SOUTH PORTLAND, Maine – Earlier this month, City staff identified a significant shortfall in the current fiscal year budget, which ends June 30, 2024. The $4 million gap (representing about 3% of the overall budget) is the result of the City billing less taxes than were needed to support the Council-approved budget. The City is working to fully close the gap by looking at a number of areas for surplus revenues and expense reductions that will not impact City services.
South Portland’s current tax rate is $14.14, but it should have been set at $14.69 this past summer after the Council approved the budget. Billing at the correct rate would have resulted in a yearly tax increase to the average residential property owner of $163. This increase would have fully funded the City budget, but since it was mistakenly not billed, a $4 million shortfall resulted.
“This error is significant, and we want to be transparent with the public and own up to this mistake,” said South Portland City Manager Scott Morelli. “Fortunately, the City has capable problem-solvers in our Finance and other departments who have responded quickly to help resolve the issue and prevent it from repeating.”
Once the billing error was discovered, the City’s Finance team and leadership opted to not send amended (higher) tax bills to make up the difference. Instead, they created a plan that aims to absorb the loss in tax revenue in ways that do not impact City services. The Finance Department reviewed non-tax revenues that the City anticipated this year and identified areas where revenues may come in higher than anticipated. Department heads were also asked to review budgets for anticipated savings and to identify and defer non-critical spending. Grant and reserve funds were also utilized for eligible costs. While staff is confident that this process will be successful, it is possible that the City may need to utilize some amount of fund balance to finish out the year. Fortunately, the City has a healthy fund balance that is at the top of the range called for by City financial policy, which requires that the balance be between 9 and 12% of the City’s yearly operating costs.
The primary cause of this error is that the City double counted Homestead and BETE reimbursement revenues from the State of Maine when completing the state Municipal Valuation Return form that all municipalities use to determine their tax rates. Since these other revenues were overstated by $4 million, the form assumed that much less in property taxes needed to be collected, thus resulting in an artificially low tax rate that collected $4 million less than was required for the budget. “This is of course a very unfortunate thing to have happened,” said Finance Director Ellen Sanborn. “We have put additional checks and balances in place so that something like this is very unlikely to happen in the future.”
The tax revenue that was not collected but should have been will be part of next fiscal year’s budget, which covers the period from July 1, 2024-June 30, 2025. This will be one piece of a fuller FY25 budget discussion, which will occur over the next several months. The City invites community members to attend the April 2, 2024 City Council meeting, when the City Manager and School Department will present their proposed budgets, as well as additional budget meetings that will follow in the spring. The proposed City budget will be available at www.southportland.org on March 19.
South Portland is proud of its strong fiscal standing and remains one of only two communities in Maine to receive the highest bond ratings from both Moody's and S&P, two leading global credit rating firms.
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