Phoenix projects $62 million surplus but staff urges $75 million set‑aside amid legislative risks

City budget staff told Phoenix City Council on Feb. 24 that the city’s preliminary FY2026‑27 general fund forecast shows a remaining surplus of $62,000,000 after accounting for a recommended $75,000,000 set‑aside intended to preserve structural balance.

Aaron Mertz, the city’s budget research director, presented the multiyear forecast and the revenue assumptions, saying the city expects roughly $1.99 billion in general fund revenues next year and is planning conservatively for 3.4% overall revenue growth. "That leaves you with the remaining surplus of $62,000,000 that we're forecasting for fiscal year 26, 27," Mertz said during the presentation.

The presentation attributed most city revenue to local sales and excise taxes (about 42% of general fund revenue), state shared revenues, and property taxes. Staff noted volatility in year‑to‑date sales tax receipts and identified a set of state bills that could materially change the revenue picture, including measures affecting tax conformity and limits on municipal transaction privilege tax rates. The budget team estimated impacts ranging from millions to tens of millions of dollars in future years depending on state action.

City Manager Ed and budget staff outlined next steps and schedule: the city manager’s trial budget and preliminary CIP will be presented March 24, community budget hearings are scheduled March 30–April 16, the proposed budget will be released May 5, the council’s initial vote on budget decisions is May 19, a tentative adoption is set for June 3 and the final adoption and property tax levy are scheduled for June 17.

Several councilmembers reacted to the forecast by urging targeted uses of the surplus. Councilwoman Pastor and others suggested investments in housing (including the housing trust fund and community land trust), possible temporary relief for utility or trash rate increases for vulnerable residents, and continued support for the Office of Homeless Solutions. Councilwoman Hernandez emphasized holding OHS funding to maintain homelessness services.

The presentation also flagged longer‑term cost pressures such as pension and labor costs, vehicle replacement backlogs and the lingering effects of inflation. Staff recommended the proposed set‑aside to buffer the city against potential state actions and forecast uncertainty.

The council did not take a final vote on the budget at the meeting; staff will return with the manager’s trial budget in March.