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Finance Committee hears 2027 budget outlook: $11 million gap and guidance to agencies for 2% reductions
Summary
Director Schmidiki told the Finance Committee the city faces an estimated $11 million gap between revenues and cost-to-continue expenditures and is about $7.2 million above the state's expenditure-restraint limit, prompting mayoral guidance that every agency include a 2% reduction plan.
Director Schmidiki briefed the Finance Committee on the city’s 2027 operating-budget outlook on June 29, saying staff project roughly $472 million in revenues and about $483 million in expenditures to maintain current service levels — an approximately $11 million gap — and that the city sits about $7.2 million above the state’s expenditure-restraint limit.
Schmidiki described the major cost drivers behind the gap: nearly $10 million in salary and benefit increases (including a 3% pay increase for general municipal and protective-service employees plus step and longevity adjustments), higher metro transit subsidy needs (about a $10 million increase driven by paratransit contract renegotiations, personnel and fuel costs), rising software and legal expenses, and fleet and insurance cost increases. He said the five-year forecast assumes using fund balance in the short term but that one-time balances do not solve the expenditure-restraint constraint, which would reduce state aid if exceeded.
As a result, the mayor’s guidance requires every agency to include a 2% reduction plan in their 2027 proposals; no new positions or supplemental requests are allowed, and the 3% citywide salary-savings assumption remains in place. Schmidiki said enterprise and restricted funds — which have not always been required to cut in prior cycles — must also propose 2% reductions consistent with current revenue projections, and agencies were asked to prioritize preserving core services while identifying lower-priority reductions.
On the subject of layoffs, Schmidiki told the committee that the city’s current vacancy rate (above 2%) suggests many reductions could be achieved through attrition rather than layoffs, but he did not rule out difficult personnel decisions and said final determinations rest with the mayor and council. On state maintenance-of-effort (MOE) requirements for police and fire, staff cautioned that failure to meet specified criteria could put roughly 15% of shared revenue at risk (about $1.5 million), so those constraints will also shape deliberations.
Committee members asked about alternative revenue options. Schmidiki said revenues placed outside the general fund — for example, vehicle-registration fees or targeted special charges — can reduce the general-fund subsidy for programs such as Metro, but only general-fund spending counts toward the expenditure-restraint limit. He said the agency requests will be published a few weeks after they are due (due July 17) and that staff expect to provide a deeper Metro financial briefing at the July 27 Finance Committee meeting.
Next steps: Agencies will submit requests in mid-July, the mayor will meet with agencies in mid-August, and the executive operating budget will be introduced in early October. Finance Committee briefings and amendment processes are planned for October; the committee and council will continue to refine options to close the gap before adoption.
