Scottsdale Mayor David Ortega

Scottsdale Mayor David Ortega pushed to add an additional $10 million to the city’s tentative budget for the next fiscal year that could be used to address the city’s affordable housing shortage.

Scottsdale City Council adopted a $1.78 billion tentative budget on May 18 and included up to $10 million to possibly address the affordable housing shortage.

The tentative budget adoption means that the final budget – scheduled to go before the Council in June – cannot exceed $1.78 billion. 

It could still cut expenses and approve a smaller total budget later this year, but based on the city’s most recent financial report, that does not look likely.

The budget talks May 18 were markedly different from the Council discussion at the same time last year, when members pushed city staff to cut over $30 million due concerns about the pandemic’s impact on the local economy.

While the economy took a hit early, the city’s revenues have exceeded those projections.

The financial report showed that through March 31, the city’s revenues were 12 percent higher than those forecasted.

Much of that was due to the city’s local sales tax haul of $114.5 million, which was 17 percent higher than expected.

Key industries like hotels, restaurants and retail have not quite recovered to pre-pandemic levels, but they have performed better than anticipated.

The overall budget is over $200 million larger than current budget.

It includes $346.3 million in spending from the General Fund, which pays for most city services. That marks a 25 percent increase over the current fiscal year.

It includes $821.2 million for capital projects – a $130 million increase over the current budget.

Mayor David Ortega also asked Council to increase the spending cap by $10 million to include contingency funds that could pay for an affordable housing solution or provide resources and housing for the city’s homeless population.

Ortega didn’t specify what that solution would look like or where that funding would come from, but said he wanted the option to act if a suitable project presented itself in the next fiscal year.

Assistant City Manager Bill Murphy pointed to a number of properties in Scottsdale that were purchased using federal funds under the Scottsdale Housing Authority that are required to maintain affordable housing.

All four of those properties are located in the Holiday Park neighborhood in southern Scottsdale and the affordable housing requirement expires between 2023 and 2027.

Murphy said the city can also offer up to 755 housing vouchers funded by U.S. Department of Housing and Urban Development that offer rental assistance to qualified households.

But, Murphy said only about 650 of those vouchers are currently being used because of a lack of landlords willing to participate in the program as market rental rates continue to rise.

The voucher price of around $1,000 per month for a one-bedroom unit is simply not competitive in today’s market. The median price for a one-bedroom unit in Scottsdale is $1,420, according to Apartment List. 

Murphy said the city plans to do more marketing to landlords in an attempt to increase participation and is currently performing financial modeling to determine if it can raise the voucher amount. 

“I also believe that aspirations really don’t happen unless we make them actionable, and in this case, as we’re dealing with the 2021-22 budget, I believe that we need to put in some funding for affordable housing,” Ortega said.

Council approved his request for the $10 million designation on a 6-1 vote, with only Councilwoman Linda Milhaven dissenting over concerns that the funding source was not explicitly spelled out and that measure could restrict how the city spends its remaining federal pandemic relief money.

Ortega said the funding could possibly come from the city’s $29-million allocation from the federal American Rescue Plan Act.

Funds from the act, which expire in two years, are currently split down the middle, with $14.5 million allocated in budgets for the next two fiscal years.

“I believe there will be mechanisms under the federal guidance for the city to use these funds to address homelessness or to assist with affordable housing,” City Attorney Sherry Scott said. “Exactly what form that will take and what the restrictions are, we will need to look at that closer.”

Until the exact source is known, the $10 million allocation will sit in a special revenue fund designated for affordable housing.

“Contingency use requires council approval, so we would absolutely have to come back with a suggested use, suggested funding sources, etc.” interim City Treasurer Judy Doyle said.

The majority of Council argued it simply has the option to fund the project if a source presents itself over the next year.

“We’re not saying tonight where that’s going to come from, but I think we’re saying that if we find an additional $10 million, we want to raise that total expense limit so that we would be legally able to spend that $10 million,” Councilman Tom Durham said.

The tentative budget projects that local sales tax and state shared revenues – the general fund’s main funding sources – will increase to $233.5 million, an increase of $24.6 million, or 12 percent, compared the current budget.

Under the tentative budget, spending would total $346.3 million next year – about $57 million more than its projected revenues.

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.

About $39 million will help pay down the city’s unfunded pension liability. 

City Manager Jim Thompson said the city built up its reserves with the express intent of paying down that balance.

For 2019-2020, the city owed $20.6 million for fire pensions and $195.6 for police pensions, according to budget documents.

The budget also includes increases – mostly in the 10 to 20 percent range – for all city departments.

The police and fire budgets will see huge budget increases mostly due to those scheduled pension payoffs.

The Police Department will see its budget increase from $100.4 million to $152.1 million, an increase of over 50 percent

According to budget documents, $35 million of that will cover pension liability payments. The balance will be used to fill open positions and cover pay increases, increased holiday overtime and an increase in retirements. 

The Fire Department’s budget will be $58 million, an increase of nearly $17 million, or 41 percent, over last year.

Of that, $5 million will cover pension payment and the balance will cover a slew of uses, including performance pay increases, a reclassification of workers to better meet department needs and new one-year contract workers who will help the department create and implement new wildfire strategies.