May 2025 Financial Update: Larger than budgeted fund balances expected at year end

Bottom Line: Larger than budgeted fund balances expected at year end

All six of the Town’s major funds are estimates to end the fiscal year with balances greater than budgeted. This conclusion is based on a staff presentation to the town's Budget and Finance Commission

in August. The estimates are based on fund balance positions as of May.   

Delayed spending and savings drives most reported results

A larger than planned fund ending fund balance does not mean the Town is operating more efficiently or being more fiscally responsible. This is because the cash balances also reflect the timing of receiving and paying funds. Because the Town uses cash basis accounting, lower spending may simply mean that a project or service has been completed but payment has not yet been made; or that work has not yet started. For example, some capital projects in the Capital Fund have rolled into the next fiscal year, and certain road preservation projects in the Highway Fund and equipment purchases in the Water Utility Fund are being delayed.

General Fund: Lower revenues and expenditures

The General Fund pays for most day-to-day Town operations, excluding spending by the Water Department and the Stormwater Utility Fund. It also provides to other  funds, such as the Capital Fund and the Community Center Fund. Its performance therefore matters. General Fund revenues are down about 4% year over year, driven mainly by lower-than-expected construction sales tax revenues. This is despite licenses and permits exceeding the annual budget, with 106 single-family permits issued through May. Expenditures are tracking under budget due to unfilled positions and operations and maintenance savings. The Town now expects to use about $2.3 million of fund balance instead of the planned $4.1 million, leaving reserves about $4.4 million above the 30% Council policy threshold.

Highway Fund: Delayed road projects boost fund balance
Revenues in the Highway Fund are at 83% of budget. Highway User Revenue Fund receipts are slightly below plan, but higher right-of-way permit fees and insurance recoveries help offset that shortfall. The fund also receives quarterly transfers from the Capital Fund, totaling $4 million for the year. On the spending side, savings are expected in personnel, street and traffic signal maintenance, and several capital projects. Equipment and road work came in under budget, including the Magee Road and La Cañada Drive mill and overlay projects. The Town Council also shifted funds from a planned truck purchase to a less expensive crack seal machine, producing additional savings. Instead of a $365,000 change in fund balance as budgeted, the fund is now projected to add about $870,000 by year-end. 

Community Center Fund: Better than planned revenues balanced, somewhat, by greater than planned spending
Revenues in the Community Center Fund are ahead of budget, reaching 105%. Golf activity is strong, with 111,115 rounds played through May, an increase of 8.2% from last year. Town revenues from dues, recreation programs, and rentals are also higher than expected. Expenses are running over budget due to higher labor, utility, and credit card costs, as well as increased personnel costs. Even so, instead of using $115,000 from the Community Center Fund balance as planned, the fund is now projected to add about $750,000, ending the year with a balance of $2.6 million. These results include a transfer from the General Fund of $3.59 million, projected to reach $3.9 million by year-end (June). The Community Center Fund also transferred $1.72 million to cover debt service on the $25 million Parks and Recreation bond.”

Capital Fund: Rolling some projects into next year
Revenues in the Capital Fund are at 85% of budget through May. These include a $1 million state grant for the Naranja Park pump track and skatepark, $5.35 million in transfers from the General Fund, and higher-than-expected interest earnings. On the spending side, only $4.5 million of the $10.3 million budgeted for capital outlays has been used, as several projects will roll into the next fiscal year. Transfers out include funding for road work into the Highway Fund and $2.2 million set aside for the Vistoso Trails Nature Preserve and transit vehicles in the Grants Fund. Instead of using $5 million of fund balance as planned, the fund is now projected to use only about $400,000, leaving an ending balance of $11.7 million. 

Water Utility Funds: Increases revenue...some cost savings
Revenues in the Water Utility Fund are expected to slightly exceed budget, helped by reclaimed water sales, service fees, and higher interest earnings. Loan proceeds total about $7.2 million compared to $8 million budgeted. On the expense side, savings are coming from staff vacancies, lower costs for CAP water deliveries, and reduced system maintenance. Capital outlays are also running below plan. Debt service payments were made as scheduled, and transfers are being used to fund regional water projects such as the Northwest Recharge, Recovery, and Delivery System. Instead of the $2.3 million increase that was budgeted, the fund is now projected to grow by about $6.2 million, ending the year with a balance of $15.5 million.

