Nogales water fund shows $369,280 shortfall in FY2026 preliminary budget; council asked to delay interfund loan and allocation

Finance staff told the Nogales City Council during the May 14 budget workshop that the water enterprise fund is the only department the proposed FY2025-26 budget does not balance.

According to the presentation, the water fund’s FY2025 reserve was roughly $111,000. The proposed FY2026 budget shows no reserve and a projected shortfall of $369,280 if current assumptions and obligations remain unchanged. Staff recommended postponing a previously scheduled interfund loan repayment of $118,000 and delaying a planned general-fund allocation of approximately $359,000 to reduce the negative balance.

Why this matters: An unbalanced enterprise fund can require service cuts, rate increases, transfers from other funds or delays to capital projects. The council and staff discussed options to avoid immediate cuts by deferring the loan repayment and reassessing capital requests currently listed for the water fund.

Details and context - Staff said they removed all capital requests from the water fund for FY2026 and moved two positions (the city’s two meter readers) into the finance department effective July 1 to reduce water operating costs. - The finance presenter explained that water revenues, as currently projected, are too low to support the department at the present service level and that reserves have been used in prior years to smooth revenue timing. - Council members noted that staff had signaled concerns about water finances previously and pressed for next steps, including reviewing long-term rate and expense models.

Ending: Staff requested direction on the proposed postponements and said they would return with model scenarios for council consideration before budget adoption.

Speakers cited in this article are listed below.