The Town of Oro Valley’s financial update for the first six months of fiscal year 2025 revealed mixed results, with revenues and expenditures tracking close to budget expectations but notable shifts in key revenue sources. Finance Director Wendy Gomez presented the update to the town council last week. Gomez highlighted variances and discussing the town’s financial position.
General fund revenues down a bit from last year
The General Fund is the fund that provides revenues for town operations. General Fun revenues for the first six months of this fiscal year were at down approximately $1.7 million (6%) from last year. A decline in state-shared revenues and local sales tax collections contributed to this decrease. Local sales tax was down by 4% (approximately $500,000), a rare trend for the town. That drop was primarily attributed to a slowdown in residential and commercial construction activity, while retail sales tax saw modest growth of less than 2%, compared to the typical 4%. Despite these declines, overall General Fund revenues remain on track to meet budget projections.
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On the expenditure side, General Fund spending was showed a $1.2 million (4%) decrease from last year. The town had budgeted for a 2.4% decline in spending, largely due to reduced transfers to the Capital Fund. Personnel costs remained within budget, with savings of about $970,000, driven by staff vacancies and turnover. Operational and maintenance (O&M) spending was expected to come in about $400,000 under budget.
Net Result: The projected general fund balance at year-end is expected to be $19.6 million, exceeding the Council’s 30% cash reserve policy by $4.3 million.
State-shared revenues discussion
Town Council members raised questions about state-shared revenues, which had seen fluctuations due to changes in state income tax policies. The state increased the town’s share of revenue from 15% to 18% to offset a reduction in tax rates. Vice Mayor Barrett asked for clarification on how these changes affected Oro Valley’s overall revenue. Staff explained that state shared revenues temporarily spiked in last fiscal year. This was due to the higher allocation. The overall impact of the tax rate reductions has now stabilized the town’s growth in this category to a steady 2% per year. The town is projected to collect $10.3 million in state-shared revenues this year, about $1.5 million higher than in FY 2023 but lower than the peak seen in FY 2024.
Community Center Fund on track
Revenues in the Community Center Fund increased by 4% year-over-year, largely due to higher membership fees and golf activity. Golf rounds were up 8.4% from last year and 9.8% above budget. Town-operated recreation programs also saw a 10% increase in revenue, with membership trends remaining strong.
State-shared revenues discussion
Town Council members raised questions about state-shared revenues, which had seen fluctuations due to changes in state income tax policies. The state increased the town’s share of revenue from 15% to 18% to offset a reduction in tax rates. Vice Mayor Barrett asked for clarification on how these changes affected Oro Valley’s overall revenue. Staff explained that state shared revenues temporarily spiked in last fiscal year. This was due to the higher allocation. The overall impact of the tax rate reductions has now stabilized the town’s growth in this category to a steady 2% per year. The town is projected to collect $10.3 million in state-shared revenues this year, about $1.5 million higher than in FY 2023 but lower than the peak seen in FY 2024.
Community Center Fund on track
Revenues in the Community Center Fund increased by 4% year-over-year, largely due to higher membership fees and golf activity. Golf rounds were up 8.4% from last year and 9.8% above budget. Town-operated recreation programs also saw a 10% increase in revenue, with membership trends remaining strong.
Expenditures in this fund are projected to exceed budget by 5%, primarily due to higher water costs and labor expenses. The added revenues are expected to fully offset these overages. The Community Center Fund is projected to end the year with a positive balance of $160,000, bringing total reserves to just under $2 million.
Capital fund and infrastructure spending on track
The Capital Fund is funded by the operating funds and grants. For the first six months of the year, results are progressing as planned, with $2.5 million in capital outlay already spent, and additional project spending expected in the latter half of the fiscal year. Funding for major projects includes a pass-through grant from Arizona State Parks for the Naranja Park pump track and skate park, as well as allocations for the Vistoso Trails Nature Preserve and transit vehicle grants. The Capital Fund is expected to end the year with a balance of $11.7 million.
Water fund and utility revenues on track
Water fund revenues were slightly below budget by 1.2%, as water consumption has been lower than anticipated despite the lack of rain in the fall. This surprised Mayor Winfield, who noted that he expected higher usage due to dry conditions. Staff reported that conservation efforts may be a contributing factor. The town’s interest earnings in the Water Fund were higher than expected, helping offset the revenue shortfall.
Oro Valley’s financial outlook: Stable
Overall, Oro Valley’s finances remain stable, with most funds tracking within budget expectations. While declines in construction sales tax and state-shared revenue adjustments have impacted overall revenue trends, expenditure savings and growth in other revenue categories have helped maintain the town’s strong financial position.
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Capital fund and infrastructure spending on track
The Capital Fund is funded by the operating funds and grants. For the first six months of the year, results are progressing as planned, with $2.5 million in capital outlay already spent, and additional project spending expected in the latter half of the fiscal year. Funding for major projects includes a pass-through grant from Arizona State Parks for the Naranja Park pump track and skate park, as well as allocations for the Vistoso Trails Nature Preserve and transit vehicle grants. The Capital Fund is expected to end the year with a balance of $11.7 million.
Water fund and utility revenues on track
Water fund revenues were slightly below budget by 1.2%, as water consumption has been lower than anticipated despite the lack of rain in the fall. This surprised Mayor Winfield, who noted that he expected higher usage due to dry conditions. Staff reported that conservation efforts may be a contributing factor. The town’s interest earnings in the Water Fund were higher than expected, helping offset the revenue shortfall.
Fund Transfers...Always confuse the discussion
One of the challenges in interpreting the town’s financial results is the the town transfers money between funds. This is because the funds do not all operate independently. For example, in the first six months of the year, the town made several key fund transfers. The General Fund transferred money to the Capital Fund on a quarterly basis, helping finance projects such as the Naranja Park pump track and skate park. The Capital Fund relies heavily on fund transfers from the General Fund as it does not have its own revenue source. Additionally, a reduced transfer to the Debt Service Fund was noted, as strong interest earnings allowed the town to use fund balance instead of relying on General Fund contributions. The Water Fund transferred money to its Impact Fee Fund to support groundwater preservation projects. At the end of the fiscal year, the town plans to transfer funds from the general fund to the Grants Fund to cover the Vistoso Trails Nature Preserve and a local match for transit vehicle grants. These transfers are subject to the actual grant awards the town receives. This means the funds will only be transferred if the grants are secured.
Internal fund transfers play a crucial role in balancing the town’s finances but make it difficult for an outsider or council member to understand the town's true financial position.
Oro Valley’s financial outlook: Stable
Overall, Oro Valley’s finances remain stable, with most funds tracking within budget expectations. While declines in construction sales tax and state-shared revenue adjustments have impacted overall revenue trends, expenditure savings and growth in other revenue categories have helped maintain the town’s strong financial position.
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