Mesa presents budget and utility forecast showing revenue shortfall and rising public safety costs

Mesa staff told the City Council on March 6 that a multi‑year forecast of the general fund and utility funds shows revenue pressures from the loss of a residential rental sales tax and slower sales‑tax growth, while spending pressures — most notably a public‑safety salary benchmark — are pushing reserves toward policy minimums in coming years.

Office of Management and Budget Director Brian Richel and staff walked council through the city’s homeowner‑cost comparison, a five‑year forecast and an itemized list of operating and capital pressures. Assistant City Manager Scott Butler and City Manager Chris Brady described a public‑safety benchmarking adjustment that staff said will add about $23 million in ongoing cost for sworn personnel, and staff discussed a range of potential responses including trimming nonessential spending, adjusting utility rates, and considering dedicated revenue options.

Why it matters: The forecast shows the city can manage near‑term obligations but faces a structural gap if revenues remain flat while personnel and commodity costs grow. That suggests limited capacity to add new ongoing programs without offsetting cuts or new revenue and sets the context for the manager’s proposed budget and public outreach this spring.

What staff presented

- Homeowner comparison: The city’s homeowner affordability comparison (fiscal 2024–25 basis) shows Mesa’s annual local‑government cost for a typical household at roughly $2,022 for city services; staff noted that adding state‑shared revenues would raise the total by about $1,300 more per year on average. The comparison normalizes water usage (6,000 gallons per month) and applies each municipality’s rate structure to that consumption to produce an apples‑to‑apples comparison.

- Revenue pressures: Staff identified three main revenue headwinds: the recent loss of a residential rental sales tax (staff estimated the impact for the general governmental fund at just over $18 million annually), a state flat‑tax change that reduces some revenues, and generally muted sales‑tax growth in the forecast period.

- Expense pressures: The single largest expenditure pressure is the public‑safety compensation benchmark for sworn police and fire personnel. Assistant City Manager Scott Butler said the benchmark and related adjustments would increase ongoing costs by roughly $23,000,000; staff also noted an additional cost for a step‑pay program (estimated roughly $1.5–2.0 million). Other expense pressures include rising fleet maintenance and repair, higher contracted‑services costs (landscaping, custodial), software licensing and cloud migration costs, and higher solid‑waste disposal fees tied to a new contract.

- Utility capital and operating pressures: Major utility capital projects include the Central Mesa reuse pipeline and the advanced metering infrastructure (AMI) project (targeted completion 2027) and the Signal Butte water‑treatment plant expansion (targeted completion 2028). Over the 2021–25 period staff showed operating costs rising across utilities; wastewater operating costs were about 60% higher in the most recent year than in 2021, driven by chemicals, power and joint‑venture plant costs.

- Reserve and forecast scenarios: Staff emphasized the city’s reserve policy (general fund target 8–10% of revenues; utilities targeted 20% or higher). Under staff’s base forecast the general‑fund reserve balance would fall toward the policy floor by fiscal 2028–29 absent corrective action. Staff showed a scenario in which a dedicated public‑safety sales tax (an additional 0.25% of city sales tax) would materially improve reserves and close the gap in the five‑year outlook.

Public‑safety benchmarking details and council response

Scott Butler described the benchmarking method and peer group (Chandler, Glendale, Phoenix, Scottsdale and Tempe) and said the city’s pay ranges for sworn personnel have fallen behind those peers. "The impact for both the adjustments to police and fire sworn personnel ... is about $23,000,000," Butler said. He and other managers said the city must weigh how to fund those costs while maintaining other services; Butler warned that if the city absorbs the entire increase without offsetting changes, other programs will face reductions.

Council and staff discussed enforcement options for city goals (parking management in downtown), the timing of state budget actions, and the schedule for public outreach on the city budget. Council members asked for methodology details on the homeowner comparison and for municipal rate comparisons; staff said the Office of Management and Budget’s materials and a Valley comparison spreadsheet are available online.

Budget calendar and public engagement

Staff outlined a public calendar leading to the manager’s proposed budget on April 3, department budget presentations through late April, tentative budget review May 1, two community budget meetings (May 7 at Red Mountain Recreation Center and May 14 at Dobson Post — staff said both are planned and residents may submit questions online), tentative budget adoption May 19, final adoption June 2 and property‑tax‑related hearings June 6.

