DALLAS — Phoenix and Maricopa County are slashing expenditures by reducing services and eliminating employees after a sudden, steep, and continuing decline in sales tax revenues due to a slowdown in the Arizona housing market.
The Phoenix City Council will meet tomorrow to consider accelerating the fiscal 2009 budget process by three months to realize additional savings through earlier eliminations of authorized positions. A revenue shortfall estimated at $53.5 million in November now appears to have grown to at least $70.8 million.
Maricopa County supervisors are meeting today to hear the latest economic forecasts from county financial officials and may consider a hiring freeze to counteract an estimated $24.1 million shortfall in tax revenue in fiscal 2008. Supervisors cut current administrative budgets by 5% and eliminated 64 full-time positions in early December.
All county department heads have been asked to submit budget options for fiscal 2009 that are 5%, 10%, and 15% less than they received in fiscal 2008, said deputy budget director Chris Bradley.
“We have a serious situation,” Bradley said. “Revenue from the sales tax and the vehicle license tax, which are among our main sources of income, are either flat or below expectations.
“We don’t think it is a long-term problem, but it is a problem, and the fact is, we are taking it seriously,” he said. “Arizona has been the fastest-growing state in the country or the second fastest, for the past 50 or 60 years. Growth is not going to stop, but we may have to cope with a slowdown for a while.”
Bradley said the county’s fiscal 2008 budget was based on a 3% increase in sales tax revenues, “but it has actually been zero.”
He said sales-tax revenues were estimated at $497.4 million in fiscal 2008, or about 37% of Maricopa County’s $1.3 billion general fund budget. The county’s allotment from the state shared sales tax is down about 4%, Bradley said.
Jeff DeWitt, deputy finance director for Phoenix, said the main culprit in the revenue shortfall is a significant cooling of the area’s once red-hot housing market. State officials said last week that residential construction activity in Arizona has fallen to levels not seen since the early 1990s.
DeWitt said budget officials had expected a 7% increase in fiscal 2008 general fund revenues, but the increase so far has been less than 1%.
“Revenue began dropping below expectations in the spring, and then it got worse,” DeWitt said. “That affects our construction tax revenues, and our sales tax revenues, as well. When people don’t build new houses, they don’t buy new appliances and furniture for them.”
DeWitt said the latest estimates indicate city revenues will be $70.8 million below expectations over the next 18 months.
“That’s our best guess at this point,” he said. “We’ll continue looking at revenue collections very closely to see if further adjustments are necessary, and reporting to the council every month.”
The city’s general fund budget for fiscal 2008 totals $1.2 billion.
In a memo to city councilors, the city staff has recommended a 3% cut in public safety budgets, which includes fire, police, and criminal court operations, and a 12.8% cut in other general fund departments. Specific cuts will be presented to the council in mid-April.
The City Council would normally be scheduled to vote on the fiscal 2009 budget, which begins July 1, in June, but DeWitt said a budget vote is now set for May.
“That would allow the savings from layoffs or a hiring freeze to be realized earlier,” he said. Any cuts would go into effect in April, he said.
In contrast to the city’s accelerated budget process, Bradley said the county will take its time.
“We normally have a budget approved by June for the fiscal year that begins July 1, but by law we have until the middle of July,” he said. “We may take that time, because a lot of the issues that the state Legislature will be dealing with as they develop the state budget for fiscal 2009 will affect us as well.”
Bradley said Maricopa County was better suited than some to deal with a revenue shortfall.
“We saw this revenue problem coming,” he said. “We looked at those high sales tax revenue numbers in 2006, and knew it could not last. We budgeted conservatively for fiscal 2008, with only a 3% increase in collections. Unfortunately, it just wasn’t conservative enough.”
