Graham discusses FY2026 budget shortfall, $15 million sewer plant rehab and tax/rate choices

Graham — At a fiscal year 2026 budget workshop called to order by the mayor, City Manager presented a budget picture that leaves the council with three stark choices: raise the property tax rate, cut services or reduce staffing.

The City Manager told the council that year-to-date sales-tax collections stand at $977,000 and, on current trends, are likely to finish the year near $2.9 million — about $200,000 below the $3.1 million assumed in the adopted budget. "If sales tax revenue does not recover to a level of $3,100,000 or higher and property tax values increase by 4% or less ... we won't be able to give any cost-of-living adjustments to any employee without cuts to another program," the City Manager said.

Why it matters: the shortfall, combined with expected contract and insurance increases plus state-mandated certification costs for police and fire, means limited discretionary funds. The manager asked the council for guidance on several boundaries for the proposed budget: a conservative $2.9 million sales-tax assumption for planning; whether to pursue a hybrid cost-of-living adjustment (COLA) approach for staff; whether to defer some vehicle replacements; and how to finance a large wastewater-plant rehabilitation projected at roughly $15 million.

Sales tax and tax-rate scenarios

The manager walked the council through three tax-rate scenarios. A "no-new-revenue" rate that would hold taxpayers effectively neutral was presented at about 62 cents per $100 of assessed value — a roughly 3.5-cent reduction from the current 65.5¢. Using the currently adopted tax rate of 65.5¢ produces a deficit at current revenue assumptions. To balance the general fund while keeping services roughly at current levels under the manager's sales-tax projection would require about a 4-cent increase to about 69.5¢, the manager said. He added that, in his estimate, one penny on the tax rate equals about $50,000 in revenue.

COLA, personnel and vehicles

Councilmembers and staff discussed cost-of-living options. The manager laid out approximate annual cost impacts: a 1.5% COLA adds roughly $150,000 to the base, 2.5% about $200,000, and a hybrid approach (used last year) that targeted lower-wage positions and specific public-safety salaries would be about $230,000. "For my part, I do not recommend a COLA above 2.5% for FY26 if sales tax is not forecasted $3,000,000," the City Manager said.

The manager also asked whether to delay vehicle replacements to reduce near-term spending. He said two fully outfitted patrol vehicles could be obtained via lease for roughly $54,000 per year and noted a hidden long-term cost to deferring fleet replacement in higher maintenance and lost service availability.

Water, sewer and capital projects

For water capital, staff proposed programming $918,000 in cash-funded projects from remaining debt proceeds tied to an earlier alternate water line; the proposal included two $200,000 line replacements (one on Virginia and one in Remington), multi-year pump-station rehabilitation and up to $100,000 for an engineering study to scope longer-term work.

On sewer, the City Manager said the wastewater-treatment-plant rehabilitation could be in the neighborhood of $15 million and would almost certainly require borrowing. "By my estimate at current interest rates, the annual payment on a 20-year note on $15,000,000 is about just short of $500,000 — $496,000," the City Manager said, adding that would equate to about a $9–$11-a-month increase to a typical sewer bill to service the debt. When Councilmember Eric was asked how he would rate the need, he called the rehab "absolutely critical, essential." The manager said the earliest realistic start of construction is about two years from the current date, pending final design and financing decisions.

Reserves and operating priorities

The manager emphasized reserves and recommended targeted contingency funding. The audited general-fund reserve as of Sept. 30, 2023 was $853,000; the manager said finance best practice suggests a larger reserve and asked the council to target a minimum incremental reserve for contingency of $250,000 in the coming year.

He reiterated the general-fund spending priorities: personnel costs (the single largest expense), public safety (police and fire) and streets account for roughly two-thirds of general-fund spending. Several councilmembers said public-safety staffing and core services should be protected, and at least one councilmember said a no-COLA approach was unacceptable and favored a hybrid COLA to retain employees.

Process guidance given to staff

For budget development the City Manager asked the council to accept three starting assumptions for preparing the proposed budget: assume $2.9 million in sales tax for FY26, assume assessed property values rise about 4% for planning purposes, and present a base budget without COLA or other nonessential additions. He said he would then return with a proposed budget that includes the department-line-item detail and the hybrid-COLA scenarios for council action.

Meeting close

A motion to adjourn was made near the end of the workshop; the transcript records the motion but does not record a second or the final vote in the provided excerpt.

Ending: The council instructed staff to prepare the proposed FY2026 budget based on the council's guidance and return with detailed line-item spreadsheets and the hybrid-COLA variants for formal consideration in later meetings.