RECOMMENDED OPERATING BUDGET 2026-2027
(This Page is Left Blank Intentionally)
City of Rochester 2026-2027 Recommended Budget TABLE OF CONTENTS SECTION I -Transmittal and General Summaries Letter of Transmittal City Council’s Budget Priorities Vision, Principles, and Priorities Mission Statement R.I.S.E General Summaries Summary of Means of Financing 2026 Summary of Budget by Fund and Character 2026 Budget Recapitulation of Expenditures 2026 Trend Data by Object 2026 Summary of Means of Financing 2027 Summary of Budget by Fund and Character 2027 Budget Recapitulation of Expenditures 2027 Trend Data by Object 2027 Frozen Positions SECTION II -Operating Expenditure Budget Details- All Funds -Operating Revenues- All Funds -General Fund City Council Mayor City Administration Communications and 311 City Clerk Elections Parking Ticket Collections Administrative Fines Finance City Attorney Human Resources Community Development Bold Forward Unbound DSIC & North Station Maintenance Information Technology City Hall Maintenance Police Animal Control
City of Rochester 2026-2027 Recommended Budget Dispatch Fire Community Development-Building Safety Flood Control Emergency Management Engineering Infrastructure Maintenance Administration Fleet Maintenance/PWTOC Building Traffic City Lighting Music Art Center/Civic Theater/125 Live Community Reinvestment Economic Development Administration CBD Maintenance Joint Facilities Maintenance Unallocated Contingency General Fund -Library -Municipal Recreation System Park and Recreation Administration Recreation Tennis Swimming Pools Parks Parkway Landscape Maintenance Plummer House Regional Sports Complex F.E. Williams Golf Graham Arena National Volleyball Center Recreation Center -Mayo Civic Center -Airport Airport Operations US Customs -Mass Transit Administration -EDA Administration
City of Rochester 2026-2027 Recommended Budget -Parking -Sanitary Sewer Wastewater Utility Sewer Fund Debt -Storm Water Utility -Rochester EDA -Operating Revenue SECTION III -Internal Service Detail 2026 -Internal Service Detail 2027 -Internal Service – Revenues SECTION IV -Capital Improvement Budget – Summary 2026 -Capital Improvement Budget – Summary 2027 -Capital Improvement Budget – Revenues SECTION V -Debt Service Budget – Details 2026 -Debt Service Budget – Details 2027 -Debt Service Budget – Revenues SECTION VI -Decision Packages 2026 -Decision Packages 2027 SECTION VII -Additional Requested Decision Packages 2026 -Additional Requested Decision Packages 2027
City of Rochester 2026-2027 Recommended Budget SECTION VIII -Outside Agency SECTION IX -Outside Agency Applications SECTION X -Six Year Forecast Summary SECTION XI -Rochester Public Utilities Operating Budget SECTION XII -Rochester Public Utilities Electric Utility SECTION XIII -Rochester Public Utilities Water Utility SECTION XIV -Rochester Public Utilities Personnel Budget SECTION XV -Rochester Public Utilities Supplemental SECTION XVI -Capital Improvement Plan Airport Parks Golf Recreation Center Mayo Civic Center Streets Traffic Mass Transit Pedestrian Facilities Parking Sewer and Water Storm Water Water Reclamation Flood Control
City of Rochester 2026-2027 Recommended Budget Destination Medical Center Downtown Development/Tax Abatement District Fire Police Library Administration -Rochester Public Utilities Capital Improvement Plan Electric Water Appendix I -City Council Study Session Presentation – 6/23/2025 -City Council Study Session Presentation – 4/28/2025 Other Supplemental Information
(This Page is Left Blank Intentionally)
City of Rochester 2026-2027 Recommended Budget Section I Transmittal, City Council’s Budget Priorities, and General Summaries
(This Page is Left Blank Intentionally)
City of Rochester 2026-2027 Recommended Budget City of Rochester, MN Letter of Transmittal
(This Page is Left Blank Intentionally)
Honorable Mayor and City Council Members, On behalf of the entire City of Rochester team, it is a privilege to present the recommended 2026-2027 Operating Budget and 2026-2031 Capital Improvement Plan (CIP) budget. This budget is a testament to the discipline of City Teammates and the City Council in remaining committed to our evolving Strategic Priorities and Action Plan items, while also being responsible stewards of our community’s resources. Our strong financial stability continues to enable Rochester to meet today's needs while providing strategic opportunities to invest in resources that help us plan for and be prepared for the future. I am grateful for the feedback and support provided by the Mayor and City Council throughout the strategic planning and budget development process, as this financial forecast was developed to lead Rochester toward addressing the most foundational and pressing needs of our City while advancing priorities that focus on building an inclusive community for all whom we are here to serve. As we present the proposed budget for the upcoming two-year budget forecast, we remain focused on ensuring that every investment aligns with the City’s strategic priorities, delivers meaningful value to our residents, and supports operational investments grounded in financial stewardship for long-term financial and operational sustainability. To that end, our budget decisions are guided by a set of core evaluation principles designed to ensure that new or evolving roles, projects, and services are both purposeful and fiscally responsible. This approach emphasizes six core principles: Strategic Value and Return on Investment, Funding and Financial Sustainability, Resource Efficiency and Adaptability, Collaboration Opportunities, Stakeholder and Organizational Impact, and Accountability and Performance Measurement. These evaluation principles apply to all baseline revenues and expenditures necessary to maintain current service levels, as well as decision packages that introduce new resources to enhance outcomes and services when we have reached capacity or new capacity is required to better serve the community in alignment with foundational principles and strategic priorities that reflect the changing needs of the community, supporting a quality of life that helps our community thrive. -1-
