Tucson managers outline $21M operating gap; council weighs pawn fees, utility tax and hotel/STR changes
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Summary
City staff briefed council on a projected operating deficit and presented five revenue options including higher pawn‑shop transaction fees, a half‑percent utility tax increase, and new/higher hotel and short‑term rental taxes; council delayed the advertising tax and provided feedback on equity and sequencing.
City budget officials told Mayor and Council on Dec. 16 that Tucson faces a structural shortfall driven by declining local receipts and a $40 million annual reduction in state shared income‑tax revenue linked to the state flat‑tax implementation. Assistant City Manager Anna Rosenberry said the city had identified roughly $34 million in current‑year reductions and reallocated spending but still projects an operating deficit of about $21 million for FY26.
To help close gaps and sustain core services — including public safety, 911/311 operations and parks — staff proposed a package of revenue measures for council consideration. Major items on the agenda included:
- Pawn‑shop/secondhand transaction fee: staff proposed raising the per‑transaction reporting fee from $1 to $3 (estimated ~$400,000/year). Pawn‑shop operators and industry groups urged a smaller or phased increase, arguing the cost will be passed to low‑income consumers who use pawnbrokers as short‑term credit.
- Public utility tax: a half‑percent increase (from 4.5% to 5.0%) was estimated to generate about $5.3 million annually; staff noted combined rates with other privilege taxes could approach 7.6% for some utilities. Council members debated impacts on households already facing rising utility bills and asked staff for comparisons with other Arizona cities and scenarios for solar/net metering customers.
- Hotel and short‑term rental taxes: staff recommended eliminating a flat dollar surcharge and increasing the hotel tax to 9%, and applying a 10% transient occupancy tax to short‑term rentals. Industry representatives warned higher lodging taxes could reduce competitiveness and convention, sports and group business.
Council members asked staff to pause the advertising privilege tax to do more stakeholder outreach and signaled differing views on sequencing revenue choices, with some urging reinstatement of transit fares as an initial revenue source and others arguing for progressive fees that spread the burden across visitors and businesses. No final decisions beyond consent‑agenda referrals were made during the study session; several items moved to the regular meeting for formal votes and more public input was requested.
