PRESQUE ISLE – City officials may join forces with two other communities in the state and the Maine Municipal Bond Bank in challenging the validity of the Palesky tax cap.

Councilors discussed during their Monday night meeting a recent proposal they received from the Maine Bond Bank, according to City Manager Tom Stevens.

The bank plans to file litigation against the state tax assessor and selected municipalities to challenge the tax cap if the referendum is approved. The bond bank has asked the communities of Presque Isle, Old Town and Bethel to become three participants in the suit, should the tax-cap legislation receive a majority vote this November.

The Maine Municipal Bond Bank provides financing programs and municipal bonds to Maine municipalities, school systems, county governments and utilities districts.

The reason for the suit would be twofold, a lawyer for the Maine Bond Bank explained in an Oct. 1 letter to the three municipalities. The suit would help to “determine the constitutionality of the legislation as it pertains to outstanding municipal debt in various categories” and it would “seek clarification from the court system as to the meaning of the new law if the new law is not declared unconstitutional,” James Mitchell said in the letter.

Stevens said Tuesday that, the way he understood it, the tax cap could have severe repercussions for communities who need to borrow money from the bond bank.

“When a community borrows money [from the bond bank], we sign on documents saying that we’re putting the city’s full faith and credit toward the repayment of the bond,” he said.

Communities typically raise taxes to pay back the debt, but that may not be possible if the tax cap is approved, the city manager said.

Presque Isle has $400,000 a year in debt repayment on the line, should voters approve the tax cap, he said.

If the city chooses to participate, the bond bank has proposed to pay counsel fees for the suit.

If the referendum is not successful, the bank will take no action and the city will not be liable for any costs or expenses of preparation for litigation.

The council generally seemed to be supportive of the proposal, Stevens said, though officials asked the city solicitor to review the matter. Councilors will take up the issue again at their Oct. 18 meeting.