Cochise County supervisors confront tight expenditure limit as budget requests climb

Cochise County budget staff told the Board of Supervisors on April 6 that rising personnel and operating costs have narrowed the gap with the voter-approved annual expenditure limit (AEAL), leaving little capacity for new spending in fiscal year 2027.

Sharon Gilmer, the county's presentation lead, said the AEAL's FY2027 calculation rose by about $3 million to roughly $87.019 million but that the uptick largely reflects inflation rather than population growth. "A 3 million jump does help for inflation, but it doesn't give us a lot of capacity," Gilmer said.

Why it matters: the AEAL caps the amount local governments can spend from local revenues each year. Gilmer warned that if the county exceeds the AEAL the auditor general can hold a hearing and reduce the county's primary property-tax levy the following year by the excess amount, a change that could erode future capacity and affect credit ratings.

Budget drivers and near-term pressures

Budget manager Stacy Penhouse walked supervisors through the cost increases the county is tracking: an estimated $436,000 rise in employer health-benefit contributions and a roughly 66% increase in workers'comp costs that Penhouse said will produce about a $426,000 impact across funds. "This year [workers' comp] is higher than our deduction. So it becomes a multiplier instead of a reducer," Penhouse said.

Penhouse also said departments and elected offices have submitted funding requests that would add about $3.55 million to next year's budget if all were approved. "These are early estimates," she said, and final employer-side health costs will be updated after open enrollment closes at the end of April.

Pension and other long-term liabilities

Gilmer reviewed actuarial valuations (through June 30, 2025) showing pooled EORP unfunded liabilities of about $587 million. She said county-specific liabilities for CORP were presented at $6.2 million; the readout of the PSPRS figure was unclear in the session audio (the presenter read it aloud as "6 or 26 million").

County staff said they typically plan additional pension contributions late in the fiscal year (often May) to manage AEAL capacity; $2.5 million is currently budgeted for additional pension payments but staff cautioned they may not have room for the full contribution depending on final expenditures and exclusions.

Revenue outlook and key assumptions

Penhouse outlined major revenue categories the county relies on: roughly 41% county sales tax, 44% property tax and 15% other departmental and fee revenues. She cited an assessed primary property valuation of about $1.20 billion and proposed an FY2027 primary levy of $31.6 million on a no-TNT basis, which she said would lower the county's tax rate from 2.6720 to 2.6283 (a 1.64% decrease).

On sales-and-excise-related categories Penhouse recommended conservative budgeting: county sales tax budgeted at $10.5 million (end-of-year projection ~ $11.8M), state-shared sales tax budgeted at $19.5 million (with a projected $21.4M end-of-year), blended HERF (gas-tax) estimates of roughly $11.8 million, and vehicle-license tax budgeted at $7.7 million.

Items that complicate AEAL treatment

Staff emphasized several items that can unexpectedly count toward the AEAL or be excluded depending on timing and accounting: ARPA funds used for payroll (Gilmer said the county used about $10 million of ARPA for payroll, a use that does not count toward the AEAL); delayed grant reimbursements (Penhouse offered a concrete example of nearly $800,000 spent in FY25 for which reimbursement arrived after books closed, causing the expense to be counted rather than excluded); opioid-settlement funds (board members asked whether routing distributions through cities could avoid counting them against the county's AEAL; staff said they would check the auditor general's guidance).

Software and other non-personnel costs

Supervisors flagged a roughly $1 million increase in annual software-license costs. Joe Casey explained that the spike reflects multi-year contracts coming due and per-employee/licensing differences across departments; supervisors asked staff to review possible unused licenses and trimming options.

CCOM/SECOM and jail district notes

Staff said Cochise County's share of CCOM/SECOM subscriber fees is projected to increase in the coming year in part because employees transferred to county payroll raise benefit and workers-comp costs. The jail district's maintenance-of-effort allocation increased modestly (about $21,000) based on an implicit price deflator formula.

Next steps

Gilmer and Penhouse said the board will continue one-on-one budget meetings with elected officials through April, hold a final work session in mid-May ahead of the tentative budget in June and present market-salary adjustments in May for the board's consideration. Gilmer told the board that if revenue growth does not materialize officials may consider asking voters to raise the AEAL, though she cautioned that would require a lengthy public process.

The board scheduled a dedicated CCOM work session for April 16 and adjourned the meeting.