Budget Evaluation Principles Strategic Value and Return on Investment - Each proposed investment has been assessed for its ability to directly advance the City’s key organizational goals and strategic priorities. This includes an evaluation of how well the initiative supports core functions such as community safety, economic development, or operational excellence, and whether it delivers measurable outcomes or revenue-generating opportunities that justify the investment. Funding and Financial Sustainability - The budget reflects a disciplined approach to financial stewardship. We have prioritized initiatives that are supported by sustainable funding sources and have avoided reliance on temporary or uncertain revenues. Longterm financial impacts have been considered, including how each item aligns with broader budget priorities and whether existing responsibilities or roles can be consolidated to reduce costs. Resource Efficiency and Adaptability - Wherever possible, we have identified opportunities to realign or optimize existing staff and resources to meet current needs, refine baseline revenue and expenses. If new roles or expenditures are recommended, we have considered their potential to reduce overtime, increase service efficiency, mitigate future expenses, or alleviate existing workloads to provide better outcomes. In cases of financial constraint, adaptability and scalability have been key considerations. This refinement has provided one-time capacity of approximately $4 million to reduce the projected levy in 2026 by almost half, while still advancing key initiatives through recommended decision packages in a manner that will not result in a significant increase in future years. Collaboration Opportunities - We have sought to enhance interdepartmental coordination by leveraging existing teams, skills, and projects. By avoiding duplication and encouraging cross-functional collaboration, this budget supports a streamlined and integrated approach to City services. Furthermore, it seeks to bridge across the citywide enterprise, utilizing resources that might otherwise be formally reorganized and centralized. This involves initiating more robust cost allocations and continuing to reorganize or reimagine how decentralized work takes place as opportunities present themselves. This reduces the need to add skill sets in each work area and instead brings together like services to combine the varied skill sets of individual teammates, maximizing value as a cohesive team, regardless of their formal reporting structure. Stakeholder and Organizational Impact - Our investment strategy takes into account the impact on residents, staff, and departmental operations. We’ve emphasized initiatives that break down silos, strengthen internal collaboration, and support shared goals. Every recommendation has been made with an eye toward maximizing organizational benefit and long-term community impact. Accountability and Performance Measurement - Finally, we are committed to ensuring -2-
that all initiatives include clear metrics for success. Performance will be measured based on project outcomes, efficiency gains, and alignment with the City’s vision and values. Ongoing evaluation and course correction will ensure that we continue to deliver results, improve transparency, and drive value across the organization. While the creation of metrics is a work in progress, there are qualitative results that we can look to for guidance on whether investments should be continued through additional resource allocation in future years, or whether course correction and reallocation would better serve the community. By viewing the budget as a resource guide with an eye toward longer-term results, with each year building upon the next, we can establish a firmer outlook that provides better stability and a clear path for future decision-making. Commitment to Continuous Improvement Every year throughout the year, the City team strives to foster a culture of cost mitigation and continuous improvement by assessing the needs and demands across all areas of the City to directing the necessary resources to the most pressing needs while not being overly reliant on additional levy funding to accomplish these tasks. These continuous improvements have an impact across the City, and while they do not eliminate the need for tax levies and utility rate increases, they significantly alter the timing and amount of cost escalation while still providing quality service. -3-
City operations are constantly being adapted to better serve at the same or lower cost. This allows us to maximize all our resources before adding additional capacity that requires further investment in new or expanded contracted or personnel resources. Budget Summary Overall, the budget process and recommendations strive to meet the recommended best practices from the National Advisory Council on State and Local Budgeting. This budget is constructed through an almost six-month process considering the following high level financial, operating and policy outcomes: • Incorporates a long-term perspective; • Establishes linkages to broad organizational goals; • Focuses budget decisions on results and outcomes; • Involves and promotes effective communication with stakeholders; and • Provides incentives to government management and employees. In addition to our emphasis on budget evaluation principles, continuous improvement, and strategic investment, this 2026-2027 budget prioritizes funding to support financially sustainable core services and enhance outcomes through targeted resource allocation. The Mayor and City Council’s Foundational Principles, Strategic Priorities, Action Plan, and a longstanding tradition of fiscal responsibility inform the decisions made within this recommended budget document. Through collaborative efforts, we are committed to keeping the property tax levy focused on core services that maximize the objectives outlined in our planning documents, serving our residents, businesses, and visitors. This focus prioritizes various investments in facility maintenance, vehicle and equipment replacement, and staffing to meet and improve upon current service demands while also maintaining responsible practices to assure long-range financial stability. I want to recognize the efforts of Brian Anderson, Aaron Parrish, Rachel Houdek, Josh Duerr, the Leadership Team, the Finance Team, support from IT, and others, and all the departmental budget reviewers who invest significant time in preparing the baseline budget and decision packages, as well as refinements made throughout the budget preparation process. Also, continued appreciation to Tim McCollough and his team from Rochester Public Utilities (RPU) for their ongoing efforts to further integrate RPU with the other City budget timelines, allowing the Mayor, City Council, and community to view a single document containing all City budgets. While we are not at our destination, we have made significant progress during this budget cycle. -4-
