these measures are necessary but not sufficient on their own, leading them to recommend new revenue sources to sustain current service levels.
Tomorrow: An alternative case for further analysis and consideration
To date, no organization or individual has presented a clear, comprehensive case against the proposed taxes. An alternative perspective can nevertheless be developed from the existing record, and LOVE will present that perspective in tomorrow’s article.
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