SOUTH PORTLAND — Even if the sky does not fall completely, the portions that do drop could land hard on city property taxpayers.

That was the essence of a Wednesday night workshop involving the City Council and School Board at City Hall.

What had been intended as a chance to review finances and provide council input on possible increases in the education budget became an examination of the proposed biennial budget from Gov. Paul LePage and the possible loss of state aid to the city and schools.

LePage’s biennial budget for fiscal years 2014 and 2015 proposes to suspend municipal revenue sharing, shift percentages of excise taxes on large commercial vehicles, and reduce sharing of taxes on business equipment.

City Manager Jim Gailey and Finance Director Greg L’Heureux have estimated passage of the budget with no changes would lead to $2.8 million in lost revenue, adding 88 cents, or almost 5 percent, to the current property tax rate of $16.50 per $1,000 of assessed value.

Last month, Mayor Tom Blake said it was his goal to keep any property tax increase at 1 percent for the entire municipal, school and county share of the city budget. Absent any elements of LePage’s proposed budget passing as proposed, Gailey and L’Heureux made an early estimate of municipal operations requiring a nearly 2.9 percent property tax increase, primarily based on an expected 10.2 percent increase in health insurance premiums.

Gailey said the early expectation of needing $496,000 in property tax revenue comes before he has met with department heads to review their budget requests. The municipal budget will be presented to councilors March 18.

At the outset of her presentation, School Superintendent Suzanne Godin said similarities abounded in the potential financial forecast to property owners.

In the LePage budget, general purpose education aid is expected to remain constant through the next budget cycle. But Godin said she has learned from the Maine Department of Education that the current curtailment of $411,000 in subsidies is likely to continue.

The Legislature is still deliberating the $35.5 million budget curtailment for the current fiscal year announced by LePage late last month. Included in the curtailment is $12.6 million in education subsidies, which would reduce anticipated state aid in South Portland from $3.1 million to $2.7 million.

Proposed changes to pension funding for teachers would be felt in the Essential Programs and Services formula used to determine subsidies. Godin said the shift could hurt the local budget because the department might not be fully reimbursed for what it spends on retirement funding that is now supplied by the state.

A late development Wednesday also troubled Godin; she said state reimbursements based on providing services to low-income students could be reduced by $372,000. In a worst-case scenario, Godin said, state budget changes could lead to a $2.2 million to $3.1 million budget gap.

She said the School Department is just beginning to formulate a budget and did not have preliminary estimates of the impact on property taxes.

Auditors reports prepared by Hank Farrah of Runyon, Kersteen and Ouellette show a $10.6 million balance of unassigned funds in city operations, and about $1.1 million in unassigned funds in city schools.

Colchester Road resident Albert DiMillo Jr. told councilors he believes the school department will have a real surplus of $5 million by the end of June, and has been misreporting surpluses and designating funds that should be part of the annual budget referendum vote.

Godin responded by noting the recent audits found no flaws in the department’s fiscal accountability.

Councilors and School Board members are expected to hold another workshop Feb. 28, with a clearer picture of the direction of the state budget.

David Harry can be reached at 781-3661 ext. 110 or [email protected]. Follow him on Twitter: @DavidHarry8.

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