Hotel tax collections are outpacing expectations in Solvang, but the rising cost of routine operations continues to strain the city’s budget.

The Solvang City Council on Monday approved its midyear budget review covering activity from July 1 through Dec. 31.

City staff increased the revenue projection from transient occupancy tax revenues — or hotel tax — by $1.4 million, but also raised projected expenses by $357,350. The result is a net positive impact of more than $1 million to the General Fund, according to a staff report.

The council also voted 5-0 to approve adjustments to the Water Fund, Sewer Fund and Measure U. Measure U is a voter-approved sales tax that helps fund general services, while the water and sewer funds support utility operations. All three required midyear adjustments related to rising operating costs, according to city staff.

Opening the council discussion, Mayor David Brown asked City Manager Randy Murphy whether the city remained fiscally stable despite the rising costs.

Murphy responded that the Measure E increase to the hotel tax rate has been “coming in better than we expected.” He added that other adjustments, such as overtime in the water department, were unavoidable.

“We’ve had three major water main breaks and then a couple other minor ones,” Murphy said. “So that’s all the overtime.”

Councilwoman Elizabeth Orona questioned a projected $80,000 midyear adjustment to the General Fund for public restroom maintenance. She pointed out that last year’s actual costs reached $465,000, compared with this year’s initial estimate of $340,000, and suggested possible grounds for contract renegotiation.

Administrative Services Director Wendy Berry said the additional cost reflects hourly charges for services beyond the city’s standard custodial contract. She explained that the contractor charges per hour for emergency cleaning and for covering city restrooms on weekends.

Orona also raised concerns about the Water Fund, which required a $135,864 midyear adjustment, with nearly all of that amount being tied to rising utility rates.

Staff said $132,000 of the increase was because of higher electricity costs for groundwater pumping, as the city continues to draw from an aquifer and wells that have not significantly recovered despite early winter rainfall.

Berry explained that although Central Coast Community Energy plans to issue a 25% generation charge credit beginning in February, PG&E is simultaneously increasing distribution rates.

“It’s just costing more,” she said.