Fountain Hills council narrows FY26 staff pay increase to 2.5% amid revenue uncertainty

Fountain Hills town staff presented a final budget workshop preview of the FY26 draft budget and council settled on a 2.5% cost‑of‑living adjustment (COLA) for staff as the working direction for the tentative budget.

Finance Director Paul told the council the town’s proposed budget totals about $50,370,000 across all funds, with a general fund revenue projection of $26,050,000. The town holds contingency of roughly $1,230,000 in the general fund, which staff described as the primary buffer if revenues come in below projections.

Staff noted conservative revenue practices — using a 95% confidence level for projections — and recent local sales tax flattening that required a $250,000 reduction in earlier sales tax estimates. Paul said adjustments to pay recommendations will reduce contingency dollar‑for‑dollar; for example, a $300,000 increase in pay authority would reduce contingency by the same amount.

Council discussed a basket of compensation indicators (inflation, public‑sector indices, private‑sector pay, Social Security COLA and a local survey). After floor discussion, four council members supported 2.5% and others preferred slightly higher numbers; the working direction was 2.5% for inclusion in the proposed budget. Staff said each 1% of COLA costs about $107,000 to the town budget and that the town’s estimate of a 2.5% COLA adds roughly $270,000 to the FY26 budget.

Other budget highlights discussed by staff: - Expenditure limitation: Paul said the town’s expenditure limitation is $36,580,000 and the proposed budget authority is $50,370,000; staff explained the difference is covered by allowable exclusions (grants, HEERF, investment earnings and other exclusions) and use of prior‑year one‑time exclusions carried forward. - Special and capital funds: Palomino reconstruction and other capital projects drive most of the year‑over‑year increase; $5.4 million of the Palomino project is expected to be funded from the streets fund, while other CIP spending includes anticipated grant reimbursements and development impact fees. - Facility and vehicle reserves: staff proposed increasing the facilities reserve budget and noted the town has about $2.7 million in the vehicle replacement fund and is budgeting $390,000 to replace an older brush truck.

What’s next: staff will publish the tentative budget and return to council at the regular meeting on May 6 for tentative adoption; the final budget and public hearing are scheduled for June 3. Any changes to the tentative budget between May 6 and final adoption will generally be reductions unless otherwise directed at public meetings.