City of Lincoln presents Biennial Budget

The Lincoln City Council received, and passed, the 2025-2027 Biennial Budget at the June 24 meeting. The document, which will guide expenditures for all city departments over the next two years, also includes a three-year outlook through fiscal 2030. Overall, the combined budget shows $322.8 million in revenues and $321.9 million in expenses over the biennial period. The budget contains good news and bad news. The good news is the budget is balanced, and all services are continued. More good news is that, due to corrective actions taken in 2024 to adjust utility fund(s) rates to reflect current expenses, the water-sewer-refuse funds are now healthy. The bad news is structural deficits are forecast in the General Fund from fiscal 2026 through 2030, theoretically reaching the proverbial cliff in fiscal year 2029. The individual fiscal years will be balanced by drawing down on reserves. While this forecast is certainly concerning, it represents a worst-case scenario in which the potential outcome is, quoting former US Secretary of Defense Donald Rumsfeld, a "Known Known," i.e., a fact or facts we're aware of and understand, and which provides a solid foundation for decision making. The Biennial Budget and three-year outlook is working as intended. Taken together, these analyses provide the city council, and through them city residents, a clearer picture of the future and, more importantly, a timeframe to take corrective action. City Manager Sean Scully noted in his Budget Message, "... this upcoming two-year period will be critical for Lincoln's future. Opportunities abound but so do challenges. Our collective job will be to navigate those in a way that leads Lincoln to the economic prosperity that sits just barely beyond our grasp at the moment." I've noted in previous columns that governmental finance is frequently complex. The complexity is not intended to obscure issues but to highlight what is happening with the public's money through "siloing" funds according to function. For the city of Lincoln, the budget and accounting system contains 94 individual funds – think 94 different checkbooks – with many subsections under each fund. Proprietary funds – There are four business-oriented proprietary funds: water, sewer, refuse and the airport. The water and wastewater funds have seen marked improvements in fund balance from fiscal 2025 to 2027. The Solid Waste Fund forecasts a $2.6 million reduction in fund balance, almost exclusively the result of capital projects and equipment replacement. The Airport fund continues in a deficit position, caused by prior annual losses now being recognized and accounted for. Positive steps, primarily construction of new hangars which will bring more activity to the facility, are being taken to turn the situation around. Lighting & Landscaping Districts (LLDs) – These funds provide illumination and grounds maintenance for numerous areas. The problem is that a significant portion of the city that was not included in the original funding of the services provided (bad!), and others were not established to account for inflation. The result is a $2.2 million (and growing) operational deficit that is covered though a General Fund subsidy and payments from a Community Facilities District fund, which helps to pay for regional expenses. This is a "Known Known" that has been identified as a structural issue to correct but will not be handled in this Biennial Budget. General Fund – This is the governmental services area that provides public safety, recreation, library and administrative services. Of the fund expenditures, 71 percent represents police and fire services, services which have been augmented in recent years from the COVID-19 federal government grants and a property tax augmentation from Placer County. Both will be expended well before this decade is out. The General Fund had surplus which the city had been intentionally spending on one-time expenses but in fiscal year 2026, fund balance is needed to cover regular operating expenses. As noted on page 11 of the budget document, "expenditures are anticipated to outpace revenues over the 5-year period requiring the use of General Fund reserves to sustain essential city and public safety services through Fiscal Year 2030, with fiscal insolvency projected for Fiscal Year 2031." The "why" of this depressing forecast is simple: Lincoln has an imbalance of revenue streams that supports the General Fund. 58 percent of our General Fund revenue comes from property taxes and 21 percent from sales taxes. While property taxes provide stability in economic downturns, sales taxes are what provides the oomph in the ability to deliver services. Our neighboring cities are better balanced; Roseville and Rocklin have a dedicated additional sales tax rate. Bottom line, we need more commercial businesses in Lincoln. We're making inroads in this economic development area, but it won't happen overnight. The city is also currently reviewing past property tax distributions between it and Placer County, and possibly other revenue sources that could be used to fund police, fire, recreation and the library. City Manager Scully referred to the opportunities in front of us. Assistant City Manager Nita Wracker responded to the question of how the city was going to deal with the structural imbalance with, "We're not running toward this cliff, we acknowledge the issue ... There are things the City Council can do to mitigate the deficit." The Biennial Budget is not a static document, and it will be reviewed by the city council every six months. So, stay turned for an interesting ride.