Council debates FY 2026 budget: equalization, lodging-tax options and spending concerns

City staff led an extended work-session briefing on the proposed FY 2026 budget and options for offsetting a potential real-estate tax equalization; council debated lodging-tax increases, ambulance-billing changes, non-personnel spending and the capital program.

Deputy City Manager Greg and Chief Financial Officer Donna Witt summarized why the city faces a different revenue picture than it did in 2024. Staff noted that strategies used to close earlier budget gaps (one-time funding for vehicle replacement, assumed vacancy savings and removing a debt-service reserve) were largely one-time moves and cannot be repeated. They also said consumption-tax revenue that provided roughly $6.5 million in new revenue two years ago is flat to negative now.

Staff presented equalization figures and options. They said the value of one real-property tax penny is roughly $907,148 and that the “equalized” rate calculated over two reassessment cycles is about 80.8¢ per $100 of assessed value. Staff said maintaining the proposed level of services would require roughly 5.9¢ to cover a general wage adjustment for non-sworn staff and related progression costs; additional cents were described to cover a cost-of-living adjustment for sworn and non-sworn employees and a 3% proposal for Lynchburg City Schools employees (numbers in the presentation were subject to change pending final state budget guidance).

Staff discussed federal funding in the proposed budget and projections for fee changes. They said federal funding in the FY26 proposed budget is about $38,000,000 across funds (with most in human services and school grants). On ambulance billing, staff said an outside billing vendor estimated increasing to 50% of the Medicare-allowable rate could yield about $200,000 in additional revenue based on 2024 collections versus the projected 50% rate.

Lodging-tax scenarios drew the most council discussion. Staff reviewed a proposal from Councilor Ferraldi (presented as “modified option 1”) that would raise the lodging tax to 12.5% and add a $10 per-room/night bed tax; staff also presented an alternate “modified 2” scenario with a smaller lodging increase combined with a half-percent meals-tax increase. Staff warned that academic and case-study research did not clearly predict the effect of a large lodging-tax increase on room nights or average room rates and recommended caution; they suggested setting aside $1,000,000 from the unassigned fund balance as a cushion in case lodging-tax revenue did not materialize.

Council members debated tradeoffs. Councilor Reed urged a sharp look at non-personnel spending and identified large increases in line items such as subscriptions (which staff said include software subscriptions moved into the general fund after tech-fund revenues declined) and other non-salary categories; Reed said trimming those lines could offset tax impacts. Councilor Wilder, Councilor Ferraldi and others warned that inflation and rising vendor and legal costs make some nominal increases unavoidable, and they urged caution about cutting services or staff positions. Several councilors repeatedly returned to three constrained choices if additional revenue is not found: reduce the school or city employee pay proposals, cut services (including jobs), or increase taxes.

After discussion, council agreed by consensus to have staff advertise a public hearing on lodging-tax adjustments (Councilor Ferraldi’s higher lodging-tax scenario, presented as up to 12.5% and a $10 bed tax, was discussed and four council members indicated support during the work session). Staff advised that any advertised tax change must be advertised at least seven days before a public hearing and that advertisement deadlines in the city’s newspaper required materials be submitted by the stated copy deadline to meet a May 27 hearing date.

No final tax-rate change or budget appropriation was adopted during the work session. Staff said budget adoption must follow required public hearings and that further council direction would be needed to finalize the FY 2026 tax rate and expenditure decisions.

Councilors and staff also discussed capital priorities, the water/sewer/stormwater enterprise rate adjustments and the possibility of investing in modern budget software to reduce manual work by staff. Several council members asked staff for additional detailed breakdowns of non-personnel increases and recommended more time to identify potential cuts that would avoid reducing services or employee pay.

Staff recorded recommended next steps: advertise required public hearings for any proposed consumption-tax or fee changes (lodging and the ambulance-fee scenario), provide additional targeted spending analysis in follow-up materials and prepare ordinance language for advertised proposals prior to the scheduled public hearing.