Stormwater Utility Fund: Spending timing impacts fund balance
Revenues in the Stormwater Utility Fund are on track, with fee collections near budget and interest earnings well above expectations. A FEMA grant for $210,000 for the Sierra Wash project will roll into the next fiscal year. On the expense side, savings are coming from vacancies and lower costs for vehicle and equipment repairs, field supplies, and gasoline. The Sierra Wash project had a budget of $735,000 but is now estimated to cost about $380,000 by year-end . Instead of using $432,000 of fund balance as budgeted, the fund is expected to use only about $127,000, ending the year with a balance of $936,000.

- - -

Oro Valley Staff Targets October Council Approval of New Revenue Sources and Fee Increases

Fee increases and new taxes vetting continues

Resident participation in July’s community outreach meetings on proposed taxes and fee changes was limited. According to Finance Director David Gephart, about 30 residents attended across three online sessions focused on parks and recreation fees (July 9), new taxes (July 10), and the stormwater utility fee (July 15).

Gephart: Fee increases and new revenue sources needed because of rising cost of public safety and roads
Gephart told residents at the July meetings and the Budget and Finance Commission in August that new revenues are needed because costs are rising faster than revenues. Police services have grown 23% since 2021, absorbing 80% of General Fund growth. Road maintenance costs have more than doubled in the same period, increasing 107%. Meanwhile, sales tax revenues have been flat for three years, and a retail leakage study showed Oro Valley loses about $1.8 billion annually in taxable sales to surrounding communities, equal to $45 million in foregone revenue.

Gephart added that the stormwater utility fee currently covers only operations and not capital projects, while parks and recreation fees are being adjusted to better reflect costs. The goal of the proposed changes, he said, is to diversify revenues, reduce reliance on debt, and direct new funding toward capital projects such as police facilities, vehicle replacement, and road maintenance.

Resident outreach met with low attendance
Approximately thirty residents participated in the three sessions. Attendance was low and may not reflect the views of the broader community. Vice Mayor Barrett noted at a June study session that scheduling three meetings close together in July, a peak holiday and vacation period, may have limited participation.

Residents who participated raised concerns about fairness, timing, and process more than about the size of the increases. Parks and recreation questions focused on whether fee changes treated age groups and activities equally. At the new taxes session, participants questioned the need for new revenues now, discussed the possibility of a property tax, and cautioned against rushing decisions before full engagement. At the stormwater meeting, comments focused on development practices near washes and a preference for smaller, steady increases.

Gephart also reported on business outreach
Gephart has met with the Oro Valley Chamber Board, Roche, and other representatives. A Chamber-hosted forum is scheduled for September 11. The Chamber suggested a property tax would be fairer, questioned whether the proposed revenues would be sufficient, and urged more business-friendly policies. Roche’s main concern was the telecom tax, while small businesses and residents expressed worry about the commercial rental tax and its impact on already high rents. Gephart said these discussions have been helpful in identifying concerns.

Budget and Finance Commissioners’ question the rental tax
Commissioners asked Gephart several questions during the August meeting. Gephart said a commercial rental tax would be difficult to pass, and noted that Council had previously advised staff to avoid relying on this tax. Commissioners also noted that higher rents in Oro Valley compared to Tucson and Marana could make such a tax unfair. Gephart acknowledged Oro Valley rents are higher but said the tax would create equity since the Town currently collects nothing from many services such as medical offices and storage facilities.

Commissioners shifted their attention to a tax change not on the agenda: a small sales tax increase. Gephart said that might be considered later as a “step two,” but the first step is to adopt the three tax categories used in neighboring towns. Commissioners also asked about the reliability of revenue estimates. Gephart noted the use tax could generate between $900,000 and $1.8 million annually but is volatile. He acknowledged that if revenues came in low, the Town might need to consider additional measures in the future, but said possible relief could come if required police pension contributions decline.

Gephart: Revenues intended for capital items
Gephart emphasized that revenues from new taxes are intended for capital needs such as improvements at the newly purchased police facility, police vehicle replacement, and continued road maintenance. At present, only stormwater utility fee revenues are legally dedicated to the Stormwater Utility Fund. All other new revenues would go into the General Fund, and Council would need to act if it wished to dedicate them specifically to capital purposes.

Gephart targets October for council vote
Gephart hopes to present a firm vetted proposal to Council in October. This would follow the planned September Chamber forum and review by relevant commissions (the Budget and Finance Commission, the Parks and Recreation Advisory Board, and the Stormwater Utility Commission). Council is expected to discuss the proposals at an October 1 study session, with a possible vote on October 15.

