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ARDEN HILLS CITY COUNCIL WORK SESSION — NOVEMBER 24, 2025 10 Councilmember Holden said the $122,000 is within the budget expenditures. We're inflating what the reserve needs to be. Finance Director Yang said the costs are at 100% and the revenue is short by $122,000. That's where the overall gap is. We're setting the levy at an amount lower than total costs. The fund balance is off of the total expenditures not the levy. Councilmember Holden said the $900,000 with a $7 million levy and we're almost $1 million less in expenditures. How did we spend the $122,000? Finance Director Yang said we're talking about different buckets. We have to think about actuals separate than budget. When you set the budget, you are setting the cost structures. These are recurring costs and we need to levy enough to cover those recurring costs. What happens in the prior year is great news if you have a surplus but that's one time. If we didn't have the additional revenues and savings, we would have needed to levy enough to cover 100% of those costs. Councilmember Holden asked why the $122,000 doesn't come out of the nearly $1 million surplus. Finance Director Yang said it is one-time savings vs. the overall cost structure. Discussion ensued that the $122,000 was not levied. We don't have money coming in to cover that amount so it must stay in the 2025 "bucket". Staff confirmed. Mayor Grant wants to be certain that the numbers for 2026 accounts for everything, going forward. There isn't anything structural to make up, in terms of budget. We've accounted for everything we can account for. Finance Director Yang said we have accounted for 100% of the expenditures for 2026. We have not accounted for 100% of the levy or the revenues. Mayor Grant believes this number is an accounting number just to make something balance. Councilmember Monson said our general fund has been staying flat or decreasing because we have these deficits that never get levied to cover the cost. Mayor Grant said we are fine this year. Finance Director Yang said every year we pass a budget deficit and every year we've had a surplus. For 2026, if there are no vacancy savings and no incremental permit revenues beyond what's in the budget, we will be under on the levy by $122,000 in 2026. It's a gap. She said for 2025, if our expenditures came in at 100% and our revenues came in at 100%, we passed a budget deficit that was $122,000 negative. We didn't have enough levy to cover it. We have to eat into the reserves. Our savings can cover it. Going into 2026, we have the same issue. We didn't levy enough because we are setting increases on the revenue side and the expenditures side to be balanced. Mayor Grant said we aren't going into 2026 behind. We're going into 2026 $900,000 positive.