The Cottonwood Town Council held two work sessions on May 6 and 7 continuing its discussion on the fiscal year 2027 budget. The estimated total budget for FY27 is $151,920,655.
Financial Services Manager Kirsten Lennon gave an overview on the General Fund and special revenue funds budgets.
General Fund
The fund balance represents the difference between fund assets and liabilities at the end of each fiscal year. This includes cash and cash equivalents, which are assets that can be quickly liquidated, like land and property. The projected fund balance for the FY27 General Fund is $14.7 million.
A reserve is kept in the General Fund to ensure a carryover for the next year. In the past, the city had been setting aside the recommended amount of 16.67% of the prior year’s ongoing revenues, which are things like sales tax and fees for services. The past few years the city had set aside 25%, building up the fund balance which allowed for the Main Street project. This year, the city increased that amount to 35% to have a larger reserve.
When creating the FY26 budget, Lennon said there was discussion to use the fund balance and leave less in reserves. In the FY26 budget, the city had anticipated spending down its fund balance to do things like the $13 million project improving Main Street, most of which came from the General Fund transferred into the Highway User Revenue Fund.
The General Fund assists special revenue funds to cover their expenditures through transfers in. Special revenue funds include the library, airport, grants, capital improvements, HURF and Community Development Block Grants.
At the end of FY27, the city will have a total of $35 million of outstanding principal on its debt. Lennon said the debt is small for a city Cottonwood’s size. The city recently purchased a new City Hall facility, and she said the city will most likely need to bond to pay for remodeling.
City employee health insurance and employee retirements are factors taken into account. Health insurance will increase 12% this year, though Lennon said despite the increase, the city tries to maintain benefits.
One of the highest expenses of the city is employee compensation. The anticipated cost for all departments’ employee salaries and benefits for FY27 is $30.78 million. There were requests for 10 new full time employees, and it budgeted for six.
The city is not doing a cost-of-living adjustment this year, but instead will implement a compensation study. Lennon said she anticipates that revenue from the sales tax will be down this year. The tax is already down by 0.9% looking at the revenue from March’s sales tax. The estimated revenue for the end of FY26 is $25.89 million, with FY27 estimated at $25.76 million.
For the sales tax allocation, 59% comes from retail, followed by 18% from food for home consumption (groceries) and 10% from restaurants and bars. Retail is down 4% in March compared to last year.
State shared revenues are allocated to the city based on population and include the state shared sales tax and urban revenue sharing, i.e., state income tax. For FY27, the state shared sales tax is slightly down and urban revenue sharing is slightly up, based on projections.
Special Revenue Funds
The revenues for the funds are mostly transfers in from the General Fund, followed by intergovernmental like grant funding. For FY27, the total of the special revenue funds is estimated to be approximately $43.5 million.
