Nogales adopts tentative 2026–27 budget after heated debate over water loan and structural deficit

The Nogales City Council voted by voice to adopt a tentative fiscal-year 2026–27 budget on May 20 after a lengthy discussion about the city’s water finances and growing budget gap.

City Manager Puckett told the council that Sergio, the city’s finance staff, had “transferred $1,300,000 from the general fund reserve to the water fund” to make the water utility solvent, but he warned that the money must be repaid. “You have to lend it, and then we have to pay it back,” Puckett said, adding that the city cannot rely on one-time reserves as an ongoing funding source.

Why it matters: Puckett described the tentative budget as using reserves to close a roughly $14.7 million shortfall between projected expenditures and revenues. “You are already operating at millions of dollars more than your revenues are producing,” he said, calling the condition a structural deficit that needs corrective action to avoid depleting reserves in future years.

Staff said the water fund transfer stabilizes the utility for the coming year but leaves a repayment obligation. Puckett and finance staff explained the formal process required for utility-rate changes and said the council could begin a public-rate-adjustment process at a future meeting. Puckett described the likely immediate step as a rate adjustment of about $3 per month on the base water bill — a figure he said equates roughly to the amount being discussed in earlier press reports described as a 25% increase. He added that any rate change would follow required public-notice and hearing steps.

The budget packet also lists capital carryovers for emergency equipment: staff said a vehicle-reserve allocation of about $580,000 for two ambulances will carry forward, and an additional $180,000 carryover will be shifted into the next fiscal year because delivery was delayed.

Council discussion centered on trade-offs between using reserves versus revenue adjustments and on the timing and amount of any rate changes. Puckett urged a longer-term approach: “A budget…is a work plan,” he said, and recommended instituting a finance-office process to close the gap between revenues and expenditures over the next several years.

What’s next: The council adopted the tentative budget by voice vote; staff will publish the statutorily required notices and schedule the public hearings, and the water-rate adjustment process — including public hearings — was proposed to start at an upcoming meeting so any new rates could take effect in July or August if adopted.