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ARDEN HILLS CITY COUNCIL WORK SESSION – SEPTEMBER 8, 2025 3 B. 2026 Operating Budget Discussion Finance Director Yang stated annually, the City prepares a five (5) year Capital Improvement Plan for budgeting and forecasting. The focus of the CIP is on the maintenance and protection of the City’s existing assets, redevelopment, and investment in new initiatives. The CIP is part of the budget process, but it is not a budget, it is a plan, and one that changes often. The CIP does not commit the Council to the proposed projects, nor implement the assumptions made during the preparation; however, this is the basis for the 2026 Budget as we continue with its preparation. Staff provided further information on the PIR Fund. Finance Director Yang explained due to the strong demand and positive feedback around the 2025 Tree Trust Partnership pilot program, Tree Trust has asked the City to continue its tree sale partnership, which promotes environmental sustainability. The 2026 cost is estimated to be $6,750. Council’s consensus at the August 25 Special Work Session supports the continuation to partner with Tree Trust and funding to come from the Tree Preservation and Landscaping Fund. Finance Director Yang reported annually, City staff prepares and submits a preliminary budget to the City Council for review and feedback. Each department provided their respective forecasts for this budget. The proposed 2026 budget is $7,518,589, an increase of $757,310 or 11.2%. For the purpose of this discussion, there is a 15.0% or $906,103 tax levy increase reflected in the budget, of which $754,103 for the General Fund, $100,000 for the EDA Fund, and $52,000 for the Public Safety Capital Fund. As presented, the General Fund Budget is underfunded by $122,009, which is the budget shortfall projected in the 2025 budget. This practice is not sustainable in the long term. A tax levy increase of 17.1% or $1,028,112 would be needed to balance the budget in 2026. Staff provided further comment on the amount the General Fund Budget is underfunded at different tax levy increase amounts and requested feedback from the Council on how to proceed. Mayor Grant commented on a number of ways the PIR Fund could be protected, such as putting off the Perry Park improvements in order to create a non-bonding scenario. Councilmember Holden indicated the Council would have to raise the levy in order to pay the debt service. Finance Director Yang reported this was the case. Councilmember Monson explained the City’s revenue was stagnant, but expenditures continue to rise. She stated she appreciated the options that were presented by staff, and suggested the Council find a balance where revenues cover inflation while also investing in the City’s amenities. Mayor Grant reported a bond would cost the City 3% to 4% in interest. He supported the $250,000 number rising because revenues have become stagnant. He indicated some of the proposed projects may have to flex in order to address increasing costs. Councilmember Rousseau stated in the last two years there has been a recommendation to increase the PIR Fund by $50,000 and this has not been done. She asked how much the City would save by partnering with other organizations to complete the trail work.