While Marana's town finances and homebuilding industry remain relatively robust, the community's school district and many of the town's businesses are beginning to feel the effects of the slumping economy and the "terror factor" that shook the nation's consumer confidence after Sept. 11.
The building boom that's fueled Marana's growth and prosperity has yet to feel the full effect of the nation's economic slide, but key Marana administrators say a steady decline in revenues from the retail sector, and a plan by Gov. Jane Hull to cut four percent from funds the state shares with Arizona municipalities, would be a blow to Marana's town budget.
"Overall, we're still doing well," said Marana Town Manager Mike Hein. "The most immediate and visible concern is the potential reduction in state shared revenue. It's like a double whammy. We're naturally going to see a reduction in the retail trade revenue, and since the state shared revenue is also based on that, we get hit twice."
Marana estimates the four percent reduction of state funding would translate to about $100,000 it would lose in addition to its own sagging sales tax collections. The town's current budget is $62.3 million
"Could we handle that? Yeah. We budgeted conservatively on revenue last year and basically projected a flat line revenue anyway. We're just going to have to make sure our expenses are thoroughly evaluated. We would certainly be looking at cutbacks - short of cutting personnel," said Hein, who added it was too early to say when and where the cuts would fall if Hull's plan is approved during the special legislative session she has called for next month.
Marana Finance Director Roy Cuaron said he would recommend the cuts be made in the town's $43.5 million capital improvements plan, which foots the cost of road and building projects in Marana.
Cuaron said it was premature to identify specific projects that might be reduced, delayed or eliminated.
Examples of capital improvement projects currently in the design phase in Marana include improvements to Cortaro, Silverbell and Ina roads, and the Twin Peaks - Interstate 10 Interchange that planners say is needed to relieve traffic congestion in the Continental Ranch area.
Hull's spokeswoman Francie Noyes said the governor's plan to reduce shared revenue to cities and towns and funding to state agencies was prompted by the $1.6 billion shortfall the state is expected to incur over the next two years.
"The governor believes some tough adjustments will have to be made to the state's budget and this is the best way to spread the pain around,' Noyes said.
While Marana has yet to receive revenue reports for September from the Arizona Department of Revenue, the town's own collection of sales tax revenue was already starting to slow even before the Sept. 11 terrorist attacks on the East Coast and subsequent anthrax scare began to effect consumer confidence.
According to Cuaron's Sept. 26 financial report to Hein, sales tax revenue was down 15 percent from what had been projected for the fiscal year ending June 30, and down 2.23 percent from the previous year.
On the bright side, the town was running a $2.4 million surplus at the end of the fiscal year, according to the report. And Cuaron, Hein and Development Services Administrator Jim DeGrood agreed that housing starts in Marana remained strong despite the wilting state and national economies.
After anticipating an average of 50 building permits to be drawn monthly during 2001-2002, the town processed 81 permits in July, 73 in August, and 90 in September, Cuaron said.
DeGrood attributed the rise to "more product being available" as long planned housing developments have recently come to fruition.
The trend is expected to continue as projects such as the massive Continental Reserve development near Cortaro and Silverbell roads gears up and more building occurs at Dove Mountain on Tangerine Road.
"Developers are cranking it right now. They know the demand is still out there and they're pushing us to get their permits approved," DeGrood said.
One project that is not cranking is the much anticipated Hyatt resort planned for Dove Mountain.
The resort's developer, Cottonwood Inc., announced this month it had suspended plans for the $160 million resort due to the slowing economy.
Hein said he believed the project will soon be back on track, and as way of proof, offered the fact that Cottonwood President David Mehl presented Marana with two checks last week to cover the towns cost of the state land lease needed for the project.
"Clearly, the whole world of financing has changed in regard to tourism and travel. We have no timeline from Cottonwood for the project yet, but when someone writes checks for almost $1.3 million, I would intuitively call that optimism," Hein said.
Marana is to be the steward of 2,400 acres of state land the U.S. Fish and Wildlife Service required Cottonwood preserve in return for allowing the resort to be built in the habitat of the federally protected cactus ferruginous pygmy owl.
Mehl's check for $850,000 will go to Vistoso Partners, another development company which transferred the 99-year land lease to Marana earlier this month. Vistoso outbid Marana for the undeveloped property at a public auction last year.
The second check for $432,000 from Cottonwood will pay for Marana's next year's lease of the land, Hein said.
If built, the Hyatt is expected to create 700 jobs in Marana and generate an estimated $1.5 million in construction sales tax and $1.6 million in sales and bed taxes in the first four years.
