FY26 Budget Season Deep Dive
At the end of June, the City Council always finishes the annual budget review, which fixes the
taxes, revenue and spending for the new Fiscal Year, starting July 1. This year we adopted a budget that totals $380 million, only a modest increase of 5.5% from last year’s $360 million.
The FY26 budget reflects our understanding that this will be a year of economic uncertainty. We will likely have minimal growth of our tax base because new development projects are waiting for a better real estate market. We expect to see cuts in federal grants; and the costs of the materials and services the city buys (especially for infrastructure and building maintenance) will likely keep rising.
Therefore, we all agreed to adopt a prudent budget. It has enough money to pay for all the services, programs, and capital projects, already under way. It also keeps the city’s current level of employment without staff reductions. But it does not add any new programs or new hiring.
Debates Over the Details
As always in the budget review, Council members initiated lively discussion, expressing different priorities for spending and saving. The priorities that I sought to advance were intended to improve direct services to residents and businesses and to minimize the various fees and obstacles of process that many people face in trying to access services and benefits.
In an effort to re-direct some funds toward direct services improvement, I took issue with several items in the budget that involved internal administrative convenience and bureaucratic process. In particular, I joined several colleagues to question three of the Mayor’s budget line proposals:
High increase in sewer and water service rates
Keeping the job category of Chief Administrative Officer under the Mayor
Keeping the vacant job category of Project Manager for Public Safety for All in the Division of Racial and Social Justice
Sewer and Water Rates
Back in 2018/2019, we were anticipating the large capital costs for our storm sewer and water
supply system reconstruction. The Council worked with the Mayor and agencies to re-structure the Sewer and Water enterprises and put them on a multi-year financing plan. Essentially, we agreed that each year we would raise the water and sewer rates a modest amount (5 to 7%) in order to cover some of the infrastructure costs without borrowing, and also set aside some money in “stabilization” accounts. If costs were to unexpectedly rise higher than planned in any year or if the schedule of borrowing were to get delayed, we could then draw from the stabilization accounts so that the rate-payers would not face an unduly high burden in that year.
Unfortunately, during the COVID years, this planned system of steady financing got disrupted.
Then, for both FY25 and FY26, the Sewer and Water agencies had to propose much higher rates. Last year, because we still had COVID recovery funds and other revenue surpluses, we agreed to use these reserve funds to keep the Sewer and Water accounts steady and avoid a rate increase. This year, I was of the opinion that we should still apply some surplus funds to minimize the rate increase. This was not the choice of the majority, however.
Sewer and Water Rate Discounts
Despite the decision to allow rates to rise substantially, we did make some progress on creating a method of sewer and water rate adjustments. This idea was first discussed back in 2018/2019, when the Council asked the administration to study whether we could allow low-income families to apply for a rate discount (similar to the property tax discount that veterans, seniors and other low-income owners can request). Unfortunately, the lawyers determined that the state law on Sewer and Water financing would not allow such an income-based discount because the fees are based on the amounts of water people use -- the city applies higher rates for properties that use lots of water. The mechanism of discount for lower volume users is already built into the rate structure and is the incentive for people to save water.
For this incentive structure, we agreed to make an important change, starting in FY27.
We will break into two the sewer fee, creating a new storm water payment that will be separate from sewer discharge use fee. The amount of this new fee will be calculated for each property, based on how much impervious surface and storm water runoff the property generates. The owner of a single, two or three family house with a yard that is planted and absorbs rainwater will pay a low fee. The owner of a commercial building with a big asphalt parking lot will pay a high rate and fee. This fee structure should benefit many families and small owners and it provides a new incentive to improve yard spaces to absorb water.
Executive Administration Staffing
With several of my colleagues, I argued for the removal from the budget of authorized funding for the Chief Administrative Officer (CAO) position in the Mayor’s office. This job category was created only a year ago after lively debate with several of us in opposition. At the time this position was described as an intermediary day-to-day manager and inter-agency coordinator. Who would stand between the Mayor and the heads of departments. This would allow the Mayor to focus attention on major issues and policies. Those of us, who opposed the job category, thought that the position would mimic a “city manager” and thus be inconsistent with the city’s status as a Mayor/Council city under state law. A city of our size did not seem to be so complex that the Mayor was unable to manage and guide policy at the same time.
When the position was approved in the FY25 budget, we expected that in the subsequent practical process of setting up the office, hiring and getting the work under way, we could better understand how efficiencies, better communications and inter-agency cooperation could be achieved.
Now after a year of practical operation, I did not see this job category grow into an effectiv mechanism. I did not recognize any tangible improvements in the relationship of the Council to the agencies or to the processes of decision-making. Two arguments were made to keep the position. First, the job is now filled with an administrator of high professional qualifications. Second, in the draft revised Charter, which we sent to the state legislature for Home Rule approval, this new intermediary manager is defined. In the end, therefore, I voted with the majority not to remove the CAO salary line.
The position of Project Manager for the Public Safety for All initiative was authorized more than a year ago, but the position has never been filled. Its job description primarily involves administrative activities for the task force that has been authorized to define a mechanism of non-armed response to emergencies. However, we have been discussing for many years already, the various ways to provide un-armed responses to emergencies – including the creation and training of response teams with and without armed police officers. In my opinion, spending more time to try to fill this position in order to continue studying and debating will be an inefficient allocation of funds. Instead, the money should be re-directed to the actual work of organizing the alternative response system. We already know how different models and effective programs are working in many other cities.
Affordable Housing Funding
One unresolved question, which I raised at the start of the budget review, has been whether there will be any additional surplus funds from FY25 that we can transfer as “free cash” to the Affordable Housing Trust. In FY26, the Affordable Housing Trust will have a substantially lower level of resources than the past five years, because of the exhaustion of the COVID recovery grants, and the decline of zoning linkage payments from developers. At the end of FY22, FY23 and FY24, we were able to direct some General Fund surplus cash into the Trust, which pushed the total contributions to affordable projects to over $10 million each year. For FY26, however, our prediction is that only $5-6 million in revenue will come in.
Last month in May, we did transfer an aggregate total of $16 million of surplus funds from FY25 into the city’s Rainy-Day fund and several other Capital Infrastructure and City Buildings Construction stabilization funds. When the FY25 books are closed in July and August, I hope that we will find that there is some more unspent money, from which we may make a transfer into the Affordable Housing Trust.