A financial update of Oro Valley shows the town expects to run a $2.14 million dollar deficit by the end of the fiscal year.
The report, on the council's Nov. 18 agenda, shows the largest deficit afflicting the town's general fund. That budget area, which funds most town operating expenses, likely will fall $1.6 million into the red by June, when the fiscal year ends, writes Stacey Lemos, Oro Valley finance director and interim assistant town manager.
The report estimates revenue shortfalls in most categories, including sales taxes, bed taxes and highway user funds.
All told, the deficit totals more than $2.1 million. The town's operating budget for the fiscal year is near $49 million, with a total budget in fiscal 2010 of $121 million.
The bed tax appears to have the taken the hardest hit among town revenue sources, with finance officials estimating it coming in 65 percent below budget. The town had estimated the tax, a 6-percent surcharge hotel guests pay in Oro Valley, to bring in more than $563,000 this year. Revised forecasts say bed taxes will net $197,000.
Despite the forecast, Oro Valley leaders seem hopeful the shortfalls can be controlled.
"We think the budget is manageable right now," Councilman Barry Gillaspie said.
Gillaspie said more details about the town's financial situation would be available in early 2010, at which time more concrete strategies about how to manage the budget would be explored. Even so, service cuts seem likely.
"There may have to be cuts in programs," Gillaspie said. "But we don't know what those programs are."
Lemos has estimated that general fund spending would come in below what was budgeted, about $600, 000 or 2 percent, mostly the result of the voluntary severance plan taken by employees this summer.
The report follows close on the heels of a five-year budget forecast that predicts decreased income through fiscal 2014.
The biggest declines would hit the beleaguered state-shared revenue fund. That fund, comprised of vehicle licensing fees and statewide sales and income taxes, is expected to drop in fiscal 2011 by 25 percent. The impact on Oro Valley's budget could be more than $1.25 million.
In addition, finance officials expect the fund will continue to tumble until fiscal 2014, when it bottoms out.
"Our revenues are inextricably linked to the state," Gillaspie observed.
In fact, the town has few local sources of revenue. As much as 70 percent of the town's budget comes from state-shared revenue and other outside sources.
With Oro Valley's fortunes so closely tied to those of the state, Arizona's unresolved budget and continued economic disarray doesn't bode well for the town.
According to a recent study by the Washington, D.C.-based Pew Charitable Trust, Arizona faces one of the worst budget crises in the country.
The state's top three sources of revenue — sales taxes, corporate and personal income taxes — have declined by at least 21 percent in fiscal 2009, the study says.
The Pew study says Arizona has a 41 percent budget gap, with deficit figures varying from $4 billion to $2 billion.
Oro Valley officials plan to keep a close watch on the fluctuations from the State Capitol and have, since passing the budget in May, studied monthly budget updates provided by the finance department.
OV deficit by the numbers
Fund Revenue Expenses Deficit
General fund $27,243,323 $28,903,580 $1,660,257
Highway fund $4,423,753 $4,703,414 $279,661
Bed tax $197,132 $401,026 $203,894
Source: Town of Oro Valley