There’s A World Of Difference: Council Candidates Confuse Fund Balance With Reserve Balance

Three council candidates confuse a fund balance with a required reserve balance

During Tuesday’s Sun City Oro Valley council candidate forum, Jake Harrington asked, “Why are we using our reserve funds to balance our budget?” Rhonda Pina stated that the Town was using its savings to pay for the operating budget. Chris DeSimone said that money was coming from reserves to help balance the budget.

Those comments bring up an important question. Are the Town’s reserves actually being used? Or are the candidates misusing the term? Is it possible that they are actually referring to the General Fund balance and not the required reserve level? The distinction matters because a change in the ending fund balance is not the same thing as using the Town’s required reserve.

A fund balance and a required reserve balance are two different things
The easiest way to understand the difference is to think about your own finances. Suppose you have $20,000 in the bank. That is your account balance. Now suppose you decide that no matter what happens, you want to keep at least $5,000 available for emergencies such as a job loss, a major home repair, or an unexpected medical expense. That $5,000 is your reserve. The reserve is part of your total balance. But it is not the same thing as your total balance.

The Town works much the same way. The General Fund balance represents the total amount of money accumulated in the General Fund. The reserve is the portion of that balance set aside by Town policy for emergencies, economic downturns, and other unexpected events. The fund balance can rise or fall from year to year while the required reserve remains the same as long as the fund balance exceeds it.

By 2028, town staff forecasts little difference between the two...Looks bad right?

For many years, the Town’s General Fund balance was significantly greater than the required reserve balance. This is seen in the chart at right. From 2016 to 2021, the General Fund ending balance grew substantially. And it should have. During the COVID years, the Town received tens of millions of dollars in federal funds that had to be spent by 2026.

After the federal dollars stopped flowing, the Town still had two other nonrecurring sources of cash. That money came from two bond issues. One, in the amount of $25 million, was for parks. The second, in the amount of $18 million, was used to pay down the unfunded police pension liability. The latter was spent immediately. The former was spent over several years. You can see both the receipt of the money and the spending of the money over several years in the chart.

But it's not...
By the end of 2026, most of that federal and bond money will have been spent. What remains is business as usual. Paying the town's operating expenses is not the only use of the General Fund. The Town transfers money from the General Fund to service debt and to fund capital items. As the Town’s five-year forecast states: “Fund balance above the 25% reserve threshold is transferred to the Capital Fund.” That means the General Fund will not show a large surplus above the reserve floor. That is by design. 

According to town staff projections, a total of:

• $279.2 million will be spent on town operations
• $17.4 million will be spent on debt service
• $20.1 million will be transferred for capital spending

And, though the town does not foresee the need, the town's AA+ Bond rating would allow borrowing at a reasonable rate if there are major long term assets that need to be financed.

Fear mongering is never a good financial strategy

Our conclusion is similar to the point made by council candidate Rosa Dailey at the forum. Dailey noted that “We have a very balanced budget...The scare tactics are getting old...We are doing fine.” LOVE’s review of the numbers reaches a similar conclusion. Oro Valley is not in a financial crisis. It is most certainly not spending its reserve funds. What is happening, as we have mentioned in previous articles, is that the Town is entering a period where careful financial management will matter more than ever.

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Oro Valley Town Council To Set 2027 $128 Million Expenditure Limit Tonight

 $128 million limit
Council will decide on the 2027 expenditure limitation at tonight’s council meeting. The tentative budget now before council is about $128 million. That is about $2.1 million less than the town manager's initial recommendation. The limit matters because spending next year cannot exceed it. Council may approve a final budget below that amount, but not above it.

No much has changed from our previous reports

LOVE has previously discussed the 2027 Town Manager’s Recommended Budget in four articles. The first article focused on revenue and forecasting variables. The second focused on where the money would be spent. The third focused on personnel spending. The fourth provided council and mayoral candidates reaction to the budget.

Tentative budget is $2.1 million lower than the Town Manager’s recommendation
The latest budget is about $2.1 million less than the Town Manager’s Recommended Budget. The reduction is mostly because several project costs were refined after the May budget presentation. Bridge and transit-related spending was reduced or moved to reflect local match amounts rather than full project costs. That accounts for most of the reduction.

