09-16-25 City Council Meeting Packet

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STAFF REPORT DATE: September 6, 2025 REGULAR AGENDA AGENDA ITEM: 2026 Preliminary Budget & Levy FROM:Clarissa Hadler, Finance Director CORE STRATEGIES: ☐ Vibrant, inclusive, connected community ☒ Efficient, reliable, innovative services ☒ Responsive, transparent, adaptive governance ☒ Balanced Finances now and future ☐ Managed Growth ☒ Resilient Infrastructure BACKGROUND: In preparation for adoption of the preliminary tax levy in September, this memo addresses the following information: summary of the proposed budget and levy. ISSUE BEFORE COUNCIL: 1) What changes, if any, should be made to the draft budgets or levy? BACKGROUND: The City budgeting process begins each spring with review of expenses and earlier budgets. The first budget-related workshop took place on July 8 to review the draft CIP (capital improvement program). The main 2026 Budget and Levy discussion took place at the August 14 Council workshop. After Council direction, a follow-up discussion was held at the September 9 Council workshop. [See earlier workshop packets, video, and minutes for detailed information. https://www.lakeelmo.gov/agendacenter] The first draft of the budget and levy showed an increase in the levy of approximately 20%, due largely to some large projects, such as new software and the comprehensive planning process, as well as additional staff in Public Works and Fire, and increasing capital levies to plan for future projects. Council direction was to decrease that levy, maintaining operations largely as presented, and utilizing some fund balance. The revised levy and budget were then presented at the Sept. 9 workshop with a 14% increase. This was achieved by decreasing capital levies, some minor changes to the General Fund Budget, and a budgeted use of fund balance of $270,000. After Council and staff discussion on a number of topics, the majority of council agreed with the proposed revisions for this Proposed Levy adoption. Minnesota Statute 275.065 requires approval of a proposed property tax levy and a proposed budget on or before September 30th of each year. This proposed levy sets the maximum amount a city can levy for the following year. The final levy can be an amount lower than the proposed but may not be higher. Tax Levy & Impact The following table shows the proposed 2026 levy and change from prior year. 2025 2026 Proposed Levy $ Change % Change General Fund Levy 5,588,958 6,300,000 711,042 12.72% Debt Service Levy 3,251,728 3,417,785 166,057 5.11% Capital Levies 1,243,333 1,780,000 536,667 43.16% Infrastructure Reserve Levy 93,333 400,000 306,667 City Center CIP Levy 50,000 50,000 0 Park CIP Levy 100,000 0 - 100,000