12-16-2025 City Council Meeting Packet

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STAFF REPORT DATE: December 16, 2025 REGULAR AGENDA AGENDA ITEM: 2026 Budgets & 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 ISSUE BEFORE COUNCIL: 1) What changes, if any, should be made to the draft budgets? 2) What Final Property Tax Levy would the City Council like to set for certification to Washington County for Payable 2026? BACKGROUND: The attached 2026 Budgets & Tax Levies book provides information regarding all budgets and levies requested for the coming fiscal year. 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 and the Sept. 16 meeting, 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 $275,000. After Council and staff discussion on a number of topics, that Proposed Levy was adopted on Sept. 16. Council adopted a proposed levy of $11,497,785, which would result in an increase equal to 2.73 percentage points over the 2025 rate; from 26.84% to an estimated 29.57%. 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.