OPENPUBLICA · PUBLIC MEETING RECORD
Record of Proceedings

Mesa City Council Study Session on Fiscal Year 2026-27 Budget Forecasts - February 26, 2026

Council Study SessionsThursday, February 26, 2026
BodyMesa, Arizona
SessionCouncil Study Sessions
DateThursday, February 26, 2026
StatusFILED
Video Record
0:00 / 1:42:29

Transcript — Verbatim
0:00

City Clerk.

0:01

All right.

0:02

We don't want to start at 0731.

0:06

0730.

0:08

Vice Mayor, are you on line?

0:11

I am Mayor, thank you.

0:13

Great.

0:16

Okay.

0:19

With that, uh, we're gonna say welcome to the Mesa City Council study session for February 26, 2026.

0:26

Oh, that's a good one.

0:27

Uh Vice Mayor Summers is participating by Zoom, otherwise, all city council members are present.

0:33

Uh today we're gonna hear item one A, a presentation on the fiscal year 2026-27 general, governmental and utility fund principles, priorities, and forecasts.

0:45

Brian and Chris.

0:47

It's your show.

0:49

Good morning, Mayor.

0:50

Thank you.

0:50

Mayor and Council.

0:52

Uh we will be this morning pretty uh kind of kicking off the uh fiscal year 26-27 budget process with the city council with an overview of our financial forecast uh for the five um five years.

1:07

And so with me is um Chris Olby, who is also a deputy director with the OMB, and he will be helping out with the presentation.

1:16

So first I wanted to start off with the homeowners comparison.

1:20

I know we've we've seen this before, but just want to kind of reiterate that even with the uh the with the budget that we have and the forecast that we see, uh Mesa is uh still the uh third um most affordable city within the valley that we compare to.

1:36

And so we have been there for the past um several years, and we continue to be right there, right in one of the most affordable um cities.

1:46

And so what I wanted to kind of go through too is just to remind council of what is included in the homeowner comparison.

1:52

So what we try to do is take what a homeowner in Mesa Um, what they spend, what their costs are, and if they went to a different municipality, what would that cost be comparable to?

2:05

So what we include is pro the property tax, so the primary and secondary property tax.

2:10

So as mentioned, Mesa does not have a primary property tax, but we do have a secondary property tax.

2:17

What also is included is the city sales tax um calculated by applying each city sales tax rate to um some statistics, and what we look at is kind of what is uh an average household in the city of Mesa, which is about 2.1, 2.5.

2:32

And so we take the sales tax and calculate it that way.

2:36

And then also we take the three major utilities solid waste, water, and wastewater.

2:40

And what we do is we combine those to come up with the um our homeowner comparison.

2:46

And if you go back to the previous slide, that's where those different green, the different colored um bars are is so as mentioned, Mesa does not have a primary property tax, but you see, most of the the other uh municipalities do have a primary property tax.

3:02

Then we got the secondary property tax, the city sales tax, solid waste, water, and wastewater.

3:06

So we take all those, combine it and see how we compare to our neighboring municipalities uh in the valley, uh, and also Tucson to see if you wanted to pick up from Mesa and move to a different uh municipality.

3:20

This is how we would compare.

3:26

So moving on to the financial forecast, uh, just a general overview.

3:31

Um we forecast for five years, and so what we do is we take the current expenditures and expenses and revenues along with historical trends, but what we also use is a um software and um data from U of A.

3:46

It's uh the forecast project out of U of A, and we take that data, but then also we we take a look at the city of Mesa's data, so we drill down into our own data and put it into the uh software and then go ahead and um forecast that.

4:03

We are conservative.

4:04

Um wanted to kind of highlight that a conservative multi-year forecasting approach, which allows the evaluation of sustainability of programs and services.

4:12

So what that does is what we're able to do is when we show you a five-year forecast, we're also going out a little bit farther.

4:19

But what that does is so and we're able to look at the forecast to see is there any expenses, revenues, things like that that we need to um plan for to where we're not making a judgment in one year the next year, but then the next year after that, then we have to make a different type of judgment.

4:39

So if we had a revenue loss and then we we have to cut services, but what happens if that next year that revenue comes back or we have an increase, are we gonna add service?

4:49

So what we try to do is forecast out so we can plan how that forecast will look in the future and be able to sustain our services over the long over the long period.

5:03

So going into the revenue forecast, as I mentioned, we use some statistical software applied in-house, but then we also collaborate with the departments, such as the utilities development services to see how the permit revenues are coming in, and other um other departments to for their fees and charges also.

5:23

Some of the relevant indicators is population, account growth, wages, unemployment, building permits, uh, gas prices, and other economic indicators that we put into the software to come up with what our revenue may uh forecast would be.

5:38

And then we also, as I mentioned, we use specific factors applied for just Mesa itself.

5:45

On expenditure forecasting, we do the same.

