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Mayor Valerie Molina and the rest of the council agreed June 11 to hold off on deep cuts to the town's operating budget, even as the town is set to spend $1.5 million more than it brings in.

“I know we have to, but I don’t think this is the year,” she said.

Instead, the Town Council directed staff to cut $70,000 for the fiscal year starting July 1. It will also raise rental rates for businesses and events, as well as utility fees at the town-owned Mercado shopping center to balance its budget and eliminate its reliance on the general fund.

The town manager previously considered cutting more than $500,000 from the $7.7 million operating budget.

Guadalupe, about 100 miles northwest of Tucson, is facing an annual $1.5 million deficit. This year's budget hole grew after staff learned the town would receive $50,000 less in state funding than expected.

All Arizona cities are expected to see a dip in their allocation, but for Guadalupe, it’s a deeper hit than others.

That's because nearly $15 million won't be spread around Arizona cities after San Tan Valley incorporated in August. With more than 100,000 residents, San Tan Valley became eligible for its share of state revenues, which is generally based on population.

Although Guadalupe will see the dip, the Town Council is set to forge ahead without dramatically changing its spending.

Molina justified the modest cut, saying the staff needed another year to “figure this out.”

“I don’t think lowering service hours right now is beneficial for our community,” she said.

But national municipal finance experts said the cash-strapped town has few other options to dig itself out of its structural budget deficit. And even bankruptcy likely won't help, they warned.

What's in Guadalupe's $70,000 budget cut?

The most impactful cut for residents will be for the town's community action program, which will close at the end of 2026.

That is a program most metro Phoenix cities have that assists residents with utility bills, food boxes, and housing services.

The town will also eliminate tuition reimbursements, a benefit given to employees who want to advance their education, saving the town nearly $46,000.

Additionally, the town will cut its overtime allowance in half and plans to update its personnel policies.

Guadalupe won't host the Easter Carnival in 2027 and will eliminate other community events.

Still, it will hand out a 3% raise to employees as part of its budget.

What municipal finance experts say about Guadalupe's budget

Financial experts agreed that Guadalupe’s services already seemed bare bones and many were contracted out to avoid fixed costs.

David Schleicher, a Yale law professor focused on government finance, said there were no “magic tricks” to solve the issue.

“It’s not clear to me that Guadalupe makes sense from the outside as a fiscal matter,” he said.

That’s because it’s a densely populated town that’s solely reliant on sales tax funds without a primary property tax, he said.

“You’re either gonna tax residents to provide services with property taxes or you’re going to be a commercial place that taxes business… (Guadalupe) is neither one of those things,” Schleicher said.

But Guadalupe's stance is not unusual. Across the state, 39 cities don't have a primary property tax, 10 of them in metro Phoenix, according to the Arizona Department of Revenue.

The town asked voters in May to approve a property tax. Voters rejected it in an election in which only 11% of registered voters cast ballots. The Town Council suggested bringing it back to the voters next year.

Without a resolution to its budget crisis, Guadalupe could cease to exist.

Guadalupe’s revenue sources are not a “super structurally viable model,” Schleicher said.

Schleicher said if Guadalupe doesn't cut expenses or raise revenues, then the town should look at merging with a neighboring city.

It’s the exact situation Guadalupe residents wanted to avoid 50 years ago when it was incorporated to retain its heritage and culture as an independent town. Guadalupe borders Tempe, but no one is seriously considering annexing it into the city.

Bankruptcy and receivership not likely to help Guadalupe

It’s not immediately clear what will happen if Guadalupe cannot pass a balanced budget at the beginning of fiscal year 2029. Its reserves are expected to be depleted by then, two years earlier than expected, if the town continues to spend at its current rate.

Bankruptcy or receivership are largely considered the next step options. However, Schleicher and William Glasgall, a public finance adviser with The Volcker Alliance, aren’t sure bankruptcy will help Guadalupe.

It doesn’t appear that state law explicitly allows a town or city to request a receiver be appointed by a court for itself. The law allows a municipality to request a receiver “to manage a property that is designated as a slum property by a city, town or county or the state.”

If state law allowed, Schleicher said a receiver could help Guadalupe in theory. But in practice, he suggested, the town’s politics aren’t working, and it needs to bring in an “expert who’s less bound by the structures of responding to what voters want.”

A receiver would not have the authority to break contracts. Only bankruptcy would allow that to happen, he said.

Schleicher also said the town may not even pass the test to be eligible for bankruptcy.

Bankruptcy is largely used to pay back debt. But Guadalupe doesn’t have significant debt, according to available financial records. The town hasn’t sought general obligation bonds since 1998, according to Municipal Securities Rulemaking Board documents.

Glasgall, with The Volcker Alliance, agreed with Schleicher that bankruptcy wouldn’t be worthwhile for Guadalupe. He said it's "super rare" for towns to pursue bankruptcy because it's expensive.

“It's designed to settle or reorganize debts of a government and it's not designed to make operations more efficient,” he said.

It's rare to see a city file for bankruptcy and more so to reform operational expenses, according to Glasgall.

In Arizona, only South Tucson, a square-mile town of similar size and makeup as Guadalupe, filed for bankruptcy in 1983 shortly after a judge awarded Tucson Police Officer Roy Garcia $3 million after he was seriously injured when he was accidentally shot by a South Tucson officer when the two agencies responded to a call about a man barricaded in a home.

Glendale faced, but avoided, bankruptcy in the early 2010s, due to the Great Recession and investments for a sports and entertainment district.

Glasgall said Guadalupe would likely be worse off in the long run, spending money hiring bankruptcy lawyers to represent it. Unlike Detroit, which was nursed out of bankruptcy because it posed a threat to Michigan's finances, Glasgall said Guadalupe doesn't pose a risk to the state's credit rating.

Glasgall came to the same conclusion as Schleicher for what Guadalupe can do to fix its financial problems if it doesn’t raise revenues.

“Slash the hell out of everything or dig your heels in and see what’s going to happen,” he said.