Subject
title
FY 2026 Budget Worksession #1 - Strategic Initiatives, Reorganization, and Revenues
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Department
Finance
Recommendation
Staff recommends that the Mayor and Council review the FY 2026 Proposed Operating Budget and Capital Improvements Program, and provide direction as needed.
Discussion
This is the Mayor and Council’s first budget worksession related to the FY 2026 Proposed Operating Budget and Capital Improvements Program. During this worksession, staff would like to cover strategic initiatives included in the FY 2026 operating budget, the reorganization that is reflected in the FY 2026 budget, the operating budget by fund, and proposed fees and revenues. The FY 2026 Proposed Fee Summary (Attachment 1) shows city fees and charges as reflected in the FY 2025 Adopted Budget and fees and charges proposed for FY 2026.
The objective of this worksession is to provide a high-level overview of the FY 2026 operating budget, along with greater insight into the revenues, taxes, and fees that support the strategic initiatives for FY 2026. The budget worksession presentation (Attachment 2) provides a focused discussion on the alignment of the FY 2026 strategic initiatives with the Mayor and Council’s guiding principles, and shares budget highlights, along with information on proposed fees.
FY 2026 Strategic Initiatives
This budget prioritizes the Mayor and Council's focus areas: public safety, economic development, and housing - and places an emphasis on strategic initiatives that will greatly benefit the Rockville community.
Public safety is the bedrock of any thriving community. A comprehensive approach to public safety recognizes that prevention, through both social programs and infrastructure improvements, is just as important as response. The FY 2026 proposed budget includes $525,000 for the first year of a two-year CCTV modernization initiative. This will include deployment of high-resolution smart cameras which will provide improved visibility, enhanced system reliability, and expanded coverage to areas and sites that are currently unmonitored. This initiative will allow for real-time safety monitoring measures at all city facilities and provide reliable footage to assist with investigations when incidents occur.
Expansions to public safety personnel in the FY 2026 proposed budget include the addition of a 1.0 FTE Police Communications Supervisor and a 1.0 FTE Police Administrative Assistant. While the number of sworn officers in the Rockville City Police Department (RCPD) has grown to address staffing challenges within the Montgomery County Police Department, there have also been growing needs to help manage the increased volume associated with communications operations, warrant management and validation, MPIA requests, redlight camera citation review, and other administrative functions. These positions support the service levels that are expected by the Rockville community and will provide the capacity to serve a growing community. In addition to these new positions, the FY 2026 budget supports funding for increased new hire bonuses for Police Officers, which will enhance ongoing recruitment efforts for the RCPD.
The FY 2026 proposed budget includes ongoing resources for the Gun Buyback event and the police mental health specialist contract and includes an additional $30,000 in funding for a mental health coordinator contract that will be targeted to disadvantaged adult populations and underserved seniors, a collaborative initiative between the departments of Housing and Community Development and Recreation and Parks. The proposed budget also recommends a $250,000 allocation of General Fund reserves exceeding the target to provide an emergency response vehicle (paramedic chase unit) to the Rockville Volunteer Fire Department.
Within the city’s enterprise funds, a noteworthy public safety initiative planned for FY 2026 includes $639,000 in equipment replacements and security upgrades at the Water Treatment Plant. This investment will promote the safety and quality of the city’s drinking water and funds physical security improvements in accordance with requirements under the Environmental Protection Agency.
Economic Development is the engine that drives growth, creates opportunities, and enhances the overall quality of life for residents, businesses, and visitors. Rockville Economic Development, Inc. (REDI) is a public-private partnership formed by the City of Rockville to strengthen and broaden the city’s economic base through business entrepreneurship, expansion, retention, and recruitment programs. The FY 2026 budget proposes a total of $1.6 million to REDI which includes $100,000 for a new Business Development Associate, $50,000 for marketing costs associated with the implementation of the new life sciences branding initiative, and an additional $48,920 for operating expenses.
