For the second time since June, Saugus will have to borrow money to pay its bills, including payroll and utilities, until winter property tax revenues are collected.
Officials expect to have to borrow $10 million in January to cover expenses. The state Department of Revenue won't let the town set a new tax rate, after Town Meeting last week rejected a $330,000 budget transfer to fund a new teacher contract.
"They have an obligation to fund the teachers' contract, and the money isn't there to do it," said Bob Bliss, a revenue department spokesman. "If the budget is not balanced, the law says they cannot set a tax rate."
State law requires a community to send out third-quarter tax bills by Dec. 31. If that deadline is missed, the law states, then taxpayers have until May 1 to pay their tax bills. When the bills will go out is uncertain, but what is clear is that the town has no choice but to borrow short-term notes to maintain cash flow, Town Manager Andrew R. Bisignani said.
"Until we can set a new tax rate and collect those taxes, this is all we can do," he said.
In early January, the town will issue so-called revenue anticipation notes to provide cash in advance of third-quarter tax revenues, Bisignani said.
"I don't anticipate us having any problems," he said. "But this will cost us money. We'll be paying interest on the notes. We didn't budget any money for that."
In June, as Saugus dug out from a $1.9 million budget deficit, the town borrowed $3.2 million in revenue anticipation notes. The loan was paid back in two installments, with $800,000 paid on June 29 and the balance in August, said Wendy Hatch, the town treasurer.
"We paid it back in a fairly short amount of time," she said. "It was the only way we could get past the end of the [fiscal] year, when we had a lot of big payments due in health insurance and pensions."
The financial news isn't all grim for Saugus, however. An audit for fiscal 2007, which ended June 30, showed the town made steady progress reducing expenses and managing revenues. "It looks like most of the deficits are fixed, or very close to being fixed," Frank Biron, president of Melanson, Heath & Co., an accounting firm, said at a public presentation of the audit findings last week.
But a $1.2 million employee-healthcare deficit for last year, plus ongoing losses at Kasabuski Arena, the town skating rink, remain challenges. The healthcare deficit must be paid out of this year's budget. "This is the only big deficit remaining," Biron said.
The state, which has monitored Saugus finances, agreed the town's condition is more stable than a year ago. Since then, the town has cut expenses, raised fees, and joined the state's health insurance plan, Bliss said.
"They've made progress," Bliss said. "They've taken actions, on both the expenditures and revenue side, that we required. They're within striking distance of a balanced budget."
On Jan. 1, the town will join the Group Insurance Commission, the state's health insurance program.
The switch, which required approval from a majority of the town's labor unions, is expected to generate $372,000 in annual savings, according to estimates.
The teachers' union, the town's largest, was the first to agree to join the group insurance program. Without its support, officials said, the town would not have been able to join the state program, a key step toward stabilizing long-term healthcare costs.
Bisignani proposed transferring funds from the health insurance account to pay for the switch, but Town Meeting balked, citing the potential for deficits in other town departments. Bisignani said he is now trying to identify other funding sources.
"We're looking at some options," he said, declining to identify them. "The town negotiated in good faith. We'll stand by that."
Kathy McCabe can be reached at firstname.lastname@example.org