Oro Valley manager recommends $147.1 million FY2026 budget; townwide reserves projected to decline

Oro Valley Town Manager Kevin Wilkins presented the town manager'recommended budget for fiscal year 2026 on May 5, proposing a $147.1 million spending plan that is $3.7 million (2.4%) below the current year adopted budget.

The recommended budget reduces overall townwide reserves from a projected $76.2 million to $44.1 million, a decline of about $32.1 million; staff said roughly $24.7 million of that decrease is tied to the Northwest Recharge Recovery Delivery System (NERDS) project inside the water utility. Wilkins and Chief Financial Officer Dave Gephart told the council the recommendation preserves a 30% general fund reserve policy while increasing contingency and limiting personnel growth.

Why it matters: The plan is a response to a flattened revenue environment for the town and rising costs for utilities, insurance and other nonpersonnel items. Gephart said the town constrained operations and maintenance growth and limited personnel additions to one new sworn officer; two temporary CIP project manager positions will not be refilled.

Gephart said the town'wide personnel increase is roughly 0.8% (about $300,000) and noted the budget keeps medical insurance premiums flat. He described a five'year forecast presented earlier that shows a potential negative capital fund balance by fiscal year 2030 if transfers decline as expected.

Revenue drivers and risks: Sales tax collections have been essentially flat in a 12'month rolling average since about November 2022, Gephart said, and state shared (urban revenue sharing) receipts spiked in recent years because the state temporarily increased the allocation percentage from 15% to 18% after the Ducey administration'era tax change; staff said the town should not expect those elevated receipts to continue and projected recovery from the 2024 trough will be gradual through the late 2020s. Charges for services, water sales and a mix of local sales tax shared revenues make up roughly 70% of the town's inflows.

Spending priorities: Capital and water make up the largest portions of the proposed budget, Gephart said, driven primarily by the NERDS water project and recent water utility debt issuances. The recommended budget reduces capital outlays overall, increases debt service for water utility borrowing, and raises contingency to $2 million in the general fund. Departments were directed to hold operations and maintenance flat where possible; staff reported some increases in O&M are attributable to factors outside town control such as utility rate changes and software renewals.

Pension and debt notes: Gephart said the budget includes PSPRS contributions intended to keep the police pension plan fully funded, subject to final labor agreements. The town also included debt service tied to recently issued water utility debt and to a pension obligation bond; staff identified roughly $1.275 million in annual payments on the pension obligation bonds.

Council questions and next steps: Council members asked for clarification about urban revenue sharing drivers, sales tax trends and the timeline and assumptions in the five'year forecast. Gephart and Wilkins said staff will refine some of the fund balance projections for the tentative budget and will return with additional detail at the May 20 Budget and Finance Commission meeting and in the tentative budget package.

Ending note: Gephart described the manager's recommended budget as structurally balanced and said the general fund meets the town's 30% reserve policy; council members asked staff to return with updated numbers and more detailed analyses for the tentative budget.