Subject
title
FY 2027 Budget Worksession #2 - Operating Expenditures and Grants
end
Department
Finance
Recommendation
Staff recommends that the Mayor and Council review the FY 2027 Proposed Operating Budget and Capital Improvements Program, and provide direction as needed.
Discussion
This is the Mayor and Council’s second budget worksession related to the FY 2027 Proposed Operating Budget and Capital Improvements Program. During this worksession, staff would like to briefly review a set of revised fees based on the discussion during the first worksession, and cover operating expenditures, including the city’s proposed community service and enrichment grant allocations. The objective of this worksession is to provide a summary of proposed funding allocations and obtain direction on any requested adjustments to the funding allocations. The presentation that accompanies this worksession is attached to this report (Attachment 1).
Revised Development and Regulatory Fees
A set of revised development and regulatory fees has been prepared in response to concerns raised by the Mayor and Council during the first budget worksession. This modification maintains progress toward aligning fees with actual service delivery costs while providing a more gradual transition for applicants and developers. Based on recent permit activity levels, staff estimates the revised fee schedule will generate approximately $684,800 less annually than the cost-recovery model originally proposed. A listing of fees recommended for revision is included with this report (Attachment 2)
FY 2027 Operating Expenditures
There are nine categories of expenditures that make up the budget. These total $185.3 million for FY 2027, an increase of 7.1 percent from FY 2026. Expenditures by category are shown in Table 1 and provide a comparison of FY 2026 Adopted expenditures and FY 2027 Proposed expenditures.
Table 1 - Operating Expenditures by Category
|
|
Operating Expenditures |
|
Category |
FY 2026 Adopted |
FY 2027 Proposed |
Change |
|
Personnel |
85,406,020 |
90,288,730 |
5.7% |
|
Operating |
32,877,670 |
34,261,860 |
4.2% |
|
Capital Outlay |
6,510,670 |
7,416,230 |
13.9% |
|
Other |
21,434,370 |
23,466,900 |
9.5% |
|
Principal |
2,382,000 |
2,371,000 |
-0.5% |
|
Interest |
3,566,000 |
3,220,500 |
-9.7% |
|
Administrative |
5,627,000 |
6,098,500 |
8.4% |
|
Transfers Out |
5,448,910 |
5,890,870 |
8.1% |
|
CIP Transfer |
9,800,000 |
12,300,000 |
25.5% |
|
Total |
$ 173,052,640 |
$ 185,314,590 |
7.1% |
Personnel
This category of expenditures consists of regular employee wages, temporary employee wages, overtime, and benefits. This category increased by 5.7 percent or $4.9 million from FY 2026 to FY 2027. The FY 2027 budget equals $60.3 million for regular employee wages across all funds. The budget includes a 2 percent cost of living adjustment, steps or performance-based increments for all employees, and the net addition of 6.8 full time equivalent positions (5.8 FTEs in the General Fund and 1.0 FTE in the Water Fund). Regular employee wages make up approximately 67 percent of the Personnel expenditures category. A summary of full time equivalent positions can be found in the Supplemental Information section of the budget document.
The new positions for FY 2027 promote stabilized police staffing levels, provide added school resources, and support the implementation of new specialized units within the Police Department. The added positions also strengthen rental housing inspections and improve housing quality and compliance; expand childcare staffing at Montrose Discovery Preschool; improve service delivery within the Water Meter Shop; and create added efficiencies for legal reviews and analysis within the Office of the City Attorney.
The FY 2027 budget equals $4.8 million for temporary employee wages, a 7.8 percent increase from FY 2026. The majority of the temporary employees are in the Department of Recreation and Parks. For FY 2027, the City of Rockville will continue to follow Montgomery County's hourly minimum wage rate, which is expected to equal $18.00 on July 1, 2026. This is a 2 percent increase from the $17.65 hourly minimum wage in FY 2026. Funding for compression adjustments is also included in the FY 2027 proposed budget.
