SOUTH PORTLAND — In a recent press release, city officials revealed a deficit in the current fiscal year budget, concluding on June 30, 2024. The identified $4 million shortfall, constituting approximately 3 percent of the overall budget, arises from the city billing less in taxes than required to sustain the budget approved by the council. Despite the error, city officials said that taxes and essential services for fiscal year 2024 will remain unaffected.
Shara Dee, communications officer for South Portland, provided a response from the council: “The Finance Department reviewed non-tax revenues that the city anticipated this year and identified areas where revenues may come in higher than anticipated. For example, interest earning, excise tax and state revenue sharing are expected to come in higher than budgeted,” she said.
South Portland presently maintains a tax rate of $14.14. However, the rate should have been adjusted to $14.69 during the preceding summer, following the council’s budget approval. Correct billing at the approved rate would have resulted in an annual tax increase of $163 for the average residential property owner, fully meeting the city budget requirements. The adjustment was inadvertently overlooked, leading to the $4 million budgetary shortfall.
Acknowledging the situation, South Portland City Manager Scott Morelli said, “This error is significant, and we want to be transparent with the public and own up to this mistake.”
Morelli expressed gratitude for the city’s adept problem-solving teams within the finance and other departments, emphasizing their “swift response to rectify the issue and prevent its recurrence.”
According the news release from the city, “Upon discovering the billing error, the city’s finance team, in collaboration with leadership, opted against issuing amended (higher) tax bills to compensate for the shortfall. Instead, they devised a comprehensive plan aimed at absorbing the loss in tax revenue without compromising city services. The plan involves scrutinizing non-tax revenues, exploring areas with potential surplus, reviewing departmental budgets for savings, and deferring non-critical expenditures. Grant and reserve funds were also tapped for eligible costs. While staff remains confident in the plan’s success, there is a possibility of utilizing some fund balance to conclude the fiscal year. The city boasts a robust fund balance, aligning with city financial policy guidelines.”
The root cause of the error lies in the city inadvertently double counting Homestead and BETE reimbursement revenues from the state of Maine when completing the state Municipal Valuation Return form. Th form, standard for all municipalities, is used to determine tax rates.
Finance Director Ellen Sanborn acknowledged the nature of the mistake. “This is of course a very unfortunate thing to have happened,” Sanborn said. “We have put additional checks and balances in place so that something like this is very unlikely to happen in the future.”
The uncollected tax revenue will be incorporated into next fiscal year budget, spanning from July 1, 2024, to June 30, 2025. This aspect will be part of a fiscal year 2025 budget discussion taking place over the next few months. The city encourages community members to attend the April 2, 2024, South Portland City Council meeting, where proposed budgets from the city manager and school department will be presented. Additional budget meetings are slated for the spring, with the proposed city budget available at www.southportland.org on March 19.
The finance department has updated its procedure for tax billing to include a reconciliation of the Municipal Valuation Return and the total taxes receivable (when the valuation file is loaded into the tax billing system) against the approved tax levy.
To address budget challenges, department heads were directed to review budgets for savings, limit unnecessary expenses, and adhere to budgeted projections for overtime pay. Grant and reserve funds were utilized, and the finance department assesses capital project balances for potential reallocation. A hiring freeze, effective until June 1, 2024 (with possible extensions), excludes essential positions in public safety, public works, parks, and water resource protection. The city, which planned to use $500,000 from its fund balance in fiscal year 2024, maintains a healthy fund balance within recommended ranges. As the fiscal year progresses, the city will determine the actual amount needed from the fund balance.
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