Annapolis projects $6.7 million surplus for FY26; council briefed on revenue risks and one‑time funding uses

Annapolis budget staff presented the City Council on April 17 with a proposed Fiscal Year 2026 budget that projects roughly $6.7 million in surplus, continues no property tax rate increase and relies on a mix of recurring revenue growth and one‑time transfers to balance risk areas.

"This is a responsibility that we do not take lightly," said Jake Trudeau, budget manager for the City of Annapolis, as he opened the work session's budget overview. Trudeau and Assistant City Manager Vicky Buckland walked council members through revenue and expenditure assumptions, staffing changes, capital projects and reserves included in the proposed FY26 document.

The nut of the proposal: general fund revenue is projected at about $109 million, roughly $900,000 above budgeted FY25 projections, while expenditures are now projected to finish about $6 million under FY25 — producing an approximate $6.7 million surplus. City staff attributed the expenditure underrun primarily to vacancies across several departments, including police, recreation and parks, and planning and zoning.

Why it matters: the city’s recurring revenue is showing modest growth — staff project about $5.6 million in additional recurring revenue over FY25, led by approximately $4.5 million from property tax base growth — but officials warned the budget depends on one‑time funds and faces specific downside risks. Buckland noted the numbers are “never static” and emphasized the complexity of producing a balanced, accurate budget.

Key budget actions and figures included in the presentation: - No property tax rate increase is included in the FY26 proposal. - Affordable Housing Trust Fund: $1,200,000 programmed for FY26. - Opioid restitution funds: $154,000 programmed for FY26. - FY26 health insurance fund projection: $14,000,000 (reflecting a 9% cost increase shared by the city and employees). - Self‑insurance fund projected at $3,900,000 (a decrease from FY25, per actuarial analysis). - Fleet replacement fund: $1,300,000; fleet operations fund: $2,900,000. - Pension rates for police and fire were shown declining in the FY26 plan from roughly 34.82% of salaries in FY25 to 31.33% in FY26; the state pension rate shown increased from about 11.97% to 13.28%. - Sewer and water rates: proposed increases of 4.75%; watershed restoration fee +15%; refuse fee +10%.

Transportation funding and structural risk: staff reported no remaining ARPA (American Rescue Plan Act) funds for FY26 and said the budget assumes a $4,000,000 transfer from the parking fund to balance the transportation fund in FY26. City staff cautioned that continuing to rely on one‑time transfers and federal supplements risks a structural deficit in the transportation fund if those supplements are depleted and state grants remain flat.

"We baked in $1.96 million of ARPA funds in '25," Trudeau said, "and at '26 there are no ARPA funds remaining." Council members pressed staff on what the CityDock closure and other changes mean for boating‑related revenue; staff said they modeled a 20% one‑year loss in docking revenue in FY26 and flagged that some vessels may shift to other docks, which staff partly accounted for in other accounts.

Capital projects and transparency: staff demonstrated a new online capital budget book with an interactive map intended to show project locations, funding schedules, approved and pending grants and the operational impacts where quantifiable. Budget staff said the tool is still being populated for FY26 and that the council will receive the link when fully updated.

Staffing and recurring costs: the FY26 proposal includes several new or reclassified positions across departments — examples cited during the presentation include additional planning and zoning positions (property maintenance inspector, senior planner), a payroll position in finance, cybersecurity and network staff in OIT, and conversions in recreation and parks and police to civil service roles. Staff noted many of the projected surplus dollars reflect vacancies; several council members said vacancies are producing operational strain even as they create a one‑time fiscal cushion.

Council reaction and next steps: several council members praised the presentation and asked for more granular materials in advance of department presentations. One council member expressed concern about consistently conservative budgeting that produces repeated year‑end fund balances, arguing that recurring underspending may be better deployed for capital projects, transportation shortfalls or lowering the tax rate. Staff said department presentations will be placed on a shared drive and that departments were asked to upload materials at least 24 hours before their scheduled finance committee hearings.

No formal votes were taken at the work session. Staff asked council members to submit proposed budget amendments using a Google form and signaled that the finance committee will review debt service projections, audit transmittal letters, vacancy lists and department presentations in coming meetings.

The work session concluded with staff offering follow‑up items: a link to the interactive capital projects map, a vacancy listing on request, detailed actuarial explanations for health and pension projections, and a schedule for finance committee presentations.

Ending: The FY26 budget presentation will be followed by department‑level reviews and the formal amendment and adoption process later in the council calendar. City staff and council members signaled continued scrutiny of transportation funding, pension assumptions and the use of one‑time funds moving forward.