A critical component of a strong economic development ecosystem is a streamlined and efficient permitting and development review process. The FY 2026 proposed budget includes the addition of 5.0 FTE positions that support the timely and efficient processing of plan reviews, permits, and inspections within the city, including the reinstatement of expedited building permit review processes. These positions include:
• 1.0 FTE Zoning Inspector (CPDS)
• 2.0 FTEs Codes Inspector (CPDS)
• 1.0 FTE Senior Fire Inspector (CPDS), and
• 1.0 FTE Senior Civil Engineer (Public Works)
The FY 2026 proposed budget includes a $650,000 net addition to reserves in the General Fund which represents budget capacity for the ongoing operational and staffing costs associated with the prospective annexation of the Shady Grove Metro property. This economic development initiative will be presented for Mayor and Council consideration during calendar year 2025, and the proposed budget sets aside resources to ensure that this can proceed, if approved by the Mayor and Council. Other economic development initiatives underway with significant FY 2026 milestones include the adoption of the rewritten zoning ordinance, adoption of the 2024 fire code, implementation of the forest and tree preservation ordinance, and completion of a comprehensive fee study for CPDS and Public Works permits and fees.
The city looks to ensure that its initiatives are aligned with the needs and priorities of the community and places a focus on community engagement. The newly formed Communications and Community Engagement Department will play a key role in collaborating with stakeholders to foster innovation, receive public input, and ensure that the economic development strategies employed by the city result in a more prosperous and equitable community for all. The FY 2026 proposed budget includes funding for a new 1.0 FTE Community Engagement Specialist which will support engagement and outreach efforts citywide, including in the housing focus area where there are ongoing community outreach efforts underway.
Housing programs and policies can build pathways to opportunity, fostering economic stability, and creating vibrant, healthy, and inclusive neighborhoods where everyone can thrive. Responsible growth, equity, and affordability are at the heart of the city’s housing strategy. As an established focus area of the Mayor and Council, the FY 2026 proposed budget includes a new General Fund transfer of $250,000 to the Special Activities Fund Housing Opportunities Fund. The Housing Opportunities Fund was established in 1990 to promote affordable housing within the city, but has not had a consistent revenue source. The proposed budget also recommends a $750,000 allocation of General Fund reserves exceeding the target to the Housing Opportunities Fund. In total this will provide a $1 million contribution that will be used to preserve and increase affordable units, launch the employee homeownership assistance program, and begin the development of a homeownership downpayment assistance program for the Rockville community.
The proposed budget includes the addition of 2.0 FTE positions that support the housing focus area. The new 1.0 FTE Collective Impact Manager position will work closely with the housing and neighborhood services team to ensure that there is alignment in strategy, consistency in data collection, continuous communication, and reinforced collaboration with community partners and grant recipients. The new 1.0 FTE Housing Programs Specialist position will promote the effective administration of the homeownership down payment assistance program, provide financial coaching services, and receive cross-training to support the Moderately Priced Dwelling Unit (MPDU) program. This position will also track and report program outcomes and participant progress, which will allow the Department of Housing and Community Development to continually assess and improve programs based on data and feedback.
Other significant initiatives anticipated for FY 2026 include revisions to Chapters 18 and 13.5 of the city code for tenant’s rights and moderately priced dwellings, and completion of the housing needs assessment study. The city also anticipates an expansion of its financial empowerment initiatives and will continue to monitor the inflow of needs and requests made for emergency assistance under the city’s Rockville Emergency Assistance Program (REAP).
Other Major Initiatives - The FY 2026 proposed budget includes several other elements which align with strategic initiatives identified by the Mayor and Council.
• In anticipation of the adoption of the Electric Vehicle Readiness Plan, the FY 2026 budget maintains funding for the Electric Vehicle Infrastructure (GA23) project and will continue its efforts to plan, permit, and install EV charging stations to support the growing electric fleet maintained by the city, which will be expanded by 10 vehicles in FY 2026 and includes a new EV bus for the Senior Center.
• The FY 2026 proposed budget includes $80,000 for the development of a Justice, Equity, Diversity, and Inclusion (JEDI) strategic plan. This plan will provide a roadmap for the city and provide a strategic framework for making advancements in policy, programming, resource allocations, and development activities which will create a more equitable community.
• The $800,000 construction of the Senior Center Entrance (TA24) is recommended for General Fund reserves exceeding the target. This project was created in FY 2023 and will provide shorter and easier access to residents on the north and west side of the city. The project will include pedestrian access along the new entrance and will improve intersection safety by enhancing the crosswalks and modifying the signal timing. Pedestrian signals will also be added to the Millenium Trail for its users.
