Waylaid by a stagnant economy and the state's investments in the bankrupt National Century Financial Enterprises Corp., Oro Valley is facing a general fund revenue deficit of more than $708,000 for the fiscal year ending June 30.
The town's $920,000 loss in state retirement fund revenues stems from the purchase of AAA-rated bonds by the Office of the State Treasurer from National Century Enterprises, a financier of health care receivables. The company is being investigated for fraud by the FBI and the Security and Exchange Commission. For that reason the state has segregated National Century's investment from its Local Government Investment Pools. Arizona was the only state to commit to these investments.
Other major contributors to the projected general fund deficit, Finance Director David Andrews told the Town Council at its Feb. 3 special session, include a $390,000 dropoff in revenues due to a 30 percent reduction in construction sales tax collections and a $342,000 decline in interest income, including $277,000 of the $920,000 in investment losses suffered by the town.
In addition to the investment losses incurred by the general fund, the town also is being forced to write off $227,000 in its roadway impact fee fund, $218,000 from its water utility, $60,000 from its highway fund and $138,000 from other funds because of the state investments.
The projected revenue shortfall in the current year budget is more than double last fiscal year's $303,500 shortfall and could force the town to reduce its $9.9 million contingency fund by $3.9 million to finance ongoing projects, one-time expenses and the $303,500 general fund revenue deficit carried over from last year, Andrews told the council.
The town earned $210,000 from other investments to help offset the $277,000 general fund writeoff and is expecting to be buoyed somewhat by a 5 percent, or $100,000, increase in retail sales tax revenues and a 3 percent, or $40,000, increase in tourism revenues. But there may be bigger problems ahead, Andrews warned.
State-shared income tax collections for the 2003-2004 fiscal year and the following year as well are expected to drop off by $518,348, based on Arizona League of Cities and Towns projections of a $70 million decline in total state income tax collections. It would be the first marked reduction in state income tax collections in 30 years.
Andrews said the projected $708,000 general fund revenue shortfall is based on every department spending every dollar in their budget. There may be $200,000 to $300,000 worth of savings if vacancies aren't filled and other measures are taken, but budgets were already tightened substantially going into this fiscal year, he said.