Flagstaff council weighs property-tax options as revenues face state headwinds
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Summary
City staff told the Feb. 5 budget retreat that Flagstaff's general fund is about $83 million but faces downward pressure from a San Tan Valley annexation and potential state tax-conformity changes; staff offered levy and levy-shift scenarios and council asked for detailed options in April.
Flagstaff City staff said on Feb. 5 that the city's general fund operating budget is about $83,000,000 and that several state-level changes are likely to reduce ongoing revenue, prompting discussion of modest property-tax increases and a novel shift of levy authority from restricted debt service to general operations.
City finance presenters described a mixed revenue picture: retail, restaurant and marketplace sales have recently shown month-to-month gains but many categories remain below adopted budget. "Our general fund is approximately $83,000,000," the presenter said, noting sales tax (the city's 1% general sales tax) accounts for roughly 38% of that mix while state-shared revenues make up about 39% and other revenues (property tax, permits and fees) about 23%.
The finance team flagged two distinct state impacts. First, the annexation of San Tan Valley shifted a portion of state-shared receipts; staff cited an initial correction that produced a $62,000 decline and estimated roughly a $200,000 annual impact going forward. Second, pending tax-conformity legislation at the governor's office and in the Legislature could reduce distributions further; staff presented conservative scenarios that would lower ongoing state-shared revenue by several hundred thousand dollars, and estimated a full tax-conformity outcome could amount to roughly an $850,000 annual hit to state-shared receipts alone.
To respond, staff presented two categories of options for council direction: (1) modest increases in the primary property-tax levy (staff illustrated 2% and 4% examples and a phased approach), and (2) a levy-shift concept that would reallocate part of the anticipated increase in the secondary property-tax levy (used only for voter-approved debt service) into primary levy revenue for general-fund use while keeping overall levy collections roughly neutral.
Under one illustrative scenario staff called a "levy shift," shifting roughly half of an expected secondary increase would create about $240,000 of additional unrestricted general-fund revenue in the coming year while lowering the city's future bonding capacity (staff estimated the city's current secondary-rate capacity would fall from about $98 million of potential GO bond capacity to about $80 million under that shift). "If council gives direction, we'll go back to our financial advisers and bring exact calculations for April," the presenter said.
Council members were split on approach. Some favored exploring a higher levy now (one suggested 4%) to provide more immediate ongoing funding for core services; others urged caution because even modest increases can prompt public concern and because shifting secondary capacity reduces future bond capacity for capital projects. Several members asked staff to produce precise dollar-and-rate options (2%, 4%, phased increases, and levy-shift permutations) so the council could consider trade-offs at the April retreat.
Next steps: staff will run detailed scenarios with the city's financial advisers, return to council with the range of options and public-notice requirements in April, and continue monthly revenue monitoring while division-level budget reviews proceed.
