City Manager Tom Carroll and finance staff presented the proposed fiscal year 2026 operating budget to Lexington City Council on April 3, stressing that projected interest income is a material line item in the general fund and that changes in market rates could leave a modest gap.

Carroll told council that “interest income is estimated…at $1,520,000,” and that the budget model assumes “a 4% average yield on a $38,000,000 treasury.” Staff said they have opened longer-term investment options to lock in rates and are using a laddered approach to reduce exposure if yields fall.

Why it matters: interest revenue in the FY26 draft is one of the larger single non‑tax revenue sources, so a sustained decline in yields would reduce available discretionary funds and could require expenditure reductions or other adjustments before the fiscal year ends.

City finance staff described a stress test showing that, under the budgeting assumptions and a modest projected decline in yields through the calendar year, the city would miss the FY26 budgeted interest target by roughly $41,000 under the modeled scenario. Finance Director Jennifer Bell and Treasurer Pat Delaney have been pursuing a mix of LGIP/VIP accounts, short-term bond funds, T-bills and CDs to secure higher yields without adding credit risk, and staff said the model can be updated as market data changes.

At the same meeting council reviewed outside-agency funding recommendations and heard three agency representatives during the statutory public hearing on the operating budget. Julie Goyette, director of the Rockbridge Regional Library System, asked the council to support the library’s FY26 request of $245,254, citing planned restroom renovations in Lexington and a library catalog upgrade. Goyette said the library has budgeted $30,000 for the Lexington restroom renovation and noted donations have declined.

Michelle Watkins, speaking for Rockbridge Area Transportation System (RATS), asked the city to consider a $7,000 contribution toward resurfacing a parking lot used by RATS. Watkins said the full reseal would cost about $32,000 and that the $7,000 figure was prorated to reflect the roughly 40% of riders the system expects to come from the city.

Other budget items discussed or updated in the work session included:
- Mountain Gateway (Mountain Mesa) relocation and lease support: city staff reported Mountain Gateway will occupy a new building owned by a real-estate fund; the agency is still requesting local contributions toward lease payments. Council heard that the Buena Vista center’s current annual lease is $142,327 (about $112,252 of which is subsidized by participating localities) and that Mountain Gateway’s new center lease is projected at $83,000 per year.
- School activity bus request: staff said one activity/ADA-accessible bus option is approximately $80,000; council directed staff to gather quotes and additional usage data before deciding how to fund the vehicle (purchase from equipment replacement fund, reallocate another purchase, or leave out of the budget).
- School Resource Officer (SRO): staff reported that in FY25 the city received about $47,000 in grant offset for an SRO; FY26 currently includes the full personnel cost and no guaranteed grant. Council discussed the policy question of whether the role should continue without grant funding and emphasized stakeholder engagement before changes.
- Operating equipment and capital concerns: staff noted supply-chain and price volatility risk and recommended staggering large purchases; some vehicles already ordered are locked in at contracted prices.

Staff reminded council that the FY26 package remains available on the city website, that a follow-up combined public hearing on the budget and CIP was planned for May 1, and that formal budget adoption would occur with the appropriation ordinance in June.

Ending: Council did not adopt budget changes at the meeting. Staff said they will continue regular monitoring, update the forecasting tool for sales tax and other recession‑sensitive revenues, pursue investment decisions to secure yield where prudent, and return any new information for council consideration before the May and June adoption milestones.