Portsmouth staff projects preliminary FY26 budget above 6%; outlines timeline, cost drivers

Deputy City Manager for Finance Administration Nathan Lonnie told the Portsmouth City Council at a Jan. 15 work session that staff expects a preliminary FY26 budget that would exceed 6 percent and asked the council for guidance as departments build detailed proposals.

Lonnie said the city’s FY25 budget under which it is currently operating is $144,861,347 and that non‑operating items account for roughly 18 percent of the budget while operating expenses account for about 82 percent. He described a preliminary projection that the FY26 operating budget “could land around 6.7%” while non‑operating items are modeled at about 3.5 percent, producing a combined preliminary increase above 6 percent.

The presentation outlined why staff sees upward pressure on costs: health‑insurance premiums (staff reported a guaranteed maximum rate of 9 percent for the city’s Health Trust plan and an 8.9 percent increase for the school plan), employer contribution rate declines from the New Hampshire Retirement System, collective bargaining obligations, energy costs, and debt service. Lonnie told the council the city uses a 10‑year rolling average for COLA in budget planning (a 2.84 percent figure from that method), and said the health insurance stabilization reserve produces a budgeting figure of about 4.2 percent for the city and 7.4 percent for schools; staff estimated the health plan changes would cost about $930,000.

Lonnie reviewed several non‑operating elements already set by prior decisions: the capital improvement program (CIP) approved in December, debt service projected at just above 8 percent of appropriations (policy limit: 10 percent), capital outlay constrained to a target near 2 percent of prior appropriations (staff reported the current level at about 1.18 percent), rolling stock increases that staff described as essentially flat (a reported increase in the low thousands), and an estimate that Rockingham County’s FY25 budget was $101 million (a $5.4 million or 5.6 percent increase) with Portsmouth remaining the highest contributor under the county formula. Lonnie also flagged a $360,000 addition for police body cameras and tasers included in non‑operating/subscription categories.

On education funding, Lonnie described two pending legal matters staff is monitoring: the Rand v. State of New Hampshire case (which concerns excess revenue from the Statewide Education Property Tax, often called SWEEP) and a broader Contoocook Valley challenge to state education funding. He said Portsmouth currently expects to retain excess SWEEP revenue but that an adverse ruling could reduce local revenues; staff’s current estimate of exposure for FY26 from the SWEEP issue was about $387,000.

Lonnie walked the council through the budget timeline and public participation opportunities: charter‑department hearings followed by council budget sessions on May 12 (general fund review) and May 14 (enterprise and special revenue funds), a public hearing opened on May 19, a council work session on May 28 devoted to budget review, and continuation and adoption at the June 9 regular meeting.

Council members asked staff for additional data during the session, including trends on vacant but funded positions, retirements by department, and clearer breakdowns of step/COLA impacts. Councilor Taber said he planned a motion proposing a 3.5 percent guidance target to initiate debate; Assistant Mayor and others reiterated that formal guidance usually appears at regular meetings rather than work sessions.

The work session closed with staff noting that the audited FY24 financials from CLA will be presented at the council’s upcoming Tuesday meeting, and staff inviting public input at the scheduled hearings.