Phoenix officials outline budget shortfall, propose 0.5-point sales tax increase and excise-bond plan to shore up fire and homelessness funding

City budget staff told the Phoenix City Council on Feb. 25 that state tax changes and slowing local sales-tax growth leave the city facing a structural gap that requires either revenue increases or cuts to services.

Budget and Research Director Amber (listed in meeting materials as Amber) said the city’s updated preliminary general-fund status for fiscal 2025–26 shows an estimated resources figure of $2,038,000,000 and estimated expenditures of $2,074,000,000, producing a $36,000,000 deficit under the baseline forecast. Amber said those estimates reflect the earlier reduction in state shared income-tax revenue after the switch to a flat rate and the elimination of the residential-rental sales tax.

The deficit matters because Phoenix is required to adopt a balanced budget each year. Amber and City Manager Jeff Barton presented a two-part strategy the administration recommends: (1) a possible 0.5 percentage-point increase in the city’s transaction privilege and use tax from the current 2.3% to 2.8%, effective July 1 if approved; and (2) issuing excise‑tax bond proceeds to fund capital and apparatus for the fire department. The administration and council repeatedly emphasized that, absent new revenue, the city would need deeper cuts beyond the manager’s $24,000,000 in proposed reductions, some of which target contractual and commodity spending rather than filled positions.

Why it matters: Amber said state actions — specifically the flat personal income tax and the recent elimination of the residential-rental sales tax — and moderating local revenue growth together reduce the city’s ongoing resources. Amber estimated the residential-rental tax removal will cost the general fund about $47,400,000 in the first full fiscal year and about $90,700,000 to all affected funds next year; over the forecast horizon she said cumulative losses from that change would exceed $320,000,000. She also cited a 19% year‑over‑year decline in state shared income-tax collections for the city tied to earlier state changes.

What the proposal would fund: Under the presentation, the TPT increase and excise-bond strategy would: produce a net new $25,000,000 for the Phoenix Fire Department (Amber said that would fund more than 100 additional sworn personnel and some civilian positions), fund staffing transitions for 32 sworn positions that are currently supported by an expiring SAFER federal grant, and support ongoing homelessness services the Office of Homeless Solutions (OHS) says will need roughly $5,000,000 next year and $26,000,000 ongoing to maintain current programs once ARPA funds expire.

City Manager Jeff Barton and Amber said the posted notice (dated Jan. 15) gives the council authority to consider the TPT change and that council action is scheduled for the March 18 meeting, when the manager’s trial budget and a specific recommendation to move the TPT rate to 2.8% will be on the agenda. Amber reviewed the subsequent public process: community budget hearings April 1–16, presentation of the City Manager’s budget May 6, council budget decisions May 20, tentative adoption June 4 and final adoption June 18; property-tax levy adoption is scheduled for July 2.

Council questions and public comment: Council members across the chamber pressed for details about the projected cuts, vacancy savings, and how revenue and bond proceeds would be used. Several council members said they prefer to protect public-safety response times and staffing. Councilmembers asked for and were told the list of proposed cuts would be presented with the March 18 trial budget.

Members of the public who testified during the allotted public-comment period largely urged the council to approve the revenue increase to protect parks and recreation, after‑school programs, the gated-alley program and other neighborhood services and to avoid layoffs that would affect service delivery.

Implementation risks and limits: Amber explained legal and statutory constraints on what the city may tax, citing Arizona Revised Statutes as presented to the council (sections referenced in the presentation included language the staff read as “Arizona Revised Statute 42‑3002” and a second statute read aloud as “ARS 42‑6004” in the transcript). She also noted Arizona Constitution Article IX, Section 25, which the presentation cited as prohibiting a city tax on many services. She said the council historically has taken TPT increases to voters when previous increments were dedicated to particular purposes; the staff presentation noted the general‑fund portion of the TPT (1.2%) has not changed since 1986.

Next steps: The council will receive the city manager’s trial budget on March 18; that meeting includes the council’s opportunity to act on a proposed TPT and use-tax rate change. Staff said more detailed supplemental requests and explanations — including line‑by‑line cuts — will appear in the packet for March 18.