Lehi City 2026 Budget Retreat – Governmental Accounting, Utility Funds, and Revenue Discussion

This budget retreat, held on February 3, 2026, from approximately 12:30 PM to 3:30 PM, provided city council members with an in-depth review of government fund accounting, utility fund health, and revenue sources. Finance Director Dean (along with staff members Allison and Carmen) led presentations on fund structures, sewer/water/power/garbage fund performance, sales and property tax trends, and franchise taxes. No formal votes were taken; the session was primarily educational and preparatory for upcoming rate decisions and budget discussions.

Discussion Items

• Government Fund Accounting: Dean explained fund accounting principles, distinguishing governmental activities (general fund, special revenue, capital projects, debt service) from business-type activities (enterprise funds: sewer, culinary water, pressurized irrigation, power, garbage; and internal service funds: fleet, IT, risk management, buildings). He noted that the general fund can have up to 35% of annual revenue in unassigned fund balance (state law), and that the city currently has about 30%.
• Sewer Fund: Operating revenue of approximately $15 million vs. operating expenses of $19.6 million (including depreciation). Removing depreciation yields a $1.7 million cash loss. The fund pays about 75% of its costs to Timpanogos Special Service District (TSSD). TSSD increased rates 50% in January 2024 and announced additional 15% increases in 2025 and 2026. The city raised sewer rates 25% two years ago and 15% last year, and is now considering another 15% increase. Cash reserves are $5.6 million (123 days of operating expenses). Councilmember Rachel questioned why TSSD rates vary across cities and why Alpine appears to pay less; Dean noted rates are based on metered flows and capital project needs.
• Culinary Water Fund: Healthy with large cash reserves and debt service coverage ratio of 5.5 (very strong). No rate increase planned. Pressurized irrigation (PI) fund has negative cash but is paying itself back for past capital projects; all new meters will be installed by 2030. A rate study consultant will use metered data to design a new rate structure with base and usage components.
• Garbage Fund: Operates essentially as a pass-through with Waste Management. Contract includes CPI escalation and rising landfill fees. Current rate $16.94/month; proposed increase of $1.50 in July to keep pace. Recycling contamination rate affects costs; cameras on trucks may be used for education (contentious issue previously).
• Power Fund: Unrestricted cash of $27 million (188 days). Debt service coverage is good. A rate study is underway; a gradual base charge ramp-up (up to $10/month) was implemented two years ago. Power costs spiked during the Texas winter freeze event, causing a $7 million monthly bill for two months. The fund has since recovered.
• Revenue Sources: Sales tax at 1% city portion – half is point-of-sale, half distributed by population. Property tax: Truth in Taxation laws require council approval to exceed certified tax rate. Sales tax growth: 9.15% year-over-year through November 2025, but state forecasts 3.5% growth for 2026. Property tax revenue stable with modest growth from new development. Franchise taxes: 6% on electric/gas, 5% on cable TV, 3% on telecom; cannot tax internet service.
• Comparisons with Other Cities: Lehi has the highest taxable property valuation in Utah County. Sales tax per capita is roughly average. Property tax rate is lower than many Salt Lake County cities, but those cities often have separate police/fire districts with higher fees. Council discussed pros and cons of creating dedicated public safety districts (transferring oversight, losing federal funding flexibility).
• Legacy Center & Recreation: General fund transfers ~$2 million annually to cover recreation programs (facility, youth sports, pools). The largest cost driver is the indoor pool.

Key Outcomes

• Preliminary Utility Rate Increases Proposed (to be finalized later):
  • Sewer: 15% increase (to take effect July 1, 2026)
  • Garbage: $1.50/month increase
  • Power: New rate structure from ongoing study, to be presented at a future council meeting
  • Pressurized irrigation: New metered rate structure to be developed after consultant receives sufficient data
• No votes taken on rate increases; these will be brought to council for formal adoption.
• Staff to provide separate reports on culinary and pressurized irrigation fund balances for council review (currently combined in financial statements).
• Council to receive a follow-up presentation on power rate study results in the coming weeks.
• Continued monitoring of sales tax trends and state legislative proposals on property tax caps (discussed as a concern for bedroom communities).