WESTBROOK — The school department ended fiscal 2011 more than $760,000 in debt.

But because the city finished the fiscal year ending last June with a $9 million surplus the school department could get a bailout.

The city administration is recommending that the City Council use some of that surplus to erase the school department’s debt, which has accumulated over a couple years, said City Administrator Jerre Bryant.

Superintendent Marc Gousse, who took the job last spring, said he hasn’t figured out where the department overspent, but that policies are being put in place so it doesn’t happen again.

Bryant said the city spent many years with a lower-than-desirable surplus but the $9 million is more than needed. A recent audit of the city’s 2010-2011 finances concluded the city should maintain a surplus of $4.3 million to $6.2 million.

Bryant told the City Council’s Finance Committee on Monday night that the administration recommends using about $763,000 of the surplus to erase the school department’s debt, $1.2 million on capital improvement projects and about $908,000 to establish a “tax stabilization reserve” fund that could be applied to lowering the property tax rate when needed.

Based on proposed budgets for fiscal 2012-13, about $180,000 could be taken from the tax stabilization fund to eliminate any increase to the property tax rate next fiscal year, Bryant said.

As currently proposed, taxes for the city, school and county would cumulatively raise the rate by 10 cents per $1,000 of valuation. That number dropped from 21 cents Monday, after Gousse told the Finance Committee that the school department would save a total of $200,000 because of additional staff retirements, and because health insurance costs will be lower than expected in fiscal 2012-13.

The Finance Committee on Monday supported applying that money to lower the school portion of the tax rate, and recommended that the City Council approve the school department’s $31 million budget.

The school portion of the budget would raise the tax rate by 19 cents, the city’s tax county tax bill would raise it 3 cents, and the proposed $23.1 million municipal budget would lower it by 12 cents. Applying the $180,000 from the tax stabilization fund would leave the tax rate unchanged from this year.

The City Council on May 7 will take initial votes on the school department and municipal budgets.

Also at that meeting, the council will vote on whether to use the city’s surplus as recommended by the administration.

Staff Writer Leslie Bridgers can be contacted at 791-6364 or at: lbridgers@pressherald.com