Subject
title
FY 2026 Budget Worksession #3 - Operating Expenditures, CIP, Grants, Debt Review, and Final Balancing
end
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 third budget worksession related to the FY 2026 Proposed Operating Budget and Capital Improvements Program. This worksession will begin with a follow up to Worksession #2 and will provide time for the Mayor and Council to finish the discussion on operating expenditures (Mayor and Council, Office of the City Attorney, City Manager’s Office) and the Community Services and Enrichment Grants.
In addition, staff would like to provide an overview of the city’s Capital Improvements Program (CIP), and cover the FY 2026 CIP budget, planned debt, and highlights of capital projects by program area. As part of this final worksession, staff will share the recommended changes between the proposed and adopted budget and look for final direction ahead of budget adoption. The objective of this worksession is to provide greater insight into the FY 2026 Capital Improvements Program and allow time for final direction. The budget worksession presentation (Attachment 1) provides a high-level summary of the content provided in the FY 2026 Proposed CIP Budget on pages 269-364.
CIP Overview
The Capital Improvements Program, or CIP, maps the city’s capital investment plan over a five year period. The CIP is both a fiscal and planning device that allows the city to monitor all capital project costs, funding sources, departmental responsibilities, and project schedules. Each year, the CIP is reviewed within the context of ongoing city, County, State, and federal planning programs and policies, as well as the city’s Comprehensive Plan. The new year of the CIP, along with any unspent prior appropriations, comprise the capital budget for each project beginning July 1 of each fiscal year. The remaining four years of the CIP serve as a financial plan for capital investments. The five year financial plan is reviewed and updated each year, and the Mayor and Council adopt both the capital budget and the five year financial plan.
Projects in the CIP are organized into five program areas: Recreation and Parks, Transportation, Stormwater Management, Utilities, and General Government. Each program area in the budget document includes an overview page followed by individual project sheets, shown in alphabetical order, for each project within the program area.
The CIP includes both recurring and nonrecurring projects. Recurring CIP projects, which involve ongoing major improvements, rehabilitation, or repairs (such as major street repaving or water infrastructure rehabilitation), are budgeted in five year increments. These projects are readily identified in the budget document by the inclusion of the five year timeframe at the end of the project title (for example, Asphalt/Concrete Improvements: FY26‐FY30). Nonrecurring projects have defined beginning and end dates and long useful lives. These investments are generally capitalized as fixed assets and are eligible for debt financing according to the city's Financial Management Policies. The majority of the projects in the city’s CIP are nonrecurring projects. An interactive map of discrete projects that are funded in the FY 2026 CIP can be seen at: www.rockvillemd.gov/FY26CIPprojects <http://www.rockvillemd.gov/FY26CIPprojects>. A complete listing of all projects in the proposed budget can be seen in Attachment 2.
The CIP relies on multiple types of funding sources to advance the city’s projects. The city seeks outside funding sources when possible, to meet capital needs without affecting taxpayers and/or ratepayers. Funding sources incorporated in the FY 2026 Proposed CIP include:
• Paygo Funding - Paygo funding refers to resources available within a fund to support a capital project. This includes General Fund transfers for the Capital Projects Fund; revenue from rates and fees in Enterprise Funds (Water, Sewer, Refuse, Stormwater, Parking); and revenue from legally restricted sources such as developer fees for the Special Activities Fund, and speed camera citations for the Speed Camera Fund.
• Bond/Loan Proceeds - Bond and loan proceeds are proceeds from the sale of bonds and acceptance of loans for a specific capital project. Bonds and loans are used as a long term financing tool. For the FY 2026 budget, the city was awarded loans through the Drinking Water State Revolving Fund (DWSRF), which are also included in this category.
• Grant Funding - Grant funding refers to funding received from an outside agency for a specific capital project. Grant funding does not need to be repaid, but it may require the city to match a certain percentage of the award.
• Developer Funding - Developer funding refers to contributions that developers make to the city in support of specific public improvements, such as stormwater drains or traffic control devices, that increase the value of a private development.
• Other Funding Sources - Other funding sources refer to payments and contributions that are not specifically listed elsewhere. Other funding sources included in the current CIP include County Impact Tax, State bond bill funding, and funding from the Maryland Department of Transportation State Highway Administration (MDOT SHA).
The city does not plan to issue any additional debt in FY 2026 but does intend to issue new debt in FY 2027 for expenditures planned in both FY 2026 and FY 2027. The city often combines two fiscal years’ worth of debt issues into one issue to reduce costs and increase efficiency. The Mayor and Council will receive a Notice of Intent Resolution for projects that will incur expenditures before the new bonds are issued.
The city has a total of $24.3 million in outstanding tax-supported debt, and $86.0 million in outstanding enterprise debt. Neither Maryland State law nor the City Charter mandates a limit on municipal debt, but these amounts are well within the city’s established debt ratio parameters, which ensure that debt burdens remain within manageable levels.
FY 2026 Capital Budget
The FY 2026 proposed CIP budget includes new appropriations of $33.8 million to address the priorities of the Mayor and Council and residents of Rockville. This new funding combined with prior year carryover funding of $94.7 million, supports a total of 65 capital projects in FY 2026 for a total of $128.5 million in appropriations. A summary of the proposed appropriations by Program Area can be seen in Table 1.
