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.
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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