Housing, transit, community and the economy
The Sedona City Council held its annual priority retreat from Dec. 16 through 18, to establish focus areas for the coming year.
On the first day, consultant Jonathan King led exercises aimed at narrowing last year’s 18 priorities into four goals for 2026: Community; housing; mobility, transit and circulation; and economy and economic diversification.
Day two focused on budget considerations, an economic overview and revenue projections, along with early discussions of potential future action items for staff.
The final day addressed lobbying priorities for the 2026 Arizona State Legislature, further discussion of action items, council liaison assignments and projects for which council members will serve as the primary point of contact for residents, and a third discussion of the Western Gateway development. During that discussion, the council unanimously voted to begin the process that would allow the Sedona International Film Festival to potentially construct a new $20 million to $25 million four-theater complex on the site.
Finance
Deputy City Manager Barbara Whitehorn announced the city will move to zero-based budgeting for fiscal year 2027 in response to requests from both the council and the public, as well as concerns about national economic uncertainty and its potential impact on city spending. Under the zero-based budgeting approach, each department will be required to justify all expenses from the ground up, starting from a “zero base,” rather than building on the previous year’s budget.
For the second consecutive year, council unanimously directed staff to keep revenue assumptions flat or reduce them for the next fiscal year.
“The concern is really [that] job growth is continuing to weaken, and tariffs are impacting the cost of everything,” Whitehorn said. “Those are the two biggest negative drivers on the economy [currently].”
Although the FY 2026 operational budget which includes expenses for staffing, utilities and non-capital projects increased from $57.6 million the prior year to $61.2 million, the FY 26 capital improvement
project budget decreased from $48.5 million to $42.6 million.
“I think conservatism going into the unknown effects of tariffs would be good prudence,” Budget & Financial Manager Sterling West said.
Citing the Verde Valley Economic Forum held on Oct. 21, staff projected over the next three years showed a 50% recession risk, and that the effects of tariffs have not fully been felt yet by the market. Over the mid-term of three to seven years out, inflation is expected at around 3% with labor shortages, rising health care costs and reduction in global trade. However, the momentum in the technology sector as seen in the build out of data centers in Arizona is anticipated to continue.
Although, the council generally does not have an appetite for the creation of new staff positions in the next budget, considering the economy.
“I wouldn’t use such an emphasis on ‘no’ about new people,” Councilman Pete Furman said. “If there’s a program need and it’s well justified. I’m willing to consider whether it ends up being closer to [a] net zero [of new staff positions], but I’m more open to a really compelling need.”
Sales Tax Comparison
| Month | 2024 | 2025 | Change |
|---|---|---|---|
| Jan | $2,378,359 | $2,517,384 | +5.8% |
| Feb | $2,540,438 | $2,701,583 | +6.3% |
| Mar | $3,710,005 | $3,475,086 | -6.3% |
| Apr | $3,297,969 | $3,542,595 | +7.4% |
| May | $3,146,692 | $3,170,594 | +0.8% |
| Jun | $2,835,443 | $2,489,089 | -12.2% |
| Jul | $2,253,056 | $2,542,036 | +12.8% |
| Aug | $2,292,851 | $2,252,752 | -1.7% |
| Sep | $2,836,024 | $3,041,749 | +7.3% |
Bed Tax Comparison
| Month | 2024 | 2025 | Change |
|---|---|---|---|
| Jan | $676,045 | $760,087 | +12.4% |
| Feb | $717,017 | $742,074 | +3.5% |
| Mar | $1,198,616 | $1,082,571 | -9.7% |
| Apr | $916,570 | $1,022,271 | +11.5% |
| May | $944,627 | $853,657 | -9.6% |
| Jun | $729,598 | $506,217 | -30.6% |
| Jul | $488,527 | $720,904 | +47.6% |
| Aug | $570,946 | $521,044 | -8.7% |
| Sep | $781,516 | $702,045 | -10.2% |
Hotels and Timeshares Vs. Short-Term Rentals
| Month | Hotels | Hotel % | STRs | STR % | Total |
|---|---|---|---|---|---|
| Jan | $336,829 | 44% | $423,258 | 56% | $760,087 |
| Feb | $403,268 | 54% | $338,806 | 46% | $742,074 |
| Mar | $659,605 | 61% | $422,966 | 39% | $1,082,571 |
| Apr | $680,972 | 67% | $341,298 | 33% | $1,022,271 |
| May | $575,560 | 67% | $278,097 | 33% | $853,657 |
| Jun | $258,075 | 51% | $248,142 | 49% | $506,217 |
| Jul | $496,353 | 69% | $224,551 | 31% | $720,904 |
| Aug | $299,015 | 57% | $222,028 | 43% | $521,044 |
| Sep | $431,170 | 61% | $270,875 | 39% | $702,045 |
| TOTAL | $4,140,848 | 60% | $2,770,022 | 40% | $6,910,869 |
Taxes
The June sales tax taken in by the city was $2,489,089, a 12.2% decrease from June 2024; July was $2,542,036, up 12.8% from July 2024; August was $2,252,752, a 1.7% decrease from August 2024; and September took in $3,041,749 which was also a 12.% increase from September 2024.
The June bed tax taken in by the city was $506,217, a 30.6% decrease from June 2024, July totaled $720,904, a 47.6% increase from July 2024, August came in at $521,044, an 8.7% decrease from August 2024, and September collected $702,045 down 10.2% from September 2024.
Staff has calculated that throughout the year hotels and timeshares contribute $4.1 million making up rougly 60% of the bed tax to short-term rentals contributing $2.7 million or roughly 40%, however the ratio between the two fluctuates quite a bit throughout the year with STRS making the majority of the bed tax in January with $423,258 to hotels $336,829.
Staff retention has improved with 16.8% turnover for FY 25 compared to the previous years of 20%, 23% and 22%, West said.
Councilwoman Charlotte Hosseini was absent for the duration of the retreat.
