READING — The City of Reading may be forced to pull millions of dollars from its reserves over the next few years to balance its budget as unexpected costs and overtime outstrip revenue.
Experts say that trend is worrying for a city that exited the state’s financial distress program in 2022 and requires officials to maintain a healthy savings account (known as a fund balance or reserves).
Reading officials have projected a growing need in recent years when finalizing the following year’s budget to pull money out of reserves. Those withdrawals remained hypothetical because revenues were higher than the city planned — the everyday equivalent of an employee receiving an unexpected bonus and no longer needing to use their savings to pay rent.
That ended in 2024, when the city was forced to pull $1.9 million from its reserves. The shortfall was the city’s first since 2018 and primarily stemmed from hourly overtime costs in fire and emergency services, said Christopher Turtell, a partner with the auditing firm Cherry Bekaert. Turtell has worked on Reading’s annual, third-party audit since 2016 and presented the newest draft report to City Council in late October.
The money the city actually had to pull out of reserves to cover 2024's cost was much lower than initially projected: $6.8 million.
For 2025, the city projected it would need $9.8 million. While officials have not yet determined a final number, the current estimate is closer to $2 million.
City Council is currently debating the 2026 budget, which is made whole with a hike in property taxes and a $12.3 million pull from reserves. Officials do not expect the deficit to be that high at the end of the year, but the growing need presents a concern.
“We can't quite stay the course as we have,” said Jamar Kelly, the city’s finance director. He added that though the potential for a higher deficit has grown, the city’s team is doing everything to “prevent that from becoming a reality.”
“That means that there's a crunch coming, and that's why I've been kind of beating the drum on the revenue bit,” Kelly said of potentially higher deficits.
Turtell said he has seen significant improvements in the city’s bookkeeping capabilities over his time auditing as Reading moved out of the distress program and maintained more consistent staff. However, he cautioned that dipping too far into reserve funds would ultimately reduce the budgetary “cushion” the city worked to build.
The amount of unrestricted reserve funds has to stay at 20% of the city’s overall general fund budget or $22 million, whichever amount is higher, according to the Reading charter. The account acts in part as a rainy day fund that contributes to the city’s overall credit ratings, but also can be used for capital projects like recreational or infrastructure work.
The goal is for reserve funds to be higher than charter requirements. In 2024, the ending fund balance was about $51 million, with around $36 million unrestricted. That gap still is healthy, Turtell said, but the city needs to widen the interval between total and unassigned funds as operational spending grows.
Why is the budget deficit projected to grow if revenues are up?
Revenue was higher than expected in 2024 — high enough to avoid the full projected $6.8 million deficit, but not enough to completely keep from being in the red.
Earned income tax, the city’s highest source of income, was $3.9 million higher than expected. That extra revenue stems in part from workers earning higher wages or gaining new employment in the city.
“Everybody feels the [financial] pinching, but what's generally happening is that wages are increasing too,” Turtell said. “They're just not increasing as much as the expenses are.”
Other taxes, including from real estate, brought in over $2 million more than expected. However, the city did not receive around $1.7 million in expected revenue from license fees, permits, and fines.
Earned income and real estate taxes are expected to be higher than budgeted again in 2025, but Kelly still anticipates an overall deficit due to an unexpected $600,000 contract renewal charge for police body camera equipment and another year of high overtime among fire and emergency services personnel.
“It's gonna be the same story [as 2024],” Kelly said, despite nearly doubling the fire and EMS overtime budgets in 2025.
Fire and EMS overtime are difficult to control and regularly exceed anticipated costs because of their inherent volatility. Firefighters cannot just leave mid-fire because they are close to hitting their allotted weekly hours, and some emergencies, such as the costly 5th Street fire that affected three rowhomes in September, come with a “mammoth overtime bill,” Kelly said.
However, administration and other costs can be better managed, he said.
Turtell said he has seen a trend of rising costs for cities and suburbs across the commonwealth, not just in Reading.
Maintaining essential services will have to be balanced with those growing costs, said Kelly.
“The cost of business is going to keep rising over time, and the city will continue to have to make challenging decisions on both revenue growth but also managing employee growth,” Kelly said.
Approximately 70% of the city’s budget is reserved for personnel, which includes the amount held for vacant positions. When those roles are not filled during the year, the money remains unspent or is used in other ways, reducing the need to use reserve funds.
The strategy can be risky. In 2026, the police department budgeted for 175 officers, though it currently employs around 152. The department hopes to fill the positions, but the city coffers ultimately would pay the price.
On the flip side, additional staff could also lead to fewer overtime hours.
“That's always a dangerous precedent at some point in time, just because if you eventually do go to full-time staffing there, then you will spend all that money, so you won't have a cushion,” Turtell said.
The new community development director, David Barr, similarly has made a promise to fill open positions in his department. Kelly said the administration expects Barr’s work to increase citywide development and quality of housing stock, which will ultimately increase property values and subsequent real estate taxes to help the entire city budget.
Additionally, Kelly’s department is looking to add a full-time budget analyst to do more frequent reviews of spending and ensure departments are not going over budget.
“When you don't have regular monitoring, it's one thing to produce numbers in a report,” Kelly said. “It's another thing to be able to make the time to comb through it and to respond to the anomalies and things that stick out in that report.”
Possible budget increases coming
The mayor’s administration pitched the $126 million budget in early October, and City Council has until the start of the new fiscal year to propose any changes and pass it. So far, the councilors have not proposed any changes.
The administration wants to increase part-time wages from $15 per hour to $18 before the budget passes, which Kelly said would have a “nominal” impact. The city employs a small percentage of part-time workers, but not all of them will be affected by the increase if they already make above the minimum wage. The Public Works budget proposal already reflects the increase, but other departmental changes would have to be made if passed.
The larger question is if (and how much) Reading will give to the City Revitalization and Improvement Zone, known as the CRIZ. CRIZ Board Chair Peter Rye said at the authority’s October board meeting that he was in talks with the city to receive short-term funding in the new year to continue CRIZ operations before it is able to financially support itself.
Kelly said additions may be made to the budget during one of the last meetings before passage. Mayor Eddie Morán allocated city money to the CRIZ in 2025, and additional funding is not out of the question, Kelly said.
“I think [Morán is] committed to doing everything he can to make sure the CRIZ is successful, and if that requires some administrative funding support in its first decent few years, he's certainly not opposed to that,” Kelly said.