Smaller changes were made to personnel estimates, legal services, and stormwater projects. Stormwater funding increased for the Catalina Ridge Channel Modification project and a new Nanini Wash erosion mitigation project. These changes reduce the proposed expenditure limitation from about $130 million to about $128 million.

Budget still maintains current service levels
Much has not changed from the budget LOVE previously reviewed. The budget remains focused on current services, not major service expansion. Staff says the tentative budget maintains current service levels, provides eligible employees up to a 3% pay increase, and continues investments in infrastructure, employees, and Town operations.

While spending significant funds on capital projects
The proposed Capital Improvement Plan totals about $24.2 million. That is about 19% of the tentative budget. The result of this spending is a net drawdown of about $13.1 million in total fund balances. The drawdown reflects money accumulated or borrowed for some key projects that will be completed done in 2027. Examples include $6 million for NWRRDS water resource capital work, which follows prior utility financing for that multi-year project; about $2 million for the Vistoso Trails Nature Preserve Pond; $1 million for police headquarters planning and development; and about $676,000 for the Tangerine Road/Mussette Drive traffic signal. 

Budget vote on June 17
Tonight’s vote does not adopt the final budget. It sets the maximum expenditure limitation for FY 2026/27. Council is scheduled to hold the final budget public hearing and consider final budget adoption on June 17. That will also be a public hearing.

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Update: The council unanimously approved the limit. In addition, in response to a question from Vice Mayor Melanie Barrett, Gephardt said that the use of fund balance is primarily for carryover capital projects that started this year but will not be completed until next year. He also said the Town is “not tapping general fund reserves yet.”  

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Are Oro Valley Revenues Keeping Pace With Spending? A Look At The Numbers

How do revenues and expenditures track?
Questions about whether Oro Valley revenues are keeping pace with spending have surfaced during recent budget discussions and in this year’s election season. 

It is a simple question with a complicated answer

The Town operates through roughly fifteen different funds. These include the General Fund, Water Utility Fund, Highway Fund, Capital Fund, Community Center Fund, and others. They serve different purposes and receive money from different sources. The General Fund, however, is the Town’s largest operating fund, containing about 54% of Oro Valley’s FY2027 budgeted revenues. Because discussions about revenues and spending generally concern the Town’s core governmental operations, LOVE focused primarily on that fund.

The Town’s operating fund,  the General Fund, has consistently covered the town's operating costs
The General Fund finances many of the Town’s core services, including police, administration, parks, planning, and portions of public works. Using the Town’s ten year history, current year estimate, FY2027 recommended budget, and latest five year forecast, operating revenues exceed operating expenditures in every year. Under that measure, revenues have consistently kept pace with operating costs.

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And met an even broader set of commitments over the years
The General Fund, however, does more than pay day to day operating costs. It also funds some capital projects, debt obligations, and transfers to other activities. When those commitments are included, the picture becomes tighter. The FY2027 Town Manager’s Recommended Budget projects approximately $59.3 million in General Fund revenues compared with roughly $60.7 million in total General Fund obligations, including operating spending, transfers, debt support, and other commitments. That difference contributes to a projected decline in General Fund balance. However, the Town does not expect that pattern to continue indefinitely. In later years of the five year forecast, revenues are projected to again exceed broader obligations.

While maintaining at least a 25% reserve level

Even with the projected decline, the Town is not forecasting reserves below its adopted policy minimum. The FY2027 recommended budget projects an ending General Fund balance of about $13.8 million. That remains above the Town’s required 25% reserve threshold. The Town’s five year forecast likewise projects reserves remaining at or above the adopted 25% policy level throughout the forecast period.

All of which has required careful financial management
Our reading of the numbers is not that Oro Valley faces a financial crisis. Rather, the numbers suggest that the Town will need careful financial management during the next several years. Choices will need to be made regarding capital spending, spending priorities, and finding ways to reduce operating costs. That is not unusual. Town staff has never received every dollar requested for projects or spending.