- - -

Other Information:

2025 Town of Oro Valley Taxes and Fees

LOVE Parks and Recreation Fee Proposed Increase

LOVE Stormwater Utility Fee Proposed Increase

LOVE Oro Valley Considers New Local Taxes

LOVE Oro Valley Seeks Input On New Taxes and Fees

- - -

Town Staff Proposes Increase In Stormwater Utility Fee

This is the second article in our series discussing potential new taxes and fee increases that Oro Valley town staff are recommending to the Town Council. Last week, we discussed three new taxes. Today, we cover a recommended increase in the stormwater utility fee. Tomorrow, we will discuss proposed increases in Parks and Recreation fees.

- - -

Oro Valley staff proposes a stormwater fee increase as part of a package of revenue seeking options
The Town of Oro Valley is considering an increase to its monthly stormwater utility fee beginning in fiscal year 2025–26. This fee is added into the town monthly water bill.  

This increase is part of a package of proposed new taxes and recreational facility user increases that staff presented two weeks ago in a study session to the Oro Valley Town Council.

First rate increase since the utility was created in 2001

According to town staff, the stormwater utility fee, first implemented in 2001 when the utility was created, has remained unchanged. Now, Town staff and the town's Stormwater Utility Commission are recommending a $2.00 per month increase for each Equivalent Residential Unit (ERU)—a billing unit that represents the amount of stormwater runoff generated by a typical single-family home. An ERU is also used to calculate charges for commercial properties based on their impervious surface area. The new proposal would raise the base rate from $4.50 to $6.50 per ERU for both residential and commercial properties. This marks the first major change to the stormwater fee since its creation and is intended to support both ongoing operations and a growing list of capital improvement projects. 

Current fee cannot fund new projects
Staff stated that the reason for the proposed increase is that the current rate only covers day-to-day operations and routine maintenance. The current fee level does not generate enough revenue to fund capital improvement projects. For example, the Calle Concordia channel improvement project and the La Cholla wash crossing at Lambert Lane are both on hold due to insufficient stormwater funds. There are other examples of projects proposed by not done around town [See panel right]. 

New rates will affect both residents and businesses?

If approved, developed residential properties would see their monthly stormwater feed charge go from $4.50 to $6.50, or an increase of $24 per year per household. Commercial properties, which are billed based on the amount of impervious surface area, would see a similar per-ERU increase. The change is projected to generate approximately $2.2 million in stormwater revenue in FY 2025–26, a substantial increase from current collections of $1.5 million. Staff say this will allow the utility to cover routine costs, meet reserve requirements, and fund some capital improvements without needing to dip into emergency reserves. 

What did council members have to say?
Speaking at the study session, several council members acknowledged the need to maintain Oro Valley’s infrastructure and prepare for future challenges. However, concerns were raised about the timing and size of the increase, especially given recent or proposed increases in other fees and taxes. One Councilmember stated that “We need to be sure residents understand why this increase is needed and how the money will be used.” Other members stressed the importance of annual reviews to avoid large, sudden jumps in the future. This is the rate increase model that is used by the Water Utility.

Resident question: Is this increase simply the result of poor town planning? 
One resident wrote us observing tha  “Despite our Town Manager updating our 10 Year Capital Improvement Plan in every budget, it is clear to me that there are long needed stormwater projects which have never been adequately socialized with Council, nor planned nor funded. Thus the Town gets the false bliss of thinking we have more money for discretionary spending than we actually do.” This comment highlights the concern that a lack of clear planning and discussion around stormwater needs in the past has lead to an false picture of the Town’s financial flexibility, further emphasizing the importance of addressing overdue infrastructure projects.

Community engagement is underway—get involved
As with other proposed changes, the stormwater fee increase is still under review, and the Town is holding a community engagement process to gather input before any decisions are made. Residents and business owners are encouraged to participate and share their views at upcoming meetings, as these proposals could directly affect them. The council wants to hear from the public before moving forward. So now is the time to get involved if you have an opinion on these potential changes. Here's how. 

- - -

About the Stormwater Utility
Oro Valley’s Stormwater Utility was established in July 2001 as an enterprise fund. This means that it operates independently from the Town’s general fund and is supported entirely by user fees. The utility was created to comply with federal and state stormwater regulations, including water quality and floodplain management standards, and to ensure the Town could fund the planning, construction, maintenance, and monitoring of local stormwater infrastructure. By keeping the utility self-supporting, Oro Valley is able to provide dedicated resources for critical drainage and flood control projects, without relying on general tax revenues.

