Flagstaff projects modest revenue growth; council told sales tax and hotel receipts will be monitored

At a Flagstaff City Council budget retreat on April 24, Rick Tatter, management service director, told the council that the city’s general fund revenues are tracking modestly above prior-year actuals but slightly below the projections the council adopted last year.

Tatter said overall sales-tax revenue is projecting about 2.5% growth year over year, though some categories prompted cautious adjustments. “So just generally, overall, we're trending at about 2 and a half percent growth in our general fund sales tax,” he said. Retail and marketplace receipts showed a decline in January before stabilizing, and hotel occupancy and related receipts have been reduced in the forecast after several months of year-over-year declines.

Why this matters: the general fund supports core services and personnel costs. Small percentage changes in sales tax or state-shared revenues can affect available funds for new positions, capital projects and the city’s contingency planning.

Tatter highlighted specific categories and drivers. Construction-related sales tax had a strong prior summer but has softened in recent months; the department set a conservative baseline for permitting-related construction sales tax. On the state side, Tatter said the city revised upward some state-shared revenue assumptions after later-month returns came in stronger than the December-based figures used for the February retreat. He singled out vehicle-registration (auto-lieu) receipts from the state as a strong contributor and said that, after reviewing later returns, the city now expects stronger state-shared revenues than earlier assumed.

City finance staff described the broader economic uncertainties the forecast must absorb, including possible tariff effects, consumer uncertainty and potential federal/state tax changes. “Uncertainty is a very key word we're having,” Tatter said, noting that short-term swings (for example, car purchases ahead of tariff changes) could produce one-time revenue pulses that may not sustain in future years.

Staff said the budget team used conservative recession planning in the modeling: rather than assuming a recurring multi-percent decline, they built flat assumptions into several years to avoid committing one-time revenue to ongoing expenditures, while retaining a formal recession plan as a tool if revenues weaken.

Council members asked clarifying questions about comparisons to statewide trends, the timing of permit activity and the sensitivity of hotel and retail categories to weather and other factors. Finance staff said they will continue monthly monitoring and bring any material changes back to council.

Less critical details: staff noted the city’s diverse revenue mix means sales tax is only part of general fund resources and that the budget team balanced spending recommendations against the updated projections. There were no formal votes tied to the revenue update during this session.

The council will continue to consider the manager’s recommended budget at future meetings and the tentative and final budget adoption hearings in June.