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Sales tax growth helps pension payments; city plans $32.3M TSF withdrawal as other revenues rise modestly
Summary
Budget analysts told the Common Council committee that sales tax growth and modest state revenue increases helped reduce the fiscal gap but that state pension rules and an actuarial catch-up pushed pension costs higher.
Budget analysts presented the revenue side of the proposed 2026 plan and explained how new and existing revenue streams interact with state rules governing pension funding.
Nathaniel Hack of the Budget Management Division summarized the city’s revenue outlook for general city purposes, saying the administration expects total revenues available to the general city purposes budget to increase modestly in 2026 but remain below inflation-adjusted levels from earlier years. Hack said that while total sales tax collections have risen — to about $206,000,000 projected in 2026 — a larger share of that money is now required for pension costs under state law changes (Act 12), so sales-tax funds available for non-public-safety general city purposes fall.
Pension effect and Act 12: Budget staff and the comptroller said Act 12’s pension funding rules and a lower discount rate used by the pension actuary raised the city’s pension bill materially. The budget office described a timing issue: actuary-driven pension amounts were finalized in June and were roughly $12,000,000 higher than earlier expectations, increasing the total gap to roughly $101,000,000 for the fiscal year.
TSF and other withdrawals: The mayor proposes a $32,300,000 withdrawal from the Tax Stabilization Fund for 2026 and a $6,000,000 withdrawal from the Public Debt Amortization Fund to help close the gap. Budget staff cautioned that these draws are sustainable only in the short term and that future withdrawals likely will be lower, citing the transport fund’s current deficit and timing of pension catch-up booking.
Transportation fund and other non-levy items: Kovac and others told the committee the transportation fund currently shows a deficit north of $31,000,000 that will require general-fund advancement to cover in the short term. Staff said the administration expects continued pressure on reserves if underlying structural gaps remain.
Bond rating and fiscal outlook: Joshua Benson of the Comptroller’s office said bond-rating agencies have cited the city’s net liabilities (including pension and OPEB) and fund-balance levels as important credit factors. He noted recent positive movement in agency discussions but said rating agencies typically require a year of sustained results before upgrading. Comptroller staff said the proposal aims to preserve investment-grade ratings while limiting service reductions.
Ending: Staff said they will supply more detailed spreadsheets and actuarial assumptions to the council on request, including a clearer explanation of the timing, the pension calculations and the projected effect of the proposed TSF withdrawal on future years’ flexibility.
