Council debates $1.6–$1.9 million FY26 shortfall after meals-tax transfer to utilities

The Purcellville Town Council spent much of its FY2026 general fund session Tuesday focused on a newly created budget gap stemming from the council’s decision to move 50% of meals-tax revenue into the town’s utility funds. Interim Town Manager (the interim town manager) told the council his proposed operating budget totals about $26.38 million, up roughly $2 million from last year.

Council members said the transfer—estimated to reduce general fund revenue by about $1.0 million and, after an equalized tax-rate change, by roughly $1.9 million—left the proposed budget starting in deficit and reliant on drawing from reserves. “We are $1,900,000 behind,” one council member said, urging staff to identify sustainable reductions rather than temporary fixes.

Finance staff and Linda Jackson, the revenue presenter, explained the math behind the change: the council’s direction to move half of meals-tax receipts to utility funds and an equalized real-estate tax-rate decision (adjusting the assumed rate from 20.5¢ to 19.2¢) together reduce expected general-fund revenue by about $279,000 from the numbers used when the budget book was prepared. Jackson said meals tax comprises about 22% of the general fund and is a significant revenue source.

Town finance staff and the interim manager emphasized that, even with the transfer, the general fund remains above the policy minimum this fiscal year, giving “runway” to address gaps, but that projections show reserves could fall to policy thresholds in two to three years under current assumptions. As Finance staff put it, the town can absorb the transfer short-term but must either find nearly $2 million in cuts or new revenues to avoid drawing down reserves further.

Council members debated where to look for savings and whether the town manager should have proposed deeper service reductions in the initial draft. The interim town manager said he had made some reductions—such as freezing five vacant positions—and chose not to reassign certain staff home-fund assignments without council guidance. Multiple council members said the proposed budget should have included more concrete, long-term reductions if it assumed the meals-tax transfer would continue.

Council asked staff for targeted follow-up analysis: (1) department-level options yielding permanent cuts in the $1.6M–$1.9M range, (2) multi-year utility-rate modeling under alternate transfer scenarios, and (3) a revised budget spreadsheet incorporating the equalized-rate adjustment and historical actuals for FY2023–FY2025 to inform line-by-line deliberations. Finance staff committed to providing the requested scenarios and noted an upcoming Stantec utility-rate presentation would include 5–10 year projections.

The council did not adopt any formal cuts, transfers or rate changes at the meeting; members closed the session by directing staff to return with the requested analyses and with potential permanent savings proposals for deliberation at the next budget meeting.