City projects slightly smaller FY26 starting balance; pensions show improved funded ratios

City Manager Tamir and finance staff told the Tucson City Council on Feb. 4 that fiscal 2025 is tracking better than originally adopted but that the city’s beginning cash for fiscal 2026 will be smaller than projected in last summer’s forecast.

“Overall we ended the fiscal year with a $167,900,000 fund balance and available fund balance of $122,300,000,” Angel, business services director, said while walking the council through year‑to‑date projections and the 5‑year outlook. “We are projecting annual expenditures of about $840,100,000 and a projected surplus of $22.9 million on recurring revenues.”

Why it matters: Tucson adopted a balanced recurring budget for FY25 that assumed about $0.5 million of recurring surplus, and it has an explicit multi‑year “one‑time” investment plan that draws down the city’s accumulated savings. Staff emphasized that the on‑going budget remains balanced but that one‑time investments — apparatus and equipment for public safety, deferred maintenance in parks and facilities, and collector street projects tied to voter commitments — are reducing the available fund balance that will carry into FY26.

Pension developments: CFO Anna Rosenberry reported positive movement in the city’s pension metrics. The Tucson Supplemental Retirement System (TSRS), which covers non‑public‑safety employees, improved its funded ratio to 76.3% in the latest actuarial valuation, up from 75% the prior year. Rosenberry said the TSRS board has recommended a modest employee contribution increase (0.5% for Tier 1, 0.25% for Tier 2) and that the city manager will evaluate that recommendation before making a final proposal.

Public‑safety pensions: Rosenberry and the city manager reviewed the combined funded position of public‑safety plans after accounting for assets held at PSPRS and the city’s Section 115 trust. Combined funding for police and fire liabilities rose to 68.4% from 66.5% year‑over‑year. PSPRS has provided an FY26 minimum required contribution estimate of approximately $115 million; staff warned such estimates have been exceeded in prior years because of wage growth, amortization changes and shifts in actuarial assumptions.

Investment returns: Council members asked about relative investment performance. Staff reported the city’s Section 115 trust outperformed PSPRS in the last two fiscal years; the trust returned about 14.65% net of fees for the year ending June 30, 2024, versus PSPRS at about 10.34%, a roughly four‑point advantage after fees, staff said.

Council direction and next steps: Council members pressed staff on retiree projections, the balance between drawing from the Section 115 trust and general‑fund contributions in the next five‑year window, and on transparency for community engagement around FY26 priorities. City Manager Tamir said staff will bring ongoing discussions about the five‑year pension strategy and FY26 budget assumptions to future study sessions and will involve the council in decisions about whether to “stay the course” or adjust the mix of contributions and investment draws.

Ending: Staff stressed these are projections as of mid‑year and numbers can change as the fiscal year closes. The council did not take a budget vote at the Feb. 4 study session; staff will return with more detailed FY26 assumptions and possible policy recommendations in the coming months.