Significant Financial Drivers Impacting Levy Change in 2026-2027 The most significant driver of the levy adjustments each year is related to financial support necessary to deliver on the contractual obligations to our personnel. Each year we generally expect at least a 5% shift in the budget to meet contractual labor obligations that are driven by demands in the labor market and obligations necessary in order to continue to provide services to the community. Other demands include inflationary and CPI changes that impact commodities (materials and goods), contractual services, and vehicles/equipment. Other significant impacts in 2026: • Paid Family Medical Leave requirements begin in 2026 - $354,347 in expense was added to account for the state-required benefit. • 2026 and 2027 represent the start of an updated allocation for central services to enterprise funds that benefit from costs associated with programming paid for in the General Fund. Allocations offset a small portion of tax levy that would otherwise subsidize the value to the enterprise fund - $1,091,350 in value in 2026. • Equipment Revolving Fund – In 2026 an additional expense of $1 million was added and in 2027 an additional 5% was added for active assets of $1.6 million in order to properly fund current and future vehicle replacements necessary due to significant inflationary pressures on vehicles, years of low interest returns to the fund, and other structural imbalances. • Payments in Lieu of Property Taxes for 2026 are slightly higher, with a 2% increase for RPU, and adjusted slightly for Stormwater, Wastewater and Parking Funds in alignment with increasing tax levy (although slightly less, at 4% and 2% for 2027). -5-
• All departments were requested to thoroughly review their baseline budgets and approximately $1.86M in reduced expenses and increased revenue were made. These are primarily one-time adjustments that cannot be achieved year over year unless new revenue (fees) are implemented or service levels are reduced, impacting the community. A few examples: o Adjusted annual state payments to new trend levels for Fire and Police training. o Reduced professional services line in Administration. o Changes to benefit elections made by employees during the enrollment cycle reduced the impact of employee benefits on the levy. o Eliminated software expense for performance review module and shifted to other resources to complete process. o Numerous other adjustments were made across all service areas to achieve the reduced levy. • These adjustments allowed for decision packages to be considered, while still reducing the levy from a predicted 10.68% to a recommended 5.9% year over year increase, while still absorbing the cost of financing the City share of the new Parks Maintenance facility. -6-
Notably, 2027 marks the first year post-COVID that the Levy has fully reabsorbed the costs of redeploying personnel that were frozen during the pandemic. In the past, holistic budget stability funds eased the reabsorption of these services, and now the general fund is structurally in balance with ongoing revenue paying for the cost of operations. Finally, there are approximately $1.45 million in personnel-related decision packages and $330,000 in non-personnel-related decision packages that impact the Levy. 2026 recommended new positions focus on: Ø Arborist to increase tree health and reduce the pruning cycle for boulevard trees Ø Management Analyst to focus on ADA compliance and accessible government Ø Formalizing two 10 hour per week Community Connectors to increase engagement in Somali and Spanish speaking communities Ø Inspector to address new window, roof and siding inspections required by the State. Ø One System Administrators to address the increasing demand for IT services and need or cybersecurity Ø Criminal Investigator to address rising needs to prevent and prosecute online child crimes Ø 311 Customer Service Specialist to provide capacity for supervisor to continue to streamline service and make other organizational process changes to better communicate with and serve callers. Ø Two part time graphics positions to continue improving community engagement Ø Additional Community Service Officers (CSO’s) to support hiring and recruitment and address safety and security in parks, particularly with bathrooms and shelters Ø Additional maintenance specialist to address increased maintenance needs at the new North Maintenance facility that brings together Parks and Public Works Ø Restoration of City Council travel to 2024 level Ø Shelter, Restrooms, Playground and Parks Activation Ø 4 Library Customer Support Assistants, to facilitate shift to full-time staffing and away from some part time staffing through attrition Ø Reprioritize Existing FTE to Create an AI Implementation Strategist Position In addition, there are $133 thousand in non-Levy funded decision packages recommended for 2026 which align with the Council’s Foundational Principles and Strategic Priorities: -7-
-8-
2027 Decision Packages build on the needs of 2026 with investments that support Geographic Information Systems, additional IT needs with system support specialist, community outreach specialist focused on assisting people experiencing homelessness in PD, an additional arborist FTE, a custodian for the new joint maintenance facility for Parks and Public Works. -9-
Most of the projected levy growth sustains and supports our existing portfolio of services. Of the tax levy decision packages recommended, $58,520 in 2026 and $954,340 in 2027 are for one-time expenses that are not an ongoing operational cost. This means, that once purchased, the baseline budget will be modified in the next year to eliminate the available funding. While there may be a new expense that replaces it, it will not exponentially grow the resource needs of the City, and thereby the reliance on levy. Below is a reflection of the key drivers impacting the levy: Note: “Other” includes increases in Utilities, Software Maintenance. In addition, the projected increases above total more than 5.9% with the additional expenses offset by additional non-levy revenue. -10-
