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Finance director: enterprise fund ‘stable’ but FY27 is capital‑heavy; rate study budgeted
Summary
Finance Director Kathy told the council enterprise fund revenues are driven nearly entirely by water ($8M) and sewer ($21.8M) and that FY27 is a capital‑heavy year (CIP $15.2M); staff budgeted a rate study for 2027 to design multi‑year rates and protect debt coverage.
Kathy, the town's finance director, told the Town of Lexington council at a June budget workshop that water and sewer services together account for nearly 90% of enterprise fund revenue, with sewer projected at $21.8 million and water at $8 million for fiscal year 2027.
"Revenue remains strong and stable driven by utility services," Kathy said, noting that recurring service fees provide a reliable base. She told the council FY27 will be capital heavy — with a $15.2 million capital improvement plan for the enterprise fund — while operating costs, salaries and contractual services are rising.
The presentation stressed that debt service coverage is projected at about 2.26 when capital contribution fees (CCFs) are included and remains above 1.5 even if CCFs are excluded; Kathy said bond covenant requirements are met under the projection. "Our debt service coverage is looking good," she said.
Why it matters: councilors pressed staff about long‑term sustainability because operating expenses grew roughly 8.8% while revenues in the presentation showed about 2.8% growth. Kathy emphasized that the budget includes funds for a rate study in 2027 so the town can develop a multi‑year rate strategy to preserve coverage and credit quality.
Council members also asked about use of fund balance. Kathy said unspent salary allocations from FY26 flowed into the fund balance and that the FY27 plan contemplates using roughly $11 million of fund balance for one‑time capital projects such as pumps and prioritized infrastructure repairs. "We planned on using $11 million of fund balance to pay for a lot of the capital projects," she said.
Councilors expressed concern about reliance on capital contribution fees, which vary with development. Staff clarified that CCFs — payments made when developers reserve capacity or build new subdivisions — are different from one‑off tap fees for single connections and can materially affect coverage ratios in years with major development. Kathy said tap fees are intermittent and smaller; CCFs are the larger driver tied to development activity.
On staffing, the finance director said the packet requests an additional customer‑service/financial‑analysis position to handle a growing customer base and increased compliance and reporting needs. If approved, staff said the position will appear in the FY27 budgeted headcount.
The workshop produced no formal votes; staff will return with the formal FY27 budget later in the process. The council did not decide on rate changes at the workshop; the rate study that staff budgeted for FY27 will guide whether and how rates change going forward.
