City administration recommends 5.9% levy increase in 2026 budget; council to set preliminary levy Sept. 22

Administrator Zelms, City Administrator, told the council this was the first of three budget study sessions and walked members through a recommended two‑year budget and the schedule for levy adoption.

The administration recommended a tax levy of $118,200,000 for 2026 and a total recommended budget including Rochester Public Utilities of $663,850,000, and described a proposed 5.9% year‑over‑year increase in the levy for 2026. Zelms said the recommended levy reflected work by departments to reduce an earlier, larger levy projection and to align decision packages with the council’s recently adopted strategic priorities.

Why this matters: the council must set a preliminary levy at or before the statutory deadline that Zelms identified as Sept. 22; after that date the council may lower the levy but “cannot go higher than” the preliminary amount, she said. The levy level sets the maximum property tax the council may adopt later in the year and is the primary local revenue source for the general fund and many city services.

Key cost drivers and decisions - Employee costs and labor negotiations: Zelms said personnel costs are the largest long‑term driver and that multiple labor units and contracts are under review. She described projections in the personnel line that reflect cost‑of‑service and bargaining assumptions. City finance staff (Rachel Hodak and colleagues) led baseline and decision‑package reviews. - Decision packages: the recommended budget includes a set of decision packages that Zelms said were intended to increase capacity or change service delivery (for example, library customer service assistants, arborist positions, community service officers, an artificial‑intelligence implementation strategist, a forensic technology detective, and others). Zelms said some decision packages carry vehicles or equipment and some are limited‑term. Council members and staff discussed whether some tasks could be contracted rather than staffed. - Cost allocation and payments in lieu: the budget introduces a central cost allocation so levy‑funded central services (HR, IT, etc.) share indirect costs with enterprise funds; zelms said the allocation would be phased in over two years. The administration also proposed modest increases to payments in lieu from parking, stormwater and wastewater and noted the electric and water utilities use a different formula. - Revenue assumptions: staff described new construction estimated at 1.77% and an overall estimated market value growth of just above 6.5% in preliminary county figures, and said final figures will come later from the county. Zelms said the city receives state Local Government Aid (LGA) at a relatively low per‑capita level compared with peer cities and that LGA formulas have not changed materially in 20 years. - Utilities and fee adjustments: the administration noted recommended utility rate adjustments in draft utility budgets presented by Rochester Public Utilities: an electric rate scenario shown earlier in the packet and a water rate study. Zelms and RPU staff warned that utility rate changes will affect households and that some enterprise revenues fund capital projects (for example, the water reclamation plant project).

Council questions and staff directions Council members asked for more detail on several items Zelms offered to return with: a more specific estimate of potential revenue from a natural‑gas franchise fee, permit‑fee timing tied to multi‑year projects such as Bold Forward Unbound, options for library hours and part‑time/full‑time staffing tradeoffs, and the details of the proposed cost allocation formulas. Zelms asked which decision packages the council wanted more detail on at forthcoming study sessions. She also noted the next budget study session will be Sept. 3 at Rochester Public Utilities and reminded the council that the preliminary levy decision is scheduled for Sept. 22.

Other notable items - Outside agencies: outside‑agency funding requests were roughly 21% higher than the prior year; the administration proposed smaller increases (roughly 5% in 2026) and asked council guidance on adjustments. - Parks/library: a set of recommended positions and seasonal staff for parks and the library appear in the decision packages; Zelms said staffing adjustments could be made over time through attrition and council direction. - Public safety and homelessness response: the budget includes requests tied to public safety and community outreach; council members discussed a pilot that embedded a social worker and whether to expand social‑work capacity in lieu of sworn officers.

Next steps and context Staff emphasized the recommended budget reduces an earlier projected levy increase and that the council’s policy decisions between now and Sept. 22 will determine the preliminary levy level. Zelms asked the council for direction on packages to analyze further and reminded the body that after the preliminary levy is set the council may lower it but cannot later increase it above that preliminary figure.

Ending Staff will return with refined numbers, additional slides, and itemized detail at the next study session Sept. 3 (RPU building), and the council will set its preliminary levy on Sept. 22. Several council members asked that staff prepare additional analyses (library hours tradeoffs, franchise/gas fee revenue estimates, permit‑fee timing, and cost‑allocation mechanics) for the next study session.