Revenue Summary The City’s budget development process begins with a forecast of non-property tax revenues that support City services and projects. This strategy establishes the revenue foundation early, reducing reliance on the property tax levy and strengthening the structural integrity of our budget practices. By first understanding available resources, we are better positioned to strategically invest in and maintain the service levels our community expects. The property tax levy is critically evaluated to ensure it aligns with both community priorities and the relative growth of the tax base. Our approach ensures that the levy is sustainable and equitable, reflecting both inflationary costs and population-driven service demands. Applying the budget evaluation principles outlined earlier, the City identified sustainable, one-time revenue refinements in levy-funded areas totaling $2.3 million which includes the $757,000 in sustainable reductions made as part of an exercise to lower the projected levy. These adjustments will reduce the projected property tax burden in 2026 and support long-term financial stability. The 2026 Recommended Budget includes $663.85 million in total revenue (inclusive of Rochester Public Utilities), of which $118.2 million is funded by property taxes. While the property tax remains a vital revenue source—accounting for 17.8% of all operating revenue—it is not the only driver of City operations. As illustrated in the graph below, 43% of operating costs are funded through service charges, including RPU, which is funded by ratepayers. RPU’s budget for 2026 is $267.5 million, of which $222.8 million is funded through these charges. Miscellaneous revenues, including Payments in Lieu of Taxes (PILOTs), make up 14% of all operating revenue. These diversified funding sources reflect the City’s commitment to fiscal responsibility while maintaining high-quality core services. 2026 also marks the first year the City conducted a more detailed review of central service cost allocations to special revenue and enterprise funds for expenses historically carried within levy-funded budgets. As a result of this refined methodology, $1.1 million in costs—previously absorbed by the property tax levy—will now be appropriately distributed to the funds and services that generate them. This shift reduces the reliance on the levy in both 2026 and 2027. To ensure operational stability across all impacted service areas, the City has chosen to phase in these cost allocations over the two-year budget cycle, helping to smooth the impact on non-levy-funded funds and maintain service continuity. -11-
Local Government Aid (LGA) allocated to operations remains flat at $3.9 million, unchanged from 2025. As a result, Rochester taxpayers and ratepayers will fund a greater share of operating costs in 2026. The City continues to face long-term uncertainty due to the State’s LGA formula, which remains unfavorable to Rochester and projects future declines. Accordingly, the increase in LGA provided by the State in 2024 continues to be allocated toward capital projects—where the funding can be timed and absorbed more effectively than in ongoing operations. In addition, tax levy is relied upon to fund core operating functions as shown in the chart below. Police, Fire, Public Works, and the Public Library all rely on levy dollars to cover 85% or more of their respective budgets, highlighting the importance of maintaining levy support for these core services to maintain high service levels. -12-
Another significant component of revenue necessary to support the services for which they are charged is the utility rates. • The current sewer rates are adopted from 2022 through 2027, per the rate study process and approval from 2021. Rate increases are approximately 1% annually for wastewater utility customers in 2026 and 2027. Wastewater connection fees increase at approximately 2.7% annually and are related to projected inflation and the increased cost of wastewater treatment plant infrastructure. • The recommended Water Utility budget anticipates a 9% general rate change in both 2026 and 2027. Each customer class rate may vary up to 2% based on the 2023 cost-of-service study. The impact to an average residential water customer is $2.01 per month. • The recommended Electric Utility budget anticipates a 6% general rate change in both 2026 and 2027. Each customer class rate may vary up to 2% based on the 2023 cost-of-service study. The cost impact to the average customer is $5.78 per month. -13-
Property Taxes, Growth, and Strategic Investment How tax capacity and levy decisions align with service needs and long-term sustainability The City of Rochester’s property tax accounts for roughly one-third of a typical local taxpayer’s total bill, with the remaining shares paid to Olmsted County, Rochester Public Schools, and the State of Minnesota. The recommended 2026 budget includes a total levy of $118.2 million, which represents a 5.9% increase over 2025. This change reflects the total tax amount collected, not an increase in the tax rate itself. The total levy is first distributed based on the value of new construction, with the remainder absorbed by existing properties. How much each property pays depends on its classification (e.g., residential, commercial, industrial, apartment, agricultural) and the extent to which its assessed value has changed compared to other properties in the same tax classification. Further, when one tax classification increases disproportionately to another in a tax year, that classification of tax absorbs more of the total tax, reducing the overall distribution to the other tax classifications. Likewise, properties with a larger proportionate value increase absorb more of the levy – whether the total amount levied increases, decreases or stays the same. As shown in the charts, Rochester’s tax rate remains within the 10-year average—around 50%—even after several years of decline. At the same time, both tax capacity and the property tax levy have grown, largely due to increased assessed values and new construction, helping to mitigate cost impacts on existing taxpayers. -14-