• In anticipation of the compensation and classification study results, the proposed budget includes reserved capacity in all funds with personnel costs to allow capacity for the implementation of the recommendations of the study. This will be a change between the proposed and adopted budget.
• The budget proposes a $15,000 pilot program to develop standards for the installation of new neighborhood welcome signage within the Twinbrook neighborhood. This initiative was recommended in the Comprehensive Plan and requested through the public Propose-A-Project process and will enhance the appeal of the city and its unique neighborhoods.
• The FY 2026 proposed budget includes a $280,000 recommended use of General Fund reserves exceeding the target to develop a Green Space Management Plan, a collaborative initiative between the Departments of Public Works and Recreation and Parks. The plan supports the Climate Action Plan, Comprehensive Plan, and the Recreation and Parks Strategic Plan and is needed to create a strategic approach for the effective deployment of resources in city green spaces to mitigate the negative impacts of non-native invasive species and climate change.
• The city anticipates the completion of the King Farm Farmstead Master Plan during FY 2026 which will inform future capital projects that seek to expand the use of the farmstead buildings and open spaces.
City Reorganization
The FY 2026 budget reflects the recent reorganization, which moved two Divisions previously in the City Manager’s Office to stand-alone departments. The new Department of Communications and Community Engagement leads the city’s efforts to communicate and engage with all Rockville
community members and stakeholders through accurate, efficient, and transparent communication and engagement strategies tailored to the community’s diverse audiences. The new Department of Procurement provides support to the city by performing the procurement function and materials management operation in a customer-focused, strategic, ethical, and transparent manner while ensuring opportunities to the city’s diverse business community and complying with applicable governing laws and policies. These departments now have separate operating sections within the budget document. As part of this change, FTE’s and budget allocations shifted out of the City Manager’s Office and into the new departments. In addition, the community organization grant process which was previously managed in the City Manager’s Office, will now be centralized in the Department of Housing and Community Development.
FY 2026 Operating Budget
The FY 2026 proposed operating budget totals $174.9 million across 10 funds, a 3.9 percent increase over the current fiscal year. Budget appropriations by Fund are shown below in Table 1 and include a comparison of appropriations in the FY 2025 Adopted Budget to the FY 2026 Proposed Budget.
Table 1 - Proposed FY 2026 and FY 2025 Budget Appropriations
Governmental funds are those through which most governmental functions of the city are financed. The acquisition, use, and balance of the city’s expendable financial resources and the related liabilities (except for those accounted for in the enterprise funds) are accounted for through governmental funds. The city’s governmental operating funds are the General Fund, the Special Activities Fund, the Community Development Block Grant Fund, the Speed Camera Fund, and the Debt Service Fund. The city has one nonmajor blended component unit, Rockville Economic Development, Inc. (REDI) which is budgeted as a cost center within the General Fund for the city's annual contribution to REDI. The taxpayer-supported General Fund is the largest component, constituting 66.7 percent or $116.6 million of the total budget.
Enterprise funds account for operations financed and operated in a manner similar to private business enterprises where the cost of expenses, including both operating and capital, are financed or recovered from the users of the services rather than general taxpayers. The city's enterprise funds include the four utility funds Water, Sewer, Refuse, and Stormwater Management funds; and the Parking Fund. The utility funds make up 27.8 percent or $48.6 million of the total budget.
Citywide Revenues for FY 2026
Revenues across all funds are proposed to total $172.6 million in FY 2026. This is an increase of 4.5 percent from FY 2025 Adopted revenues. Revenues by category are shown in Table 2 and provide a comparison of revenues in the FY 2025 Adopted Budget and FY 2026 Proposed Budget. The largest revenues for the city are charges for service, property taxes, revenue from other governments, and transfers.
Table 2 - Citywide Revenues by Category
Charges for Service
The charges for service revenue category includes a range of fees and charges across almost every city fund. This includes revenue sources such as: recreation program fees, recreation center memberships, facility rentals, admission charges, utility fees (Water, Sewer, Refuse, Stormwater Management), parking meter revenue, fire review, and fire safety fees. As a whole, these revenues are projected to increase $2.9 million, or 5.7 percent. The FY 2026 Proposed Fee Summary (Attachment 1) includes detailed information on current and proposed fees that are included in the charges for service category. Changes in revenue projections reflect the combined impact of proposed fee changes and the anticipated volume of activity for the year.
