Huntsville City Council FY26 Budget Presentation - September 19, 2025
Huntsville City Council FY26 Budget Presentation - September 19, 2025
The City of Huntsville presented its proposed FY26 budget during a council work session on September 19, 2025. Finance Director Penny Smith and Grants Manager Whitney Gentry provided a detailed overview of the city's financial structure, revenue sources, expenditures, and outside agency appropriations. Key topics included the impact of TIF closures, state-level simplified sellers use tax (SSUT) dynamics, and the use of fund balance to cover a projected $7.8 million gap.
Discussion Items
- Financial Structure Overview: Smith explained the city’s fund-based accounting framework, comprising approximately 50 funds, including the general fund (budgeted at $343 million), health insurance fund ($40 million), special revenue funds (sales tax, lodging tax, gas tax), capital projects funds, and enterprise funds (sanitation, water pollution control).
- Revenue Sources: Sales and use tax makes up about 50% of the general fund. Collections are at 92% of the FY25 budget, with August 2025 sales 2.6% over the prior year but overall year-to-date collections 0.38% below the previous year. FY26 forecasts are flat.
- Simplified Sellers Use Tax (SSUT): Smith explained that SSUT (projected at $20.7 million for FY26) accounts for only 6.2% of general fund revenue. She detailed the funding formula: a $100 online purchase yields $0.08 for Huntsville versus $4.50 for an in-city purchase, highlighting a net loss for cities that rely on local sales tax.
- Ad Valorem Taxes: Property tax growth averages 11% from 2020-2024, but FY26 revenues will drop due to the closure of three TIF districts (TIF 2, TIF 4, and TIF 6). Smith noted that the expired TIF revenues will shift primarily to Huntsville City Schools and Madison County, reducing the city’s share. Council members asked for a precise estimate of the amount going to schools; Smith committed to providing the numbers before the final budget vote.
- Lodging Tax: Collections for August 2025 were 4.9% above the prior year and 6.6% ahead year-to-date. FY26 forecasts are conservative and flat. By ordinance, about 75% of lodging tax is allocated to tourism and entertainment groups; $4.3 million is set aside for the Von Braun Center, with $4.1 million designated for debt service.
- Permit Fees and PILOT Revenue: Permit fees continue to decline year over year. PILOT revenue from Huntsville Utilities is projected at $34.9 million for FY26, growing with city expansion.
- Investment Income: General fund interest income is budgeted at $11 million for FY26, up from $5 million, by pulling investment income from capital projects funds (which do not rely on interest for operations).
- Fund Balance: Smith explained the planned use of $7.8 million in unassigned general fund balance to cover the gap between revenues and expenditures. She expressed confidence that year-end results may avoid using it, citing department spending restraint and better-than-expected non-sales tax revenue.
- Personnel and Compensation: The FY26 budget authorizes 3,338 full- and part-time positions, an increase of 47. Additions include 10 police positions (5 sworn, 5 civilian), 31 parks and recreation positions (for three new recreation centers), and HVAC/plumber positions in general services. Council noted that the 2% cost-of-living raise for employees is partially offset by a 7% increase in health insurance premiums; the net financial benefit for an average employee ($69,000 salary) is approximately $1,162 annually after accounting for the premium hike.
- Health Insurance: The city is self-insured, covering medical costs up to $250,000 per individual. FY26 premiums will rise about 10% ($4.2 million); employees will see a 7% increase in their contributions, moving from 13% to 15% of the premium. Retirees currently pay 48% of premium costs (policy target is 60%).
- Pensions: RSA contribution rates are 11.87% for Tier 1 employees and 15% for Tier 2 (up 1% from the prior year). The city’s per-employee contribution is now approximately $9,000, an increase of $608 from FY25.
- Outside Agency Appropriations: Whitney Gentry presented a revised format for agency appropriations, categorizing recipients by service type (aging, youth, etc.) and noting free/reduced lease space and other city funding. Only the Huntsville-Madison County Public Library is in the “intergovernmental and contracts” category because it lacks a fixed funding agreement; council questioned why the library does not have a multi-year contract or ordinance. Gentry explained the library submits annual needs-based applications.
