Deputy City Manager Lizette Camacho and newly hired Municipal Budget Director Robert Baer briefed the Tempe City Council on the city's fiscal outlook, saying fiscal 2025 ended with major funds above the council-adopted financial policy but noting revenue risks for fiscal 2026. "This fiscal year is the first year that we'll see the full impact of the loss of residential rental tax," Camacho said, describing an estimated 9% revenue loss across the general, transit and arts-and-culture funds.

Why it matters: the general fund is the city's largest operating fund and relies heavily on local taxes and state-shared revenue. Camacho said local sales taxes account for roughly 48% of general fund revenue and state shared revenue about 25%. She told the council that total taxable sales were down 2.8% year over year and that combined sales- and bed-tax revenues were down 2.5% from fiscal 2024 to fiscal 2025, reporting $146,000,000 in collections in FY25.

Key facts and figures: Camacho and Baer provided the following figures that frame near-term risk.
- General fund ending balance: projected at about 36% of operating expenditures at the end of FY25 (the council's policy range is 20% to 30%).
- State-shared revenue impact from San Tan Valley incorporation (Proposition 495): staff estimated an annual loss to Tempe of about $1,300,000 to the general fund and about $255,000 to the transportation (highway-user) fund.
- Sales-tax variance: combined sales and bed-tax actuals were 1.2% ($~1.7 million) below the February forecast for FY25; July combined sales- and bed-tax collections were roughly $300,000 below budget.

Discussion and planned responses: staff listed budget-balancing measures already used in FY26 and possible additional steps should revenues soften. Measures taken include drawing down certain reserves (public safety retirement/PSPRS and OPEB reserves) and incorporating recommended rate adjustments into enterprise funds (water/wastewater, solid waste). Camacho said further responses could include freezing vacant positions (with exceptions for critical public-safety hires), reducing selected service levels, reprioritizing spending to higher-priority services, and seeking opportunities to grow the tax base.

Outlook and next steps: staff said a revised long-range forecast will be presented in November when at least a quarter of FY26 data are available; that forecast will refresh five-year revenue and expenditure estimates and fund-balance projections. Baer, introduced to council as the new municipal budget director, and Camacho said monthly tax revenue reports and quarterly performance reports are posted on the municipal budget office website.

Council reaction: Council Member Enberg praised staff for accurate projections. Vice Mayor Doreen Garland thanked the presenters and closed the discussion.

No formal action was taken; this item was an informational budget update.