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Portsmouth staff warn health insurance, labor costs and capital needs could push FY27 budget materially higher
Summary
City staff told the Portsmouth City Council that three main drivers — sharply higher school health insurance claims, negotiated wage/step increases and capital/debt obligations — together could create multi‑million‑dollar pressure on the FY27 general fund and prompt council guidance on priorities and contingencies.
Deputy City Manager for Finance and Administration Nathan Lenny told the Portsmouth City Council on Jan. 14 that staff are preparing the FY27 general fund budget and that three large cost drivers require council consideration: health insurance, compensation tied to collective bargaining, and non‑operating costs such as debt service and capital outlay.
Lenny reviewed the adopted FY26 baseline ($149,894,940) and explained that, after Department of Revenue adjustments and property‑valuation growth, the city’s tax‑rate movement differed from initial projections. He said staff are framing FY27 from FY26’s position so council can give early guidance to departments.
Why it matters: Lenny said the school department is facing a 26.2% health‑insurance rate increase — roughly $3.0 million — while other departments average about 11.4% (~$0.8 million), creating an estimated $3.7 million addition to the budget (about a 2.5% increase). Separately, a 10‑year rolling COLA calculation used in collective‑bargaining language yields a baseline COLA near 2.6%, and Lenny estimated compensation‑related costs (steps, payroll taxes, retirement contributions) could add roughly $4.0 million (about 2.7%). Together with roughly $2.2 million of debt, capital and IT costs, staff said the three drivers could produce roughly $10.0 million in pressure — a preliminary illustration, not a finalized budget.
Staff noted that five union agreements expire in June 2026; the FY27 budget will include a contingency pool to cover unsettled agreements, and employees in unsettled contracts would receive step increases but no COLA until agreements are settled. Lenny also described the health‑insurance stabilization reserve (projected to fall from about $7.0 million to roughly $6.1 million under current projections) and cautioned that policy limits restrict use of the reserve to 25% of its corpus in a single cycle.
Council questions centered on tax‑roll timing used for valuations, the expected size of the bargaining contingency (staff: smaller than last year), and whether certain capital outlays or debt payments could be deferred. Several councilors asked staff to return with scenario analyses showing the budgetary impacts of vacancies or not‑filling positions so the council can weigh service losses against potential tax‑rate increases.
The council did not take action. Lenny said staff will post the presentation materials and return to the council with more detailed budget scenarios and work sessions before formal public hearings in May and a potential adoption in June.
