City manager Finley told the Llano City Council on June 26 that the city’s operating picture for FY2025–26 shows a $172,000 deficit when combining the general fund and utility fund, and that the utility fund currently shows a small surplus.

Finley said the operating shortfall takes into account existing expenses including debt service and multiple capital needs. “Between general fund and utility fund … this represents the latest version which we work from is a starting point of a $192,000 deficit in our general fund. Utility fund is a surplus of about 20,” Finley said in his presentation, characterizing the combined position as a roughly $172,000 deficit. He later listed several capital projects and program costs included in those figures.

Finley identified major budget drivers. He told council that the city has about $881,394 in existing debt service to cover and must meet the Texas Water Development Board bond covenant of a 1.1 coverage ratio. He said capital-improvement program needs include a mandatory lead/copper replacement project he described as roughly $3.5 million and that “we do have $9,795,000 worth of utility fund capital projects.” Finley emphasized that some projects are regulatory requirements and cannot be delayed without increasing future costs.

Residents asked detailed questions about the proposed water-rate increases and the basis for a figure that had been presented earlier in public outreach: $10 per 1,000 gallons as the city’s cost to produce and distribute water. A resident identified as Addie asked how that $10 figure was calculated; staff answered it reflected the water plant and distribution-department expenses and last year’s produced volume. Addie and other speakers urged council to “take a breath” and consider phased approaches, more detailed budget cuts, and a town-hall approach before adopting sharp rate increases.

Finley proposed a set of 18 budget modifications that, taken together, reduced the starting deficit and produced positive results on paper — roughly $532,000 in changes that moved the calculators from a $172,000 deficit to a $360,000 surplus on that worksheet. Many of the proposed modifications were reductions to mowing contracts and other operating expenses. Finley cautioned that those savings depend on council direction about staffing and outsourcing: he noted parks and cemetery staffing pressures and suggested that two to three FTEs could be required to improve maintenance, estimating a blended burdened rate of roughly $63,000 per position.

Finley also described the city’s available fund balance above policy reserves as a tool council may choose to use for one-time needs and recommended the council discuss options in a budget workshop. Multiple council members asked for a budget workshop before final decisions on water rates; staff agreed to prepare more detailed line-item comparisons of mowing contract vs. in-house labor, capital phasing options, and potential water-rate relief design options.

No final rate decision or budget adoption occurred at the June 26 meeting; council directed staff to return with more detailed analyses and to hold a budget workshop before making final decisions on rates or staffing-level changes.