FAIRFIELD — A proposed $5.4 million town budget won’t affect the property tax rate in Fairfield this year, but it relies on reducing the town’s surplus fund by more than $250,000 to make ends meet.

“That’s unsustainable, obviously,” Town Manager Josh Reny said Monday.

This is the second year in a row that the town has moved to draw down the reserve account, rather than approve a significant property tax hike or make deep cuts in spending.

For the past five years the town has maintained a flat budget by absorbing cost increases, retiring debts and making modest cuts.

Reny said hitting the reserve accounts now will allow the town to weather the worst of the sluggish economy. In the long term, the town hopes state revenue sharing, which has been cut dramatically in recent years, will eventually return to legally mandated levels.

“To be blunt, we’re in a holding pattern, waiting to see if our nation and our state come out of the recession,” Reny said.

The state reacted to its budget crisis last year by reducing state revenue sharing. State legislators are wrestling with another $40 million funding gap, and towns throughout Maine fear another cut to revenue sharing could be on the horizon.

The impact of the cuts have been significant to towns like Fairfield, which received $727,000 in state revenue sharing two years ago. That amount was cut to about $480,000 last year. Fairfield’s proposed budget for next year assumes that number will be further reduced to $400,000.

In a written statement, Christopher Lockwood, executive director of the Maine Municipal Association, urged the group’s 487 members to fight to preserve state revenue sharing.

“We have all seen consecutive years of forced property tax increases and reductions in municipal services,” he said. “The trend is bad and it may get much worse.”

Reny said the shift from state to local taxes hurts the elderly and those on a fixed income.

“The property tax is the most regressive of the taxes,” he said. “It’s placing more burden on those who have less ability to pay.”

In Fairfield, as in many communities, the loss will eventually translate into reduced services or increased taxes, rather than allocating money from the surplus fund each year, Reny said.

The town’s surplus fund, which has about $1.3 million, is higher than it’s been in years past but is still not at the $1.6 million recommended by the town’s financial advisers. The surplus fund acts as a cushion that allows the town to pay its bills without relying on cash flow.

In June, Fairfield voters approved reducing the fund by as much as $150,000 in the current budget to help cover state revenue sharing cuts. Just because the allocation is made doesn’t mean the fund will actually be drawn down by that amount. The money is used only as needed. If projections are better than expected by June, there is a chance the surplus funds won’t need to be used at all this year, Reny said.

For Fairfield’s upcoming budget, the first draft originally included a slight increase of $40,000, or less than 1 percent, but Reny said that increase is being scrutinized by members of the town council and the budget committee.

“There’s been some discussion about holding the line,” he said. If the budget is held flat, it would likely be at the expense of putting money into the town’s capital improvement accounts, Reny said.

There have been other slight changes in the budget but Reny said increases in health insurance and other expenses have been offset by increased revenues from new development and reductions in energy costs made possible by energy efficiency projects such as a switch to propane boilers and high-efficiency lighting systems.

The larger issue is how the town will react if state revenue sharing doesn’t come back.

“Either next year or the year after, we’re going to have to make substantial cuts of hundreds of thousands of dollars,” he said.

The Fairfield budget committee could make a final recommendation on the budget during a Feb. 19 meeting, according to Reny.

Matt Hongoltz-Hetling — 861-9287 [email protected] Twitter: @hh_matt