The nation’s fifth-largest city will be able to balance its budget this fiscal year, but the economic future does not seem so bright for Phoenix.
Arizona‘s capital is expecting a $103 million shortfall in the coming years, according to the Arizona Republic.
Phoenix is expected to have a budget surplus of $80 million this fiscal year, which runs through July 2025. The city could be facing up to a $103 million deficit starting next July, and it could reach $53 million the following year.
The shortage of funds was due to Arizona ending residential rent tax collections and the state’s underestimation of the loss of revenue from passing a statewide flat income tax, according to the city’s finance department. The state is facing a $400 million deficit in 2024.
“We have a billion dollars less in revenue, and the billionaires of our state have a billion dollars more,” Arizona Democratic Senate Minority Leader Mitzi Epstein told the Arizona Mirror about the loss of revenue from the flat tax rate. “I’m doing my darndest not to say, ‘I told you so,’ but I told you so.”
Democratic Mayor Kate Gallego asked Gov. Katie Hobbs (D-AZ) to delay the rent tax end by a year. Gallego said Republican Kari Lake, who unsuccessfully ran against Hobbs in 2022, had supported assisting Arizona cities with the impending cut.
“When Kari Lake was running for governor, she talked about backfilling cities or having a slower implementation,” Gallego said. “We’ve had very conservative legislators who’ve wanted to get rid of this but suggested a five-year phaseout.”
Some city council members debated whether it would be better to act sooner rather than later on the deficit in order to protect the city’s credit rating. Phoenix has 17 months to consider solutions for the deficit.
“We can be methodical, and we can also take into consideration the things that are important to our community,” Phoenix City Manager Jeff Barton said. “There’s no need to rush it right now.”
Barton said the city will seek public input when the time comes to discuss solutions.
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Deficits in the past in the southwestern city have usually meant cutting jobs, a decrease in pay, and cutting some city services, such as libraries and parks. Conservative councilman Jim Waring suggested cutting newer programs in the city that residents are not as embedded in. Some council members seem more keen on increasing taxes than cutting city services.
“There’s only two options on the table for us as a council,” Councilwoman Kesha Hodge Washington said. “It’s either we reduce our expenses, or we increase our revenue. And I can tell you, from the calls we receive in my office, we are constantly being asked for more services. So I don’t think that’s an option. The only other realistic option … is the city would be forced to increase our revenue. And the way we do that is through a three-letter word. And many of us don’t like that word.”
