Battle Creek commission reviews draft fiscal 2026 budget; staff proposes small use of fund balance and minor millage cut

Interim City Manager Ted Deering and finance staff presented the City Commission with a proposed balanced fiscal year 2026 budget Tuesday that includes a minor millage decrease and a small planned use of fund balance.

The draft budget proposes an overall city millage of 15.57 mills, down 0.095 mills from the prior year, and anticipates using about $248,000 of the general fund balance to balance FY26. Deering said staff recommends the rate change and described the FY26 plan as balanced while noting a shortfall risk in the downtown parking fund.

The presentation put several key figures on the table. Aaron (finance staff) said fiscal 2025 estimates now show an addition to fund balance of $1,044,041 compared with the adopted budget, driven in part by income tax receipts projected to come in about $567,000 over budget and interest income roughly $722,000 over budget. Staff included a $2,000,000 transfer to the capital improvement (401) fund in the FY25 estimates and shows a projected unassigned general fund balance of about $13.1 million (20.9% of estimated revenue) as of June 30, 2025. Under the FY26 proposal, staff projects an ending fund balance of roughly $16.25 million if revenues and expenses are realized as planned.

Why it matters: the millage proposal would lower the city portion of property taxes slightly (staff estimated about a $10 decrease for a home with $100,000 taxable value) while continuing transfers to capital needs. Commissioners and staff discussed the city's policy that sets a 17% reserve target for unassigned fund balance (amended in 2022) and whether the extra cushion above that target should be used to pay down or offset upcoming capital debt.

On revenues and transfers, staff said the FY26 general fund relies on a three-legged base of property tax, income tax and state revenue sharing, which together account for about 78% of general fund revenue. The proposal includes transfers and debt service entries such as $1.74 million noted as debt service and capital improvement bond costs for fire facilities, a $950,000 transfer to the airport and a proposed $500,000 in capital support from the BCTVA. Staff also noted that much of the year-over-year expenditure decrease for FY26 is due to no new ARPA revenue recognition in the proposed budget year.

Commissioners asked staff to consider using a portion of reserves to reduce borrowing for planned fire facilities. Commissioner Chris (Commissioner) and others repeatedly urged exploring whether money above the 17% policy could be shifted to the capital improvement fund or used to reduce the principal that would otherwise be bonded, which would lower long-term interest costs for taxpayers. Deering and Aaron said staff have moved $2,000,000 into the capital improvement fund in recent actions and that more detailed work would be needed to determine an exact amount to apply against future bond issues.

Transit funding and millage also drew sustained discussion. Commissioners noted a perceived disconnect between the city's historical general fund subsidy to transit—which Aaron said has averaged roughly a 0.2707 mill equivalent over the past six fiscal years (about $27 on a $100,000 taxable value) and has been around $600,000 in recent years—and a separately levied transit millage request of about 2.6 mills. Staff explained that the larger millage request ties to an expanded service scenario (evening and weekend service, on-demand service and other service extensions) and said a conversation with transit leadership about service levels and finances would be helpful.

Other items discussed by the commission during the workshop included: - Staffing and compensation assumptions: the draft budget includes a 3% cost-of-living adjustment and step increases for nonrepresented employees; negotiated wages are included where applicable. - DEI/organizational development: staff said the DEI officer position (Kim) will remain in the city manager’s office for FY26, with a shift toward organizational development and training rather than direct community-facing work. - Priority-based budgeting and engagement: commissioners asked for a renewed priorities workshop to update community results and align program quartiles with current commission priorities; staff said they will bring the FY26 budget forward for formal consideration on June 3 and set a public hearing for May 20. - ARPA and other funds: staff said ARPA obligations are largely in place, the first-quarter report was submitted, and remaining draws are expected to be spent by the construction season; four community projects remain under monitoring and must be expended by an end‑of‑2026 deadline staff cited.

Quotes from the meeting reflect the staff posture and commissioner direction. Deering said, “we're presenting you with a balanced budget this evening that proposes a small use of fund balance,” and Aaron summarized revenue outcomes: “estimates show an addition to fund balance of $1,044,041… income tax revenues… projecting to be $567,000 in excess of budget.”

What happens next: staff will present formal budget documents and recommended motions at the June 3 meeting, and a public hearing on the FY26 budget has been scheduled for the City Commission meeting on May 20. No formal votes were taken at the workshop; commissioners provided direction to staff on areas to analyze further, including reserve use, capital funding strategies and transit funding mechanics.

The workshop lasted roughly an hour and 20 minutes and focused on the single-item agenda of the draft FY26 budget and related policy questions. Staff members indicated they will return with more detailed options and financial scenarios for the commission’s consideration at upcoming meetings.