The question going forward is not whether Oro Valley revenues are keeping pace expenditures because they are...The question is how well Council and staff can manage competing priorities within a tighter financial environment. 

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Note: Data compiled for this analysis came from multiple Town of Oro Valley financial sources, including ten comprehensive annual financial reports, a town staff March FY2026 General Fund estimate, the FY2027 Town Manager’s Recommended Budget as initially submitted, the FY2027 Capital Improvement Program that is in that budget and town staff's most recent five year General Fund forecast. LOVE reconciled these sources to develop the analysis used in this article.

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2027 TMRB: Candidates Split On Whether Budget Is Prudent Planning Or Warning Sign

This is our fourth article regarding the 2027 TMRB. The first article covered revenues. The second covered spending. Yesterday, we covered personnel. Today we cover the thoughts of the candidates for Mayor and Council in this year’s election regarding this budget. We asked them: What is your reaction to the proposed budget?

Here are the responses of the two Mayoral Candidates.

Barrett is focused on making sure this budget builds toward long term fiscal sustainability
Vice Mayor Barrett is unable to reply to our question because the budget is currently under consideration by the Town Council. However, we can get some sense of her thinking on the budget from her remarks during the Town Manager’s Recommended Budget study session. Barrett focused on long term fiscal sustainability issues, including reserve levels, recurring operating costs, and capital funding as Oro Valley approaches buildout. One area she focused on in particular was maintaining the council’s long standing policy of dedicating 5% of General Fund revenues to capital needs. Barrett stated that “in a community where you don’t have lots of new things being built and as you approach build-out, that 5% becomes all the more critical.”

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Napier sees the TMRB as a warning sign
Mayoral candidate Mark Napier views the Town Manager’s Recommended Budget critically. Napier wrote: “The recommendations for 2027 include deferment or elimination of capital improvements totaling $11.6 million, $1.5 million reduction in PSPRS excess contributions, a freeze on new hiring and direction to reduce O&M costs by 0.5%. Even with these steps we still may need to tap the fund balance for an additional $1.3 million. All this will be required to simply balance the budget, as required by state law.”

Here are the responses of the five council candidates.

Dailey describes the TMRB as conservative and balanced
Council candidate Rosa Dailey described the Town Manager’s Recommended Budget as a conservative response to current economic conditions. Dailey wrote: “The Town Manager’s Recommended Budget (TMRB) for fiscal year 26/27 reflects a balanced and conservative approach that proactively anticipates and manages softening town revenues in our current economic environment and adjusts discretionary spending accordingly. The plan prioritizes and maintains current service levels and aligns spending with revised revenue expectations.”

DeSimone sees the TMRB as evidence of growing fiscal pressure

Council candidate Chris DeSimone viewed the Town Manager’s Recommended Budget critically, describing it as evidence of growing long term fiscal pressure and the need for changes in council direction and oversight. DeSimone wrote:"Since my kickoff event in January, I have been pointing out that our wonderful town has financially painted itself in a corner.  Flattening revenues and increasing costs is a sad reality of our situation. A budget that features cuts in capital improvements, cuts to the public safety pension excess contribution and dipping into the Town's reserve funds to balance the budget shows the need for a new mix of mindsets on the council and willingness to manage staff more closely."   

Herrington emphasizes long term sustainability
Council candidate Jake Herrington emphasized long term fiscal sustainability and economic development. Herrington wrote: “I believe the 2027 budget discussion should focus heavily on sustainability. Oro Valley cannot rely forever on residential growth alone to support future service demands. We need to continue strengthening and diversifying the commercial tax base, supporting redevelopment and reinvestment along key corridors such as Oracle and Ina Roads, and identifying strategic economic opportunities that will generate long-term revenue without placing unnecessary burdens on residents.”

Pina observes revenue pressure in the budget
Council candidate Rhonda Pina described the proposed budget as challenging and focused on the need for careful expense management. Pina wrote: “The proposed budget is challenging as presented by the town manager. There is acknowledgement of decreasing revenue trends and a need to manage expenses effectively.”

