Tucson officials warned Tuesday that city revenues are running below projections halfway through the fiscal year, forcing spending slowdowns and raising the prospect of deeper budget cuts in 2027.
The city manager’s office revised the budget after revenues came in below projections that had already been reduced by 1.5% last fall.
“While we’re not seeing a great fall off, we’re not seeing a lot of recovery,” Anna Rosenberry, the city’s assistant city manager and chief financial officer, said during a city council study session Tuesday.
City leaders attributed the shortfall to several factors, including declines in sales tax and marijuana tax revenues. Rosenberry presented the updated budget alongside the city’s Business Services Director Angèle Ozoemelam.
Rosenberry cited the closures of Big Lots and Sam Levitz Furniture as contributors to local sales tax revenues trending below prior-year levels.
Licenses and permits, fines and forfeitures, and charges for services were also below budget projections at the mid-year point. Specifically, licenses and permits were 32% lower due to a decline in permits for large non-residential projects.
Additional sales tax losses, officials said, stem from reduced travel to Tucson, with immigration enforcement actions deterring some Mexican visitors, Rosenberry said.
The city collecting less revenue than expected has prompted departments to reduce spending. Ozoemelam said that at the year’s midpoint, the city has spent only 46% of its budget, lower than the 50% they would’ve expected.
“We’re rolling steady at 46, which is a great indication that department directors are doing their best to try to level the expenditures based on where we’re seeing the revenues trending in for 2026,” she said.
This has prompted further conversations about saving funds in upcoming years.
“We have been talking with directors, leaders, about a really tight revenue picture for Fiscal 27 and not having an expectation that there will be a lot of funds available beyond what’s needed to cover a base budget,” Rosenberry said.
City staff are building a Fiscal Year 2027 budget that must accommodate year two of a three-year employee compensation plan. Last year’s first installment directed nearly $21 million toward salary increases across all funds. Year two is projected at $22.8 million, with $15.3 million coming from the general fund alone. Rosenberry called the compensation plan “really critical to the budget” and said a detailed recommendation would come to the council April 7.
Ward 4 council member Nikki Lee pointed out that a portion of the general fund is being used to fund transit.
“This is a major, major thing that we have got to talk about and we have got to solve,” Lee said during the meeting. “Because the general fund can not continue to carry the weight of that.”
This year, city residents will vote on RTA Next in the form of Propositions 418 and 419 which will decide whether to maintain a half cent sales tax to fund transit and transit improvement in the city for the next 20 years. This is in addition to the $64.2 million supplemented from the city’s 2026 general fund, according to a department memo.
The first draft of the city’s five-year general fund forecast is expected at the Feb. 18 study session. The city manager’s formal budget recommendation comes April 21, with final adoption scheduled for June 9.
Republish our articles for free, online or in print.
