Hagerstown introduces FY26 budget, tax rate; staff warn electric fund faces multimillion-dollar shortfall

HAGERSTOWN, Md. — The Hagerstown Mayor and City Council on May 20 introduced an ordinance to adopt the city’s fiscal 2026 budget and an ordinance to set the tax rate for fiscal 2026, while staff warned that self-supporting enterprise funds — especially the electric fund — face near-term cash pressure.

City finance staff delivered a detailed review of four enterprise funds — parking, electric, water and wastewater — saying those funds must be self-supporting and describing projected deficits, debt-service timing and capital needs that informed the proposed FY26 budget and tax-rate introduction. The council voted to introduce the budget ordinance and the tax-rate ordinance for formal adoption at a subsequent meeting.

Finance staff framed the enterprise funds as “business-type” accounts that should pay their own costs. On the parking fund, staff showed operating revenue of about $1.421 million and operating expense of roughly $943,000, producing a modest operating margin that becomes a cash deficit after accounting for depreciation, principal payments and capital outlay. In the cash projection the parking fund begins FY26 with roughly $1.1 million (staff noted they were trending at about $1.2 million at the time of the presentation) and is projected to end FY26 with about $786,000; longer-range projections show the fund drawing reserves and going negative in later years unless revenue or capital assumptions change.

The electric fund drew the council’s most urgent attention. Staff presented FY26 service charges of about $33.9 million and a purchase-power expense of about $26.6 million — roughly 78% of expected electric revenue — leaving 22% of revenue to cover staffing, distribution, maintenance and capital. Staff reported an expected operating retained–earnings loss for FY26 and a net cash impact of roughly $3.2 million; the city’s unrestricted electric cash balance was reported in the staff presentation as a negative $1.9 million as of the May 20 briefing. Staff said the city will use a year-end “cash advance” accounting mechanism (a temporary intra‑city cash advance reversed July 1) to meet fiscal‑year reporting rules but emphasized that the pattern is not sustainable for reinvestment in infrastructure.

Staff warned several drivers: recent storm repair and emergency contractor payments (staff estimated roughly $643,000 across city utilities for initial storm expenses, with about $476,000 attributable to public‑utility work); the timing of the first annual debt service payment for the new HUB parking deck, which begins in FY26; and an upcoming meter‑replacement shipment and other near‑term capital needs. Staff also noted that the city’s wholesale power supply contract expires Dec. 31, 2026, and that staff are seeking authority for the Director of Utilities to secure a wholesale power supply agreement when a market opportunity arises.

On water and wastewater, staff presented rate comparisons showing Hagerstown’s inside‑city water rate (for a typical household using 13,000 gallons per quarter) among the lowest in the comparison set (about $37.05 per quarter in the chart used by staff) and wastewater at about $117.86 per quarter. Staff said water and wastewater will require substantial capital investment over the coming decade (staff referenced a multi‑hundred‑million‑dollar planning horizon) and that some wholesale customers will shift service (staff noted roughly 1,400 joint‑service wastewater customers in the Mogansville area will move to county service in August, changing revenue and billing arrangements for those customers).

Formal council action at the special session: the council introduced an ordinance to set the city tax rates for fiscal year 2025–26 (proposed rate 1.057 per $100 of assessed value for real property; 2.643 per $100 for business personal property) and introduced an ordinance to adopt the FY26 budget in the amount of $222,997,300. Both introductions passed on voice votes recorded as 4–1. The council will consider final adoption at a subsequent public hearing and vote.

Staff separated discussion, direction and decision in the presentation: the review identified operating assumptions, projected capital needs and debt‑service timing (discussion); staff requested and received council authority to proceed with certain procurements and to pursue wholesale power agreements when market conditions are favorable (direction); and the council introduced the budget and tax‑rate ordinances (formal action).

Council members pressed staff on reserve levels, the timing of debt service and whether routine maintenance and capital replacements are included in projections. Staff said they will return with further suggestions for stabilizing enterprise funds, and noted the city has limited staffing in the electric utility (staff cited 29 full‑time positions across the electric utility) to respond to outages and capital work.

The staff presentation materials and comparative rate charts cited oversight by the Maryland Public Service Commission for municipal electric rate filings and described how wholesale purchase power contracts are competitively procured and then pass through to customers. Staff emphasized that purchase‑power variability is primarily a wholesale‑market dynamic while the city’s retail rates must also cover local distribution, staffing and capital.

The budget introduction and tax‑rate introduction will be published with supplemental worksheets that, staff said, will show specific line‑item reductions and transfers made to reach the proposed FY26 figures. The administration asked council to review those worksheets before the adoption vote.

What’s next: the council will hold the required public hearing and final adoption vote on the FY26 budget and on the tax rates at a future meeting. Staff will return with more detailed recommendations for enterprise‑fund rate design, capital timing and potential operational changes to limit cash deterioration in the electric and parking funds.

Sources: City budget presentation, FY26 enterprise fund projections and council actions from the May 20, 2025 work session and special session.