When the Town Council met last week for its annual planning retreat it was told that the fiscal hole potentially continues to get deeper.

While Town Finance Director Craig Rudolphy is projecting that the 2017/2018 fiscal year budget will balance, maybe even with a surplus up to $735,000, he estimates that by the 2021/2022 budget there will be a potential revenue shortfall of $1.6 million. Collectively, the years 2019 through 2022 the deficit could total more than $4 million, according to Rudolphy.

This news is similar to what Rudolphy reported last year with the addition of one more year of projections. It should also be noted this applies only to the Town’s General Fund budgeting. Also, since state law requires cities and towns to have a balanced budget, any deficits would need to be offset with cutbacks to personnel or services.

Public safety costs continue to push the budget higher. Staff is about to begin negotiations for a new contract with Rural/Metro, which expires after next fiscal year. There is a new owner for the company, which the town has not dealt with in contract negotiations. The remaining year on the current agreement has a 3.5 percent increase. However, for the purposes of his five-year projections Rudolphy assumed a 10 percent increase per year after that.

He projected the same increases for law enforcement services from the Maricopa County Sheriff’s Office. However, there is no increase for the next fiscal year. The MCSO agreement is based on cost recovery and this year will actually be less than projected.

Rudolphy is also assuming a 3.5 percent inflation increase for fiscal years 19 through 22, and he does not anticipate any growth to state shared revenues or income tax. All of his expenditure projections are based on the current level of services.

Current draft work for the 2017/2018 fiscal year budget shows a total of $35,690,770, which is an increase of about $1.4 million over the current year.

The challenge

Rudolphy said the town is facing, like so many other entities, a structural problem with its finances. He said this structural issue is primarily a revenue problem rather than expenditure.

There is a plethora of ideas that could help bring in more revenue for the town and nearly all come out of the pocket of residents and visitors one way or another.

The council could, with simple majority vote, increase sales tax on all or some categories (except for bed tax, which requires a public vote).

Each one tenth of one percent increase in sales tax would generate an estimated $340,000 in additional annual revenue.

The town currently has a local sales tax rate of 2.6 percent with a total rate of 8.9 percent including state sales tax. It ranks among the highest in the East Valley.

With $7.7 million budgeted for the public safety contracts this continues to be about half of the entire General Fund budget. Implementation of a separate Public Safety Fee could be considered as an option. Rudolphy calculated a scenario that addresses increases to public safety, but only about 14 percent of total costs.

He said a $100 annual fee to 622 businesses and 11,349 households in Fountain Hills would raise about $1.2 million in revenue.

The town currently uses a fee structure for environmental costs and after a difficult launch a year ago realized reasonable success.

Special districts are an option but are difficult to establish and stand as separate political entities with a separate elected board taking authority away from the council as with the Sanitary District. Districts are funded with a secondary property tax.

The elephant

The elephant in the room remains a question of whether or not to establish a permanent primary property tax. This would require the council to only approve an election asking voters to authorize the property tax. Two previous elections asking for property tax authority were soundly defeated. The last time the property tax question was on a ballot was in 2008.

A lot has changed since 2008, however, and Vice Mayor Nick DePorter for one seems to be on board.

“We really need to look at a property tax,” DePorter said during the session. “It addresses all of the questions we have. It is very clear to me this is the closest thing we have to a silver bullet.”

Councilman Cecil Yates remains uncertain.

“There are other ways than a property tax,” Yates said. “We need to give citizens the peace of mind that the money is going where they think it is.”

Mayor Linda Kavanagh cited the Saguaro road bond as a tax people are willing to pay when they can see something tangible to know how the money was used.

“If trust in government is what you are talking about, I don’t think establishing fees the council can change (indiscriminately) is the answer,” DePorter said.

Councilman Dennis Brown said that as council members they are responsible for keeping the streets paved and public safety at an optimum.

“Some of the decisions will be difficult,” Brown said. “We need to talk about something that can be implemented within the next year.”

Councilman Art Tolis advocated for more council discussions that are single topic and decisions can be made.

“We ran for office to solve problems,” Tolis said. “We should probably take more time together than we devote now.”