Study Session - 4/22/2025 5:00:00 PM

I think we're ready to uh call to order
the study
session. So, I'll call order the study
session of April 22nd,
2025. Call for the roll call. Mayor
Scott Anderson, here. Vice Mayor Bobby
Buckley,
I'm here. Council member Chuck
Boniovani, I am here. Council member
Kenny Buckland here. Council member
Young Kapowski here. Council member
Monty Lions here. And council member Jim
Torusen here. A quorum is present. Thank
you. I have one item tonight on the
study session is discussion of the
fiscal year 2026 preliminary budget.
Patrick, are you starting
off? Thank you, mayor, members of the
council. Yes. I'll kick it off tonight
and then I will hand it off to Kelly
Fost from there.
Okay, I want to start with just a high
level overview of some of the
significant differences for this year
bud this year's budget from previous
years as well as some of the current
conditions economic and otherwise that
we're continuing to have to deal with uh
in Gilbert, Arizona. I'll start with in
fiscal 26, which is the budget that will
be coming before you on May 20th for the
preliminary adoption, we will have $14
million less in ongoing revenues to our
general fund to work with from the loss
of residential rental sales tax, which
is approximately $9 million per fiscal
year. And then the state shared income
tax reduction was about another $4
million uh $5 million, excuse me, um
from the second phase of the
implementation of the flat tax that
state legislature put in place several
years back. We did raise our sales tax
rates along with a few other to meet
some critical quality of life
infrastructure needs and projects that
we have and those are underway as we are
all aware. We continue to deal with some
inflation and supply chain issues in
this market that are not yet fully
resolved. Some of those there's
anticipated concern about impacts from
tariffs and and further impacts on
supply chains and costs that we'll have
to continue to monitor as things
develop. We continue to deal with wage
inflation and market competition for
FTEES or employees as are commonly
referred to and an increased workload on
staff, inability to fund all of the
positions that we see necessary to
maintain our service lines and service
levels in this community because of the
long loss of ongoing revenue for the
general fund in the upcoming fiscal
year. We've got growth to manage. The
community is still building. We're
293,000 residents and still climbing. As
we all know, we'll top out potentially
somewhere around 330,000 people. So, we
have growth that we need to keep up
with. Currently, we've also got aging
infrastructure which continues to put
more pressure on our budget each year as
that infrastructure ages. And then there
is potential talk and projections of a
recession on the horizon. Um, that tends
to vary week by week it feels like, but
we will continue to monitor that
situation and revise and pivot as
necessary to make sure we manage our
finances appropriately for this
community and we'll bring things forward
if there's going to be significant
impacts to our service lines or service
levels as a result of something along
those lines. But in summary, fiscal 26
uh is a difficult budget year uh with
available revenues moving forward. we
believe they are going to continue to be
exceedingly
tight. I also want to talk and highlight
a few differences and some of this is in
follow-up from our finance retreat
revenue differences um between our peer
communities in this region and the town
of Gilbert. One of those is the vehicle
license tax. Every city of the major
cities in the region, the ones that are
listed there, they place those funds in
their general fund. Gilbert places
almost $14 million into our streets
funds and and used it to help maintain
our street infrastructure. Uh but that
is a significant source of funding and a
difference between Gilbert, Arizona and
those uh communities that you see listed
on the screen here in the valley. Also,
I wanted to highlight revenue
differences and so we're well aware of
the rates and we always look at rates
and try to make sure that we are
managing that to stay competitive within
this region. But as important rates,
it's important to understand the revenue
collected and the revenue available for
use for our community into the general
fund. So if we start with sales tax per
capita, this is fiscical year 24 actual
sales tax collections. You'll see
Gilbert on the far left side of that
chart, we have roughly $540 available
per resident to spend in this community.
And then it goes up from there. Mesa at
649, Peori at 660, Chandler at 729, and
going all the way up to Scottsdale at
1379 per resident available to spend.
Then looking at general fund dollars per
capita, and as we're all aware, the
general fund covers police, it covers
fire, it covers parks and recreation,
IT, HR, the manager's office, all of
those departments and divisions that are
not rate supported and are enterprise
funds and all those sources of revenues
that come in. And that could be state
shared income taxes, fees for services
and
whatnot, excuse me. And if you look at
the available dollars per general fund
per capita, and this is fiscical year 25
budgeted amounts. We do not have the
fiscal um uh 24 actual numbers yet, so
we're using fiscal 25 budgeted. Gilbert
has roughly $1,000 per resident in
general fund dollars per capita capita.
