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Tucson council endorses staff plan to study and advance new revenue options to close FY26 gap
Summary
Council directed staff to advance a package of revenue measures — including an advertising privilege tax, higher pawnshop transaction fees, and a recommended public utility tax increase — while asking for further study and later public hearings on complex items like hotel/short‑term rental tax changes.
Tucson Mayor and Council on Aug. 6 directed city staff to pursue a slate of revenue measures intended to close a projected FY26 general fund gap. The manager’s presentation described a preliminary shortfall and options that combined to cover much of the projected funding need.
City Manager Tim Tamir and business services director Angel Ozomolam told the council that preliminary FY25 revenue estimates showed a $11 million shortfall and that FY26 would require roughly $16.6 million in additional revenues after earlier adjustments. Staff recommended several options to narrow that gap: imposing an advertising privilege tax currently in the city code but set at a 0% rate (estimated revenue about $470,000); increasing pawnshop transaction fees from $1 to $3 (estimated $400,000); raising the public utility tax (the largest-return option, estimated at $5.3 million for a proposed change); and further study of a wastewater removal privilege tax (staff estimated a potential $3.2 million and asked for direction to investigate).
On accommodations taxes, staff explained two different mechanics. One option would keep the existing $4 per-night surcharge and increase the percentage tax; another would eliminate the per-night surcharge in favor of a higher percentage. Staff recommended converting certain surtaxes to percentage-based rates for administrative simplicity and to better align with comparable cities, proposing a conversion of hotel tax to 9% (eliminating the per-night surtax) and recommending a 10% rate for short-term rentals in combination with item 10. Council members pressed staff for the arithmetic behind estimated revenues and for comparisons with neighboring jurisdictions; staff noted the conversion math and that percentage-based hotel tax revenues are often earmarked for tourism uses under state rules.
Councilmember Paul Cunningham moved to accept the manager’s recommendations as a package; several members suggested delaying or amending the hotel/short-term rental proposal (item 10) because of concerns that it could make Tucson less competitive on an ‘‘out‑the‑door’’ basis with nearby jurisdictions. Vice Mayor Lynn Santa Cruz and others argued the revenue slate should be used to preserve services such as fare‑free transit rather than to reinstate fares. The council ultimately voted 6–1 to move the recommended slate forward for further development and formal adoption steps, with staff instructed to return items to a regular agenda and to follow required public‑notice and hearing procedures before any changes take effect.
City staff told the council that statutory notice and intergovernmental requirements (including Arizona Department of Revenue coordination) mean tax changes typically require several months and that some items adopted late in the calendar could not take effect until January 2026. The council also asked staff to continue community engagement with businesses—particularly hoteliers and short‑term rental stakeholders—and to provide a clearer picture of the distributional impacts (which utilities would be affected, and how residential bills might change) before formal decisions.
Next steps: Staff will return to the council with detailed proposals, formal public‑notice timelines and ordinance drafts for any tax changes. The council’s vote at the study session gave administrative direction to prepare those items for subsequent public hearings and final action on the regular agenda.
