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Lancaster County budget faces rising debt costs and a shortfall against the 7% fund‑balance goal
Summary
County staff presented a draft FY27 budget that keeps tax rates unchanged but faces recurring debt‑service increases tied to recent school bonds; staff says a reimbursed DCR grant and solar‑project payments could temporarily boost the fund balance above the board’s 7% goal, but recurring debt will require future policy choices.
Don presented the Lancaster County draft FY27 budget on March 12, saying the proposal holds tax rates steady and assumes a 3% pay increase but will absorb an estimated 7% increase in health‑insurance costs.
"This budget as I do each year is built assuming no increase in taxes," Don said, adding that one penny on the real‑estate rate equals about $383,022. He told supervisors the FY27 draft projects a year‑end fund balance of roughly $2,288,241, or 4.47% of expenditures, below a prior board’s 7% reserve target.
Don listed recent borrowings that drive the new recurring costs: a $10 million Virginia Resource Authority (VRA) note for county capital projects and a $15 million Virginia Public School Authority (VPSA) bond to finish the new school. He said principal reductions for some bonds begin in FY27 and that net debt‑service will rise by about $262,769 a year, a cost that will recur until those notes mature.
The county also expects one‑time and timing revenues that could improve the fund balance in the short term. Don said the county received $250,000 in December from the Waller solar project owner, Rev Renewables, and expects $500,000 in December of the fiscal year, with a remaining $750,000 when the project is energized. Separately, he said Lancaster County was awarded a $1,623,383 Community Flood Preparedness grant through the Virginia Department of Conservation and Recreation (DCR) and is awaiting VRA reimbursement; once recorded, Don estimated that reimbursement would move the fund balance above the 7% target.
Don warned of one recent accounting consequence of holding bond proceeds in higher‑yielding investments: one VRA note earned interest above federal thresholds, creating a required arbitrage rebate payment of $111,000 to the IRS this month. "That's the first time I've seen a negative arbitrage situation," he told the board.
Board members asked about options to address the recurring gap. Don suggested a phased approach to spreading the debt burden and noted that upcoming capital‑project bids — including a Carter’s Cove parks bid due the next day — could change projected capital spending. The board scheduled multiple budget presentations and a public hearing by the planning commission before final adoption.
The board later voted to enter a closed meeting to discuss personnel and acquisition/disposition of real property; after the closed session they adopted a certification that the session complied with Virginia law and recessed to a March 24 work session to continue budget deliberations.