- Enterprise Funds: Sanitation services budget is approximately $20 million, with a small projected deficit offset by a rate increase effective January 1, 2025, eliminating the need for a general fund transfer. Sewer (WPC) revenues are about $53 million, with net income but significant debt obligations and capital costs for plant expansions.
Key Outcomes
- Council requested a specific estimate of the amount of ad valorem tax revenue flowing to Huntsville City Schools from the three closed TIFs, to be provided before the final budget approval vote.
- Council raised the issue of establishing a formal funding agreement or ordinance for the public library, signaling interest in a more stable funding mechanism.
- The meeting recessed at 3:12 p.m. with two remaining presentations (the 1990 and 2014 Capital Plans) expected to follow the break.
- No formal votes were taken during this work session; the budget is scheduled for council approval the following week.
Meeting Transcript
Apartments and crunching through that number and arranging all the pieces together to present to you what we have today. Government financial structure or fund accounting is really unique. It's a repeat. I repeat this every year, but I think it's important to review basically Huntsville structure. Every government is a little bit unique in the way that they stack up their funds in the way they do that. But it's not like a business, and it's not like any other kind of individual structure that you would see. So basically, city and counties assess and collect taxes and charge fees that provide through that they provide the services to the citizens. Both laws locally, state, and national govern how much we can collect and how we spend those resources. As you can see on the screen, the city works through a framework of funds. Each fund is comprised of revenues, expenditures, assets, liabilities, and fund balance. It is all contained within each fund, what happens. This helps us track, manage, and account and report on varying sources of revenue and expenditures, ensuring they are regulated in accordance with the laws. You can't dip out of some buckets and put them in others. That's why we build the funds the way we do. The City of Untsville has right around 50 funds, each unique in nature. We've changed a few, there's been a few significant changes since I started here. One of them is taking the enterprise fund of the, well, taking the sanitary, the sorry sanitation out of the general fund and moving it to an enterprise fund. This has helped us understand the relationship between garbage charges and the coverage of the services provided. The second is the deletion of a debt services fund. You'll see that last line up there is kind of missing a segment. In simplest terms, it means that the principals and interest that we borrowed are now associated with their appropriate revenue streams. It helps us to better account for how those those borrowings are associated with different revenue streams. Over the next few slides, I'm going to walk you through some of these funds. Obviously, I'm not going to touch all 50. The general fund is usually the largest of any city, and it is with the City of Huntsville. All that is listed on the screen is part of the general fund. Revenue service revenue sources and the departments. The total budget is $343 million, and this is where a majority of the activities occurs. Besides the general fund housing all of these sources and uses, the city is self-insured and therefore budgets and maintains a health insurance fund. Around $40 million in premiums and charges are maintained or managed through this fund each year. On an even smaller level, though, is the events and donations funds, which is maintained to orderly receive and disperse dedicated donations received throughout the city each year. CAFE, JAS in the Park, and the like are examples of programs that are financially managed through this fund. Special revenue funds are used to account for specific revenue sources that are restricted or committed by law to spending in a specific purpose. Advalorum taxes or property taxes are levied under certain laws. In each of these different boxes that I'm going to put up there, the number at the bottom represents the number of funds that I'm talking about in general. The city has determined in the best interest to provide certain portions of sales tax to the operations of Huntsville City Schools. 14.7 percent of 3.5 pennies goes in sales and use tax goes to the Huntsville City Schools for operations. This year it is budgeted at $36.5 million. The lodging tax funds accounts for lodging taxes collected in the city. By local law, they are allocated to certain spending on tourism, sporting, and entertainment venues. We are down to two of which are in current operation. We have gas tax funds, which are restricted for road, bridge repair, and maintenance, and it can it can be used for street lighting. There are certain federal and state funds that are collected that can only be spent on public safety corrections andor court funds. And grant funds obviously are used for for different grant specific purposes and laid out in their in their agreements. We also have capital projects funds. The city had designated a portion of funding to invest in capital projects for the 1990 capital projects, that it is 18 percent of 3.5 pennies, and for the 2014, it's 1 percent of 4.5 of the 4.4.5. Road construction and maintenance and recreation facility construction, fleet purchases and the like are accounted for in these funds. They also pay for principal and interest of the borrowings. Water pollution control, sanitary and sanitation or garbage services accounted and managed in for in in enterprise funds. Fiduciary funds or get there.
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