For FY 2026, the Mayor and Council will need to adopt a new set of Refuse and Stormwater Management rates. Water and Sewer rates covering FY 2025 through FY 2027 were adopted on May 6, 2024 following the last cost of service study.
• All residential properties in the city are proposed to pay the annual refuse and recycling rate of $565 for FY 2026. The rate represents an increase of 5.6 percent or $30 over the FY 2025 adopted rate.
• All residential and commercial properties in the city are proposed to pay $159 per equivalent residential unit (ERU) per year, which is an increase of 4.6 percent or $7 over the FY 2025 rate.
Property Taxes
The property taxes category includes real property tax, personal property tax, interest on late payments, and includes the city’s homeowners’ tax credit program. These revenues are projected to increase by $2.6 million, or 5.2 percent. The largest portion of this category is real property tax. The City of Rockville’s real property tax rate is proposed to remain flat at $0.292 for every $100 of assessed value. The State of Maryland Department of Assessments and Taxation (SDAT) reassesses real property every three years and tax bills are based on those assessments. For homeowners, any increase to assessed value is phased in equally over a three-year period, and the resulting increase in the property tax bill is capped at 10 percent. Any decrease is fully factored into the first full levy year after the assessment. The real taxable assessed value from FY 2025 to FY 2026 increased by approximately 5.7 percent to $16.8 billion.
While the General Fund is the primary recipient of property tax revenue, the Parking Fund also receives property tax from the commercial properties within the Town Square boundaries. These properties pay this parking district tax in addition to the regular property tax. The parking district tax rate is proposed to remain flat at $0.33 per $100 of assessed value. The parking district will generate approximately $110,750 in special property tax revenue for FY 2026.
Revenues from Other Governments
This category of revenue consists of revenues from the federal government, State of Maryland, and Montgomery County. Nearly all of the revenue in this category comes from income tax, tax duplication, admission and amusement tax, highway user revenue, and a police protection grant.
The income tax estimate for FY 2026 is estimated at $21.2 million, 4.4 percent higher than the FY 2025 adopted budget of $20.3 million. In FY 2022 the city realized significant growth in income tax revenues, but this growth slowed in FY 2023 and FY 2024. This revenue source is challenging to predict because it is based on individual income tax returns each year. Factors such as employment rates, capital gains, retirement rates, wage growth, changes in tax laws, and the timeliness of filings all contribute to the amount of annual revenue.
Tax duplication payments are received from Montgomery County as a partial reimbursement for services the County does not provide, but for which the County receives taxes from Rockville properties. The tax duplication estimate of $8.5 million in the FY 2026 budget is intended to reflect corrections made to the tax duplication revenue calculations. The city will continue to advocate for reasonable compensation that reflects the cost of providing transportation infrastructure and policing services.
Admissions and amusement tax is a local tax collected by the State of Maryland Comptroller's Office for jurisdictions in Maryland. The tax is imposed on the gross receipts from admissions, the use or rental of recreational or sports equipment, and the sale of merchandise, refreshments, or services at a place where entertainment is provided. Rockville receives the largest amount of this revenue from movie theaters, indoor athletic facilities, and ice skating rinks and is seeing some modest increases in this revenue. The FY 2025 budget assumes revenues of $1.1 million which is consistent with recent trends.
Highway User Revenue is distributed by the State of Maryland based on a methodology that uses lane miles and vehicle registrations. This revenue source supports the construction, reconstruction, and maintenance of the city's roads and streets. For FY 2026, the city is projected to receive $4.7 million in highway user, which is more than the FY 2025 adopted budget and FY 2024 actuals. The city receives periodic updates from the Maryland State Highway Administration and anticipates reductions to this revenue source during the forecast period.
The city receives an annual police protection grant from the State of Maryland to assist with policing services. The FY 2026 budget estimates revenues of $1.1 million for this grant.
