Phoenix warns of budget shortfall after state bans sales tax on residential rent
Phoenix leaders want state lawmakers to rethink some actions that are putting the city in a financial bind.
Starting in 2025, Phoenix will collect tens of millions less in sales tax revenue after state lawmakers banned cities from taxing residential rents. Mayor Kate Gallego said cities are asking them to delay implementation for a year, giving Phoenix more time to plan for the shortfall.
“In the case of Phoenix, our voters have allocated these dollars that were cut to public safety. It's the equivalent of 350 sworn officers — that's larger than many cities’ entire police departments,” she said.
Gallego said Phoenix has approved many new rental properties to address the housing shortage.
“Our state legislators care about affordable housing, so they should not punish us more for having approved affordable housing. So, I would just ask all of my colleagues and all of our voters to tell the Legislature that they value what we are doing," she said.
Phoenix is also collecting less revenue since the state moved to a flat income tax rate.
“So as we go out to the community, I think it will behoove us, one to educate the public about what is happening to our revenues and why they're happening; and also educating them in the fact that this deficit did not come because we outspent ourselves,” said City Manager Jeff Barton.
While the city expects to have an $80 million surplus for fiscal year 2024-25 that starts July 1, Barton advised council members not to add services or programs because the current estimated deficit for the fiscal year 2025-26 ranges from $66 million to $103 million.
Local elected officials, labor unions and other groups are lobbying state lawmakers to make adjustments and consider alternative revenue sources.