The overtime budget for FY 2027 equals $1.8 million, a 20.6 percent increase from FY 2026 but less than recent actual overtime expenditures. The bulk of this increase ($200,000) is for Police community support overtime, which is fully offset by an equal increase in community support revenue. Overtime can fluctuate annually based on turnover and unforeseen needs that can arise situationally with weather events, water main breaks, and other special events. When there are overtime expenses associated with vacancies, the city is able to utilize salary savings to support overtime costs.
Benefits increased by $1.4 million or 6.3 percent from FY 2026. The increase is driven by the addition of full time equivalent positions, increases in health insurance costs, and increases to the annual retirement contributions. City covered benefits for FY 2027 include: allowances, long term disability, retirement, health and dental insurance (including post employment benefits), and life insurance.
Operating
This category is made up of contractual services and commodities expenditures. The overall operating budget increased by 4.2 percent from $32.9 million to $34.3 million from FY 2026 to FY 2027.
Contractual services increased by 5.1 percent or approximately $1.1 million to $22.4 million in FY 2027. The contractual services category is mostly comprised of contracts or consultants that support planning, technology, parks, facilities, refuse and recycling processing, and wastewater treatment services. The largest increases from FY 2026 to FY 2027 are for increases in WSSC wastewater treatment costs which are projected to increase by $383,000 and for Contract Services - Grounds which are projected to increase by approximately $275,490 which is mostly contained within the Special Activities Fund for the Forest and Tree Preservation and Park Maintenance programs.
The overall commodities category increased by 2.6 percent, or $298,430 across all funds to equal $11.8 million in FY 2027. This category supports utility costs at city facilities, program and maintenance supplies, new or replacement furniture and equipment, and chemicals for water treatment. The largest increase in this category is for electricity which is expected to increase by $311,660 or 10.1 percent. This increase is offset by decreases in chemical costs primarily associated with the city's Water Treatment Plant. The contingency accounts for each of the General Fund, enterprise funds, and Speed Camera Fund are also included in this category. Contingency funding provides support for unanticipated needs during the year and complies with the city’s Financial Management Policies.
Capital Outlay
This category increased by $905,560 from FY 2026 and equals $7.4 million for FY 2027. The significant changes include approximately $1 million in increased vehicle replacements (see the Supplemental Information section for a list of budgeted vehicle replacements), and smaller increases in equipment and computer hardware replacements, offset by decreases in special projects. In addition to the purchased vehicles, the city leases most of the light duty and Police vehicles under the other category.
Other
This category, which increased by $2 million to $23.5 million for FY 2027, primarily consists of fixed asset depreciation in enterprise funds, community services and enrichment grants, vehicle and equipment leases, and SBITA expenses. A complete listing of the adopted grants is located in the Supplemental Information section and introduces new categories of grant recipients intended to address the current and anticipated needs of the Rockville community. The FY 2027 budget includes a $1.6 million contribution to Rockville Economic Development Inc. (REDI) which includes increased funding for expanded bio-sciences marketing efforts and economic development operations.
Principal and Interest
Principal expenditures, which remained relatively flat at $2.4 million for FY 2027 consist of budgeted principal payments on governmental (taxpayer-supported) debt service in the Debt Service Fund. The principal payments on enterprise (ratepayer-supported) debt service is not considered an expenditure for budget purposes, but is factored into the working capital projections for the applicable enterprise funds. Interest expenditures, which decreased by $345,500 to $3.2 million for FY 2027, consists of budgeted interest payments on both governmental (taxpayer-supported) and enterprise (ratepayer-supported) debt service.
Administrative
Administrative charges represent centrally budgeted administrative or "overhead" costs. Six of the city's operating funds pay for their share of overhead costs through an annual transfer to the General Fund. The FY 2027 administrative charge revenue equals $6.1 million based on the city's internal cost allocation model; this is $471,500 more than what was adopted in FY 2026. A calculation is performed each year to determine the administrative charges.