Clarifying details recorded from the meeting

- Residential rental sales tax impact (general fund): staff estimate "just over $18,000,000" annually. - Public‑safety benchmark: staff estimated ongoing cost for sworn police and fire personnel of about $23,000,000 (benchmark) plus roughly $1.5–2.0 million for step‑pay implementation in the coming year. - Reserve policy: general governmental fund target 8–10%; utility fund target 20% or higher. - Homeowner comparison: staff cited $2,022 as the approximate annual cost to the average Mesa household for city services (fiscal 24–25 basis) and noted an additional roughly $1,300 in state shared revenues per household when included in broader comparisons. - Utility projects: Central Mesa reuse pipeline and AMI targeted completion about 2027; Signal Butte water‑treatment plant expansion targeted about 2028. - Solid waste: new disposal contract reflected an estimated $1.1 million increase in FY 24–25 compared with FY 23–24 (staff projection for contract transition year).

Quotes from the meeting

"The impact for both the adjustments to police and fire sworn personnel ... is about $23,000,000," Assistant City Manager Scott Butler said when describing the compensation benchmark.

"If expenses are increasing faster than revenues, it becomes a math problem," City Manager Chris Brady said during the discussion of budget tradeoffs.

Proper names and entities mentioned

- Office of Management and Budget (City of Mesa) - Central Mesa reuse pipeline - Signal Butte Water Treatment Plant - Advanced metering infrastructure (AMI) - Greenfield wastewater treatment plant (joint‑venture facility with Phoenix)

Community relevance

- Geographies: City of Mesa; downtown Mesa; East Valley comparison cities used in homeowner analysis. - Funding sources discussed: residential rental sales tax (lost revenue), public‑safety sales tax (existing 0.25% and discussion of additional dedicated options), construction sales tax rebates, state‑shared revenues. - Impact groups: homeowners, utility ratepayers, public‑safety employees and recruits, municipal workforce, taxpayers.

Meeting context

- Engagement level: multiple council members actively questioned staff; the item was a lengthy, technical presentation with cross‑departmental participation (OMB, city manager, utility staff). - Implementation risk: medium‑high (benchmarks and large capital projects create long‑term commitments; revenues depend on state actions and economic trends). - History: staff noted that some utilities and downtown entitlements were historically funded by regional arrangements and that Mesa has previously smoothed rate increases to avoid sharp single‑year shocks.

Searchable tags:["budget","municipal finance","utilities","public safety benchmark","homeowner comparison","residential rental tax","reserve policy"]

discussion_decision:{"discussion_points":["Loss of residential rental sales tax and state flat tax effects","Public‑safety benchmarking adds substantial ongoing cost","Utility capital needs and operating cost increases","Options to smooth budgets: expense reductions, phased capital, dedicated revenue"],"directions":["Staff to return with proposed manager budget on April 3 and hold public budget meetings in May","Staff to continue working with departments on expense reductions and to present options for council consideration"],"decisions":[]}

actions:[{"kind":"other","identifiers":{"agenda_item_id":"1b_budget_forecast"},"motion":"Council received the general governmental and utility fund forecast and calendar; staff to present the manager’s proposed budget April 3 and hold public engagement meetings in May as detailed in the presentation.","mover":null,"second":null,"vote_record":[],"tally":{},"legal_threshold":{},"outcome":"consensus_note","notes":"Tentative budget review May 1; community meetings May 7 and May 14; tentative adoption May 19; final adoption June 2; property‑tax hearing June 6."}],"sections":{"lede":"City staff told Mesa City Council on March 6 that a five‑year forecast shows a revenue shortfall driven by the loss of a residential rental sales tax and rising costs — most notably a public‑safety salary benchmark that staff said will add about $23 million in ongoing cost for sworn personnel.","nut_graf":"The forecast includes utility capital projects, a homeowner‑cost comparison, and reserve projections that show the general fund reserve near policy minimums by fiscal 2028–29 under current assumptions. Staff recommended expense controls, continued pent‑up capital planning and public engagement on the proposed budget.","ending":"Staff will present the city manager’s proposed budget on April 3, hold community budget meetings in May, and return to council with a tentative and then final budget for adoption in May and June."},