Between 2014 and 2026, tax capacity has grown by an average of 7.29% per year, while the average annual increase in actual property taxes levied has been 7.25%. This demonstrates that the City has remained disciplined and consistent in its approach, balancing community needs while limiting the tax burden. Even though property taxes account for just 17.8% of total City revenues, they remain the most visible and discussed revenue source, supporting core City services like police, fire, public works, parks, community development, the library, and administrative functions. The General Fund relies heavily on property tax revenue to maintain these services. Additional departmental services and the evolving needs of the community dictate that the City evaluate its service levels regularly to both assess the strategic priorities as well as adjust those priorities based on the changing service needs while also maintaining the strategic investment strategy to sustain itself long term and not to the detriment of the taxpayers. Strategic Investments in Equipment and Facilities To address long-standing needs in vehicle and equipment replacement across departments, the 2026 budget allocates $1.1 million to the City’s Equipment Revolving Fund. In addition: • A 10% charge on fully depreciated equipment implemented in 2025, adding -15-
$454,889 in levy funding for 2026, along with modest increases from enterprise funds. • In 2027, a 5% charge on active equipment will be added, requiring an additional $1.6 million in levy support. • These steps will help correct years of underfunding and avoid higher future replacement costs. Building Long-Term Operational Capacity To prepare for operational growth and increased demand: • The 2026 and 2027 budgets include funding to support staffing, operations, and debt service for the new Parks and Recreation Maintenance Facility. • Payment In Lieu of Taxes (PILOT) transfers from enterprise funds to the General Fund will continue under existing formulas. • Rate adjustments of 4% in 2026 and 2% in 2027 are proposed for stormwater, parking, and sewer enterprise funds to keep pace with service and infrastructure demands. Tourism Revenues and Civic Infrastructure As Rochester continues to attract visitors, projected increases in hotel/motel tax revenues will be directed to the Facilities and Maintenance Fund. This strategic use of tourism revenue helps prepare for future major capital investments—especially at the Mayo Civic Center—and reduces reliance on the tax levy for such projects. -16-
All Fund Summary To fund all recommended expenditures, Table 1 provides the detail of the proposed 2026 and 2027 Major City Revenues. For comparison, the 2025 Adopted Budget revenues are also provided. The trends show stability and some growth across a variety of revenue sources. This year, we are phasing in central service cost allocations to non-levy funded operations to account for services utilized primarily by enterprise funds that are expensed in the General Fund. For example, a small cost allocation for administration, finance, and HR services, as well as other costs as appropriate by the enterprise fund. The goal is to ensure that the tax levy isn’t overly burdened to provide services that benefit the service areas intended to be paid for with charges paid by ratepayers. As you can see, hotel/motel tax is anticipated to increase and be dedicated to operational and capital funding for the Civic Center Complex, as well as a small opportunity fund to invest in destination marketing or other programs that will focus on increasing tourist business activity and visitor spending. Inspection permit revenue is projected to increase, in part due to the City adding roofing, window and siding inspections and a related position. The majority of the revenue increase is related to permit fees for Bold Forward Unbound, with anticipated permits being lower in 2027 based on the timing of the project. The Bold Forward Unbound permit revenue and related expenses are held in a specific CIP project and business unit and tracked to ensure that over time the related positions sunset, or future decisions are made about whether to retain similar or different positions necessary at that time. Payments in lieu are made from utility funds that offset general fund costs and account for what would have been levied if the utilities were private. These payments increase slightly based on an annual adjustment. Finally, we see that parking ramp, fines and parking lot revenue is starting to normalize relative to corresponding utilization increases. -17-
Expenditure Summary The total 2026 recommended (including RPU) budget is $663.85 million which includes all operating and CIP expenditures. The recommended budget is compared to the City Council’s 2025 adopted budget to show where changes have occurred in the operating, CIP, and debt service portions of the budget. Note that RPU’s budget fluctuates due to the nature of the electric and to a lesser extent water utility and should be considered a snapshot comparison. It should be noted that Rochester Public Utilities (RPU) is operating in a dynamic and rapidly evolving energy landscape shaped by shifting federal policy, growing electric load growth and broad inflationary pressures, and changing dynamics in regional energy markets. Despite this complexity, their planning and continuous updates to financial and resource planning models has positioned RPU and the City to respond decisively and maintain momentum toward the community’s long-term energy goals. Therefore, unlike most years, it is possible that there will be significant adjustments to their forecast either before final budget adoption in December 2025, or with an amendment in early 2026. -18-
The 2026-2031 CIP projects were developed while being mindful of future investments across both the City and RPU with the 2026 recommended CIP allocating $220.1 million while the 2027 CIP allocates $244.7 million in project expenses. In keeping with the notion of strategic investment and continuous improvement, the CIP remains aware of the levy needs across other areas of the City as the levy amounts used on CIP projects remain consistent, with the budget recommending utilization of $9.3 million in levy in 2026 and $10.0 million in levy in 2027. -19-
