Gilbert officials warn of tightening revenue for fiscal 2026-27 budget
Independent Newsmedia/Tom Blodgett
Gilbert Budget Director Kelly Pfost explains to town council and executive staff what revenue challenges the town is facing as it prepares for its next fiscal year budget.
Gilbert officials were presented with a sobering financial outlook during a town council retreat Dec. 8, and the message from budget staff was blunt.
“Fiscal '27 is going to be worse than fiscal '26, and we know '26 was a really tight budget year with a lot of things on the cutting room floor,” Budget Director Kelly Pfost said.
Pfost detailed rising operating costs, slowing revenue growth and a widening gap between available funds and service demands heading into the fiscal 2026-27 budget process. Council is scheduled to adopt the budget in June 2026.
Pfost reported that requests for the upcoming budget already exceed $80 million when combining ongoing general fund needs, one-time funding and capital improvement projects.
That total includes about $36 million in ongoing staffing and operational requests, $39 million in one-time funding and roughly $16 million for capital projects.
Pfost told council that level of funding will not be available.
Even before new initiatives are considered, simply maintaining existing service levels will require significant new money.
About $10 million is projected for market-based pay adjustments. Another $1.8 million to $2 million is needed to absorb rising contract and utility costs.
The town also approved about $5 million in one-time spending during the current year that staff would like to convert to ongoing funding in fiscal 2026.
The town is facing pressure to convert nearly 20 limited-term positions across departments into permanent full-time roles, requiring roughly $2.5 million in additional ongoing funding.
At the same time, only about $6 million in one-time money is currently projected to be available to cover capital cost increases, temporary staffing and new one-time needs.
Adding to the strain are multiple external revenue threats.
Officials cited continuing losses in rental tax revenue, state income tax conformity changes that could reduce Gilbert’s state-shared revenues by roughly $3.5 million beginning in fiscal 2028, and the incorporation of San Tan Valley, which is projected to shift about $1.8 million per year in state-shared revenue away from Gilbert.
Gilbert remains heavily reliant on sales tax to fund its operations, with nearly 60% of general fund revenue coming from local sales tax. State-shared revenue makes up much of the remainder, while fines, permits and recreation fees represent only a small portion of the total budget.
Pfost said Gilbert provides services at about $540 per resident on a per-capita basis, lower than many neighboring cities, while also operating with some of the lowest staffing levels in the region.
Pfost, while admitting not all the choices were good ones, presented council with a menu of possible revenue options ranging from adjustments to certain sales tax categories, increases in tax license fees, changes to communication and utility tax rates, expanded cost recovery in parks and recreation programs, potential parking-related revenue, and changes to prosecutor diversion fees.
Longer-term strategies focused heavily on expanding Gilbert’s commercial tax base through additional hotel development, increased restaurant and retail activity, and growth in commercial property rentals.
Staff said Gilbert is nearing residential buildout but still has room for commercial development, which could provide more stable long-term revenue.
Pfost also briefly outlined the concept of establishing a primary property tax as one long-term option under state law. Gilbert currently has only a secondary property tax. Any move toward a primary property tax would require voter approval and could take more than a year to implement.
The idea drew sharp resistance from some council members and cautious interest from others, with no direction given to advance it immediately.
Pfost emphasized that existing revenue sources are not sufficient to sustain operations without changes.
“Current funding cannot support and maintain current service levels into the future, so we have to make some changes,” Pfost said.
Council members also stressed the importance of examining expenses alongside revenue options.
Pfost said the town already conducts regular zero-based budgeting reviews and has generated some savings, but acknowledged there is relatively little excess spending that can be cut without affecting services.
By the end of the retreat discussion, no formal votes were taken on specific revenue proposals. However, council provided general guidance on which options staff should continue analyzing as part of the fiscal 2026 budget process, signaling that difficult financial decisions lie ahead.
Please submit comments at yourvalley.net/letters or email them to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines. Tom Blodgett can be reached by email at tblodgett@iniusa.org or follow him @sp_blodgett on X.
Meet Tom Tom Blodgett joined Independent Newsmedia, Inc., USA, in 2022, when the company acquired Community Impact Newspaper's Phoenix-area properties. Raised in Arizona, he has spent more than 35 years in journalism in the state.
Community: He has served as an instructional professional in the Walter Cronkite School of Journalism and Mass Communication since 2005, and is editorial adviser to The State Press, the university's independent student media outlet. He also is director of operations for an 18U girls fastpitch softball team from Gilbert.
Education: Arizona State University with a BS in Journalism.
Random Fact: He lived in Belgium during his freshman year of high school.
Hobbies: Tweeting enthusiastically about ASU softball (season-ticket holder) and grumpily about other local sports (pessimistic fan).
By 
Comments
No comments on this item Please log in to comment by clicking here