The Marana Unified School District was projected to receive $750,000 annually in sales tax from the resort, a boon that the district's administrators say is sorely needed.
Scott Mundell, MUSD's assistant superintendent of business and finance, said the district has already drawn up plans for staff reductions because of the dwindling economy.
"Nothing is firm, but the cuts would definitely be limited to the area of support staff and administration. We have a consensus that we will not cut from classroom instruction," Mundell said, adding that he was unsure how many jobs would be lost or when.
Hull has said she would spare kindergarten through 12th grade education from cuts in her budget reduction plan, but Mundell said falling revenue is having a serious impact on the district's financial health.
Marana's business community is also feeling the economic pinch said Kelle Maslyn, executive director of the Marana Chamber of Commerce.
"I've been hearing from a number of businesses that are feeling the slowdown, particularly after Sept. 11. Motels are seeing less travelers and restaurants like Casa Molina are saying they're seeing less business. People seem to prefer to stay home or go to fast food restaurants for meals right now," Maslyn said.
The chamber is exhorting people to shop and patronize businesses in Marana as a way of reviving the local economy. It's planning a series of television and print advertisements to draw attention to the problem, Maslyn said.
OV FINANCES LOOK GRIM, SAYS DIRECTOR
by Bob Svejcara
Financially speaking, the caution light is on in Oro Valley as town officials look at the possibility that general fund revenues may be down by as much as $568,000 by the end of the current fiscal year.
The town also may be forced to take at least an additional $220,000 annual hit in reduced state income and sales tax distributions as a result of Gov. Jane Hull's proposal to reduce these distributions by 4 percent to help reduce the state's currently projected $1.6 billion deficit.
The dreary projections are included in a report prepared by Finance Director David Andrews for the town Budget and Bond Committee's meeting Nov. 7.
In a separate interview, Andrews noted that the figures fail to take into consideration the economic slide that occurred nationally in the aftermath of the terrorism of Sept. 11 and thus could end up being far worse.
The general fund is the town's primary operating fund and is used to pay for services and improvements not required to be accounted for in a separate fund. Police, parks and recreation, development services, library services and administration are among examples.
The biggest chunk of the plunge in projected general fund revenues is expected from a $355,000 drop in single family home building permit fees. In fiscal 1998-1999, the town issued 1,020 permits for single family homes; in 1999-2000, 1,144 permits were issued; in 2000-2001, the number fell to 793. This fiscal year, the initial projection was for 750 permits. That has since been reduced to 690.
Andrews said the latest estimate also could have a furthering negative effect on roadway and water system development impact fee collections.
Restaurant sales tax revenues continued to show an upward trend through August of this year, but the tragic events of Sept. 11 and their impact on the lodging industry will more than offset those gains, he said.
Local sales tax collections from restaurants, hotels and resorts are expected to be down by more than $155,000, or about 10 percent, he said.
Revenues from commercial building permits are also projected to fall by nearly 10 percent from $490,000 to $445,000.
The projection was based on the likelihood that a building permit valued at $328,000 would be taken out in the first quarter of 2002 for the Vestar-Athens Group's five-star, 320-room Ritz Carlton Resort being planned by the WLB Group on 52 acres in Vistoso Partners' Rancho Vistoso development.
On Oct. 22, however, Corky Ingraham of the Athens Group announced that the project had been placed on hold pending improvements in capital markets in the wake of the impact the events of Sept. 11 have had on the tourism and travel industry.
"We certainly understand the constraints that affect the industry, and we look forward to the time when we can help get this project back on track," Mayor Paul Loomis said in reaction to the announcement.
A slip in the project's schedule would have a large negative impact on the $445,000 year-end results for commercial building permit revenues, Andrews warned Budget and Bond Committee members.
On the bright side, Andrews said town expenses are either matching or coming in under budget projections and that while water and roadway impact fees are down somewhat, gasoline taxes are tracking to expectations and revenues from the town's water utility are doing OK.
Andrews said the latest budget numbers are among the most difficult he's seen in past several years, but would consider the town to be fortunate if the general fund deficit remains in the range currently forecast.
The slowdown in tourism since Sept. 11 has yet to be factored in, so projections could get a lot worse depending on how the state does as a whole, Andrews said.
The town has current cash reserves of about $7.7 million, but the town council would take a very careful look at the situation before tapping into those reserves, with an especially close eye on a host of major capital improvement plans in the works, including the opening of the town library scheduled for May, he said.