Two weeks ago, Town Manager David Gephart presented the town's five-year financial forecast to the Town Council. Not much has changed from last year’s forecast. Both forecasts emphasize funding shortfalls beginning in fiscal year 2026-2027, primarily due to declining state-shared revenues, escalating operating and maintenance costs, and insufficient growth in gasoline tax revenues. In other words, the town will need to live within its means over the next few years or identify significant new revenue sources.
Declining state shared revenues affecting General Fund
A primary concern highlighted by Gephart is the significant decrease in state-shared revenues, largely due to Arizona’s implementation of a flat income tax rate of 2.5%. He pointed out that “state-shared revenues are not expected to fully recover to last fiscal year levels until fiscal year ’29,” creating financial strain on the General Fund and a flat revenue projection through fiscal year 2028. This reduction limits the town’s financial flexibility, particularly impacting available capital improvement funds.
Gephart emphasized that personnel and operating and maintenance (O&M) expenses continue to rise due to inflationary pressures of approximately 3-4% annually. Despite conservative assumptions for adding new employees—only one or two new full-time equivalents per year—the expenses keep escalating. Gephart noted that “we’re in a somewhat elevated inflationary environment… versus flat revenues, [this] is causing some squeezing to happen in ongoing revenues versus ongoing expenditures,” highlighting the structural challenges in maintaining balanced budgets.
Highway Fund strained by pavement preservation demands
The Highway Fund faces increasing financial pressure due to rising pavement preservation costs, which have grown from around $2 million annually to over $3 million per year. Gephart explained that while gas tax revenues remain steady, they are insufficient to cover the surge in roadway maintenance and capital outlay, necessitating significant transfers from other town funds. He warned that the town faces “a pinch point because the town is not projected to have excess reserves necessary to fund those necessary road improvements.”
Capital Fund facing future negative balance
Gephart highlighted concerns over declining General Fund transfers to the Capital Fund, combined with significant planned expenditures, including a $5 million cash contribution toward a police facility in FY 26/27. He noted, that “we’re showing a negative fund balance in the Capital Fund,” with deficits expected by FY 2030. This suggests potential financial challenges if the town does not secure additional debt financing or alternative revenue sources. The amount of the transfer is 5% allocation of sales tax revenue as required by town financial policies. Additionally, any General Fund balance exceeding the 30% reserve requirement (excluding contingency funds) is also transferred to the Capital Fund to support capital expenditures.
The Highway Fund faces increasing financial pressure due to rising pavement preservation costs, which have grown from around $2 million annually to over $3 million per year. Gephart explained that while gas tax revenues remain steady, they are insufficient to cover the surge in roadway maintenance and capital outlay, necessitating significant transfers from other town funds. He warned that the town faces “a pinch point because the town is not projected to have excess reserves necessary to fund those necessary road improvements.”
Gephart highlighted concerns over declining General Fund transfers to the Capital Fund, combined with significant planned expenditures, including a $5 million cash contribution toward a police facility in FY 26/27. He noted, that “we’re showing a negative fund balance in the Capital Fund,” with deficits expected by FY 2030. This suggests potential financial challenges if the town does not secure additional debt financing or alternative revenue sources. The amount of the transfer is 5% allocation of sales tax revenue as required by town financial policies. Additionally, any General Fund balance exceeding the 30% reserve requirement (excluding contingency funds) is also transferred to the Capital Fund to support capital expenditures.
Hoping for federal funding for bridge repairs
A key issue is the exclusion of approximately $8 million in bridge repair costs from the forecast. These include necessary infrastructure projects like the La Cañada and Rancho Vistoso bridge deck repairs. The town has applied for federal funding through congressionally directed spending, but Gephart acknowledged uncertainty: “I don’t have a sense as to the probability or prospect of that occurring.” If the funding is not secured, the financial responsibility will fall back on the town.
A key issue is the exclusion of approximately $8 million in bridge repair costs from the forecast. These include necessary infrastructure projects like the La Cañada and Rancho Vistoso bridge deck repairs. The town has applied for federal funding through congressionally directed spending, but Gephart acknowledged uncertainty: “I don’t have a sense as to the probability or prospect of that occurring.” If the funding is not secured, the financial responsibility will fall back on the town.
Community Center Fund remains balanced but cautious
Unlike other funds, the Community Center Fund remains stable and self-sufficient, with modest 3% annual revenue growth. Gephart pointed out that conservative revenue assumptions for golf and recreation activities, combined with the ending of HOA contributions, necessitate careful planning. He noted positively that the fund is “staying balanced and self-supporting,” demonstrating sound financial management even as other town funds face more significant challenges.
Reasons for optimism: There are solutions
All these factors add up to a challenging financial future for Oro Valley. However, there is reason for optimism. Read about some solutions tomorrow.
Unlike other funds, the Community Center Fund remains stable and self-sufficient, with modest 3% annual revenue growth. Gephart pointed out that conservative revenue assumptions for golf and recreation activities, combined with the ending of HOA contributions, necessitate careful planning. He noted positively that the fund is “staying balanced and self-supporting,” demonstrating sound financial management even as other town funds face more significant challenges.
Reasons for optimism: There are solutions
All these factors add up to a challenging financial future for Oro Valley. However, there is reason for optimism. Read about some solutions tomorrow.
- - -
Additional resources:
Additional resources:
- April 2024 LOVE article on the five-year financial forecast
- Town Seeking Funds for Bridge Repairs"
- January 2025 Grant Status Update
- August 2025 Bridge Celebration
