City Manager Jeff (City Manager) and finance staff on Jan. 13 presented a fiscal year 2026 budget that holds the city


tax rate flat but projects a roughly $2.6 million general-fund gap, warns of the scheduled phaseout of state backfill payments and proposes a 1% increase to the utility franchise fee to help pay for continued fare-free transit.

The presentation laid out key dates for the budget process: February 4 as the latest practical date to finalize the capital improvement program (CIP) and to focus on any change to the maximum tax rate, March 11 as the date by which expenditure decisions should be finalized, and April 15 as the planned adoption date so the city can file the budget with the county auditor.

Why it matters: state property-tax reforms passed since 2013 and additional changes in 2023 have reduced taxable valuation and shifted revenue responsibilities to local governments, staff said. Those changes, combined with insurance premium spikes and slow taxable growth from building permits, leave the city with tighter discretionary dollars for services such as parks, libraries and public safety.

Jeff said the city has seen four straight years in which taxable valuation has fallen short of expenditure growth and projects the 2026 budget will be a fifth. He summarized two major state-driven impacts: the 2013 reduction in commercial/industrial taxability (to 90%) and the 2022/2023 actions that converted certain credits to exemptions and created new homestead exemptions; both moves reduce local receipts and the state backfill for those changes is being scaled down. Jeff said the city received about $1.5 million annually in backfill previously but expects only about $308,000 in FY26 and no backfill in the following year.

Chris O'Brien, who led the revenue portion of the presentation, said property taxes still supply roughly two-thirds of general-fund revenue and about one-third of total city revenues across all funds. "That 66% that comes from property tax makes it difficult as things constrict for us to continually fund our services moving forward," Chris said.

Staff highlighted the residential rollback rate as a key driver. The rollback fell to 46.3% in the most recent tax year from about 54% previously; staff projected it will rise to about 47% for FY26. Every percentage point of rollback change was presented as roughly $1.1 million in city revenue. Staff noted that multifamily property is now classified as residential under the rollback, which increases the budget impact of percentage swings.

Major budget pressures and proposals

- Insurance: Jeff and staff reported sharp increases in property and casualty insurance, driven in part by national disasters. The presentation projected roughly $875,000 of new insurance-related expense over two fiscal years.

- Debt service and borrowing: staff described a plan to increase debt service capacity over the next two to three years to respond to higher project costs and maintain infrastructure work. Kirk Layman, assistant city manager, said the city


anticipates increasing the debt service levy to build bonding capacity while trying to hold the overall levy rate steady.

- Utility franchise fee for transit: staff proposed a 1% increase in the gas/electric utility franchise fee (from 1% toward a possible 2%) that the presentation tied directly to funding continuity for the fare-free transit program. Staff estimated a 1% increase would generate about $1 million annually and called the revenue "one of the few options" the city has to fund large projects or sustain fare-free transit.

- Water and other rates/fees: staff proposed a 3% water rate increase (estimated at about $1.12 per month for a typical household usage), a roughly 6% increase in housing inspection fees (estimated to raise about $60,000 annually) and a new $2 curbside yard-waste sticker plus a $5 minimum landfill fee for certain yard-waste drops.

- Affordable housing funding shift: staff proposed shifting most local support for competitive Low-Income Housing Tax Credit (LIHTC) projects away from general-fund cash transfers and instead relying more on alternative sources such as tax increment financing (TIF), fee-in-lieu balances (for example, the Riverfront Crossings in-lieu balance), and other housing-specific funds. Under the proposal, the affordable housing fund


would still include $500,000 to the housing trust fund but would reduce the direct general-fund contribution earmarked specifically for LIHTC.

- ARPA and other external funds: staff summarized American Rescue Plan Act (ARPA) expenditures and other non-tax revenue sources that remain available, including a $3.75 million Pro-Housing grant (one of 21 awarded nationally) and several TIF/fee-in-lieu balances. Staff emphasized those funds have been deployed toward housing, social services and small-business support.

- Five-station fire plan paused: staff said earlier planning steps had placed two property purchases and some firefighter staffing in reserve to prepare for a fifth fire station, but projected state changes and revenue pressure make standing up a new station in FY28 impractical. The contingency set aside in the fire budget for future staffing was reduced from $700,000 to $300,000 in the proposal.

Spending priorities and tradeoffs

Kirk Layman walked through general-fund expenditures and said roughly 39% of the general fund is spent on public safety and about 23% on culture and recreation (libraries, parks). Personnel costs make up roughly three of every four dollars in the general fund; staff noted that personnel is largely inflexible, and continued revenue pressure could force service-level reductions or layoffs if not addressed.

Staff recommended holding many external grant programs flat for FY26 rather than increasing them. Specific proposals included holding the Aid to Agencies and arts and culture partnership amounts flat, reducing a long-standing $25,000 contribution to a regional EDC to $10,000, and modest cuts to public art and historic-preservation grants. The proposed budget also trims the general fund contribution to the GRIP housing rehabilitation program from $200,000 to $150,000 (staff said program income will help partially offset that change).

Fare-free transit

Staff said the fare-free pilot produced a 40% year-over-year ridership increase in its first year and continued double-digit growth in the months since; staff described route- and stop-level ridership monitoring as ongoing. The budget proposal ties ongoing support for the fare-free program to the proposed utility franchise-fee increase and said parking revenues will also be monitored to help support transit operations.

Financial position and credit

Kirk noted Moody



's reaffirmation of the city's AAA bond rating and said the city remains among a small subset of U.S. municipalities with that rating. Staff warned that continuing deficits and drawn-down reserves could threaten that rating: the proposed FY26 budget projects an unaddressed general-fund deficit of about $2.6 million and would hold the emergency reserve and facilities reserve flat. Staff said the facilities reserve will likely be depleted by the City Park pool project and that future facility projects may require debt or voter-approved measures.

Process and next steps

Staff stressed schedule constraints: any change to the maximum tax rate should be decided by Feb. 4 to allow steps in the county filing process; final expenditure decisions should be in place by March 11; the city plans to adopt the budget April 15 to meet county filing timelines. Staff invited council direction on which items to pursue or modify and said departments will present detailed budgets in subsequent sessions.

Quotes from the meeting

"That 66% that comes from property tax makes it difficult as things constrict for us to continually fund our services moving forward," Chris O'Brien said during the revenue presentation.

"We do our best to keep those [insurance] costs lower, but the world around us is absolutely changing and driving those numbers up," Nicole (staff member) said regarding insurance premiums.

What the presentation did not do

The Jan. 13 session presented staff recommendations and projections; it did not contain final council votes on any of the fee or levy changes discussed. Formal council action and any final adjustments will require subsequent hearings and votes on the schedule staff outlined.

Ending note

Staff said the FY26 budget attempt aims to preserve core services and advance priorities such as fare-free transit and housing support, but it requires difficult tradeoffs and relies on several uncertain revenue sources. Council members were asked to identify any policy changes they want staff to prepare before the Feb. 4 and March 11 deadlines.