GARDINER — City Manager Scott Morelli unveiled a city budget to councilors Wednesday night that would increase property taxes by 3.4 percent, a larger hike than the combined increases in the last five approved city budgets.

With the proposed school budget included, that would mean a 5.8 percent tax increase, or a $177 increase on the median home in the city valued at about $147,000, Morelli said.

The city has faced budget shortfalls of around half a million dollars in recent years, and Morelli told councilors he thinks this is the year to finally “bite the bullet” and raise taxes more substantially.

Last year, councilors approved a city budget to raise taxes by 1.5 percent with a total increase of 4 percent when including the school budget. Because the city had more new value than anticipated, it turned out to be a 3.5 percent overall increase, Morelli said.

That was following three out of four years of flat taxes from the city’s budget.

If Morelli’s proposed budget and the proposed budget for Regional School Unit 11 are approved, the tax rate will increase from $20.60 per $1,000 of assessed value to $21.80 per $1,000 of assessed value. For a home valued at $100,000, the tax bill would increase from $2,060 to $2,180.

However, Morelli said Thursday he’s expecting councilors to want to make tweaks to the budget before it goes to a public hearing. The budget will likely be discussed at the next several council meetings, he said. Council has to hold two public hearings before approving the budget for the fiscal year beginning July 1.

The reason for the tax increase and budget shortfalls, Morelli said, is that the state hasn’t fully funded revenue sharing since before 2009. State law requires the state to give 5 percent of tax receipts from sales, services, and personal and corporate income to municipalities to help ease the tax burden on residents, but town and cities will receive only about 40 percent of that this year. Morelli’s proposed budget assumes revenue sharing will be flat funded next fiscal year.

Gov. Paul LePage’s proposed two-year budget unveiled in January would eliminate revenue sharing starting July 2017, but that portion of his budget has been met with stiff resistance from lawmakers. Earlier this month, the Legislature’s Taxation Committee unanimously recommended the state continue providing $62.5 million in revenue sharing to municipalities for the next two years.

In Gardiner, the city would receive around an additional $565,000 if revenue sharing is fully funded, according to Morelli.

“Unfortunately, either we cut services or do a tax increase, and I’ve opted for the latter,” he said.

There aren’t any major changes in Morelli’s proposed budget, which includes only a 1 percent increase in the city’s operating budget. The city will save about $70,000 this year thanks to a reorganization of its planning and front office staff. The deputy clerk and economic and community development positions were eliminated after the two employees left last year. Since 2010, Gardiner has reduced City Hall staff by 35 percent, all through attrition, Morelli said.

Unlike last year, Morelli isn’t recommending using any of the city’s fund balance to offset the tax burden. Last year, councilors approved using $272,000 in reserve funds to mitigate the tax increase and about $150,000 wasn’t used, he said.

Capital improvements recommended by Morelli include about $120,000 to replace breathing apparatuses for the fire department, $91,000 to replace the City Hall roof and $223,000 to replace a plow truck for public works.

Besides what the city will receive from the state, another unknown in Morelli’s budget is how the Ambulance Advisory Board, made up of the eight communities in the city’s ambulance service, will find $135,000 in cuts or new revenue to avoid a steep increase in fees.

Gardiner Ambulance Service provides emergency medical service to Chelsea, Dresden, Farmingdale, Gardiner, Litchfield, Pittston, Randolph and West Gardiner and brings in revenue by billing individuals and their insurance companies for service and through fees charged to all eight communities.

The city hired a consultant last year to find out why revenues in the city’s ambulance fund had been falling short of projections by as much as $100,000 the last several years. The billing changes implemented last year have increased revenue, but the fund still has a shortfall.

Morelli said Fire Chief Al Nelson will be meeting with the ambulance board next week to find ways to bring the projected increases to the communities down to 11 percent from the 86 percent they would see otherwise.

Paul Koenig — 621-5663

pkoenig@centralmaine.com

Twitter: @pdkoenig