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Background — General Fund Budget <br />Annually, City staff prepares and submits a preliminary budget to the City Council for review and <br />feedback. Attached to this memo is the City's preliminary General Fund budget for the 2026 fiscal <br />year. Each department provided their respective forecasts for this budget. <br />The proposed 2026 budget is $7,507,352, an increase of $746,073 or 11.0%. For the purpose of <br />this discussion, there is a 14.8% or $894,866 tax levy increase reflected in the budget, of which <br />$742,866 for the General Fund, $100,000 for the EDA Fund, and $52,000 for the Public Safety <br />Capital Fund. As presented, the General Fund Budget is underfunded by $122,009, which is the <br />budget shortfall projected in the 2025 budget. This practice is not sustainable in the long term. A <br />tax levy increase of 16.9% or $1,016,875 would be needed to balance the budget in 2026. The table <br />below shows the amount the General Fund Budget is underfunded at different tax levy increase <br />amounts. <br />Tax Lew Increase Underfunded Amount <br />5% <br />$715,474 <br />10% <br />$414,073 <br />13% <br />$233,233 <br />14.8% <br />$122,009 <br />16.9% <br />$0 <br />Wages and Benefits <br />The 2026 preliminary budget is currently being prepared which assumes a 3.0% wage adjustment <br />for all staff. Below is a table showing the recent history of approved COLA's. <br />Year Non Union IUOE Union <br />2025 3.00% + addition of P&R Mgr 7.00% + 2 PW Lead Promotions <br />2024 <br />3.00% <br />3.00% <br />2023 <br />3.00% <br />3.00% <br />2022 <br />3.00% <br />3.00% + addition of Fleet Lead <br />2021 <br />2.00% <br />3.00% <br />2020 <br />3.00% <br />Market Adjustment; Minimum increase was 5.80% <br />2019 <br />2.50% <br />2.50% <br />2018 <br />2.10% <br />2.25% <br />In 2025, the City hired David Drown and Associates (DDA) to conduct a comprehensive study of <br />its compensation and classification structure. As a result of their work, changes were made to the <br />City's wage schedule, and several non -union employees received job reclassifications. These <br />changes maintain the City's competitiveness in the marketplace, putting the City at a 108% market <br />value or 8% above market value. Additionally, union employees negotiated a new three-year <br />contract. <br />There is a 10.0% increase assumed for health, a 4.0% increase for dental, a 0.0% increase for life <br />insurance premiums, and a $15,000 placeholder for the City's share to implement the MN Paid <br />Family Leave required per State legislation for every employer. The number of positions included <br />in the budget increased by 1.0 full-time equivalent (FTE) relative to 2025 based upon Phase 2 of <br />the proposed Public Works organizational structure and staffing changes. <br />Page 3 of I 1 <br />