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OV Town Talk: Town of Oro Valley finances are strong
By David Gephart, Chief Financial Officer
The Town of Oro Valley has been moving forward with some high-visibility projects of late, including acquisition of the Vistoso Trails Nature Preserve (formerly known as Vistoso Golf Club), Naranja Park improvements, building of multi-use paths, improvements and expansion of the tennis and pickleball courts at the Community Center and golf irrigation improvements to both the Cañada and Conquistador golf courses, among others. Further, virtually everyone has seen the run-up in prices and experienced the impact of persistently high inflation on their household budgets. The Town has certainly seen its share of cost increases on many of our parks and recreation projects. This may beg the question: How is the Town doing financially, and are there any concerns moving forward?
To answer the question, it is helpful to understand some basics about the Town’s finances. First, the Town is primarily supported by sales tax collections and state-shared revenues. The Town does not levy a property tax. What this means practically is that the Town’s primary revenue sources can be a bit volatile depending on the economy. Thus far, impacts of inflation on Town spending have largely been offset by increased sales tax collections also caused by inflation. So, the overall impact of inflation on the Town has been somewhat subdued.
Second, the Town is very conservatively managed from a financial perspective and has a strong set of comprehensive financial policies designed to guide and protect it in any economic climate. These policies require the Town to plan, prepare and act on any sign of financial distress caused by either declines in revenue and/or increases in expenditures. The policies represent best practices in the arena of governmental finance and are reviewed by the Town Budget and Finance Commission and approved by Town Council.
Third, the Town does not deficit spend. Town policies require it to ensure that ongoing revenues are sufficient to fund ongoing expenditures. This prevents the Town from running a structural deficit of ongoing expenditures exceeding ongoing revenues and contributes to the healthy reserves of the Town. These reserves safeguard the Town and allow it to continue providing the high level of services our residents expect and deserve.
Fourth, the Town is not over-leveraged with debt. The Town’s utilization of debt is strategic, policy-driven, and purposeful, allowing the Town to maintain a AA+ rating from Standard and Poor’s on debt issuances. The rating is just a notch below AAA, which is the highest rating provided to issuers. Comparatively, the Town’s bond rating is the highest of any local government in Southern Arizona. Practically speaking, the rating represents the level of risk to bondholders of repayment on their investment and is best reflective of the excellent overall financial condition of the Town. Similar to your personal credit score, the higher the debt rating, the lower the cost of borrowing. Ultimately, a high credit rating saves the Town and its residents money on debt issuances.
Finally, the Town’s finances are award-winning, and externally reviewed and audited on an annual basis. The Town receives awards from the Government Finance Officers Association (GFOA) for its adopted budgets, Annual Comprehensive Financial Reports (financial statements), and Popular Annual Financial Reports. The Town was recently notified that it is one of only 317 governments in the entire nation that received all three awards for fiscal year 2020—dubbed the “Triple Crown” of financial awards! Not only does the Town have financial reviews by bond rating agencies as described above, but it also undergoes a full annual audit by a CPA firm qualified to perform audits of local governments in Arizona on its financial statements. The Town has never received anything less than an unmodified (clean) opinion on these audits, which should provide comfort that the Town is accurately reflecting its financial results on its financial statements.
Looking forward, there are always challenges needing to be navigated. However, the Town is well positioned to weather an economic downturn and is always striving to balance community needs, priorities, and service levels with available funding. This forward-looking, policy-driven, conservative approach has served the Town and its residents well in the past and will continue to do so in the future.
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