Independent Study: “Buildout” Will Not Cause An Oro Valley Financial Catastrophe...But

It's really close...

“Based on the current budget structure, existing zoning and the expected amount of future residential development, the projections show a fiscally sustainable result at build-out …but with very limited resources to cover any significant increases in long-term maintenance costs.” (Applied Economics Fiscal Impacts Report, p 22).

No wiggle room

In fact, the projected difference between revenue and expenditures in the the two funds assessed is really tight (see chart below right). There's no "wiggle room."

Study seeks to answer question: Must residential growth in Oro Valley continue even after buildout in order for the town to be financially sustainable given current revenue sources?

Town Finance Director David Gephart presented the study to the town’s Budget and Finance Committee last week. He said that the town engaged an outside consultant to do the study as part of its strategic planning process. Gephart noted that the study was needed because there are some in the community, including former Town Manager Mary Jacobs, who believe that the arrival of “buildout” will herald a financial crisis.

Study conclusion applies to town day-to-day operations

The study focuses on two funds. One is the General Fund, the town’s source of funding for day-to-day town operations. These operations include major functions such as public safety, economic development, and some public works funding. The water department and the community center are funded by separate funds and were not included in the study. The highway fund, much of whose revenues come from state-shared revenues and transfers from the capital fund, was included in the study.

Study conclusion seems a bit of an overreach 

The study aims to determine whether residential growth in Oro Valley must continue after buildout to ensure the town's financial sustainability with its current revenue sources. We believe that the study conclusion that there is no problem is an overreach:

• The study projects a surplus of funds until significant buildout occurs in 2034. At that time, revenues and expenses nearly match. It's really too close to call.  As a minimum, the town will need to manage its spending ever more carefully as the town reaches buildout than it does today. Will it have the "ability" to do that?
• The study does not account for the fact that the General Fund is a source of funding the Capital Fund (see note below). That funding comes from the General Fund surplus. That impact is not included in the study, The consultant recognizes this by noting in their conclusion that the town will have “… very limited resources to cover any significant increases in long-term maintenance costs."
• According to Gephart, the study numbers were not reconciled with the town’s five-year financial forecast. That forecast is based on the best-known details of future events, while the consultant study used estimates of what may happen over twenty-five years.
• In addition, the town has yet to reach a "steady state" were all numbers can be reasonably estimated. For example, the town has yet to open and operate Naranja Park, one of the largest regional parks in Southern Arizona. The upkeep and renewal of this facility could be very costly.

Council should focus on "mitigating" the risk

We think that the council needs to know the circumstances under which "buildout" will cause a financial crisis for the town. They can then assess, using their own judgment, the likelihood of these events occurring and what, if anything, they can do to reduce the risk. That is really what planning is all about.

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About the Capital Fund

The Capital Fund is the source of funding for capital improvement projects. These are projects where spending is $50,000 or more, have an expected useful life of five or more years, and either become or preserve an asset of the Town. Although facility repair and maintenance, as well as fleet replacements, do not meet the definition of a capital project, they are significant expenses for the Town and are included in the CIP for planning purposes" (Source: 2023-24 Town Manager Recommended Budget, page 101). 

The General Fund is one source of money for this fund. Other sources include revenues derived from future commercial growth and development, including impact fees, commercial sales tax collections, other one-time revenue sources such as grants and contributions, and bond proceeds.

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Oro Valley Is Not Approaching "Buildout"

There has been for some time now the idea floated by town staff that Oro Valley is approaching "buildout." It is often referred to as some "dreaded event"; as if something dreadful will happen if the town stops growing. Understanding this, town council defined a strategic objective last February to "Develop a buildout analysis that projects short and long-term impacts to Town service levels and provides potential mitigation options." According to Town Manager Jacobs, that analysis will not be available until the winter of 2023.

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"Buildout" is a vague term

The town has not defined what it means when it says that Oro Valley is approaching buildout. We say this because the town has 20,300 acres of buildable land of its 27,000 acre size. As of last April, 10,900 acres were "built-out". 10,400 acres were "Vacant". That's 20,300 acres of buildable land. 

Certainly, a town that has almost half of its available building land designated as "vacant" is not approaching any building saturation point.  So, to what is the town referring when it says that Oro Valley is approaching buildout?

It is unplanned vacant land to which the town refers when it says that Oro Valley is reaching buildout...but that is is only 15% of total vacant land available for growth

85% of the 10,400 acres of vacant land have an approved plat or development plan. The remaining vacant land is designated by the town as "unplanned."  This land  is mostly located the periphery of the town [see panel]. 

We think that it is this land, the vacant "unplanned land," to which the town is referring with it says that town is reaching “buildout.” 

That is an unfair definition because it fails to recognize that other other 8.900 acres are either being built or will be built also.

Permitting activity remains strong... Lots of construction remains

By no means is the town approaching "buildout." Construction remains strong in Oro Valley and it will be such for along time. In November, for example,  "220 total permits were issued . . . compared to 160 permits issued in October. Year-to-date, 2,380 total permits have been issued since the beginning of the year compared to 2,290 issued during the same period in 2020." (Source: Town Manager Executive Report To Council, December 2021)

Town annexation strategy would increase available land for homes via the "Tangerine 880"

The town's annexation strategy will increase land for growth. The major source of a near team increase land for homes is the 880 acres of state land ("Tangerine South"and "Tangerine North"). That is a "near term target". This land is located on the Northwest tip of Oro Valley. It would extend Oro Valley's reach to Thornydale. 

The town vetted the Tangerine North annexation to the community in 2017-2018. It was met with resident opposition. Read one report on this here. Both the North and South Tangerine annexations remains open. If not heard by this council, it will certainly be heard by the next council.

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