Columbia looking to balance 2026 budget amid rising expenses, considering new tax boosts

COLUMBIA, Mo. (KMIZ)

The City of Columbia may consider raising its sales tax as it prepares to draw down $31.1 million from its cash reserves over the next six years.

The projected spending comes as sales tax revenue falls short of expectations and employee wages and benefits continue to rise.

The City of Columbia purchased economic data from Oxford Economics to assist with future financial projections. 

According to Columbia’s Director of Finance Matthew Lue , while sales tax revenue is still growing, it is not expected to increase at the same pace as last year. In fiscal year 2024, Columbia collected approximately $31.8 million in sales tax revenue. That figure is projected to decline to about $30.1 million by the end of fiscal year 2025. However that number is expected to estimated to gradually increase to $34.3 million by 2031. 

Potential tax hikes on the table

Columbia’s current sales tax rate is 7.98%, but the City Council is considering several new taxes to boost revenue.

One proposal would add a tax on tobacco products, including an extra 10 cents per pack of cigarettes and 10 cents per milliliter of nicotine for e-cigarettes. 

The city is also exploring new 1% sales taxes dedicated to economic development or capital improvements for public safety. Both would require voter approval.

Other options include a 0.25% sales tax for capital improvements or a dedicated parks tax.

A separate 1% public safety sales tax is also under consideration, but would require approval from the state legislature. That tax would support public safety operations, large-scale projects and pension obligations.

City looks to balance 2026 budget

The city’s fiscal year 2025 budget included a $23 million deficit, with projected revenue of approximately $540 million compared to $563 million in expected spending.

Last year, city staff told ABC 17 News that the deficit would be something to watch closely. City Manager De’Carlon Seewood warned at the time that expenses could surpass revenues by the start of fiscal 2026, which begins Oct. 1.

Seewood said during Monday’s pre-council meeting that city staff is working to reduce the current budget, with a goal of achieving a balanced budget in fiscal 2026 to avoid deficit spending. Among the strategies being considered include reviewing current expenditures and evaluating whether unfilled, unfunded positions are still necessary.

Reserves projected to shrink

Columbia is now projected to end fiscal 2025 with about $37.6 million in its general fund cash reserve, according to a presentation shown to the City Council on Monday. By fiscal 2031, that number is expected to shrink to just $6.5 million.

General fund revenue is projected to exceed $127 million by the end of fiscal 2025, up from nearly $124 million in 2024. It is expected to dip slightly to $126 million in 2026, but will gradually increase to just over $135 million by 2031. 

Spending, however, is forecasted to top $129 million in 2025 and nearly $130 million in 2026, with much of the increase tied to employee salaries and benefits.

A major change in the fiscal 2025 budget was a $10 million increase aimed at improving employee compensation. When the budget was approved, city leaders expected to generate up to $1 million in revenue from a 3% marijuana sales tax approved by voters in April 2024. That tax took effect in October and was factored into the funding for employee pay raises.