KENNEBUNK — The municipal budget for the coming fiscal year is set to increase a net 13.12%, or $2 million, from the current year, according to the town manager’s initial budget proposal.

“13.12% represents a structurally balanced budget that focuses on the challenges recognized in the coming fiscal year,” said Finance Director Kayla Tierney, who presented the budget to the Select Board and Budget Board at a Feb. 8 meeting.

High interest rates and infrastructure damage from two powerful storms in January are two challenges the town is facing in fiscal year 2025, which begins on July 1.

While 13.12% is a jump, it’s a smaller increase than what the town has experienced over the last two fiscal years. In fiscal year 2024, there was a 23.6% increase, and the year before there was a 15.4% increase, according to Tierney.

The Select Board and Budget Board are currently discussing individual parts of Town Manager Heather Balser’s proposed budget and will finalize the version they want to present to the public at a meeting on March 14.

Residents can weigh in on the budget during a public hearing on March 26, which is when the town will unveil its projected mil rate for the coming fiscal year.

The mil rate – the part of the budget that arguably matters most to residents – determines what people pay in property taxes.

York County and Regional School Unit 21 have a separate budget process, but Kennebunk’s portion of RSU 21’s budget and the county’s budget also factor into the mil rate.

“Once approval on all three elements is done, we have a better idea on what that translates to on a mil rate … However, the mil rate is finalized during time of tax commitment, which occurs during the summer. We can project the mil rate during the budget process and it for the most part aligns with this projection when it is time to finalize,” Balser wrote in an email.

So what’s in the budget?

The proposed gross municipal budget that totals at $28.7 million breaks down as follows: 50.65% for wages and benefits, 15% for capital projects, 7% for debt payments, and 27.35% percent is for utilities, maintenance supplies, and operating costs across all divisions, according to Tierney.

Unlike previous years, the town is not taking on any additional debt this coming fiscal year in order to finance ongoing budgetary needs, in part due to high interest rates.

“The way that we think about debt has changed,” said Tierney. “One shift relates to interest rates, (which) have been on the rise. Previously they were a lot lower.”

The Federal Reserve has raised interest rates 11 times in less than two years in order to cool inflation. Prices have come down as a result, though they are still higher than they were before 2020.

For municipalities, higher interest rates mean higher interest payments on municipal bonds, making them a less attractive vehicle for financing capital projects.

The town has $10.3 million of authorized but unissued debt that will be issued in the coming fiscal year, according to Tierney.

To avoid adding to the debt pile, the town will use its unassigned fund balance – money kept in reserve in order to prevent cash flow issues– to finance capital projects.

The town will also use operating expenses in the general fund for routine capital asset purchases, according to Balser. The general fund is set to increase 13.2% this coming fiscal year.

The town is also facing budgetary pressure from two devastating storms in January, which caused roughly $2 million in damage to public roads, sidewalks, and infrastructure, according to Balser.

According to the town manager’s budget, the town is slated to spend $5.9 million on capital projects in the coming fiscal year, which includes repairing that damage. $2.5 million of the unassigned fund balance will go toward financing repairs for January 2024 storm damage that occurred, according to town documents.

The town could see reimbursement for storm damage through the Federal Emergency Management Agency (FEMA) if the federal government offers a major disaster declaration for the two storms — but even if that reimbursement is issued, it would likely come in as revenue in another fiscal year, said Tierney.

The town is also facing lower municipal revenue this year, which is projected to come in at $6.37 million thanks to multiple grants coming to an end. Those grants include a Staffing for Adequate Fire and Emergency Response (SAFER) grant from FEMA and American Rescue Plan Act funding, according to Tierney.

One of the town’s behavioral health liaisons who was previously funded through ARPA money and four members of the fire department who were funded through the SAFER grant will now be paid out of the town’s operating budget.

But even with the loss of these grants, the town’s total amount of non-property tax revenues will only decrease by .27% or $18,805, according to the proposed budget.

Residents will vote on the fiscal year 2025 budget at the June 11 town meeting.

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