Rochester officials begin two‑year budget process amid levy pressure and $120M facilities backlog

Allison Zelms, the city administrator, opened the study session by framing the city’s move to a two‑year budget cycle as an early, strategic forecast and requested council feedback on priorities. "It's like Christmas for me," she said, emphasizing staff wants council guidance before producing a detailed recommended budget.

Deputy Administrator Aaron Parish briefed the council on scale and revenue mix, saying the 2025 citywide budget, inclusive of Rochester Public Utilities, is "just shy of $720 million," with roughly half for operations and a large share for capital improvements. Parish noted property taxes comprise less than 16% of the total budget and that the general fund is much more dependent on the levy for public safety, public works and parks.

Staff detailed several revenue trends and risks: a record valuation of building permits in 2024 just under $700 million (partly reflecting higher construction costs); strengthening sales and lodging tax collections; and a very low unemployment rate near 2 percent. Parish and Zelms also explained that one‑time federal funds (about $7 million of CARES/ARPA) were used to buy down levy amounts in recent years and that the loss of such one‑time supports helps explain projected levy pressure.

On the expenditure side, staff described baseline assumptions that carry a 4% cost adjustment for 2026 and 3% for 2027, plus other labor‑driven increases, paid family medical leave contributions, and health‑insurance escalation. Those assumptions contribute to a staff forecast showing a 10.68% levy pressure in 2026, a figure staff said it is working to reduce with revenue and structural options.

Zelms previewed staff’s proposed tradeoffs: roughly $1.7 million of positive revenue adjustments and $1.3 million in expenditure changes that are currently baseline items, plus a longer list of potential service‑level reductions (examples cited for future consideration included changes to library hours, scaling of festival programming around fireworks, and selective enforcement priorities for tall‑grass complaints). She stressed that major service reductions would equate to real reductions in public services and merit direct council policy direction.

Parish flagged facility needs as a major cost driver: a recent facility condition index identified about $120 million in deferred maintenance across city buildings, including nearly $40 million tied to the Civic Center. Staff said current facility renewal funding (~$1M/year) falls far short of the roughly $11M/year that would be needed to close the gap over ten years.

What’s next: staff will return in June with the recommended capital improvement plan and the city’s 2024 audit results, and with more detailed levy‑impact modeling and examples for the August recommended budget and September preliminary levy step. Council members asked for neighborhood‑level and average‑home impacts to be provided when the levy scenarios are presented so residents can better understand how a levy change would translate to individual tax bills.

Context and immediate implications: the presentation tied together long‑running pressures — higher labor costs, deferred facility maintenance, major capital projects (airport runway, BRT, Sixth Street Bridge), and gyrations in state and federal aid — into the 2026 levy forecast. Staff committed to continuing work on mitigation strategies and to providing clearer, localized impact estimates before the council sets the preliminary levy in September.