An early draft of next year’s city budget shows Scottsdale officials are confident that the city’s economy will continue to rebound from the pandemic.
Unlike the current budget – which went through tens of millions of dollars in last-minute cuts in the early months of the pandemic – the new proposal projects city revenues and spending returning to pre-COVID-19 levels.
The $1.7-billion proposed budget, presented to City Council on April 20, is significantly larger than $1.5-billion 2020-21 budget that runs through June 30.
That proposed spending increase is coupled with an anticipated growth in city revenues during the next fiscal year that begins on July 1.
City staff projects $324.1 million in general fund revenues, an increase of 9 percent over the scaled-back $296.4 million revenue projection included in the current year’s budget.
So far in 2020-21, the city has outperformed those dire projections, likely providing motivation for the more robust revenue outlook for next year.
Through March 2021, the city’s General Fund revenues were $26.6 million above projections.
That was largely driven by higher-than-expected sales tax revenue that came in at $114.5 million through March, roughly $17 million higher than expected but still about $7 million less than the city generated through March 2020 during the last budget cycle.
The city is expecting those high tax revenues to continue into the next fiscal year, driven by local sales tax and state shared revenues, though staff is still not projecting the same year-over-year rate of growth in tax revenues seen prior to the pandemic.
“This increase is still conservative and does not quite bring us back to pre-pandemic levels; however, it does get us in line with more of today’s trends,” acting City Treasurer Judy Doyle said.
The proposed budget includes $346.7 million in expenditures, which is over $22 million more than the city expects to generate in revenue and marks a $92.7-million increase over expenditures in the current fiscal year.
That increase includes $17.5 million for employee performance bonuses and other raises and $3.9 million for upgrades to city vehicles that were deferred last year.
Scottsdale is scheduled to receive $30 million from the American Rescue Act, but the city is still waiting for guidance on how it can be spent.
Last year, the city cut the equivalent of 78 full-time positions for at least half of the fiscal year, though it did not eliminate all of those jobs entirely and instead left 44 positions unfunded through at least Jan. 1 and another 15 positions unfunded through July 1.
The city plans to allocate $700,000 to add the equivalent of 14.74 full-time positions.
Of those, 8.74 positions will support things like customer service and cyber security. The remainder will come from the city’s self-funded enterprise funds, which include the city’s water and trash service and airport.
Council directed staff to create proposals to increase funding for code enforcement officers to address short-term rentals and staffing for sustainability programs.
The largest chunk of the spending increase – $39 million – will help pay down the city’s unfunded pension liability to the Arizona Public Safety Personnel Retirement System.
As of June 2019, the city’s unfunded liabilities totaled $181.4 million for police and $8 million for firefighters, according to City Council documents.
City Manager Jim Thompson said the substantial payment will save the city money in the long run by buying down the fund balance in today’s dollars as the city prepares for two-thirds of the Fire Department and one-third of the Police Department to reach retirement eligibility over the next few years.
That spending imbalance will eat into the sizable General Fund reserves the city has built over the last decade, but Thompson said a portion of those reserves were long-designated for the pension liability.
“We’ve continually built it up,” Thompson said. “What we were trying to do was prepare ourselves to buy down some of those liabilities that have been growing…we’ll be one of the first cities to fully address this over time….”
In April 2020, the City Council adopted a plan to pay off the liability over the next 17 years.
The city’s general fund reserves – collected through the accrual of unspent general fund monies each year – grew from $65 million in June 2018 to a projected $132.2 million at the end of this fiscal year.
That ending balance is expected to shrink to $81.7 million by June 30, 2022.
Council will hold a second hearing on the proposed budget and vote on tentative adoption on May 18. Final adoption is scheduled for June 22.