- - -

Bits and Pieces

“Lift Plant” Sewer Line replacement in Valley Vista as County sues developer...residents forced to use porta potties and wash stations!

In February, we wrote about subsidence affecting two homes and the sewage lift station in Valley Vista. This development is built on the edge of Big Wash. Two significant events have occurred since then. First, in April, Pima County sued Pulte Homes and all parties involved in building the property in a “placeholder lawsuit.” The suit reminds Pulte that Pulte is responsible for remedying any defects found in the lift station. Second, a few weeks ago, one of Pulte’s subcontractors, Hunter Construction, began replacing the sagging sewer lines in that section of Valley Vista. On Tuesday, residents in the area of the lift station found porta potties and wash stations in the street. There’s one set of these for every two homes. Residents have been informally told they will have to use these facilities until the project is complete. There is no announced timetable for the project’s completion.

FOPRG to focus on water conservation
Friends of Pusch Ridge Golf (FOPRG) are dedicated to enhancing the Pusch Ridge Golf Course while addressing water usage concerns. Over the past few years, the course has grown in popularity, with rounds played increasing significantly from 3,875 in 2019-2020 to an anticipated 19,000 in 2023-2024. Despite this success, the use of potable water remains a challenge.

To tackle this, FOPRG has introduced a new mission focusing on water advocacy. They aim to educate the community on water-saving techniques through newsletters featuring tips, strategies, and events. Additionally, they plan to collaborate with the Town and Indigo to implement water conservation measures, such as reducing turf, using drought-resistant grass, and improving water usage audits. This dual approach seeks to balance the recreational benefits of the golf course with sustainable water management practices. (Source: FOPRG Newsletter)

Red Lobster is no more

Red Lobster closed its Oro Valley location earlier this month. The chain has been facing significant financial challenges nationally, including high lease and labor costs, and substantial losses from promotions such as the expanded all-you-can-eat shrimp deal. Earlier this month they filed for bankruptcy. The company plans to use the bankruptcy proceedings to restructure its finances, optimize its real estate footprint, and pursue a sale of its assets. Despite these challenges, Red Lobster intends to keep some of its locations open and operational during the restructuring process.

Oro Valley Receives Federal Grant for Stormwater Improvements
The Town of Oro Valley's Stormwater Utility has secured $210,990.75 in federal funding for Fiscal Year 2024/2025 through the Arizona Department of Emergency and Military Affairs (AZDEMA) and FEMA's Hazard Mitigation Grant Program. This grant will enable essential upgrades to the box culvert outlet structure on Sierra Wash at Via Mandarina, addressing localized erosion concerns and enhancing community safety and infrastructure resilience.

Town Manager Jeff Wilkins emphasized that the funding will maximize the utility of Stormwater Utility Fee dollars, aiding the finalization of the fiscal year budget. The project, set for completion within FY 2024/2025, will proceed following Town Council endorsement. The federal grant, complemented by a $70,330.25 local match from the Stormwater Utility Fee, highlights Oro Valley's commitment to infrastructure maintenance and proactive risk mitigation. This grant marks the second DEMA allocation for Sierra Wash improvements, following previous funding in 2019. (Town of Oro Valley Media Release)

Courts Remodeling Project on Time… and potentially under budget
Judge Hazel, the presiding magistrate of the Oro Valley Court system, provided an update on the remodeling of the Town court at the TMRB study session last month. Last year, LOVE reported on the need for this remodeling. Nothing has changed regarding that need since then. "We are now entering the construction phase. Phase one includes the attorney meeting room and the jury assembly room. Everything is going as planned, and a year from now, everything will be completed," Judge Hazel stated during a recent Courts Study Session.

Hazel emphasized being a steward of the town’s investment. Total bids for the project came in a million dollars less than planned. "That doesn’t mean it’s going to come in that way. That’s why we have to be vigilant throughout the whole process," she cautioned during the Courts Study Session. (TMRB Council Study Session, May 9, 2024)

Timetable for the Oro Valley Marketplace revisioning “Revealed’
Town staff projects that the hotel to be built at Oro Valley Marketplace will go online in February 2026. They anticipate that the Tangerine Road apartments will be available for occupancy in May 2027, and the Oracle Road apartments will be available for occupancy in May 2029. (TMRB Study Session May , 2024)

Enjoy Disc Golf at Pusch Ridge Course
The town is offering disc golf at the Pusch Ridge Golf Course from 7am to 7pm until September 22.