Agenda Packets - City Council - work session 6/23/2025

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MEMORANDUM To: Mayor Tunheim and Orono City Council From: Maggie Jin, Finance Director Subject: 2026 Budget Kickoff Date: June 23, 2025 Attachments: A.Budget Timeline B.Budget Process Chart C.Tax Rate and Levy Scenario and Impact Work on the 2026 budget has begun. The budget cycle begins with individual departments preparing their budget requests. During this time, it is requested that City Council provides staff with expectations and guidance for the preliminary budget and levy. The City Administrator and Finance Director will begin to meet within the next few weeks with each department to discuss and refine the department budget requests for General Fund and Internal Service Funds. Once compiled, a draft budget is presented to council at a work session for additional guidance. The budget process is followed by enterprise fund budgets. Each department will prepare their budget requests, followed by meetings with the City Administrator and Finance Director, and then a council work session to present draft budgets. For 2025, this will coincide with the utility rate study to be performed by Abdo. As part of the budget cycle, staff also works to put together a capital improvement plan and fee schedule for the upcoming year. See the budget timeline and budget process chart attached for a full overview. In brief, department heads provide their budget requests to the Finance Department. These requests are reviewed and adjusted during meetings between the Department Heads, the City Administrator, and the Finance Director. The City Council is briefed at the work sessions and provides additional guidance to the development of the Preliminary Budget and Tax Levy. The inputs received from City Council will assist in determining what requests to include in the draft budget. The draft budget will be presented to Council and Council’s additional inputs will be incorporated into the budget and levy. Adoption of the Preliminary Budget and Tax Levy occurs at the second City Council meeting in September. For more information on the budget process, a budget process flow chart is attached. Major factors that impact the budget are as follows: •Economic Factor. Inflation has slowed from the previous years but continues to be a factor in building the 2026 budget. The current annual (May to May) CPI-U is 2.4%. The CPI includes a wide variety of items in its calculation so it does not mean all budget lines are equally impacted. However, the CPI is a good indicator of what is likely to happen to the costs of goods and services. Page 1 of 7 3