5:48

However, we also take personal services as we as we know personal services has been a topic in the past couple of years and has been uh increasing.

5:58

Uh also other services and commodities, and I'll go into a little more detail on some of those of increases in those uh line items.

6:08

Um utility expenses have gone up, um, water commodity purchases have uh increased as we've talked about previously, uh, and also chemicals and tipping fees.

6:19

So, but also the capital, the major projects have increased uh over the past few years, and we're not seeing prices come down, it's just adding on to the inflation that we have.

6:30

So we're seeing and even vehicle purchases have increased.

6:33

The average uh new car increase um has been significant over the past couple of years, also.

6:41

So moving into the general governmental funds, just a reminder the general governmental funds include the general fund and also the uh quality of life fund and the quality of life fund primarily uh funds the police officers and firefighters back in I believe it was uh the early late 2000s, late 90, late 90s, early 2000s, the city passed a quality of life uh uh sales tax that was dedicated for 120 police officers and 65 firefighters, and that's what it primarily goes towards.

7:16

And so, with that, what I wanted to show here was um council adopted um a few few years ago uh the city's financial policies.

7:27

And what I wanted to do here is I know we've been presenting for the past couple of years the our financial principles and wanted to kind of correlate our policies to our principles.

7:38

And the way the the city looks at our policies is the policies is what um is kind of our floor, our base.

7:46

What are what is that what we're looking for?

7:49

And so with the state, we have to do an adopted balanced budget.

7:53

And adopted balanced budget is when your expenses match your resources.

Discussion Breakdown — Share of Meeting
Fiscal Sustainability██████████████████████████████████34%
Budget Equity Analysis█████████████████████████25%
Utility Fund Management████████████████████20%
Economic Development████████8%
Public Engagement████████8%
Procedural████4%
Transportation Safety1%
Summary of Proceedings

Mesa City Council Study Session on Fiscal Year 2026-27 Budget Forecasts - February 26, 2026

The Mesa City Council held a study session on February 26, 2026, at 7:30 AM to receive a presentation on the fiscal year 2026-27 general governmental and utility fund budget principles, priorities, and forecasts. All council members were present, with Vice Mayor Summers participating via Zoom. The presentation, led by Deputy Director Brian and Chris Olby from the Office of Management and Budget (OMB), covered a five-year financial forecast, revenue and expenditure pressures, and updated projections showing improved financial stability.

Consent Calendar

  • Council unanimously approved acknowledging the receipt of board minutes.

Discussion Items

  • Homeowner Cost Comparison: Mesa remains the third most affordable city in the Valley when comparing property tax, sales tax, and utility costs. The city has no primary property tax and no food tax.
  • Revenue Pressures: The city faces an $18 million annual loss from the elimination of residential rental tax (January 2025), a $6 million annual impact from the state flat tax, a $3 million reduction due to Santan Valley incorporation, and a potential $6 million annual loss from tax conformity with federal HR1 (starting 2027-28). Sales tax revenue has been flat for three fiscal years: $330 million (FY23), $329 million (FY24), $331 million (FY25).
  • Expenditure Pressures: Cumulative inflation since 2020 is 25%, driving significant cost increases in fleet maintenance (51% increase for police/fire over four years), software licensing (135% increase for police/fire), landscaping (55%), custodial (64%), and medical/dental (40%).
  • General Governmental Fund Forecast: The updated forecast shows structural balance (revenues matching expenses without using reserves) by FY 2029-30, two years earlier than the prior forecast. The fund balance reserve percentage is projected to remain above 20% throughout the forecast period, well above the council's principle of 10-15%. This improvement is attributed to department-wide 2% budget reductions ($10 million annually), conservative revenue estimates, and stronger-than-expected retail sales tax growth.
  • Utility Fund Forecast: The utility fund (water, wastewater, solid waste, natural gas, electric) forecasts a drawdown of reserves through FY 2027-28, then recovering to above 20% by FY 2029-30. The adoption of a capacity fee for water and wastewater growth projects ($400 million) removed those costs from base utility rates, enabling previously deferred infrastructure projects to be reinstated. An impact fee study for other growth-related costs will be conducted.
  • Reserve Policy Discussion: Council discussed the rationale for maintaining a 20% reserve balance (above the policy minimum of 8-10%), including credit rating benefits, ability to weather emergencies (e.g., a $15 million water main break), and smoothing rate increases. Staff noted that strong reserves allowed the city to draw down reserves to keep utility rate increases lower than otherwise necessary.
  • Water Strategy for Economic Development: Council emphasized the need to prioritize economic development that generates high sales tax revenue per gallon of water used, and the city has declined leads from companies with high water usage and low job creation.

