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.

Click To Enlarge

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. 

- - -

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.

- - -

Oro Valley’s 2024 Financial Results Show Better Than Budgeted Performance Because of Timing of Spending

Preliminary 2024 financial results show continued financial health and impact of delayed spending on capital projects
The Town of Oro Valley has released its preliminary financial results for the fiscal year ending June 30, 2024. While these figures are unaudited and subject to adjustment, they provide a picture of the town’s financial health. Finance Director David Gephart presented the results of six funds at the town’s Budget and Finance Commission meeting last week. These funds form the core of Oro Valley’s financial operations, though the final audited numbers may vary slightly.

Operating Fund reflects increased housing permit activity and inflation impact on sales tax revenues
The General Fund, which powers most of the town’s day-to-day services, ended the year with revenues surpassing expectations by about $2 million. This positive outcome is attributed to higher-than-anticipated local sales taxes and an increase in permits related to residential construction. Notably, the town issued 178 single-family residential permits, exceeding the budgeted 119. These permit numbers indicate ongoing growth in the community.

Click To Enlarge

Community Center Fund significantly outperforms revenue expectations
Community Center Fund revenues exceeded the budget by 18%, driven by strong performance in golf operations, including a 20% increase in rounds played. Despite higher expenditures, the fund ended with a surplus of $798,000, a significant improvement from the budgeted deficit of $826,000.

Gephart suggests considering increasing community center fees
Membership at the community center and golf courses has been growing consistently, but this rapid growth may lead to some changes. As Gephart pointed out, there is an upper limit to how much the facility can accommodate. “At some point, people won’t be able to get tee times,” he noted. To address this, the town may consider adjusting membership rates and fees, making them more in line with market rates to manage demand. This potential fee increase is not only practical for balancing capacity but could also help fund future improvements at the center.

Higher water use boosts Water Utility Fund results
The Water Utility Fund benefited from higher water usage due to a drier year, with revenues exceeding budget by $1.2 million. Revenues exceeded the budget by 6%. Expenditures were lower than expected due to personnel vacancies and a lower administrative charge, resulting in a $3.1 million use of fund balance instead of the budgeted $4.5 million.

The three other fund balances show underspending in capital projects due to timing
The financial results of other funds were impacted by less-than-anticipated spending on capital projects.

• The Highway Fund also showed a favorable outcome, with expenditures coming in under budget due to capital project delays. While revenues from highway user taxes were slightly lower than anticipated, increased interest earnings helped offset this shortfall.
• The Capital Fund saw $7.6 million in expenditures, significantly lower than the $13.6 million originally budgeted. This variance was largely due to the delay of several capital improvement projects, which will carry over into the next fiscal year. As a result, the town’s ending capital fund balance stands at $16.9 million, leaving ample room for future projects once they are ready to proceed.
• The Stormwater Utility Fund also reported an increase in its fund balance due to delays in capital projects, despite the town not receiving a budgeted grant.

Still, there are financial headwinds ahead
There’s no reason to believe that the town is facing financial headwinds based on the 2024 results. Still, there are financial headwinds ahead, as noted by Gephart in May to the council.

Future spending is going to require making hard choices. Inflation boosted town sales tax revenues this year, but as inflation abates, so will sales tax revenue increases. An unexpected increase in housing permits this year also increased general fund revenues. However, permit fees will decrease as the town builds out.

No town can underspend on capital projects forever because these are projects that need to be done. This is especially true for Oro Valley, where there are some significant projects. Funding for the water fund’s NWRRDS project will require borrowing, which the Town Council approved last week. The town’s bridge structures are reaching the point where they need to be repaired, and that’s going to cost a substantial amount. Something significant also needs to be done regarding police facilities. Together, all of these capital projects are going to cost about $100 million over the next few years.

It’s going to take strong fiscal management and an exceptionally financially astute Town Council to work through these future funding challenges.