Wood emphasizes the budget's balancing of revenues and expenses
Council candidate Matt Wood expressed support for the Town Manager’s Recommended Budget and the Town’s annexation efforts. Wood wrote: “The Town Manager prepared a balanced budget for 2026/27 and the Council is pursuing an annexation along Ina that would bring in significant sales tax revenue. I think this is an excellent start. We need to continue to work on a long term balancing of expenses and revenues, but small incremental increases in revenue and working on reducing the sales tax leakage losses will go a long way towards fiscal stability.”

Our conclusion: Candidates differ more on urgency than the challenge of fiscal sustainability itself

Our conclusion: Candidates differ more on urgency than the challenge of fiscal sustainability itself

What appears to distinguish the candidates is less whether they believe long term fiscal sustainability is a challenge for Oro Valley and more how urgently they view that challenge and whether they see the Town Manager’s Recommended Budget as an appropriate response.

• Vice Mayor Melanie Barrett, Rosa Dailey, and Matt Wood generally view the TMRB as a prudent step toward managing long term financial sustainability as Oro Valley approaches buildout.
• Jake Herrington focuses more heavily on broader long term planning, redevelopment, and diversifying the Town’s commercial tax base to prepare for slower future revenue growth.
• Rhonda Pina feels that the budget shows immediate revenue pressures. She stops short of describing the situation as structurally unsustainable.
• Mark Napier and Chris DeSimone view the current budget much more critically, describing it as a warning sign requiring stronger corrective action and signaling changes needed in long term fiscal priorities and council direction.

Taken together, the responses suggest broad agreement that Oro Valley faces important long term financial decisions ahead, even though candidates differ on how immediate the challenge is and how the Town should respond.

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2027 TMRB: Personnel Spending Mirrors Overall Town Spending, Essential Services Take Priority

This is the third LOVE’s article on the Town Manager’s Recommended Budget. First,  we focused on six key revenue and forecasting variables that could determine whether the budget succeeds financially during the coming year. Last week, we focus on spending, identify spending by service provided by the town. Our coverage today is about personnel.

Personnel costs account for one third of the budget
Personnel costs are planned to be approximately $44.7 million in FY 2026/27. That represents about 34% of the Town’s total $130 million budget. It also represents roughly one half of Town operating spending after removing capital improvement spending, contingency, and debt service from the total budget.

No new full time positions are proposed
This year, the Town plans to maintain personnel levels at essentially prior year levels, with no new full time positions proposed. In addition, total personnel spending is expected to remain essentially flat despite police pay increases required under the MOU approved in February, a 3% increase for eligible non-sworn employees, higher healthcare costs resulting from increased claims experience, and the Town maintaining current PSPRS employer contribution rates even though actuaries recommended lower contribution levels. Staff stated that maintaining contribution rates at current levels will allow the Town to continue its policy of fully funding its police pension liability.

Lower police pension payments help offset pay and benefit increases
A logical question is how the Town can absorb pay raises and higher healthcare costs while keeping overall personnel spending flat. One factor is an approximately $1.5 million reduction in excess PSPRS pension contributions compared with the current year budget. In addition, several vacant or temporary positions are being eliminated or left unfunded, turnover in some departments is lowering salary costs, and no new full time staffing is being added.

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Staff noted that actuarial recommendations would have allowed the Town to lower its PSPRS contribution rates next year, but the Town instead chose to hold contribution rates steady to continue fully funding its police pension obligations.

Essential services account for most staffing and personnel spending
In LOVE’s operating cost budget analysis last week, we noted that 57% of operations spending is concentrated in essential services: Public Safety, Public Works, and Water. One would expect personnel staffing and personnel costs to follow the same pattern. They do. Essential services account for approximately 65% of all Town staffing and about 71% of projected personnel spending in the proposed FY 2026/27 budget. All other departments combined account for the remaining 35% of staffing and 29% of personnel costs.

Parks and Recreation staffing has nearly tripled in ten years
As we noted last week, Parks and Recreation spending has grown substantially over the past ten years. Staffing growth has been equally significant, and that does not include golf course personnel employed by the Town’s golf operator. In FY 2016/17, Parks and Recreation had about 24 employees, representing roughly 6% of all Town staffing. The proposed FY 2026/27 budget includes 69 employees in Parks and Recreation, about 16% of all Town staffing. That is an increase of nearly 190% over ten years, while overall Town staffing grew only modestly during the same period.