Transfers Out
This category primarily consists of transfers from the General Fund to the Parking, Debt Service, Refuse, and Special Activities funds. The Parking Fund transfer is approximately $1.2 million in FY 2027, which is $50,000 less than the adopted FY 2026. It is anticipated that a General Fund transfer will be needed until the debt is repaid in FY 2036. The transfer to the Refuse Fund represents the city's grant contribution to Rockville Housing Enterprises (RHE). RHE, via the city's annual community organization grant program, receives free recycling and refuse pickup at their low income properties. The Debt Service Fund transfer equals $3.3 million in FY 2027. This annual transfer is needed to pay down the taxpayer-supported debt that is used to finance general taxpayer-supported capital projects.
The General Fund transfer to the Special Activities Fund of $833,940 subsidizes seven accounts: Art in Public Places, Art in Public Architecture, Housing Opportunities, Farmer's Market Eat Fresh Rockville, Recreation Fund, Senior Assistance, and Rockville Emergency Assistance Program (REAP). The subsidies for the these programs promote works of art and help to provide financial assistance for individuals and families who meet the program requirements. The most significant increase to this transfer is driven by the $250,000 increase to the Housing Opportunities transfer, and the consolidation of all REAP programming within the Special Activities Fund.
CIP Transfer
Each year, the city makes a transfer from the General Fund, which is known as the cash or "paygo" contribution to the CIP. The paygo contribution is critical in controlling the city's overall debt and maintaining the city's credit rating.
The FY 2027 budget includes a transfer of $12.3 million, which is $2.5 million higher than the FY 2026 adopted transfer. The amount of the paygo contribution impacts both the current fiscal year and future years since the Capital Projects Fund is balanced over a five year period. The FY 2027 budget also recommends a $4 million allocation of reserves exceeding the target to support the CIP.
Operating Expenditures by Department
Citywide Expenditures by Department are shown in Table 2. The table shows total department budgets with percent changes from Adopted FY 2026 to Proposed FY 2027. The cause for the change in the FY 2027 operating expenditure budget varies by department. Details on the major changes and FY 2027 outlook for each department are highlighted in the budget worksession presentation in Attachment 1 and are detailed in the Operating Departments section of the budget document.
Table 2 - Operating Expenditures by Department
|
|
Operating Expenditures |
|
Department |
FY 2026 Adopted |
FY 2027 Proposed |
Change |
|
Mayor & Council |
1,196,780 |
1,362,900 |
13.9% |
|
City Attorney |
1,808,590 |
2,002,370 |
10.7% |
|
City Manager |
4,413,570 |
4,356,090 |
-1.3% |
|
CCE |
2,863,690 |
2,883,290 |
0.7% |
|
CPDS |
8,596,200 |
8,937,120 |
4.0% |
|
Finance |
3,887,470 |
4,094,400 |
5.3% |
|
HCD |
5,003,180 |
5,367,950 |
7.3% |
|
HR |
2,595,470 |
2,681,740 |
3.3% |
|
IT |
8,431,110 |
8,832,390 |
4.8% |
|
Police |
16,755,860 |
18,558,420 |
10.8% |
|
Procurement |
1,616,530 |
1,821,510 |
12.7% |
|
Public Works |
40,365,030 |
42,893,310 |
6.3% |
|
Rec. & Parks |
31,020,850 |
32,823,370 |
5.8% |
|
Non-Depart. |
44,498,310 |
48,699,730 |
9.4% |
|
Total |
$ 173,052,640 |
$ 185,314,590 |
7.1% |
Community Service and Enrichment Grants
Each year the city appropriates funds to support organizations that provide aid to Rockville individuals and families who are experiencing difficulty meeting one or more basic needs related to housing, food, clothing, financial resources, health care and/or family well-being, as well as to support other community organizations that provide other benefits to the Rockville community. A summary of the grants for FY 2025 through FY 2027 is attached to this report (Attachment 3). All grants are budgeted within the Department of Housing and Community Development, Community Services Division.