Poria is next at 1182. then Mesa at
1243, Chandler at 1288, going all the
way up to Glendale at 1784. So when you
look at available funds to spend on
services through our general fund for
those services that I listed, um this is
how much money Gilbert raises to spend
on our community, to maintain service
lines, to maintain service quality in
our in our community. I mean, it's
something that I think we should
continue to have a discussion around as
we continue to see these pressures and
these cuts given to our budgets and
ongoing revenue streams from the state
legislature and from things that may
happen in our economy. So, with that,
happy to answer any questions now or
through Kelly's presentation, but I'm
going to turn it over to Kelly to take
it from here. We'll walk you through the
rest of the budget at a high level and
then of course on May 20th we'll bring
forward the preliminary budget for your
consideration and adoption at that time.
Thank you Patrick. Any questions for
Patrick?
Okay. Thank you mayor the council.
Thank you Patrick. Mayor and council. I
gave Patrick all of the hard things and
now I get the fun stuff to talk to you
about. Uh like Gilbert is bestin-class.
We get a lot of accolades. Our cont our
community is known for a lot of its
great services. A city for economic
growth, best place for family, most
affordable, most caring city. These are
great things that Gilbert is known
for. As always, we do our zero base. We
do a third of the organization every
year. Uh and this year, as is the same
with the last couple of years, because
of the high inflation, we've actually
had to add money to the budget for this
the different departments to continue to
do the same services that they have been
doing. It just costs more to provide
those services. So, in this case, uh
$1.4 million had to be added to the
various budgets just to keep them whole
with the inflation and the cost
escalation that we've seen. So since
2018, we've seen a $3 million savings
over that period of time, and we'll
continue to look at each of the
departments, a third of the organization
every
year. Our budget process is a year-long
process, as you're aware. We kick off in
midepptember. Um, we gather budget
input, needs across the organization in
September and November. Then our
executive team meets for what we call
the hunger games in January and February
where we look through each of the
requests from the various departments
and try and figure out a recommended
balanced budget knowing council's
priorities knowing the feedback that we
get from citizens throughout the year
through the various sources and what the
needs are coming up for the community.
Um, we have the financial retreat in
March where council gets to give
direction on various financial topics
that help inform the budget process and
town manager reviews the budget also in
March, asks questions, makes changes,
and then we bring the recommended budget
to council in one-on- ones in April in
this study session. Preliminary budget
adoption is May and final budget
adoption is June.
for the upcoming fiscal year, fiscal
2026,
uh there was about $80 million of
requested items across all of the funds
in the town. There is not enough
resources to do all of the things that
are requested, even though there are a
lot of really great business cases for
these items. In order to balance ongoing
revenues and expenditures in the various
funds, it's recommended that we fund
about $44 million total of those
requested items. It's about just over
half of what's been requested across the
funds. If we break out that $44 million
by the the various areas, we can see
general fund is the largest portion of
that at $26
million. That uh general fund is one of
our largest funds. So, it makes sense
that it is the largest amount. That
includes about $7 million of FTE
requests and about $4 million of
overtime for PD, which are the largest
pieces to that pie. pretty much the rest
of the pie and everything in the other
funds is just keep the wheels on the
bus. It costs more to do what we have
been doing. Um, and so we've had to add
funding to those different areas just to
keep the services going that we have
traditionally
provided. If we break this out a little
bit more, that $26 million from general
fund, um, we break it out by focus area.
You can see that maintaining service
level is our largest area of focus in
the upcoming budget and also life cycle
replacement. There is about uh $2
million in new service level that's
mostly associated with the new FTEES for
the advocacy center is pretty much the
new item for next year's
budget in streets and enterprise funds.
Very similar story. The investment is in
maintaining service levels and some life
cycle replacement.
If we take that same data, the $44
million of recommended funding and
divide it out by our strategic
initiatives, most of our investment is
going into exceptional built environment
and prosperous
community. For the positions that are
requested next year, we have both FTE
full-time employees and LTA, a limited
term agreement employees, which
typically have a one-year contract and
use one-time funding. Um, in total it's
about 34 positions across the entire
town. Uh, FTE positions and about 18 LTA
positions. In the general fund, all of
the FTE positions that are being
requested are in public safety, police,
fire, or associated with the advocacy
center. All of the other positions are
recommended as LTA just to keep our
ongoing funding balanced with our
ongoing um expenditures.
