SOUTH PORTLAND, Maine – The City of South Portland has announced a plan to address the $4 million shortfall it identified in this fiscal year’s budget. The shortfall is the outcome of a billing error, which resulted in property owners paying less in taxes than they should have to support the Council-approved budget. The City overcounted non-property tax revenues when completing the Municipal Valuation Return form, which led staff to set the tax rate to $14.14 when it should have been set to $14.69. Because the City billed property owners less than it should have, the shortfall resulted.
The City plans to close the budget gap by accounting for surplus revenues, utilizing grant and reserve funds for eligible costs, and working with departments to reduce expenses. The City has also implemented a hiring freeze for some positions as part of its plan.
The hiring freeze is effective now through June 1, 2024. However, this deadline may be shortened or extended through June 30. Positions that are exempt from the freeze include: Non-civilian Police and Fire personnel; Public Works and Parks staff who have a role in Public Works operations; Bus Service staff; and Water Resource Protection staff. The hiring freeze will allow the City to continue to provide critical service to the public while creating savings necessary to address the budget shortfall. City Manager Scott Morelli and Human Resources Director Stephanie Weaver will review and approve any positions posted during the freeze.
“We’re using a number of tools to close the budget gap, and the hiring freeze is one,” said Manager Morelli. He explained that while the hiring freeze will delay the onboarding of new staff who are integral to the variety of services the City provides, the impacts on critical services over the next several months are expected to be minimal. “Although most positions must be filled due to their critical nature, there are some where a delayed hiring of a few months will only result in a minimal impact on service delivery,” said Morelli. “These temporary delays will result in some of the savings needed to achieve our target savings.”
So far, as a result of its plan, the City has closed the budget gap by roughly $3 million, which includes a budgeted $500,000 from the fund balance. City leaders expect that the plan in place will make up the remaining $1 million, though it is possible that the City may need to utilize additional fund balance. 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.
Even at the correct tax rate of $14.69, the City of South Portland still has the second lowest median tax bill when compared to all of its abutting communities and the second lowest of the five largest communities in Maine. The City also has the second lowest tax rate when compared to all of its abutting communities and the second lowest of the largest communities in Maine. Only Portland’s tax rate of $14.41 is lower. South Portland is 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.
The tax revenue that the City did not collect due to the billing error but should have in order to support the Council-approved FY24 budget 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.
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