For FY 2027, the proposed budget reflects recommended grant awards for 49 programs, of which 13 are new. The allocations proposed in the FY 2027 budget total $1.8 million and reflect a 17.4 percent increase over the FY 2026 base funding levels. Table 3 below shows the FY 2027 proposed grant funding levels by category alongside the amounts provided for FY 2026.
Table 3 - Grant Awards by Category
|
|
Comm. Services and Enrichment Grants |
|
Category |
FY 2026 Adopted |
FY 2027 Proposed |
Change |
|
Adult Education |
100,000 |
95,000 |
-5.0% |
|
Arts and Culture |
272,700 |
224,500 |
-17.7% |
|
Food/Clothing Services |
202,500 |
271,000 |
33.8% |
|
Health Care |
325,500 |
253,000 |
-22.3% |
|
Housing Services |
328,410 |
433,800 |
32.1% |
|
Immigrant Comm. Services |
50,000 |
125,000 |
150.0% |
|
Legal Services |
- |
45,000 |
N/A |
|
Public Safety Services* |
262,000 |
62,000 |
-76.3% |
|
Senior Services |
110,000 |
110,000 |
0.0% |
|
Youth Development |
130,000 |
178,390 |
37.2% |
|
Total |
$ 1,781,110 |
$ 1,797,690 |
0.9% |
|
Less Uses of Reserves* |
(250,000) |
- |
|
|
Base Total |
$ 1,531,110 |
$ 1,797,690 |
17.4% |
*The FY 2026 adopted budget included a $250,000 commitment of reserves exceeding the target to provide one-time funding for an emergency response vehicle for the Rockville Volunteer Fire Department. The FY 2026 base is considered $1,531,110.
Mayor and Council Considerations
There will be a brief follow up on proposed fees from the first budget worksession. Changes to fees have revenue implications that will be important to have clarified as we begin discussions on planned expenditures.
The Mayor and Council routinely submit questions on the proposed budget document. A listing of questions and staff responses can be found at www.rockvillemd.gov/budget <http://www.rockvillemd.gov/budget>
Mayor and Council History
|
Date |
Action Item |
|
November 10, 2025 |
Budget Public Hearing #1 Budget Timeline Presentation |
|
January 5, 2026 |
Mayor and Council Priorities Discussion |
|
March 9, 2026 |
Public Hearing #2 FY 2027 Budget Introduction M&C Worksession #1 - Strategic Initiatives and Revenues |
Public Notification and Engagement
The next public hearings related to the FY 2027 budget will be held the night of this worksession (March 23) and April 13, 2026. In addition to public hearings, the public can submit written comments directly to the Mayor and Council via the City Clerk/Director of Council Operations.
The Rockville community is also encouraged to submit an online budget survey to communicate their budget priorities for FY 2027. This form is available in three languages (English, Spanish, and Simplified (Mandarin) Chinese) and will be posted until April 13, 2026. The survey can be found at www.rockvillemd.gov/budget <http://www.rockvillemd.gov/budget>.
The FY 2026 budget public record closes on April 13, 2026.
Fiscal Impact
The FY 2027 proposed operating budget by category and fund can be found in the Fund Summaries section of the budget document. The FY 2027 proposed CIP budget appropriation by fund, program area, and department can be found in the CIP Overview section of the budget document.
Next Steps
|
Date |
Action Item |
|
March 23, 2026 |
Budget Public Hearing #3 M&C Worksession #2 - Operating Expenditures and Grants |
|
April 13, 2026 |
Budget Public Hearing #4 Close of the community budget priorities survey and public record M&C Worksession #3 - CIP, Changes, Final Balancing |
|
May 4, 2026 |
Adoption of FY 2027 Budget and Capital Improvements Program |