Quarter three revenues slightly exceed budget; city leaders flag capital timing and service‑fund pressures

Finance staff told the Lexington‑Fayette County Council Committee of the Whole on April 29 that third‑quarter fiscal 2025 revenues were running modestly ahead of expectations while timing of transfers and capital spending is producing a planned one‑year deficit.

The finance office’s presentation showed revenue collections “slightly exceeding budget through quarter 3 with a positive variance of 3%,” according to a staff presentation. Payroll withholding and net‑profits collections were cited as the two largest recurring revenue sources; staff said net‑profits receipts typically spike in April because of tax‑day filings and noted a short delay in mail that may shift some April receipts into the next reporting period.

The upward variance included a roughly $10.7 million year‑to‑date gain, staff said, while personnel budgets showed a 3.5% variance (about $8 million) that has been earmarked for pre‑funding items in the mayor’s FY26 proposal. Staff also noted transfers and allocations made in October that drew on prior‑year fund balance and amounted to about $20.2 million — a primary reason the city is running a one‑year deficit even though recurring revenues are above budget.

“Most months of the year, we collect less money than we spend in that month,” the Finance Director said during the presentation. “Revenue collections are slightly exceeding budget through quarter 3 with a positive variance of 3%.” The director also warned that processing delays in mail could leave some net‑profits returns still to be processed for April.

Director Luker, who reviewed expenses, said personnel costs have been close to budget overall but that timing differences in payroll cycles produced month‑to‑month shifts. “We are utilizing savings to prefund those items for FY ’26,” Luker said, describing how personnel savings and line‑item underspending are being set aside to support next year’s proposed budget. Operating variances are concentrated across many accounts, including professional services, repairs and maintenance, cloud/software and vehicle repairs; capital spending is currently running ahead of the monthly budget pace after being underspent in earlier months.

Officials discussed several dedicated funds. The urban services fund (refuse collection, street lights, street cleaning) has a beginning fund balance previously described as about $26 million and is “doing very well” year‑to‑date, staff said, but it faces near‑term pressures including a coming contract rebid for waste services and historically capital‑heavy needs such as vehicle and facility pads. Staff said the city has pulled back some planned capital this year in anticipation of rate changes tied to a contract rebid.

The sanitary sewer and water quality funds also operate with companion construction/capital funds; staff said accounting changes rolled a trust into the construction fund and that transfers between operating and capital funds create large variances on quarterly statements but do not indicate operational shortfalls.

Council members asked for clearer quarterly presentation formats for funds whose revenues are seasonal and for follow‑up on items such as fines and forfeitures, how sanitary sewer rates relate to water usage, and the municipal aid (MAP) program funding source (a state gasoline‑tax share). Finance staff said they will return with clarifying charts and expect several budget amendments in the coming weeks to close out FY25 activity before the fiscal year end.

Why it matters: The city is reporting modest recurring revenue growth but has intentionally drawn on fund balance and reprioritized capital investments; council members were briefed on constraints and near‑term choices that will shape the FY26 budget.