Personnel Costs The City provides a wide range of public services through our committed and dedicated teammates. Overall, employee service expenditures total $169.5 million of the City’s total budget (inclusive of RPU) for 2026, accounting for 25.5% of the overall budget and 40.6% of the operating budget (not including CIP and debt service). In a competitive labor market and with inflationary pressures affecting both individuals and the City, these costs are understandably increasing. For context, below are a few key economic indicators: • The Rochester unemployment rate is 3.3% which is lower than the state (3.9%) and national (4.2%) averages. • While it has moderated, inflation continues to be a factor as we evaluate competitive compensation. Our class and compensation study is currently evaluating market and internal data to assess the health of our compensation system. While still below historical standards, our overall recruitment and retention rates continue to improve. In addition to the ability to recruit new teammates, retention of our talent is also important. Our recent Employee Engagement Survey has indicated a need to be mindful of our compensation and benefits when compared to other local governments. -20-
Below is a summary of employee services costs in key areas of the City budget: 74.5% of employee service costs as a percent of total General Fund Budget 58.6% of employee service costs as a percent of total Municipal Recreation Budget 71.9% of employee service costs as a percent of total Library Budget 25.5% of employee service costs as a percent of overall budget o Reduced family Health Insurance premium expense, to account for 35 elected changes from family coverage. In addition, our employee services costs increased in the following manner from 2025 to 2026: 5.64% increase for employee service costs in the General Fund 5.75% increase for employee service costs for all Levy Funded Departments Overall salary and benefits represent 40.6% of the total operating budget (excluding CIP and debt service). Current labor contracts continue to reduce the cost of health insurance premiums paid by the employer; however, other personnel costs are rising to keep up with the demands of the labor market. Employees are our greatest asset and without them the City cannot effectively provide the services residents value and expect. -21-
Capital Improvement Plan The final significant piece of the recommended budget is the 2026-2031 CIP, which totals $1 billion over that timeframe (inclusive of RPU). For 2026, the CIP is divided into 21 categories and projected to be funded by 27 different sources. In 2026, the CIP totals $220.1 million (excluding project reserves) of which $9.3 million (or 4.2%) is funded through the tax levy. It should be noted that the current six-year CIP only includes five years of RPU CIP data. Notable 2026 projects include (these reflect only the projected 2026 costs and not total costs for multi-year projects): Summary The City of Rochester has established foundational principles and strategies that have fostered a resilient and thriving community. All stakeholders involved have worked collaboratively to sustain core services and advance key strategic priorities through thoughtful investment and the commitment to providing quality services at an affordable cost to the community. Through the Council’s direction and support throughout the budget development process, this recommended budget was developed to address the most foundational and pressing service needs for the community while also committing to invest in the City’s strategic priorities. I am proud to present this budget document, which provides a look at 2026 and 2027 as well as a glimpse at what is to come based on our six-year Capital Improvement Plan. I look forward to the discussion and collaboration that will lead to finalization and adoption. Sincerely, Alison Zelms, City Administrator City of Rochester, MN -22-
City of Rochester 2026-2027 Recommended Budget City Council’s Budget Priorities
(This Page is Left Blank Intentionally)
Community Vision Rochester is a City that cares. Where all people are treated with dignity and respect. Where residents, employees, and visitors enjoy a high quality of life. Where business and industry thrive, and where the land and environment are renewed and sustained for the benefit of all. It is a welcoming and diverse community. • Renowned for its reputation as a center for growth and innovation. • Characterized by its safe and friendly neighborhoods. • Committed to health and wellness for its people. • Connected both physically and socially. • Dedicated to the sustainable and responsible use of public resources. Strategic Priorities We will focus our resources and initiatives to drive progress in these areas: Economic Resilience Housing Access Inclusive Growth Management Responsible Environmental Stewardship Transformational Capital Projects Organizational Vision A vibrant, compassionate, innovative team. Foundational Principles We will approach every action and decision through a lens of: Compassion Fiscal Responsibility and Sustainability Inclusive Decision-Making Public Safety Quality Services Social Equity Vision, Principles & Priorities -23-
CITY OF ROCHESTER, MINNESOTA MISSION STATEMENT The mission of the City of Rochester is to provide a safe, attractive environment through the responsive, efficient and cost-effective delivery of municipal services. The City will strive to enhance community pride by improving the physical, environmental, economic, cultural and social quality of the community. -24-
Respect Integrity Safety Excellence Identify, plan for, and support customer needs Seek and consider input from our customers to continually improve services Treat every customer well Treat customers in a personal and professional manner while being firm, fair, and compassionate Be an active listener to the customer Maintain a work environment that is free of disrespect and false information Provide equitable and honest treatment to all customers Follow through in a timely manner or as communicated Maintain privacy and confidentiality as applicable to Minnesota State laws Be knowledgeable in my area of responsibility Be professional in my actions, manners and appearance Meet or exceed customer needs for City services RISE to the top of Customer Service Employees act responsibly and take ownership for their actions Documented safety procedures for employees and customers Communicate clearly when dealing with emergencies or safety concerns -25-
(This Page is Left Blank Intentionally) -26-
City of Rochester 2026-2027 Recommended Budget City of Rochester, MN 2026 General Summaries
