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Midyear review: one-time permit revenue masks structural deficit; staff projects smaller-than-budget deficit
Summary
City staff reported midyear general fund performance skewed by one-time permit revenues from large projects; without those receipts the general fund shows a structural deficit and staff projects a smaller-than-budgeted year-end deficit and a fund balance between $42M–$47M.
Finance staff presented the midyear financial review using June financials and said the general fund was running ahead of budget largely because of one-time permit revenue tied to large development projects.
Clayton (finance staff) said general fund revenue through June was about 54% of budget while expenses were 49%, producing a temporary net surplus of roughly $3 million. He cautioned that $6 million of unbudgeted revenue tied to permits for major projects (Jacobs Center and Kellogg building projects) was distorting the picture; excluding those one-time items the city would be closer to a $3 million deficit.
Staff said stable revenue streams (liquor, parking, motor fuel and certain transfers) are performing as expected, while other revenues are more volatile. Income taxes were up 7.5% year-over-year, home-rule sales taxes and retail sales are up 1.8% overall, and building permits are performing well because of the large projects. Personal property replacement tax (PPRT) and some other taxes are lower than recent peaks and will be budgeted more conservatively for 2026.
On the expense side, staff reported a lower vacancy rate than budgeted (about 4.5% versus a 6% assumption), which will reduce vacancy savings and is likely to create at least a $1 million pressure on salaries and benefits compared with budget assumptions. No major unbudgeted general fund expenses had been recorded through June.
Given current projections staff estimated the 2025 general fund year-end deficit will be smaller than budgeted, likely between $1.8 million and $7 million rather than the $11 million budgeted deficit, and a projected fund balance of $42–$47 million. Staff flagged risks for the 2026 budget: ARPA funds are in their final spending year, pension contribution uncertainty (actuarial reports pending), property tax levy flatness since 2020, and potential reductions to some revenue sources.
Staff and committee members discussed next steps, including building scenario analyses into the 2026 budget and examining funds such as CIP, water, sewer and internal service funds for cash and reserve positions.