Table 1 - Proposed FY 2026 CIP Appropriations
*The “Less Exp. as of” amount will be updated for the adopted budget ordinance to reflect expenses through mid-April.
Highlights of the FY 2026 CIP by Program Area can be seen in the budget worksession presentation in Attachment 1 and the corresponding project pages can be found in the CIP Projects section of the proposed budget on pages 283 -364.
The FY 2026 budget includes a new set of recurring five-year projects and allows for the carryover of funding for the closeout of the previous set of five-year projects. There are six new discrete projects presented in the FY 2026 through FY 2030 capital budget:
• Glenview Mansion Gardens Hardscape Preservation and Repairs (RB26) - This project funds an assessment of and critical repairs to the retaining walls and paths at the Glenview Mansion.
• Traffic Signal Upgrades (TF26) - This project designs and constructs traffic signal upgrades at multiple locations.
• Lead and Copper Regulatory Compliance (UB26) - This project aims to ensure compliance with the Environmental Protection Agency's (EPA) Lead and Copper Rule, and includes conducting a comprehensive inventory of service lines and addressing any other necessary compliance requirements.
• Water Distribution System Master Plan (UD26) - This project develops a comprehensive plan to optimize the performance, reliability, and sustainability of the city’s water distribution system. The recommendations will guide capital project decisions to improve fireflow, water quality, and meet future development demands.
• Core Financial, HR, & Procurement ERP Phase II (GA26) - This project includes the implementation of additional functionality of the city’s core Financial, HR, and Procurement Enterprise Resource Planning (ERP) system to further support business needs.
• Rothgeb Drive Maintenance Facility Improvements (GB26) - This project funds improvements to the Rothgeb Drive Maintenance Facility based on the results of the master plan.
The FY 2026 proposed CIP includes four projects for closure:
• King Farm Farmstead Horse Barn (RA18)- This project is recommended for removal. Future projects for the King Farm Farmstead will be developed in alignment with the master plan, which is in development.
• Promenade Park Elevator Replacement (RD21)- This project has been completed.
• SCADA Cybersecurity (UA23)- This project has been completed.
• Water Treatment Plant Electrical, Roof, and HVAC Upgrades (UA17) - This project has been completed.
Other project highlights from the FY 2026 proposed CIP include:
• Concrete Repair & Replacement: FY26-FY30 (TC26) - This project includes expanded funding for compliance with federal Public Rights of-Way Accessibility Guidelines (PROWAG).
• Senior Center Entrance (TA24) - The proposed budget commits available General Fund reserves exceeding the target to fund the construction portion of this project.
• Sidewalks: FY26-FY30 (TE26) - Consistent with the FY 2025 budget, this project includes a phase-in of increased funding levels over the five year planning period.
• Playground Structure Replacement: FY26-FY30 (RC26) - This project provides increased funding for the replacement of three playground structures in FY 2027 and two playground structures in FY 2028 - FY 2030. This project historically only allowed for one annual replacement.
• Water Main Rehab & Improvement: FY26-FY30 (UE26) - This project includes a new $805,500 grant and $2.415 million loan from the Drinking Water State Revolving Fund (DWSRF).
Changes Between Proposed and Adopted
Following the preparation of the proposed budget, the city became aware of several changes that will need to be reflected in the adopted budget. In addition, the proposed budget held personnel capacity in the non-departmental budgets in anticipation of the results of the compensation and classification study. Personnel adjustments totaling $1.2 million across all funds includes the adjustments for the implementation of the compensation and classification study (including associated retirement benefits and payroll taxes) and employee turnover adjustments. For the General Fund, the net impact of all adjustments provides additional operating budget capacity of $640,490 which will be the focus of the Mayor and Council’s final balancing exercise. A summary of all recommended changes is provided in Attachment 3.
Mayor and Council Considerations
This is the final FY 2026 budget worksession. Staff recommends that any requested revisions to the operating or capital budget be communicated during this final worksession so that they can be incorporated into the FY 2026 budget ordinance.
The Mayor and Council also 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
|
Date |
Action Item |
|
October 28, 2024 |
Public Hearing #1 |
|
March 17, 2025 |
Public Hearing #2 Introduction of Budget Ordinance M&C Worksession #1 - Strategic Initiatives, Reorganization, Revenues |
|
March 25, 2025 |
Public Hearing #3 Budget Worksession #2 - Operating Expenditures, Grants, Fund Balance |
Public Notification and Engagement
The FY 2025 budget public record is closed as of April 7, 2025. The final public hearing was held on March 24, 2025.
The FY 2026 budget process included multiple opportunities for public input, including “Propose-A-Project” submissions, three budget public hearings, and offering written testimony to be included in the budget public record.
The Rockville community also submitted an online budget survey to communicate their budget
priorities for FY 2026. This form was available in 3 languages (English, Spanish, and Simplified (Mandarin) Chinese) and was posted through April 7, 2025. The final community budget priorities survey report will be attached with the materials for budget adoption.
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
|
Date |
Action Item |
|
May 5, 2025 |
Budget Adoption |