Faced with a revenue shortfall estimated at more than $500,000 for the current fiscal year, Oro Valley's finance director is advising the town council to put on the brakes in light of a shortfall that may reach twice that amount next fiscal year.
Finance Director David Andrews estimates revenue collections will be below budget by $762,000 this fiscal year, based on collections through Oct. 31, due in large part to declines in both residential and commercial building permits.
Revenues from residential permits are projected to come in at $365,000 less than what was budgeted and fee collections from commercial building permits $365,000 less, primarily due to a hold being placed by Vestar-Athens Tucson LLC on construction of the Ritz-Carlton Resort in Stone Canyon of Rancho Vistoso.
Some of that $762,000 projected deficit should be made up by the $100,000 the town's building safety division will save by reducing its use of outside consultants and by a $130,000 reduction in bed tax sharing with the Metropolitan Tucson Convention and Vistors Bureau and the Sheraton El Conquistador Resort, but the town's overall financial status hasn't been this bad since the 1994-1995 fiscal year, Andrews said.
This time around, however, it may take longer for the town to recover, Andrews said, adding that in the past the town was issuing 1,000 building permits a year and more, producing the revenues needed to speed a rebound.
"We won't be seeing those numbers again," especially given the reduction in land available for development , Andrews said.
Another factor that makes the current revenue decline so much more difficult to deal with is that the level of services provided by the town has grown significantly, he said.
"We're facing a rough road ahead so we've got to proceed with caution," Andrews said. "The situation is going to be very tight over the next couple of years."
The caution light is warranted because there will be no significant increase in the town's general fund in the fiscal year beginning June 1, the town will have to step up its funding of the new library from $200,000 this year to $700,000 next year, and personnel costs will increase substantially as well, Andrews said.
The current budget includes several positions that were funded for only part of the year based on hiring times while next year's budget will have to include money for full year salaries, Andrews noted in a memo to the council that served as the basis for a special council study session Dec. 11.
The financing of scheduled merit raises will add to the mounting budget deficit, as will the fact that there has been no substantial progress on the proposed Steam Pump Village, a 41-acre, 550,000 square-foot development on North Oracle Road, south of West Tangerine Road; the Vistoso Towne Center shopping complex on 105 acres at the southwest corner of Oracle and Tangerine won't be opening to customers for at least two more years; and Ritz-Carlton construction will take at least two years once the current halt on progress is lifted.
Anticipating what might lie ahead, Andrews has recommended the town council:
Postpone all hirings beyond those positions for which money has already been budgeted. Andrews distinguished this from a hiring freeze, saying the town would fill openings that result from employees leaving as long as those positions are currently included in the budget.
Delay the hiring of a fire marshal until revenues from commercial development increase.
Limit funding for 2002-2003 fiscal year capital improvements to simply paying off debt service.
Consider economic development incentives for the Vistoso Town Center and Steam Pump Village that might get these projects under way faster.
Do all that can be done to expedite the Ritz Carlton.
The town has a contingency fund of nearly $8 million for this fiscal year, but Andrews said the council probably would be reluctant to dip into it too fast since it would be like using savings accumulated with difficulty over time to pay off one's bills.
In spite of the national recession and the local downturn in retail sales and tourism, Oro Valley as well as all other cities and towns may be getting a break from the Legislature.
"A representative of the League of Arizona Cities and Towns reported as of Nov. 26 that the Legislature had completely removed the issue of reducing state-shared revenue distributions to cities and towns from their budget-cutting plan," Andrews told the council. "Therefore, the revenue estimates as presented do not include any potential impact of the governor's proposed 4 percent reduction in state-shared revenues."
Had that gone through, the town's portion of state-shared income and sales tax revenues would have been cut by an additional $220,000 from the $5.5 million currently budgeted, Andrews said.