Hagerstown staff present FY26 budget with proposed 5.5¢ tax-rate increase to close $16.4 million gap

City finance staff presented the administration's proposed fiscal 2026 general fund budget at the April 15 work session, saying earlier department requests left a $16.4 million shortfall that was pared down to a slight surplus through reductions, deferrals and alternative funding.

Finance Director Michelle Hepburn told the mayor and council the budget started with a general fund deficit of $16,400,000 and that staff reduced requested general-fund transfers to the capital improvement program by $8,200,000 to bring the general fund to a near balance. "To put this into perspective, I have never seen it that high since I've been here in 15 years," Hepburn said of the initial $16.4 million deficit.

The proposal projects recurring revenue of about $67.2 million, with total budgeted revenue of roughly $71.4 million when one-time fund-balance transfers are included. Property taxes are the single largest revenue source, budgeted at about $46.5 million. On the spending side, salaries and benefits are the city's largest cost at about $43.3 million, and health insurance is budgeted at roughly $3.9 million for the general fund.

Why it matters

Hepburn and staff stressed the gap arises from concurrent pressures: strong salary and benefit growth, rising debt service tied to recent bonding for projects such as the Fieldhouse, and a high volume of one-time capital requests. To close the remaining structural gap for FY26, staff proposed a 5.5¢ increase in the real-estate tax rate. According to staff's projections, the 5.5¢ increase would generate roughly $2.2 million in additional municipal revenue.

Details and debate

Hepburn walked the council through multi-year revenue projections and noted the budget book now includes two years of audited actuals and four years of forward projections to show trends. She said corporate personal property tax revenue has risen with recent warehouse and commercial development, but remains a relatively small share (about 13%) of total property-tax receipts.

To close the budget gap, staff said they: cut or deferred more than $8.2 million in capital transfer requests; identified alternative funding for some projects; and asked departments for voluntary reductions. The capital improvement program (CIP) in the FY26 proposal totals about $14.65 million for the general fund portion, part of a citywide CIP of about $57.9 million.

Hepburn reviewed large proposed one-time capital items that had been deferred or funded in part: $1.75 million for fire vehicles (including an engine replacement), a $1.5 million pavement preservation program (largely highway-user revenue), roughly $2.25 million for a fire training center (with $1 million anticipated from grant funding), $1.31 million for traffic signal upgrades (including a $640,000 federal grant requiring 20% local match), and $1.5 million in fund balance for land acquisition tied to consolidated public-safety facilities. She also flagged a proposed $3 million ice-making system for the Hagerstown ice rink in FY27 that may need earlier attention if equipment fails.

Council guidance and next steps

Council members were urged to submit any proposed changes to staff early in the review process rather than waiting until final ordinance introductions in May. Hepburn said some budget elements cannot be changed (for example, debt service and state-set pension contribution amounts) and that last-minute changes can prevent staff from presenting viable offsets.

Several council members suggested operational or timing-based alternatives to reduce the proposed levy increase, noting examples such as postponing high-dollar one-time items (the fire engine), temporarily reducing Invest Hagerstown funding, or suspending subsidy to city amenities (the municipal golf course) would each reduce the required rate increase but carry trade-offs.

No formal vote was taken at the work session. The administration outlined a schedule: ordinance introductions in mid-May and final adoption later in the month. Hepburn and staff said they will return with additional fund sections and stand ready to incorporate council-suggested adjustments before ordinance introduction.