Capital improvement continues to be our
largest area of investment. Um the
proposed budget contains about $1.7
billion of investment in capital
improvement projects. Most of them in
the streets, water, and parks
area. This next view, oops, there we go.
Um shows you how much is carry forward.
So projects that we have approved in a
prior year that we're continuing to work
on. These are large projects. They take
more than one year to complete. Uh and
then uh the middle column shows you
we're looking to add about $500 million
of additional funding or new funding
onto those projects or with new
projects. Most of that new funding is
associated with water improvements,
wastewater improvements, and then the
park
improvements. As you're aware, we budget
the full CIP project amount upfront.
That allows us to issue the contracts,
make sure that we have enough funding to
complete all of the projects that we
start, which is a very conservative way
to budget, but it does make the number
that we adopt in the budget a lot
larger. We will not spend this money
completely out next year, but we do need
it to issue those contracts and to
continue working on those projects that
take several years to
complete. If we compare fiscal 25, our
current year budget, with the proposed
fiscal 26 budget, you can see that it is
very similar. um a $2.3 billion budget
last year. What's proposed is a $2.46
billion budget. About $116 million
difference. Majority of that is in the
CIP
investment. Little bit of changes across
the funding areas. You'll notice a
decrease in debt service amount. That
does assume uh that council gives
instruction to pay off the university
building debt in the meeting later
tonight. We will match the budget to
whatever is proposed uh depending on
council direction tonight, but that's
how it's set up right
now. We've also included property tax
information. This is based on the
discussion uh from the options that were
given to council at the financial
retreat. So, it includes the $34.8
million levy, which would maintain our
tax rate at 98 cents per $100 of
assessed value.
the upcoming milestones. Today is our
budget study session, which is the
opportunity for council to provide uh
any direction and to ask any questions
publicly about the budget. May 20th will
be preliminary budget adoption, which
will set the cap uh the total dollar
amount maximum for the year. It is also
the first reading of the CIP projects
and the first public hearing for the
property tax. Then on June 10th is final
budget adoption. Final adoption of the
capital improvement budget projects and
the property tax final adoption on that
levy. With that, I'm open for any
questions.
Questions for Kelly? Council member
Bonjivon. Thank you. Thank you, Mayor.
Thank you, Kelly. Um, quick question of
the budget for last year, the actual
budget, what did we end up
spending percentage-wise?
Last year, I want to say it was about
750 million, but um that would be for
fiscal 24. We don't know yet what's
happening current year. Okay. So, we we
we end up budgeting a heck of a lot more
than what we actually spend. That's
true. In Arizona, you're not allowed to
increase your budget after it started.
And so if we get more money in the year,
we can't recognize it. We have to make
sure to leave room for that. Plus, with
the CIP projects, we budget the full
amount of the projects, but it's going
to we don't know how much of the project
will be completed during the year.
Great. Thank you. Yep. Council member
Kapowski
because we have a couple new council
members on the dis. I just wanted you to
hit on that point again that you were
talking about regarding the CIP project
because other
municipalities do not have it reflected
in their budget. Typically, if they have
a CIP project and it goes for five
years, they'll have a portion of that
CIP project in their budget each year.
And so with Gilbert putting the entire
amount in the first year, it does make a
big difference in what our budget looks
like. And that's what council member
Bonjiovani just pointed out in that our
actual spending or like cash flow in a
year is much different than what our
budget looks like. Yes.
Other questions? I have a question.
Kelly, could you explain a little bit
more?
um LTAs and FTEES and why it's u kind of
critical that we limit those LTAs, what
what kind of an impact that has on our
operations.
Sure. Uh an FTE is a full-time employee.
They have an ongoing contract with the
town for employment that does not have
an end date. So, it takes ongoing
funding in order to issue um those
employment offers.
Um, with the LTAs, that's a limited term
agreement. So, we offer to employ the
person for a specific period of time,
usually about a year that follows the
budget process. That allows us to use
onetime funding for that position.
There's only certain positions that you
can do that with. Um, not all positions
get a great variety of candidates. Um,
but it's very important for us to be
able to keep our ongoing expenditures
and revenues balanced. if we don't have
the ongoing expenditures, we can't offer
ongoing positions to employees. Um, so
it provides a great service to the town,
but it is difficult on the employees if
you're trying to get a mortgage uh and
don't have ongoing employment promised
that um you may not be able to qualify
to be able to purchase a home. So there
we have to use it judiciously. This
budget is using a lot more LTAs um than
we traditionally use just because of the
difficulty with ongoing funding that we
have this year.
