The Town of Oro Valley will need to issue a minimum of $11 million in bonds in fiscal year 2026-2027 to cover a major shortfall in funding for major highway projects and the ever-growing costs of the pavement preservation program.
This information was disclosed by Town Finance Director David Gephart during his presentation of the latest five-year financial forecast to the town’s Finance and Budget Commission last week. "We've got a funding gap that we're going to have to address in some form or fashion," he stated. This gap manifests as a negative ending balance of $8.5 million in the capital fund by Fiscal year 2029 if no bond is issued. It is a gap that begins to build in fiscal year 2027.
This is the minimum needed because it assumes the deferral of many capital projects, including one that would replace the current police facility
“We placed a lot of projects that have been in the CIP in prior years…off to the side. We're going to be looking for again additional alternative sources to fund some of those grant funding and you know probably might be looking at some revenue enhancements and things like that….We don't have those really really dialed in or assumed in the forecast.”
Three reasons for the projected funding shortfall
Gephart reflected on the situation by focusing on four funds. However, funds in these accounts are frequently transferred around. For example, in this instance, the bond funds would initially be part of the General Fund, then transferred to the Capital Fund, and subsequently to the Highway Fund. So, we totaled their balance. We included the Community Center Fund because it also receives such transfers for capital spending. According to Gephart, "The Community Center Fund actually looks solid.”
The shortfall is really $17.8 million.
According to Gephart’s forecast, by 2029, the total ending balances of these funds will decrease by $7 million. This decrease is after the issuance of the $11 million in bond funding. So, the shortfall in funding is $17million. (see panel left)
And remember…there are other capital projects that Gephart has assumed will be deferred.
Financial headwinds ahead
Several weeks ago, in "In For A Penny, In For A Pound," we mentioned that the town would begin encountering challenging financial decisions once the Parks Bond Money and the ARPA Funds are depleted. We highlighted this after the town council swiftly approved $390,000 to replace a bridge on a town golf course. "Those days are behind us. The 2025 budget will reflect some remaining funds, but the bulk of town funding will need to come from ongoing revenue sources. We anticipate budgets becoming increasingly constrained over time.”
The town has ample time to set the right course
This is the minimum needed because it assumes the deferral of many capital projects, including one that would replace the current police facility
“We placed a lot of projects that have been in the CIP in prior years…off to the side. We're going to be looking for again additional alternative sources to fund some of those grant funding and you know probably might be looking at some revenue enhancements and things like that….We don't have those really really dialed in or assumed in the forecast.”
Three reasons for the projected funding shortfall
- The forecast predicts that the General Fund will experience a reduction in the surplus of revenues compared to expenditures (see panel right). According to Gephart, one cause is a decrease in state shared tax revenues. The other cause is a significant increase in operating and maintenance costs “…because we're seeing higher inflation.”
- The town has a number of bridge and road repairs that need to be done. At the same time, the costs of the pavement preservation program are skyrocketing. “We’re hoping that that growth moderates. We don't anticipate that it's going to go up another 50% but this is where we're at.”
- Growth in gasoline tax revenues cannot keep up with inflation. “What we're assuming is really moderate growth 3.4% to 3.6% in highway user gas tax revenues and that's provided to us from the Arizona Department of Transportation.”
Gephart reflected on the situation by focusing on four funds. However, funds in these accounts are frequently transferred around. For example, in this instance, the bond funds would initially be part of the General Fund, then transferred to the Capital Fund, and subsequently to the Highway Fund. So, we totaled their balance. We included the Community Center Fund because it also receives such transfers for capital spending. According to Gephart, "The Community Center Fund actually looks solid.”
According to Gephart’s forecast, by 2029, the total ending balances of these funds will decrease by $7 million. This decrease is after the issuance of the $11 million in bond funding. So, the shortfall in funding is $17million. (see panel left)
And remember…there are other capital projects that Gephart has assumed will be deferred.
Financial headwinds ahead
Several weeks ago, in "In For A Penny, In For A Pound," we mentioned that the town would begin encountering challenging financial decisions once the Parks Bond Money and the ARPA Funds are depleted. We highlighted this after the town council swiftly approved $390,000 to replace a bridge on a town golf course. "Those days are behind us. The 2025 budget will reflect some remaining funds, but the bulk of town funding will need to come from ongoing revenue sources. We anticipate budgets becoming increasingly constrained over time.”
The town has ample time to set the right course
Yes. Gephart’s five year financial projections affirm just that. Remember: These projections are based on a set of assumptions of events that may or may not happen. The further out the forecast year, the less likely that the forecasted result will happen. But, the projected results are a warning that strong financial discipline will be required to navigate the choppy waters.
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