Lexington council reviews FY26 operating budget, flags interest-income risk and agency grant cuts

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…