City of Rochester, MN Revenue Summary of Means of Financing the Recommended Budget 2026 Description Taxes Ad Valorem Other Taxes Special Assessments Licenses and Permits Fines, Forfeits and Penalties General 82,189,827 7,341,989 10,195,083 304,131 Library 9,095,025 13,500 Municipal Recreation System 11,646,339 1,045 Mayo Civic Center 388,969 F.E. Williams Rochester International Airport 765,122 Transit EDA Administration Total Governmental 103,696,313 7,730,958 10,196,128 317,631 Operating Budget Parking Enterprise 50,748 500,000 Sewer Utility 1,000 Storm Water Utility 20,378 Total Enterprise 72,126 500,000 Funds Budget Total Operating Budget 103,696,313 7,730,958 10,268,254 817,631 Internal Service Funds 330,244 Capital Improvement 9,313,100 495,000 Debt Service 4,894,966 Rochester EDA Opioid Settlement Fund Total Budget 118,234,623 7,730,958 495,000 10,268,254 817,631 -27-
Intergovernmental Revenues Charges for Services Miscellaneous Revenue Prior Year Revenue Total Budget 8,719,259 7,749,233 20,292,968 415,504 137,207,994 1,263,191 17,017 27,215 46,605 10,462,553 194,282 5,685,109 64,909 (253,633) 17,338,051 388,969 13,500 (13,500) 302,385 2,054,000 3,210,488 (269,288) 6,062,707 16,918,562 1,175,000 240,500 (3,243,745) 15,090,317 2,795,790 (406,280) 2,389,510 27,397,679 16,680,359 26,645,370 (3,724,337) 188,940,101 7,499,850 315,000 (928,098) 7,437,500 29,124,630 1,136,680 (4,983,507) 25,278,803 9,171,572 631,000 (1,245,821) 8,577,129 45,796,052 2,082,680 (7,157,426) 41,293,432 27,397,679 62,476,411 28,728,050 (10,881,763) 230,233,533 12,973,795 (978,191) 12,325,848 61,064,718 38,544,092 29,569,000 138,985,910 7,870,264 (233,896) 12,531,334 2,260,845 2,260,845 88,462,397 62,476,411 90,377,046 17,475,150 396,337,470 -28-
City of Rochester, MN Expenditure Summary of Recommended Budget by Fund and Character 2026 Description Employee Services Other Current Expenses Capital Outlay Capital Improvements Debt Service Total General 102,255,592 34,757,814 194,588 137,207,994 Library 7,530,822 2,176,192 755,539 10,462,553 Municipal Recreation System 10,160,724 6,904,502 272,825 17,338,051 Mayo Civic Center 388,969 388,969 Rochester International Airport 6,062,707 6,062,707 Transit 1,250,319 13,839,998 15,090,317 EDA Administration 2,389,510 2,389,510 Total Governmental 121,197,457 66,519,692 1,222,952 188,940,101 Operating Budget Parking Enterprise 671,027 6,766,473 7,437,500 Sewer Utility 6,852,810 17,389,494 18,000 1,018,499 25,278,803 Storm Water Utility 1,186,569 7,390,560 8,577,129 Total Enterprise 8,710,406 31,546,527 18,000 1,018,499 41,293,432 Funds Budget Total Operating Budget 129,907,863 98,066,219 1,240,952 1,018,499 230,233,533 Internal Service Funds 7,596,178 4,709,379 20,291 12,325,848 Capital Improvement 138,985,910 138,985,910 Debt Service 1,320,475 11,210,859 12,531,334 Rochester EDA 21,924 2,238,921 2,260,845 Total Budget 129,907,863 107,004,796 5,950,331 138,985,910 14,488,570 396,337,470 -29-
City of Rochester, MN Expenditure Recommended Budget Recapitulation Description 2023 Actuals 2024 Actuals 2025 Budget 2026 Requested Budget Recommended General Fund City Council 843,405 849,398 842,589 826,159 841,193 Mayor 350,661 387,493 380,759 411,320 406,320 City Administration 3,770,023 3,748,925 2,893,950 2,224,332 2,392,482 Communications and 311 421,118 344,771 1,016,986 1,169,310 City Clerk 838,614 903,293 952,268 1,145,980 1,145,980 Elections 392,082 592,961 547,460 539,126 539,126 Administrative Fines 7,375 2,946 9,070 7,230 7,230 Finance 2,272,063 2,631,284 2,548,120 2,190,067 2,190,067 City Attorney 2,521,362 2,203,541 2,532,994 2,570,798 2,570,798 Human Resources 2,216,650 3,129,237 3,497,759 3,690,862 3,708,000 Community Development 1,571,432 1,473,042 1,896,600 2,259,535 2,255,256 Bold Forward Unbound 503,426 2,116,047 1,970,819 2,030,607 DSIC & North Statn Maintenance 333,213 364,712 412,116 315,459 335,459 Information Technology 2,999,889 3,558,154 3,591,249 3,866,217 4,020,861 City Hall Maintenance 543,741 552,591 557,257 243,463 243,463 Total General Government 18,660,510 21,322,120 23,123,009 23,278,353 23,856,152 Police 33,748,092 36,554,660 39,499,628 40,877,966 41,552,989 Animal Control 396,768 382,052 454,570 459,746 459,746 Dispatch 1,221,095 1,285,595 1,422,767 1,490,677 1,490,677 Fire 21,048,179 22,480,205 23,891,532 24,884,281 25,006,234 Hazmat 76,498 80,888 Comm. Dev. - Building Safety 5,017,061 5,107,393 4,934,340 8,162,911 8,318,753 Flood Control 765,815 695,732 895,369 965,993 982,422 Emergency Management 335,805 385,135 456,710 429,075 429,009 Total Public Safety 62,609,314 66,971,660 71,554,916 77,270,649 78,239,830 Engineering 3,515,308 3,921,641 4,549,857 4,535,602 4,537,299 Street Infrastructure Mtce 9,211,088 9,381,343 11,020,060 10,710,603 10,826,333 Fleet Mtce & PWTOC Bldg 695,169 722,647 984,589 967,238 1,105,432 Traffic 1,719,240 1,825,382 2,001,324 2,258,378 2,152,299 City Lighting 1,742,994 1,846,274 1,887,319 1,958,819 1,958,819 Total Public Works 16,883,800 17,697,287 20,443,149 20,430,640 20,580,182 Music 1,138,185 986,928 1,072,873 1,104,843 1,104,667 ArtCtr/CivicTheater/125Live 385,666 421,938 434,930 464,581 446,801 Community Reinvestment 345,695 284,915 284,915 338,500 297,900 Development Administration 135,877 146,239 146,239 CBD Maintenance 551,787 835,203 893,578 857,814 884,273 Economic Development 4,473,745 4,730,023 4,891,530 5,081,530 5,059,530 Joint Facilities Maintenance 293,269 517,958 422,972 992,560 1,626,217 Unallocated 122,696 4,987,540 124,941 1,624,596 1,624,596 Contingency 1,143,779 1,163,675 2,034,277 2,347,770 2,347,770 General Fund 500,000 916,629 914,931 993,837 993,837 Total General Fund 107,108,445 120,835,875 126,331,898 134,931,912 137,207,994 2027 Budget Recommended 846,640 415,400 2,420,694 1,223,718 1,146,454 552,325 7,233 2,103,873 2,656,714 3,759,587 2,130,934 2,065,761 344,439 4,367,286 250,431 24,291,489 44,795,177 475,097 1,550,763 26,655,516 5,715,224 997,295 440,735 80,629,807 5,018,375 11,579,927 1,156,122 2,263,832 2,006,276 22,024,532 1,147,257 462,178 307,900 153,913 981,579 5,234,250 1,874,860 1,627,860 2,347,770 1,080,973 142,164,368 -30-