Transfers
There are two types of transfer revenues: administrative charges and General Fund transfers which support other programs and activities within the city. The 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 Sewer Fund also pays an administrative charge to the Water Fund for the utility billing functions. Transfer revenue from administrative charges totals $6.0 million in FY 2025.
General Fund transfers are made annually to the Refuse Fund to support refuse services for Rockville Housing Enterprises (RHE) properties, to the Parking Fund to support ongoing debt service associated with the construction of the parking garages, to the Special Activities Fund to support various arts and need-based programs, and to the Debt Service Fund for taxpayer-supported debt payments. While these transfers are expenses to the General Fund, they are revenues to the funds receiving these subsidies. In FY 2026 these transfer revenues total $5.1 million.
Other Revenue
The other revenue category includes administrative revenues that reflect the latest requirements set by the Governmental Accounting Standards Board (GASB). These lease amortization revenues and subscription-based IT arrangement (SBITA) revenues are generally non-cash items. Hotel tax is another item included in the other revenue category and consists of the city’s share of tax levied on a person who pays for a room or space at a hotel in Rockville. The FY 2026 budget maintains $1 million for hotel tax which is consistent with pre-pandemic levels.
Licenses and Permits
The licenses and permits category includes building permits, rental licenses, animal licenses, stormwater permits, and other types of licenses. The FY 2026 budget estimates $5.5 million in licenses and permits revenue, an increase of $224,360, or 4.2 percent. Several types of licenses and permits are proposed to have inflationary fee increases for FY 2026. More details on these fees can also be seen in the FY 2026 Proposed Fee Summary (Attachment 1).
Use of Money and Property
The use of money and property category includes land and building rentals, cable franchise fees, and interest earnings. The FY 2026 proposed budget includes $2.3 million in interest earnings revenue, an increase of $789,200. In November 2023, additional funds were added to the investment portfolio to capitalize on the strong market and the city continues to see strong returns. The FY 2026 estimate more accurately reflects the interest rate environment and factors in the additions to the investment portfolio.
Fines and Forfeitures
While fines and forfeitures is not one of the largest revenue categories citywide, the FY 2026 proposed budget does include modest increases in redlight camera citation revenue. The FY 2026 proposed budget estimates $2.2 million in redlight camera citation revenue, an increase of $175,000, or 8.7 percent. The citation revenues for the speed camera program have been trending downwards, and the FY 2026 proposed budget estimates $600,000, a decrease of $400,000, or 40.0 percent. As a result of decreased revenues, the Speed Camera Fund is no longer supporting any capital projects.
Mayor and Council Considerations
The revenues proposed in the FY 2026 budget support the planned spending for the upcoming fiscal year. The Mayor and Council are responsible for approving property tax rates, utility rates, and the master fee resolution. Any direction to modify the proposed tax rates, fees, or charges will require that the following worksessions include focused discussions around adjustments to planned spending.
The proposed changes to utility rates, coupled with estimated increases in assessed property values result in an increase of $206 per year (or approximately $17 per month) for a single-family homeowner who pays Rockville water and sewer rates.
The Mayor and Council routinely submit questions on the proposed budget document. A listing of questions and staff responses can be found at <https://rockvillemd.gov/DocumentCenter/View/57771/Mayor-and-Council-FY26-Budget-QA>
Mayor and Council History
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Date |
Action Item |
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October 28, 2024 |
Public Hearing #1 |
Public Notification and Engagement
There is one more public hearing related to the FY 2026 budget (March 24). 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 2026. This form is available in three languages (English, Spanish, and Simplified (Mandarin) Chinese) and will be posted until April 7, 2025. The survey can be found at www.rockvillemd.gov/budget <http://www.rockvillemd.gov/budget>.
The FY 2026 budget public record closes on April 7, 2025.
Fiscal Impact
The FY 2026 proposed operating budget appropriation by category and fund can be found in the Financial Summaries section of the budget document. The FY 2026 proposed CIP budget appropriation by fund, program area, and department can be found in the CIP Overview section of the budget document.
Next Steps
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Date |
Action Item |
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March 24, 2025 |
Public Hearing #3 M&C Worksession #2 - Grants, Fund Balance |
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April 7, 2025 |
Close of the community budget priorities survey and public record M&C Worksession #3 - CIP, Changes, Final Balancing |
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May 5, 2025 |
Budget Adoption |