WORCESTER — Following a lean budget for the current fiscal year, influenced by rising costs and debt, the city's proposed budget for the fiscal year that starts July 1 represents a bit of a recovery.

However, City Manager Eric D. Batista said during a Friday afternoon preview of the budget that potential reductions to state aid later this year and expenses such as capital demands for school projects, combined with increasing fixed costs, could present future constraints.

What are the big numbers?

• The city is assuming total revenue to be $893 million, with the largest sources coming from state aid for education and property taxes. Revenue has increased 3% from the previous fiscal year, or about $45.3 million.

• Education, including public schools and charters, makes up around 59.7% of the city's budget, or about $532.9 million. In addition, about $22.2 million is budgeted for education-related debt services.

• City operations are the next biggest budget category at about $195 million, or about 21.8% of the total.

• Fixed costs such as employee pensions, health insurance and debt service make up about $165 million, or 18.5% of the budget.

• Public safety including police, the Fire Department, emergency communications and inspectional services, will take up about $113 million in the budget, a 3.6% increase in spending compared to fiscal 2024.

• Proposed Department of Public Works and Parks spending is $23 million, a 0.7% increase from fiscal 2024.

• All other proposed municipal operation expenses are $58.3 million, a 7.5% increase.

• The budget for contingency would see a 59.5% increase, or about a $2.5 million rise, to around $6.7 million, largely due to funding 3% cost of living adjustment for employees in union negotiations.

• Funding for the city manager's office will see an increase of about 33.7%, or about $453,000, because staff in other departments are moving to the city's manager's office. The City Council's budget would rise by 27.9%, or about $140,000, with the council adding new staff positions.

• Total city services, as represented in the budget, stands at just over $195 million, a 4.4% increase from the current fiscal year.

As with the current year budget, the proposed budget's theme is "empowering progress," in keeping with Batista's goals of investing in equity and talent.

One priority in the city budget is centralization of multiple municipal functions. Batista said these functions have been "siloed" within different departments, creating "inconsistencies" in city operations.

"Centralizing (these functions) helps with more accountability and efficiency with the delivery of services," Batista said.

The city has also been working on a pay equity analysis and looked at pay for other municipalities in the state. New positions and regrades are part of this process, Batista said.

Nonunion employees, about 500 staff members, would see wage adjustments of about 1.5% reflective of changes to the market.

"The changes that we made in unions haven't kept up with the nonunion-represented individuals," Batista said.

The city also has to fund technology such as ongoing subscriptions and implementing enterprise resource planning. City cybersecurity is also transitioning to the cloud.

For public safety, Batista said the city will continue budgeting for recruit classes and will recommend Fire Department regrades for floating lieutenants to maintain crew integrity and reduce overtime.

The city will outsource the hiring of lifeguards to the YMCA of Central Massachusetts, as finding lifeguards for city pools and lakes was an issue last year.

The position of city grant writer will be funded again for next fiscal year after the position was defunded for this year. Discover Central MA will also receive $500,000 in funding from the city; it had been funded through federal American Rescue Plan Act funds in recent years.

Where is the city getting its revenue?

About 43.4% of the city's projected revenue comes from state education aid — about $387.2 million, or a 5.4% increase from fiscal 2024. State local aid makes up $52.8 million, or 5.9% of the budget with a 3% increase compared to fiscal 2024.

The city uses Gov. Maura T. Healey's budget for the allocation projections and any changes made to the state budget will be reflected in the fall. The State House proposed a cut to local aid that Batista said may impact available aid by the fall if the proposed cut stays.

Property taxes make up $396.1 million in revenue, or 44.4% of the budget. The budget assumes a 4.9% increase in the property tax revenue including $7.5 million in new growth.

The category that saw the highest projected percentage increase is local receipts such as investment income, licenses and permits, and motor vehicle excise taxes. Local receipts make up 6.3% of projected revenues at $56.7 million and there is a projected 7.3% increase.

Education

Education spending remains the highest category in the budget. The education budget increased 5.2% compared to the preliminary fiscal 2024 budget while the municipal portion of the budget decreased 0.4%.

The education category includes Worcester Public Schools, charter schools and special education programs outside of public schools.

The foundation budget, the spending target imposed on the district, has increased 31.9%, or by $122 million, over the past five years, and the city's contribution to the budget has increased by 21.6%, or $22.5 million.

The Worcester Public Schools general fund budget has increased by $113 million, or 30% over the last five years and by $23.8 million for fiscal 2025.

Still, public schools are facing a projected $22 million budget deficit for next school year, which could require cutting more than 80 teaching positions, the superintendent said at a School Committee meeting Thursday.

Department funding

For the current fiscal year, the city made various reductions in operations to reduce costs to about 1.7%, or around $3.1 million.

For the coming fiscal year, the city projects funding for city departments to rise by about 4.4% overall, or around $8.1 million.

The city is seeking to fund a net of 14 new positions and 40 regrades.

Along with contingency, the city manager's office and the City Council, human resources, finance and police are seeing increases to their budgets for next fiscal year.

Batista said the budget would boost said human resources by 17.4% because it is absorbing positions from the Department of Public Works and Parks and police. The finance budget would increase by 13.8% in an effort to centralize purchasing and the police department budget is increasing by 9% due to capital expenses to improve police headquarters such as the electrical system and the roof.

Borrowing

Capital borrowing for next fiscal year is roughly broken into thirds for a total of $135.8 million. Municipal borrowing is the highest category at about $48.3 million, education borrowing is at about $45.2 million and enterprise borrowing at about $42.2 million.

A key project to be paid through borrowing is Doherty Memorial High School. Others include Worcester Arts Magnet School, DCU Center and Union Station facility improvements and street redesigns.

Future constraints

Along with the potential for state budget cuts affecting the city in the fall, Batista said there is limited future growth for local receipts.

If interest rates stay high for investment income, it could help the city. But if the rates go down, Batista said that will impact the city and limit future growth.

The city is also seeing increasing educational obligations through required contributions and the capital demands for school projects.

Other expenditure constraints may be the increasing costs associated with collective bargaining, technology subscription obligations and the rise in fixed costs.

Looking at fixed costs for future fiscal years, Batista said the city is looking at methods to address its increasing debt.

City councilors have raised concerns about taxing residents to maximum levels and Batista said the city is trying to find ways to leverage budgeting to prevent that.

"I can't make this decision by myself, but the council and the public will have to come to a decision that if we don't take measures right now to reduce our capital spending and manage our debt, we will be in a place where I will be left but to recommend (higher taxes)," Batista said.

Batista will present the budget Tuesday and there will be hearings with the council. The final date for budget review is June 20 and last meeting before that date is June 18.

This article originally appeared on Telegram & Gazette: What to know about Worcester City Manager Eric Batista's budget plan