Tempe has its plans in place to handle the anticipated revenue cuts to come as a result of the state Legislature’s ban on collecting residential rental taxes.
With a growing young professional and large student population, Tempe is one Valley city that has been expected to feel the impacts of the Legislature’s rental tax ban that goes into effect in January 2025.
The Daily Independent reported that Phoenix Vice Mayor Debra Stark noted that as a college town, Tempe has a lot of renters, going so far as to say that Tempe city leaders are “scurrying” to address the loss in revenue.
In total, Tempe is anticipated to lose 9% in its general, transit, and arts and culture funds, or approximately $21 million.
According to Tempe’s Chief Deputy City Manager Tom Duensing, the city has already taken the ban into consideration for managing its revenue over the next five years, with the city’s latest council update on Tempe’s financial forecast.
“We’re just a financially healthy city, and I think the most critical thing is that you get after it quick,” Duensing said.
For the coming fiscal year, Duensing explained that Tempe will only have a half-year impacted by the ban, but in thinking ahead for how to manage its expenses, city staff have looked at ways for Tempe to “live within its means.”
In the city’s last five-year forecast presented in November, there were $5 million in additional services planned for the general fund each year that will be impacted as a result of the rental tax ban.
“We’re going to put a halt on that for three years, and that’s the main way we’re going to manage this,” Duensing said.
Tempe expects to lose $14 million from its general fund as a result of the ban and to help offset these losses, the city will hold off on these supplemental requests that it had initially planned to address.
On top of more conservative management of its general fund, Duensing noted that the rise in interest rates has seen the city collecting interest earnings from all of its investments, helping to mitigate some of the impact of the ban.
Another aspect helping the city prepare for this revenue cut is the “robust” development that Tempe has seen in recent years that city staff expects to continue. Tempe also has a sizable fund balance, or savings account, according to Duensing, which will also help over the next three years to an extent.
“So primarily, it’s just kind of holding tight for three years on additional expenditures,” he said.
While the city doesn’t anticipate any departments experiencing budget cuts at this point, the halt in funding for supplemental requests means Tempe won’t be able to expand or increase services beyond what each department is already doing.
But, if a department were to expand its services over the next three years, another department would likely feel those impacts on its budget.
“It’s concerning, right? Because we always want to have that flexibility to be able to add services, so we’re just going to have to pull back on that,” Duensing said.
Tempe officials are hopeful that there won’t be any additional important legislation or other financial impacts on its budget and that the bottom line is that restraint will be its focus for managing the loss of residential rental tax revenue.
Reporter Caroline Yu can be reached at cyu@iniusa.org. To voice your opinion on this story, connect with us at AzOpinions@iniusa.org.
Meet Caroline Caroline Yu joined Independent Newsmedia, Inc., USA, in 2020 as a summer intern covering Scottsdale. As an intern, she continued her coverage of Scottsdale, Paradise Valley and Tempe. After graduating in 2022, Caroline became a full-time reporter for Scottsdale and Paradise Valley. She is currently reporting for the Tempe market.
Community: She is a supporter of the environment and tries to get involved with related community events.
Education: Arizona State University with a BA in Journalism and Mass Communications, with a minor in French.
Random Fact: She used to be a ballet dancer for 10 years.
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“We’re just a financially healthy city, and I think the most critical thing is that you get after it quick,” Duensing said.
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