Finance Head
Notes Plans For Reserves
While Lexington is planning on drawing on its reserves to cover some expenses in the upcoming fiscal year, City Finance Director Jennifer Bell clarified to The News-Gazette last week that the city will not be covering the entire $12 million shortfall between revenues and expenses from its reserve funds, and that some of the reserve funds that will be spent have been earmarked for specific purposes.
The city’s audited fund balances as of the end of the 2025 fiscal year show that the city has more than $52.5 million in reserves divided across seven different funds.
One of the funds that will be tapped most heavily is the utility fund reserves to cover some large projects planned for the upcoming fiscal year.
A planned sewer realignment/ improvement project near Oak Grove Cemetery is estimated to cost $1.5 million, which Bell said will likely be taken from the fund balance.
The city is also planning to decommission the Moores Creek dam in the upcoming fiscal year, which is estimated to cost $3 million, though the city has applied for a grant which would help cover at least some of the costs of the project.
“Ideally, we would like to be able to cover the full cost of decommissioning,” Bell told The News-Gazette in an email on Monday. “However, we recognize we are not the only locality submitting an application. If we are unable to receive full funding, we will work with our financial advisors at Davenport to ascertain the best way to fund the shortfall. It is possible we may have to use reserves if the grant applications are not successful.”
The largest project being planned is a $4.8 million water/sewer improvement project in the Jackson Avenue area, which the city is planning to finance with a bond rather than funds from its reserves. At the end of the 2025 fiscal year, the city has more than $9.93 million in utility and stormwater reserve funds.
The city is also tapping into its equipment fund reserves for $770,300, and an additional $948,145 will be taken from the capital projects fund reserves for several projects within the city, including replacing the pergola at Hopkins Green, implementing the final stages of the planned improvements to Jordans Point Park and providing upgrades to the radio system at Central Dispatch. The city has $3.3 million in its equipment replacement fund and just over $6 million in its capital projects fund.
Among the earmarked reserve funds are $1.1 million for projects at Rockbridge County High School. Lexington received $1,149,123 from the state in FY24 to be used for school construction projects and has been holding the funds in an account for that purpose. The account currently has just over $1.2 million.
The city will also be spending $1,068,000 from the general fund reserves which has also been set aside for specific purposes. Just over half of it – $568,000, specifically – is coming from money that the city has received from VDOT to be put toward various street repair projects in the city. Lexington receives an allocation from the state every year for this purpose, usually around $1 million. Any funds that aren’t spent in any given year will be carried forward to the next year, and that reserve fund is what the city will tap into to continue working on paving projects throughout the city.
The remaining $500,000 is the second installment of a two-year infusion to cover debt service needs until the two bonds for Lylburn Downing Middle School are retired. The city intentionally drew down $1 million from its savings account over two fiscal years in order to proceed with other local and regional projects, such as the new Department of Social Services building, without having to wait until the debt from the school was paid off.
“It is a bit like when you have two cars, and one is paid for and the other one has two years left to pay off,” Bell explained. “If the first car breaks and needs to be replaced, you take on a second payment for two years and you use a bit of savings to make it less painful. You know in two years the second car will be paid off, and you really can’t afford to wait two years having only one car for your household, so you bite the bullet for the short term. That is what we did, but instead of a car note it was $500,000 for two years until the school debt was paid off.”
The city has been paying a little over $584,000 each year for the past 15 years toward the school debt, and the final payments are due in FY27.
