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December 15, 2013

Methuen council eyes cash reserves to limit tax hike

METHUEN — After a five-day delay, the City Council is expected to set property tax rates tomorrow night for residents and business owners.

Mayor Stephen Zanni has put forth a proposal to raise the average single-family homeowner’s annual tax bill by $136. But some councilors appear willing to use cash reserves to defray that increase.

The mayor’s plan already requires the use of $255,000 in free cash to cover operating expenses. At a meeting Wednesday, three councilors expressed support for pulling additional money from the stabilization fund, which has been bolstered this year by local meals tax revenue.

A $200,000 transfer from the stabilization fund into the operating budget would reduce the average annual residential tax increase from $136 to $125. Similarly, a $400,000 transfer would decrease the average tax hike to $114.

But relying on reserves comes with risk. Local officials have been instructed by credit agencies to build up reserves to improve the city’s bond rating, which impacts the cost of borrowing.

City Auditor Thomas Kelly has also built a financing model for the Methuen High School renovation that, beginning in two years, relies heavily on the stabilization fund.

In late 2011, the previous council used $1.4 million in free cash and stabilization money to limit tax increases. Kelly told The Eagle-Tribune last week that he is worried the practice is becoming an annual occurrence. “They’re setting precedent,” said Kelly. “What’s going to stop the next council from doing it?”

The city has $2,156,819 in cash reserves, with an additional $550,000 expected by year’s end. The reserves are made up of the stabilization fund and general fund, which is also often referred to as free cash.

There is $901,146 in the stabilization fund, which will continue to grow this year with additional meals tax revenue. The city already collected $189,000 from the local meals tax during the first quarter and anticipates $550,000 more by the close of the fiscal year, bringing the stabilization fund to $1.5 million. The city also has $1,255,673 in free cash, Kelly said.

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