Personnel spending reflects current service priorities
Overall, the proposed FY 2026/27 personnel budget reflects a continuation of the Town’s recent approach of limiting staffing growth while maintaining existing service levels. The budget concentrates most staffing and personnel spending in core operational services such as public safety, public works, and water operations, while also reflecting the Town’s expanded role over the past decade in parks, recreation, golf, and community facility operations.

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Next Up: Tomorrow.. Read what council candidates think of the budget!

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2027 TMRB: Where $130 Million Is Going To Be Spent...$74 Million On Essential Operations

This is the second of LOVE’s articles on the Town Manager’s Recommended Budget. Last week, we focused on six key revenue and forecasting variables that could determine whether the budget succeeds financially during the coming year. This week, we focus on spending: Where does the Town plan to spend the approximately $130 million budget next year?

Capital spending is the largest budget item: $26.6 million
The Town plans to spend about $26.6 million on capital projects next year, about 20% of the total budget. Finance Director David Gephart told Council the focus this year is on “established needs for the community… not a list of wants.” Much of the spending reflects projects already approved and underway. The capital plan is significantly smaller than in recent years because several major projects have already been completed.

Most capital spending is focused on water and roads
According to Finance Director Gephart, about 31% ($8.2 million) of the Town’s $26.6 million capital budget is planned for water infrastructure and another 31% ($8.2 million) for streets and roads. Parks and Recreation accounts for about 13% ($3.5 million) of planned capital spending, public facilities another 13% ($3.5 million), public safety projects about 9% ($2.4 million), and stormwater projects about 3% ($800,000).

Public safety functions total about $23.3 million

The Police Department, Town Court, and Town Attorney’s Office report directly to Council. Together, they account for about 18% of the budget. Police spending alone totals about $21.2 million. Police Chief Kara Riley told Council the proposed budget maintains current service levels and was prepared with a fiscally conservative approach. Chief Magistrate Hazel stated confidence that the court can continue operating within its proposed funding. The Town Attorney’s approximately $1 million budget was not reviewed during the study session.

The water utility represents another 13% of spending
The Water Utility operating budget totals about $17 million, roughly 13% of total spending. Unlike most Town operations, the utility is financially separate and supported through water rates and fees rather than general taxes. Water debt, including borrowing for the Northwest Recharge Recovery Delivery System project (NWRRDS), is repaid through water revenues. Those costs are not included in the operating budget. Instead, debt payments are included in Debt Service and NWRRDS construction spending is included in the CIP budget.

Public Works and Highway Operations account for about 12% of spending
Public Works and Highway Operations total about $15 million and include streets, drainage, transit, fleet maintenance, and related operations.

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Most residents consider public safety, water, and roads to be high priority essentials. This year's budget reflects that. Together, these three areas represent about 71% ($18.8 million) of the Town’s capital program and about 43% ($55.4 million) of the Town’s total planned spending next year. Combined, spending on essential services in this year's budget is $74.2 million. That's 57% of the budget.

Parks and Recreation accounts for about 13% of spending
One of the things that stands out in this budget, and in reviewing earlier Town budgets, is how much Parks and Recreation spending has grown over the past decade. Ten years ago, Parks and Recreation spending was about $2 million, accounting for roughly 2% of the Town’s approximately $92 million budget. Today, Parks and Recreation operating expenditures total about $16 million. This includes parks maintenance, recreation programming, aquatics, the Community Center, and tennis and golf operations. About $9 million of these costs are offset by user fees and related revenue, much of it from golf operations. That leaves net spending of roughly $7 million. Compared to ten years ago, that represents an increase of about 350%, equal to a compound annual growth rate of approximately 16%. (Note: Ten years ago, some park maintenance functions and related expenses were budgeted in Community Development and Public Works rather than Parks and Recreation.)

