Reasons for optimism
Yesterday, we discussed the town’s latest five-year financial forecast and highlighted the challenges ahead. Today, we focus on what the town can do to meet these challenges. We think there's reason for optimism.
Returning Operating Fund reserves to historic levels would eliminate the capital fund "deficit"
The town maintains a General Fund reserve of 30% of General Fund expenditures, an increase from the previous 25% level implemented five years ago to address economic uncertainty from the pandemic.
At the meeting Vice Mayor Barrett suggested that reducing the reserve back to 25%, which could free up approximately $2.5 million as a one-time boost for capital projects. Gephart acknowledged this benefit but warned that “it doesn’t address the long-term closing of our excess ongoing revenues over ongoing expenditures” in the general fund. However, what it does is to release funds that more than cover the shortfall of $1million in the 2030 projected balance of the capital fund.
Bond financing would provide needed spending for major items Unlike last year, there was no significant discussion of bond funding for capital projects in this year's discussion. However, there were indications that bonds might be issued to finance a new police facility study next year. The town’s latest grant request status report includes a $3.8 million request from the Department of Justice - Byrne Discretionary (Law Enforcement), a fund designed to support community justice projects. The grant is pending.
The town could sell for capital projects that will not be covered by grants. This is a common use of bonding and the town's current debt service [panel above] decreases substantially by 2027. In addition, the town's future debt service projection indicates a substantial drop in debt service funding, thus freeing up the capacity to bond future projects.
Annexing retail rich areas can improve the General Fund sales tax revenue "picture"
We have not seen a recent Town of Oro Valley annexation plan. The last one we saw was in 2021. That plan identified a number of areas that are target rich for Oro Valley. Here are a couple of areas; and we've added in one of our own.
As for the General Fund and the shortfall in sales tax revenues, move forward to annex retail rich areas for annexation. One area is the east side of Oracle north of Ina that has Guadalajara Grille and other retail already in place. A second area is to annex the retail businesses on Oracle south of Ina Road. Retail there includes Safeway and Whole Foods.
In the longer term, focus on annexing the "New Foothills Mall". The town considered this almost 20 years ago. The town concluded that it just wasn't a good idea at that time. That was before the La Cholla Blvd became a "highway". Now La Cholla Blvd as a giant siphon for bringing business out of Oro Valley. That's because it's far easier for residents who live in that area to quickly get to shopping rather than traveling across town to get to Oracle Road, which is where most of the retail is located in Oro Valley.
"Reducing retail leakage" will help too
One area on which the town is focused is finding ways to reduce “retail leakage.” That is when residents spend money outside of Oro Valley instead of supporting local businesses, leading to lost sales tax revenue that could fund town services. The town has already identified challenges such as significant retail leakage in categories like automobile dealerships, clothing stores, gasoline stations, electronic shopping, and general merchandise, with total estimated lost revenue exceeding $776 million. Some of the actions the town is considering include educating residents about the benefits of shopping locally, targeting specific audiences for year-round campaigns to promote local shopping and dining, and strategically recruiting businesses that align with local consumer demand. The next steps include setting recapture goals, aiming to reduce the leakage gap by a percentage through a combination of shopper retention efforts and attracting new businesses to meet local demand. (Source: Presentation to Town of Oro Valley Town Council by Economic Development Director Paul Melcher, 3-5-25)
Bringing focus to revenue generating touring is another avenue
Oro Valley is conducting a Leisure and Travel Study to develop a tourism strategy after taking over destination marketing from Visit Tucson in March 2024. Initial efforts, including hiring a marketing manager and launching digital campaigns, have shown limited success, leading two major resorts to rejoin Visit Tucson independently. The study, led by CSL International and a town-appointed steering committee, aims to assess the effectiveness of current tourism investments, explore sports and arts tourism, and consider regional partnerships with nearby communities. Some residents are concerned about the study’s focus, transparency, and the town’s lack of experience in tourism management. Critics argue the strategy should prioritize generating tax revenue rather than simply increasing visitors and note that the decision to leave Visit Tucson was made without consulting key stakeholders. The study, expected to take six to eight months, will present its first update in April. (Source)
And remember
Financial forecasts are conservative planning tools rather than definitive predictions. The future is almost never what is predicted. In addition, town leadership is actively seeking alternative funding sources, including federal grants and strategic fiscal policies, to ensure continued support for essential community projects. With thoughtful planning and careful adjustments, Oro Valley can navigate these financial hurdles effectively in the years ahead.
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