Avondale finance staff: general fund holding, but loss of residential rental sales tax will tighten FY26–27 budgets

Avondale’s finance staff told the City Council March 5 that the city’s general fund is running above last year’s receipts through January but cautioned that the city will lose the residential rental sales tax, creating a two‑year window where funding choices will be constrained.

The update matters because the loss of the rental sales tax and continuing economic uncertainty will shape the FY26 budget, affecting staffing, capital projects and the city’s ability to cash‑flow large infrastructure investments.

Renee, who presented the budget outlook, said that general fund revenues are “running above last year and above forecast” through January but added: “we are losing our residential rental sales tax started on January 1 of 2025.” She reminded council that sales tax receipts are paid the month after they are collected and that the city received January payments for December collections even after the change.

Key points from the presentation

- Sales tax and revenue mix: Retail and auto dealer sales tax have remained generally steady; one‑time contracting (large project) sales tax has bolstered current-year results. Staff emphasized the difference between one‑time windfalls and sustainable revenue for ongoing operations.

- Forecast assumptions: Staff are modeling ongoing employee cost growth and have included an assumption equivalent to a 5% annual salary increase for planning purposes and noted a market compensation study is underway. Employer health care costs are expected to rise in fiscal 2026.

- Fund balance policy: The city maintains a stabilization reserve target of 35% and a separate $5 million capital reserve; forecasted general fund balances decline if one‑time resources are applied to ongoing expenses.

- Enterprise funds and rates: Water, sewer and solid‑waste enterprise funds were briefed; utility rate changes and rate presentation assumptions are included in the FY26 planning figures.

- Process and timing: Staff have completed department budget meetings and will present a first council work session on the budget at the end of the month. The City Manager’s recommended budget is scheduled for the first week of April; council will consider a tentative adoption in May and the final budget in June. Staff also reported the citizen bond committee has been meeting and will issue recommendations to council next month.

What it means and next steps

Finance staff urged a conservative approach to budgeting, recommending that one‑time and volatile revenue be invested in capital projects rather than ongoing salaries or services. Council members asked for clarity on specific items such as grocery‑store access in South Avondale, options for workforce and education programming, and infrastructure investments needed to support economic development.

Staff will return the City Manager’s recommended budget in April and the council will review supplemental requests and capital priorities in upcoming work sessions.

Ending: The fiscal outlook remains stable in the near term, but the elimination of the residential rental sales tax requires careful prioritization of ongoing vs. one‑time spending in the FY26 and FY27 budgets.