SOUTH PORTLAND – The South Portland City Council will get its first look at the 2013 budget at its March 19 meeting, but it did get a preview Monday – and the picture is troubling.

According to City Manager Jim Gailey, preliminary estimates predict a spending increase of between $634,905 and $889,905, depending on how revenues shake out. That would be good for a tax levy jump somewhere between 3.5 and 5.3 percent.

And that’s just on the municipal side.

“The school has all kinds of problems,” said Finance Director Greg L’Heureux.

Although the school district is slated to get a $980,000 kick in general purpose aid for education from the state – assuming the numbers don’t change as the state tries to close a $25 million budget gap – it’s also losing the $1.6 million in federal stimulus and jobs bill money used to backfill previous state curtailments.

Even after taking $1.2 million from surplus, negotiated salary increases mean a likely tax hike.

“As of right now, if we were to open the doors next year exactly like this year, we’d have a projected budget gap of $1.2 million,” Superintendent Suzanne Godin said at a Jan. 23 meeting with city councilors.

“These are very preliminary numbers,” said L’Heureux, of both the city and school projections. “We are very hopeful that we can get some of those numbers down.”

On the municipal side, Gailey said he anticipates all department heads will submit budgets that are “in-line” with this year’s spending.

“There are some increases. For instance, software licensing is going up,” he said. “But otherwise the department heads are trying to be as bare-bones as possible. They’re trying to keep things as low as possible.“

Anticipated increases include a negotiated 1.5 percent increase for union workers ($201,000), a similar pay hike for non-union employees ($15,000), a 6 percent hike in health insurance costs ($182,000), a share of 2008-2009 Maine State Retirement fund shortfalls ($182,000), an increase to property and casualty insurance ($12,000) and an expected rise in the cost of fuel ($85,000 for the city’s share).

“We’re looking at an extra 30 cents a gallon for a lot of gallons,” said L’Heureux.

The city also must pick up half-year salaries for two new firefighters ($52,000) and may have to pick up seven-months salary for a police detective if his position is no longer funded by a Computer Crimes Task Force grant ($39,000).

On the plus side, while the schools may see the first bond payments on the $41.5 million approved for high school renovations (constructions begins April 3 following opening of bids 2 p.m. Thursday, Feb. 23, in the high school cafeteria), the city will actually retire $92,095 in debt. It also expects to save $32,000 on workers’ compensation costs.

Still, taxpayers could feel a pinch on the revenue side. The lower 3.56 percent level increase estimate assumes income remains static across the board. However, that’s not likely to happen.

The higher 5.3 percent tax increase estimate assumes a $110,000 increase in state revenue sharing.

“That’s based on the current year,” said Gailey. “We haven’t heard from the state yet on what to expect for next year, so, that’s a number that’s still in limbo right now.”

However, there are positive signs on that front. L’Heureux said the monthly wire from the state does seem to point to an improving economy. In the last 10 months, transfers have bested deposits from the same month one year earlier half of the time. In the 23 months prior to that, only two saw year-to-year increases, L’Heureux said.

However, Gailey said, a downward trend in excise tax collections has him counting on $300,000 less trickling in from that revenue stream next year. Meanwhile, interest rates mean the city expects to lose $100,000 in investment income.

“We have CDs (certificates of deposit) maturing that were at 3.4 percent and the best we can get right now is 1.3 percent,” said L’Heureux. “Really, 1.3 percent on a five-year CD – that’s bad.”

Building permits also remain flat, although that has as much to do with the fact that South Portland is “pretty well built out” than with the economy, said L’Heureux. He and Gailey have a meeting next week with Texas Instruments to discuss a tax increment financing extension and to find out what investments the company plans to make in the former National Semiconductor plant, which will affect the city’s take from the Business Equipment Tax Exemption (BETE) program.

“We think that will see a fairly modest increase,” said Gailey, despite a 10 percent decrease factored in when the state overhauled the program in 2007. “But we won’t have a good number on that until late-April, the first of May, just before the budget is adopted.”

“Also, we do expect an increase in bus fares and ambulance rates,” said Gailey. “Nothing great, but still an uptick.”

Gailey said there is no tax savings to be generated from “substantial savings” in winter road maintenance this year. Any money unspent is rolled into a reserve account, he said, as a hedge against future hard years.

“It’s not good news, but I think it will get better as we get further in and can start plugging in better numbers,” said L’Heureux.

“Well, it’s the reality of where we are today, so thank you for the sneak peak,” said Mayor Patti Smith.

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