PHOENIX — Phoenix closed its fiscal year with an $11.6 million budget surplus, driven by strong sales tax collections. While the surplus represents positive news for city residents, officials are preparing for significant financial challenges ahead.
The surplus falls on the lower end of Phoenix's typical range over the past decade. Excluding COVID-19 stimulus funds, the city's annual surplus has ranged from $11 million to $32 million, making this year's figure the second-lowest during that period.
Phoenix has consistently ended each fiscal year with a surplus for the past 10 years. However, the ending surplus has declined for four consecutive years.
City budget officials are preparing for substantial financial pressures in upcoming years. Federal tax law changes stemming from the One Big Beautiful Bill are expected to impact state revenues, which could cause a $57 million drop in revenue sharing for the city over the next three years.
The city also faces the end of approximately $13 million in U.S. Department of Transportation grants. Additionally, Phoenix will need to identify $22 million to maintain current funding levels for homeless services once American Rescue Plan funding expires.
Phoenix's overall budget continues to grow, though at a slower pace than during the pandemic years. The city experienced double-digit annual budget growth during COVID-19, but growth has slowed considerably to just 3% in the most recent budget year.
Public safety commands the largest portion of the city's budget, with $777 million allocated to police and $473 million to fire departments. Other significant budget allocations include $39 million for municipal courts and approximately $25 million for public safety operations.
Additional departments with budgets exceeding $10 million include neighborhood services and the city prosecutor's office.
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