Other departments account for about 11% of spending
The remaining spending is spread among other Town functions. Information Technology totals about $5.9 million, Community and Economic Development about $4.2 million, and Town administration and other departments about $4.2 million. The balance includes Finance, Human Resources, Town Clerk functions, elections, insurance, and other support activities needed to operate the Town.

Debt service and contingency total more than $16 million
The Town plans approximately $8.7 million in debt service payments next year, along with about $7.7 million in contingency funding. Combined, those two items total more than $16 million, or approximately 13% of the total budget.  

Budget categories overlap in some areas

Exact budget by department is are is challenging because the Town budget includes fourteen separate funds. Transfers among those funds, totaling more than $14 million, make the budget difficult to follow. However, the departmental spending categories as we have presented them appear to be reasonable approximations of where the Town plans to spend its money next year. As a result, our analysis could not identify $3.3 million in spending of the $130 million total.

Next week, LOVE will take a closer look at 2027 TMRB personnel spending and staffing levels.

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Note: A Town budget chart included in the staff presentation to Council and LOVE’s chart categorize debt repayment differently. LOVE shows total debt service as a single category. The Town, however, allocated some debt repayment to the operations that incurred the debt, such as the Water Utility and Parks and Recreation. While that may be technically correct from an accounting standpoint, we believe it understates the amount being spent on debt repayment and overstates the amount that will be spent on Town operations.

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2027 TMRB: Six Key Variables To Watch

Six key variables will determine whether the budget is met
Last night, Town Manager Jeff Wilkins’ reviewed his recommended budget for fiscal year 2026/27 with the Town Council. It was the first of two study sessions. The second will be tomorrow.  According to Wilkins, the budget is balanced and reflects a  conservative outlook. The plan maintains current service levels and aligns spending with revised revenue expectations. Based on our review of the budget,  success will depend on six variables, items should be followed throughout the year. 

1. Sales tax performance will be the primary driver
Sales tax remains the Town’s largest revenue source. The budget assumes a low growth rate based on recent collections. Because of its size, even small changes in sales tax performance can have a significant impact on total revenue. If collections fall below the budget, the budget will face pressure. If collections meet or exceed expectations, the Town will remain on track. 

2.  Construction-related revenue needs to be tracked
The budget assumes reduced residential permit activity and lower construction-related sales tax. This year’s estimate is significantly more conservative than last year’s projection, which, according to recent staff reports, is expected to fall short by about $4 million. This category has historically been one of the most variable sources of revenue and is difficult to predict. As a result, it should be closely monitored throughout the year.

3. Capital spending discipline...watching project specific contingencies
Capital spending is a key factor because of its size and flexibility. In this budget, capital and other expenditures total about $26 million, making it a significant portion of overall spending. Unlike operating costs, which are relatively fixed, capital projects can be changed, delayed, or expanded based on circumstances after the budget is adopted. Most capital projects include contingency funding to address unforeseen conditions, sometimes up to 20% of the project cost. As a result, it is important for the Council to monitor not only total spending, but also whether contingencies are used. Unused contingencies will increase fund balances.

4. And also keep track of the "general' contingency budget... its a big number

The budget includes a general contingency appropriation of about $7.7 million to address unanticipated costs and needs that may arise during the year. These funds are not project specific. They can only be used with Town Council approval, making them a direct policy decision rather than an automatic spend. How much of this contingency is used will have a meaningful impact on year-end results. 

5. Operating costs control imperative
Departments are expected to manage spending within current levels, with no new full-time staff added. The budget plans to control operating costs, Staying within these limits will be necessary to maintain balance.

6. State-shared revenue... an uncontrollable external factor
The budget also assumes modest growth in state-shared revenue, reflecting broader statewide changes. While this source is more predictable than local sales tax, it remains outside the Town’s control and should be monitored as part of overall revenue performance.

Monitoring these variables during the year will be a must
These six variables can be tracked throughout the year through regular financial reporting. Monthly revenue and expenditure reports, along with clear dashboard-style summaries, would allow the Town Council and residents to see how actual results compare to budget assumptions. Ongoing monitoring will help council identify emerging gaps early so that the town will have the time to make corrections if needed.

Next week: 2027 TMRB: Where $130million Is Going To Be Spent

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