City manager: FY25 will close balanced but reserves fall; public-safety pension costs to shape FY26

Mayor and council received an update on the city’s fiscal outlook and on development of the fiscal year 2026 budget, with officials saying the adopted FY25 operating budget remains balanced but the city will end FY25 with a smaller available fund balance than projected in June.

City Manager (presenting) told the council that the adopted FY25 budget assumed “about a half a million dollars of revenues in excess of expenditures of the recurring budget,” and cautioned that planned one‑time investments drawn from the accumulated fund balance are reducing the starting point for FY26.

Chief financial staff said the FY24 year‑end results were better than estimated and reported unrestricted general‑fund surplus and fund balance figures, but they emphasized that large one‑time commitments — described in the presentation as part of the multiyear “investment plan” — are being spent down. The city manager summarized: “we have a balanced ongoing budget and then we have additional expenditures that we're spending down our accumulated fund balance.”

Pension funding. CFO Anna Rosenberry and staff reported improved funded status in the Tucson Supplemental Retirement System (TSRS), up to about 76.3% at June 30, 2024, and noted a plan target toward full funding within a decade. On public‑safety pensions, staff said that the state Public Safety Personnel Retirement System (PSPRS) has estimated a FY26 minimum contribution around $115 million. City staff warned that final required contributions historically exceed initial PSPRS estimates because of wage growth, liability amortization, and changing actuarial assumptions.

Staff said they are working with GovInvest (the city’s pension consultant) to model scenarios and the city manager said the next year will be used to assess whether to continue the current mix of general‑fund direct contributions and draws from the Section 115 trust or to adjust that strategy for a new five‑year window.

Section 115 trust performance. Staff reported the city’s Section 115 trust outperformed PSPRS in recent years: net of fees, the 115 trust returned about 14.65% in the year ending FY24 compared to approximately 10.34% for PSPRS. Councilmembers asked about fee levels and expected volatility; staff said the 115 trust’s public investments are more transparent and therefore easier to forecast than PSPRS’s allocation to private alternatives.

Revenue notes. The manager also updated the council on cannabis excise distributions tied to the state’s Smart and Safe Arizona Act (Prop 207). Those receipts have grown to approximately $3–4 million a year and are deposited to the general fund; staff characterized the amount as comparatively small versus overall police and fire budgets.

What comes next. Staff said the FY26 budget development will continue in coming months; budget staff warned that federal actions and national economic changes create uncertainty and that the city will return with more detailed five‑year forecast scenarios and pension strategy options for council consideration.

Ending: Staff asked the council to expect more pension modeling and budget options during the spring study‑session cycle.