Key Outcomes

  • The updated forecast accelerates structural balance by two fiscal years compared to the adopted budget, despite new pressures like potential tax conformity.
  • The council will continue budget discussions with public meetings starting March 4, 2026, at the Northeast Public Safety Facility.
  • The city manager's proposed budget will be presented on April 2, 2026, with adoption scheduled for June 1, 2026.
  • Council acknowledged the importance of legislative bills that could restrict local revenue sources (e.g., moratorium on utility rate increases, changes to online sales tax collection).
  • No formal votes were taken on budget matters; the study session served as an informational briefing.

Current Events and Conferences

  • Council members reported attending the Arizona Baseball Museum ribbon cutting, a tour of the city's natural gas and electric grid, the Queen Creek State of the Town event, and an AI literacy roundtable discussion.

Meeting Transcript

City Clerk. All right. We don't want to start at 0731. 0730. Vice Mayor, are you on line? I am Mayor, thank you. Great. Okay. With that, uh, we're gonna say welcome to the Mesa City Council study session for February 26, 2026. Oh, that's a good one. Uh Vice Mayor Summers is participating by Zoom, otherwise, all city council members are present. Uh today we're gonna hear item one A, a presentation on the fiscal year 2026-27 general, governmental and utility fund principles, priorities, and forecasts. Brian and Chris. It's your show. Good morning, Mayor. Thank you. Mayor and Council. Uh we will be this morning pretty uh kind of kicking off the uh fiscal year 26-27 budget process with the city council with an overview of our financial forecast uh for the five um five years. And so with me is um Chris Olby, who is also a deputy director with the OMB, and he will be helping out with the presentation. So first I wanted to start off with the homeowners comparison. I know we've we've seen this before, but just want to kind of reiterate that even with the uh the with the budget that we have and the forecast that we see, uh Mesa is uh still the uh third um most affordable city within the valley that we compare to. And so we have been there for the past um several years, and we continue to be right there, right in one of the most affordable um cities. And so what I wanted to kind of go through too is just to remind council of what is included in the homeowner comparison. So what we try to do is take what a homeowner in Mesa Um, what they spend, what their costs are, and if they went to a different municipality, what would that cost be comparable to? So what we include is pro the property tax, so the primary and secondary property tax. So as mentioned, Mesa does not have a primary property tax, but we do have a secondary property tax. What also is included is the city sales tax um calculated by applying each city sales tax rate to um some statistics, and what we look at is kind of what is uh an average household in the city of Mesa, which is about 2.1, 2.5. And so we take the sales tax and calculate it that way. And then also we take the three major utilities solid waste, water, and wastewater. And what we do is we combine those to come up with the um our homeowner comparison. And if you go back to the previous slide, that's where those different green, the different colored um bars are is so as mentioned, Mesa does not have a primary property tax, but you see, most of the the other uh municipalities do have a primary property tax. Then we got the secondary property tax, the city sales tax, solid waste, water, and wastewater. So we take all those, combine it and see how we compare to our neighboring municipalities uh in the valley, uh, and also Tucson to see if you wanted to pick up from Mesa and move to a different uh municipality. This is how we would compare. So moving on to the financial forecast, uh, just a general overview. Um we forecast for five years, and so what we do is we take the current expenditures and expenses and revenues along with historical trends, but what we also use is a um software and um data from U of A. It's uh the forecast project out of U of A, and we take that data, but then also we we take a look at the city of Mesa's data, so we drill down into our own data and put it into the uh software and then go ahead and um forecast that. We are conservative. Um wanted to kind of highlight that a conservative multi-year forecasting approach, which allows the evaluation of sustainability of programs and services. So what that does is what we're able to do is when we show you a five-year forecast, we're also going out a little bit farther. But what that does is so and we're able to look at the forecast to see is there any expenses, revenues, things like that that we need to um plan for to where we're not making a judgment in one year the next year, but then the next year after that, then we have to make a different type of judgment. So if we had a revenue loss and then we we have to cut services, but what happens if that next year that revenue comes back or we have an increase, are we gonna add service? So what we try to do is forecast out so we can plan how that forecast will look in the future and be able to sustain our services over the long over the long period. So going into the revenue forecast, as I mentioned, we use some statistical software applied in-house, but then we also collaborate with the departments, such as the utilities development services to see how the permit revenues are coming in, and other um other departments to for their fees and charges also. Some of the relevant indicators is population, account growth, wages, unemployment, building permits, uh, gas prices, and other economic indicators that we put into the software to come up with what our revenue may uh forecast would be. And then we also, as I mentioned, we use specific factors applied for just Mesa itself. On expenditure forecasting, we do the same. However, we also take personal services as we as we know personal services has been a topic in the past couple of years and has been uh increasing. Uh also other services and commodities, and I'll go into a little more detail on some of those of increases in those uh line items. Um utility expenses have gone up, um, water commodity purchases have uh increased as we've talked about previously, uh, and also chemicals and tipping fees.

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