Phoenix Considers Multiple Options to Balance Budget

​The City of Phoenix is exploring options to deal with a potential budget shortfall, which could include raising sales tax or cutting some services to residents. The City is required to adopt a balanced budget each fiscal year.

Under the direction of the Mayor and Phoenix City Council, the City has successfully managed significant growth in population, square miles serviced, inflationary pressures on spending, while providing robust services to residents including public safety, parks, libraries, streets, additional services for those experiencing homelessness and increased efforts to combat summer heat. Seeing the fire crisis unfolding in Los Angeles is a reminder of the importance of appropriately funding these important services.

However, decisions made at the State level including the elimination of residential rental sales tax and the implementation of a flat income tax will negatively impact the City's budget and will result in reduced ongoing revenues.

Unlike the Federal Government which can continue to spend more than the amount it takes in, the City is required by law to have balanced budget, which means reaching a budget for the coming fiscal year may require raising revenue, cutting services, or a combination to keep the budget balanced going forward.

To give the City Council options as we progress through the budget process, the City has posted a notice of intent to increase transaction privilege tax (TPT) and use tax (sales taxes) by up to 0.5% (half a percentage point) . This notice does not necessarily mean taxes will be increasing, but instead gives the Council and the community time to consider potential options to balance the budget. The Council would have to vote to increase taxes, something that would not happen for at least 60 days to give community members time to share their opinions about any changes. The Council is currently scheduled to consider the increase at the March 18, 2025 Phoenix City Council meeting.vIf Council did approve any change, it would take effect on July 1, 2025.

At the same time, departments throughout the City are submitting potential cuts in services for City leadership to consider. The City Manager will use this information to create a trial budget which could include a possible tax increase, cuts to services provided to residents by the City, or a combination that leads to a balanced budget.

Impact Of Potential Tax Increase

The City of Phoenix has not raised the TPT rate for the General Fund in nearly 40 years. It was set at 1.2% in 1986 and has remained at that rate since. The combined TPT rate (including non-general funds) is currently 2.3% and was last increased in 2016 when voters approved the Transportation 2050 sales tax. For comparison purposes, the largest TPT category is retail sales tax and Phoenix's rate of 2.3% puts us in the middle for cities throughout the valley with some as high as 3.0%. Even if the full 0.5% increase was approved, the Phoenix Retail TPT rate would still be below Glendale and Buckeye and the same as Surprise.

What would the increase mean for the typical purchase? For a $4 cup of coffee, you'll pay an additional two cents. A $20 shirt would cost an extra dime. A $100 pair of shoes would be an additional 50 cents and a new $900 washing machine would add $4.50 to the cost.

Provide Feedback On The Budget​

The City's more than $2 billion-dollar General Fund operating budget includes everything from police and fire services, to funding your neighborhood parks and libraries, the streets you drive on and services for seniors.

With a budget that size , supporting the fifth largest city in the country and 1.7 million residents, it can be a challenge to understand everything that goes in to the services you receive.

To help residents better understand what is included in the General Fund budget, the Budget and Research Department uses software called FundPHX. The interactive tool lets you see for yourself what each General Fund service costs, allowing you to recommend changes ahead of City Council making final budget decisions each year.

Right now, the tool is using current budget year numbers. Those will be updated with the City Manager's Trial Budget numbers in April where you can submit your own recommendations for next year's budget. Residents can also check the Budget & Research Department website for more information at phoenix.gov/budget.

More Information

The City will also be hosting several budget information sessions to further explain this possible tax increase. You can find the schedule on the PHX City Calendar.

The City has created the official Fee notice as well as a detailed information document (PDF) of the budget considerations for a proposed tax increase which includes service comparison from the current year to those prior to the last tax increase, as well as a list of budget challenges and unfunded needs.

More information on the General Fund budget status and multi-year forecast will be presented to the Phoenix City Council on February 25, 2025.