HAGERSTOWN – The City of Hagerstown expects to close an unprecedented $16.4 million budget deficit heading into the 2026 fiscal year, but not without some serious cuts and an expected 5.5 cent increase in the property tax rate.
The budget breakdown was presented during the April 15 work session of the mayor and city council by Finance Director Michelle Hepburn. As things stand, she said the budget now shows a modest $7,900 surplus, achieved through intensive cuts, spending deferrals and departmental cooperation.
Hepburn noted this was the largest shortfall she had seen in her 15-year tenure. “To go from a $16.4 million deficit to a balanced budget takes massive effort,” she said. “Departments made voluntary and sometimes not-so-voluntary reductions.”
Budget breakdown
The general fund budget for FY26 now totals $71.4 million. Of that, $67.2 million comes from recurring revenue sources, while the remaining $4.1 million is pulled from the city’s fund balance reserves.
The primary sources of income include:
- Property taxes: $46.5 million
- Income and other state-shared taxes: $12.8 million
The city relies heavily on property tax revenue, and corporate personal property taxes, primarily generated by businesses and warehouse operations, now comprise about 13 percent of that base. Hepburn said this share has grown with recent development and annexation.“While this is a positive trend, it’s not guaranteed to last,” she cautioned. “If corporate infrastructure spending slows, this revenue could drop again.”
Expenditure highlights
On the expense side, salaries and benefits represent the largest cost at $43.3 million. Health insurance costs alone are projected to rise by 7 percent annually, totaling $3.9 million in FY26. Despite recent high claims, Hepburn said that the city’s benefit cost growth remains below national trends. The city’s debt service obligations are also climbing due to bond funding for projects like the new Hagerstown Fieldhouse. Additional bond needs are expected to cover deferred capital improvement projects in future years.
A tax rate increase on the table
To address these increasing costs and prevent additional service cuts, city administrators have proposed a 5.5 cent increase in the property tax rate. This change is projected to generate approximately $2.2 million in new revenue.
Councilmember Kristin Aleshire urged his colleagues to begin considering possible alternatives, such as reducing the proposed increase, adjusting spending priorities or shifting funding from programs.
“We shouldn’t get to late May and only then have a real conversation about changing the rate,” Aleshire said. “The sooner we identify what we want to cut or add, the better prepared we’ll be.”
Examples raised included:
- Deferring a $1.5 million fire engine replacement, though this would raise long-term costs.
- Reducing Investment in Hagerstown’s economic development funding by half could limit revitalization efforts.
- Closing the city-owned golf course, which runs a deficit of roughly $250,000 annually, would save money but remove a service.
Although City Administrator Scott Nicewarner was absent, Hepburn reminded the council that future deficits are likely even with a 5.5-cent increase. FY27 is already projected to begin with a $9.4 million shortfall due to deferred spending and ongoing salary growth.
What’s next
The council is scheduled to hold a public hearing on the tax rate and budget on May 13, with formal adoption expected on May 20. Hepburn encouraged councilmembers to bring proposed changes to the table well in advance.