Thank you, Councilman Torus. I would
assume that difficulty with ongoing
funding is the reduction of rental uh
tax and the shared revenues. That has
definitely contributed to that. Yes. I
have a couple questions for you. one, it
appears that the increase in the overall
budget, including all the CIPs, is a
little under 5%. I'm assuming that's
related mostly to construction on the
CIPs, isn't it?
Um, not necessarily. There's a whole
bunch of there are new projects as well
as additional funding onto existing
projects. So, it will be a mix of items
there. Each project is thoughtfully
looked at individually by the project
managers for a budget. We don't just add
a 5% inflation. So, no, but I'm saying
overall the reason that there's that you
didn't add 5% inflation, but as costs
were adjusted the realistic end of a
project, that number shifts. And that
would appear when I looked at it to be
mostly responsible for the increase in
the overall budget.
I it might be happen stance. Some of the
projects already have guaranteed u GMPS.
So, the price is set. they wouldn't have
any inflation on those types of
projects. Other projects have had cost
escalation and had to add it and then
there are some new. So, it's a mix of
things that are causing that increase.
Okay. And then when you and I discussed
property tax, we were talking about
initially like last year and the year
before there was much higher inflation
rate and we talked about the difference
of was it worth paying early because the
the value of the dollar was dropping.
But it appears now that the value of the
dollar is right in that same mix. So
there is is there or is there not any
savings by either prepaying or
underpaying uh property tax? Are we
right in that sweet spot
for property tax? It is it repays debt
only secondary property tax debt that's
on a ballot. um that debt th those
general obligation bonds have a specific
structure where we repay them. It's not
like your mortgage where you can repay
extra um whenever you want. There are
certain windows of time that we can
refinance or after it's collable then we
can um do that. That's only usually
after the debt's 10 years old. So we
have to do some long-term planning at
targeting a rate. We do have a little
bit of flexibility uh to be able to do
by town policy up to 5% reserves, by
state policy less than 10%. So we can
manage the tax rate a little bit within
that window. Um but we need direction
from council on long-term when we issue
new debt kind of what tax rate
long-term. I understand that. What I'm
saying when we talked about there were
several options on the table was
lowering it a point or two, keeping it
the same, raising it a few points, but
it appeared by looking at the current
inflation rate, it wasn't worth reducing
it because there was no benefit there.
Right now, it seemed that that inflation
rate was almost commensurate with what
we were paying. So why why lower it
right now would be the question.
We had a long discussion about this, so
maybe I'm being unclear in what I'm
asking, but I had looked at a minor
savings, but it seemed like that savings
in the long run would cost us more money
because of the way it's set up inflation
wise. Ah, got you. Um, not so much tied
with inflation, but with the interest
that we would have to pay in structuring
the next round of bonds. So, we have um
500 million of 515 million of um GEO
bonds that are approved by voters for
transportation. we've only issued 200
million of that. So we do have the next
issuance coming up. If we target a lower
rate over the course of that issuance,
it does cost either 10 million or you
know three and a half million depending
on how much lower we want to go. So less
associated with inflation, more
associated with the interest that has to
be paid on how we structure that next
round of bonds. Got it. And one other
thing is I saw it seemed unusual to me
in some of the capital purchases. Why
why are we buying an F-150 Lightning
instead of just an F-150?
I would have to defer to the department
or fleet on that. Don't know that off
the top of my head because I it just
seems unnecessary. I mean, it's a small
thing, but I noticed it. Is there
anybody here that can address that or is
that a question for later?
Uh, Mayor, Councilman, yeah, why don't
we follow up with you between now and
and May 20th when prelim adoption would
be. I'd appreciate it,
Council Member Bonjivani. Thank you,
Mayor Kelly. Um, let's say my secondary
property tax is 10 10,000 a year. How
much of that actually goes to Gilbert?
About 10% of the total property tax bill
comes to Gilbert. The rest goes to the
county, the school districts, and the
special service districts. Okay. Thank
you. Yeah.
Other
questions? It's a quiet crowd.
I did a lot of reading. I don't need to
talk a lot.
Thank you, Kelly. Thank you.
Any other discussion?
If not, I think we're done with the
study session.
So adjourn the study session.
Mayor, excuse me. Could we do a motion?
That's what the rules now require. Oh, I
didn't know what the study session if it
did or not. Yeah, we typically follow
the general rule. So motion. So moved.
Moved by council member Bonjiovani,
seconded by I second. Vice Mayor. All in
favor, please say I.
I