Bangor council to consider credit reserve fund

BANGOR – City councilors will consider on Monday night a proposal to set aside a pot of money for leaner times.

Proposed by Councilor Richard Stone, the measure would require the city each year to set aside 5 percent of the tax revenue generated by new construction. The money would be placed into a credit reserve for use in the leaner times many believe are just ahead.

While the council could adjust the percentage during budget deliberations, “It does make you make a conscious decision” to set aside money for times of need.

The exception would be for the $131 million gaming and hotel complex that Penn National Gaming Inc., the parent company of Hollywood Slots at Bangor, is building on Main Street. The tax income from that project already is earmarked for a new arena to replace the aging Bangor Auditorium.

Though Bangor is experiencing a flurry of construction activity – both on the residential construction front and in terms of a number of “big box” stores that are now in the works – such economic realities as spiraling fuel costs affecting the price of just about everything suggest the good times might not last much longer.

Based on the construction projects now under way and on the drawing board, 2011 could be the year that “the chickens are going to come home to roost,” according to Finance Director Debbie Cyr.

Councilor Stone said recently that he proposed that the city establish the fund out of concern about the city’s ability to increase its operating budget to meet city needs under the LD 1 tax cap, a statewide property tax reform initiative that took effect two years ago.

“The city’s going to have a serious problem with all the obligations out there,” he said. “I didn’t want us to wake up one morning and find out we were in a pile of hurt. … I want to see a future for Bangor for a long, long time,” said Stone, a Bangor native who plans to stay here for the long haul.

City Manager Edward Barrett said this week that the fund would allow the city to cover increasing operating costs without increasing its tax rate or by reducing tax rate increases.

Based on new construction from the last four years, the city could have set aside $32,000 to almost $95,000 a year had the policy been in effect, according to city documents related to the proposal.

Complicating the situation for city officials is that the need to continue providing public services – ranging from public works and police and fire protection to education – isn’t expected to decrease any time soon. The city’s ability to grow its operating budget to meet those needs is hobbled by LD 1, which aims to ease the local cost burden on the school side of the ledger by providing more state money while curbing municipalities’ ability to increase taxes.

Under LD 1, Maine municipalities are limited as to how much their tax levy can increase from year to year based on the percentage increases in Maine’s average “real income” growth for the previous 10 years and increases in each municipality’s total assessed value resulting from new development. To that end, the tax levy increases fluctuate from year to year. In at least one year, namely 2005, real personal income actually decreased from the previous year, according to statistics from the State Planning Office.

As Stone sees it, the credit reserve fund will be a piggy bank that’s harder than most to raid, given that it can’t be tapped without the support of a council majority and a public process.

He noted that indirect benefits from the proposed reserve account include maintaining or improving Bangor’s bond rating, which has a bearing on how much interest the city has to pay when it issues general obligation bonds.

As of this week, passage of the measure appeared likely. The concept was well received last week, when it went before the council’s finance committee.

“I’m in general agreement that this is not a bad idea,” Councilor Gerry Palmer said during the committee meeting. He asked, however, why 5 percent was recommended and not some other amount.

Barrett said 5 percent “is a good number,” one that is “not so large that it would become painful.”

City councilors will decide if they want to establish the credit reserve fund during their next regular meeting set for 7:30 p.m. on Monday at City Hall.