Tempe staff present $1.7 billion recommended budget; council told no funding decisions tonight

City finance staff presented the recommended fiscal year 2026 operating and capital budgets to the Tempe City Council on April 24, saying no funding decisions would be made at the work study session and urging continued revenue monitoring.

The presentation, led by Lisette Camacho and Julie Hyder, said the combined operating and capital budgets total about $1.7 billion, a 7.4% increase over the prior year, and that the operating budget is about $875 million. "No funding decisions are being made tonight," Camacho told the council. Staff recommended that the council adopt department-requested numbers as the tentative budget to set maximum expenditure limits, while continuing to monitor sales-tax revenue trends before final adoption.

City officials said the budget reflects an expected revenue shortfall tied to the elimination of the residential rental sales tax, which became effective in January. Staff estimated the revenue loss at about $10 million across all funds for FY25, including roughly $6.6 million in the general fund, and said the forecast calls for planned drawdowns of fund balance through FY29 to smooth the transition. Camacho described a mix of budget-balancing strategies: limiting new ongoing positions, drawing down certain reserves for pension and post-employment benefits, and pausing nonessential cash-funded capital projects.

The recommended general fund budget is about $344 million, roughly $20 million higher than the prior year; the Water and Wastewater Fund is recommended at $120 million, and the transit fund at $87 million. Staff reported five regular full-time positions added in the recommended budget (three firefighters and two parks maintenance technicians), and $2.2 million in approved general-fund supplementals with an estimated net fiscal impact of about $1.2 million. Julie Hyder said the five-year capital improvement program totals about $1.9 billion, with the FY26 capital appropriation recommended at about $832.6 million compared with $775 million the prior year.

Council members asked whether staff would return with updates before November. Councilmember Amberg said she was uncomfortable restoring across-the-board budget levels and urged more frequent council briefings. Vice Mayor Grama and others pressed staff on contingency planning for grant-dependent capital projects and tax-exempt bond status. Camacho said staff is monitoring revenues biweekly and would provide earlier updates as needed; she told councilmembers the administration intends internal discussions in May or June and agreed to bring a fuller update by September if revenue conditions warrant.

The presentation also described a classification and compensation study intended to address employee turnover; staff said the city last completed a full study in 1988 and that the consultant recommended targeting the market midpoint toward the 75th percentile for base pay. Hyder highlighted capital program priorities including water reclamation work, pathway maintenance, and the ongoing Diablo Stadium improvements. Staff noted the property-tax stabilization policy was revised April 10 to allow the tax levy to increase by up to 5% annually, with any actual increase still requiring public hearings and council approval.

No formal votes were taken at the session. Staff asked the council to adopt the requested departmental budgets as the tentative budget at future formal hearings; councilmembers voiced both support and caution and asked staff for ongoing updates.

Looking forward, staff said they plan a tentative-budget adoption and subsequent public hearings in May, June and July and will continue to monitor local sales-tax receipts and grant award status before making final decisions.