City of Rochester, MN Expenditure Recommended Budget Recapitulation Description 2023 Actuals 2024 Actuals 2025 Budget 2026 Requested Budget Recommended Library 9,262,917 9,785,235 9,916,430 10,224,515 10,462,553 Municipal Recreation System Fund Park & Rec Admin 718,630 719,239 767,675 790,404 790,395 Recreation 716,923 928,009 857,775 792,027 791,792 Tennis Center 62,309 71,650 60,216 62,662 62,662 Swimming Pools 140,393 313,139 229,848 783,880 783,880 Parks 6,976,652 7,474,932 7,875,871 8,063,811 8,239,704 Parkwy Lndscp Maint 581,692 526,643 768,933 789,837 827,097 Plummer House 78,662 90,814 110,010 122,574 122,574 Regional Sports Complex Golf 1,737,429 2,120,360 2,109,610 2,168,422 2,186,291 Graham Arena 984,544 995,363 1,034,184 1,068,631 1,080,317 National Volleyball Center 530,201 547,687 504,713 561,679 561,679 Recreation Center 1,843,706 1,731,192 1,853,746 1,891,923 1,891,660 Total Municipal Recreation System 14,371,140 15,519,029 16,172,581 17,095,850 17,338,051 Mayo Civic Center 372,603 378,237 376,229 388,969 388,969 Airport Operations 6,246,384 6,921,044 5,287,430 5,747,707 5,747,707 US Customs 269,839 306,692 169,723 315,000 315,000 Total Airport 6,516,223 7,227,736 5,457,153 6,062,707 6,062,707 Transit 13,005,620 14,479,477 14,972,845 15,085,629 15,090,317 EDA Administration 2,504,347 2,482,371 2,381,391 2,389,510 2,389,510 Total Governmental Operating Budget 153,141,295 170,707,960 175,608,527 186,179,092 188,940,101 CBD Parking Admin/Operations 8,795,731 8,963,776 6,649,982 7,433,753 7,437,500 Wastewater Utility 20,621,089 22,590,121 23,375,070 24,255,438 24,260,304 Sanitary Sewer Fund Debt (815,053) (1,157,276) (1,524,241) 1,018,499 1,018,499 Total Sanitary Sewer Utility 19,806,035 21,432,845 21,850,829 25,273,937 25,278,803 Storm Water Utility 7,217,775 7,562,258 8,821,499 8,548,602 8,577,129 Total Enterprise Funds Budget 35,819,541 37,958,880 37,322,310 41,256,292 41,293,432 Total Budget with Transfers 188,960,836 208,666,840 212,930,837 227,435,384 230,233,533 Internal Service Funds 43,385,705 38,253,885 13,002,312 12,550,907 12,325,848 Capital Improvements 242,227,356 138,985,910 138,985,910 Debt Service 10,864,109 8,795,300 19,754,799 12,531,334 12,531,334 Rochester EDA 2,274,555 2,269,906 2,261,567 2,260,845 2,260,845 Opioid Settlement 40,000 120,000 Grand Totals 245,525,204 258,105,932 490,176,871 393,764,380 396,337,470 2027 Recommended 10,836,137 826,964 824,633 63,429 788,593 8,645,162 901,587 124,277 152,600 2,355,906 1,145,357 565,670 1,969,423 18,363,601 397,146 5,785,605 324,150 6,109,755 16,618,986 2,410,867 196,900,860 7,786,259 24,698,828 1,259,275 25,958,103 9,187,009 42,931,371 239,832,231 14,631,324 113,174,606 13,794,384 2,263,758 383,696,303 Budget -31-
City of Rochester, MN Expenditure Trend Data by Object 2024 2025 2026 Budget 2023 Description Actuals Actuals Budget Requested Recommended Expenditures Employee Services Regular Salaries 65,318,536 72,121,510 82,254,126 86,546,592 87,479,408 Temporary Salaries 2,046,681 2,294,624 2,203,838 2,658,051 2,645,087 Regular Overtime 3,522,191 3,719,644 1,545,122 1,670,372 1,670,372 Other Pay 1,000,979 798,791 202,735 221,881 221,881 Employee Benefits - Pensions 11,661,701 12,480,628 14,232,812 15,016,978 15,163,969 Employee Benefits - Insurance 17,242,119 18,301,627 21,778,473 22,101,864 22,683,862 Other Employee Benefits 44,838 40,999 46,200 43,284 43,284 Employee Services 100,837,044 109,757,823 122,263,306 128,259,022 129,907,863 Contractual Services Rents and Leases 1,840,045 1,706,423 1,767,772 1,342,383 1,341,274 Adv, Publishing, & Printing 642,643 842,067 793,968 1,079,242 1,079,038 Contractual Mtce & Repair 7,609,815 7,000,206 7,442,140 7,600,197 7,676,371 Expert & Professional Services 17,640,280 20,108,973 18,628,704 19,533,668 19,532,092 Communications 558,379 605,007 635,640 663,177 703,613 Travel/Training/Business Meals 881,924 1,158,966 981,520 1,023,723 1,052,917 Subscriptions/Bks/Membership 430,381 493,391 439,703 464,850 464,850 Utilities 6,441,385 6,607,481 7,154,450 7,188,486 7,309,622 Insurance and Bonds 1,530,226 1,784,304 1,635,184 1,961,850 1,926,980 Contractual Services 11,219,985 11,963,867 12,659,230 14,038,829 14,018,394 Contractual Services 48,795,066 52,270,685 52,138,311 54,896,405 55,105,151 Materials and Supplies Office Supplies 485,037 535,347 438,090 343,844 372,829 Veh & Mach Operating Supplies 4,322,979 3,947,079 4,979,316 4,465,797 4,473,706 Clothing & Protective Equipment 567,405 672,392 560,716 569,916 684,827 Commodities 753,375 878,975 717,723 727,373 731,873 Equipment, Tools, & Misc Parts 1,774,202 1,347,362 1,408,041 1,072,190 1,073,302 Construction Materials 1,622,439 1,636,825 1,771,408 1,572,681 1,567,459 Supplies 1,103,506 1,151,377 1,013,090 1,010,640 1,020,171 Materials and Supplies 10,628,943 10,169,357 10,888,384 9,762,441 9,924,167 Other Charges Judgmnts/Penalties/Settlements 703,189 60,893 29,959 29,959 29,959 Contributions 7,222,064 7,185,318 6,803,324 8,673,395 8,538,015 Taxes and Licenses 4,499,417 4,481,495 4,253,957 4,627,122 4,628,122 Depreciation and Interest 9,233,132 9,207,953 9,273,980 9,642,800 9,642,800 Other Charges 8,528,382 9,668,847 11,443,105 12,405,381 12,858,524 Other Charges 30,186,185 30,604,505 31,804,325 35,378,657 35,697,420 Capital Outlay Furniture and Equipment 42,875 366,253 124,750 18,000 77,788 Machinery and Vehicles 412,853 432,913 494,730 449,686 Library Media 681,514 724,083 713,478 713,478 713,478 Capital Outlay 1,137,242 1,523,249 1,332,958 731,478 1,240,952 Bonds-Principal & Interest Principal and Interest on Bonds (816,253) (1,158,556) (1,524,241) 1,018,499 1,018,499 Bonds-Principal & Interest (816,253) (1,158,556) (1,524,241) 1,018,499 1,018,499 Allocated to Other Activities Allocations to Other Activities (10,864,172) (11,851,781) (12,840,441) (13,818,254) (13,807,867) Allocated to Other Activities (10,864,172) (11,851,781) (12,840,441) (13,818,254) (13,807,867) Total Operating Budget 179,904,055 191,315,281 204,062,602 216,228,248 219,086,185 Operating Transfers Operating Transfers 8,702,705 17,033,338 8,868,235 11,207,136 11,147,348 Operating Transfers 8,702,705 17,033,338 8,868,235 11,207,136 11,147,348 Total Budget with Transfers 188,606,760 208,348,619 212,930,837 227,435,384 230,233,533 Internal Service Funds 43,385,705 38,253,885 13,002,312 12,550,907 12,325,848 Capital Improvements 242,227,356 138,985,910 138,985,910 2027 Budget Recommended 93,097,589 2,645,087 1,670,372 223,901 16,096,391 24,114,262 43,284 137,890,886 1,355,207 1,079,038 7,873,571 19,972,743 712,037 1,062,517 464,850 7,681,509 1,966,248 15,125,919 57,293,639 372,474 4,552,723 730,827 731,873 1,073,302 1,578,169 1,020,171 10,059,539 29,959 8,738,527 4,700,857 9,642,800 15,216,336 38,328,479 18,000 707,435 713,478 1,438,913 1,259,275 1,259,275 (14,947,777) (14,947,777) 231,322,954 8,509,277 8,509,277 239,832,231 14,631,324 113,174,606 -32-
RkJQdWJsaXNoZXIy NTk0MTg2