MADISON — Residents will be asked this week to take out a $2.5 million loan to cushion the impact of a huge cut in the property tax assessment of the town’s biggest taxpayer, a revaluation that will cut the bill paid by Madison Paper by 60 percent and increase property taxes on homeowners by nearly one-third.

Selectmen are also asking residents to dip into the municipal savings accounts by approving the use of undesignated funds and economic development money to ease the sharp tax increase on homes and businesses expected in the wake of the revaluation of Madison’s paper mill to adjust for the decline in demand for its product.

An informational meeting is planned for 7 p.m. Tuesday at the Madison Junior High School auditorium followed by a special town meeting.

“I would encourage people to come. We want them to know that there are a number of things we are working on to mitigate the effect of the drop in valuation at Madison Paper Industries,” said Madison Town Manager Dana Berry.

The reduction in the tax valuation of the mill, established at $229.7 million in 2013 but now valued at only $80 million, means local taxes must increase to fund the town, county and school budgets, all of which have already been set.

In order to prevent taxes from rising an estimated 30 percent, selectmen are proposing that the town establish a line of credit worth up to $2.5 million, a loan that will allow the town to spend, borrow and pay back the money as needed.

They are asking that the Board of Assessors use the loan funds to offset the cost of total appropriations and prevent any tax rate increase from exceeding more than $2.50 per $1,000 of assessed value.

The town’s current tax rate is $17.53 per $1,000 of assessed value.

Selectmen are also asking residents to designate $800,000 from the town’s undesignated fund account and $500,000 from TIF funds to help reduce taxes.

Tax increment financing, or TIF, funds refer to property tax dollars that a municipality can collect around a large infrastructure or economic development project for use only for other economic development projects.

There is a penalty associated with using the funds for other purposes, and the town would lose about $100,000 that it could otherwise collect from the state by moving the $500,000 in TIF funds to the general fund, as selectmen are asking.

“We have an immediate problem that we have to deal with,” said Al Veneziano, chairman of the board of selectmen. “In my opinion the board felt that it was worth the penalty to get some money to put towards this budget gap. We understand the penalty, and if the voters approve it, we feel it would be a good way to reduce the immediate impact.”

In addition to the items on the warrant for the meeting, selectmen have approved a 3 percent reduction in operating funds for the town in 2014-2015. The total cost of the cuts will be about $74,000 and will take place across all departments.

The board has also voted to eliminate $200,000 worth of capital expenses including road repairs and the conversion of town buildings to natural gas.

“None of this is ideal, but we have to do something that will give people a choice,” said Veneziano. “We have to give people a choice that will give them some relief. If voters don’t think it is a good idea, they have the right to not vote for it. We’re in kind of a crisis, and we’re trying to get through it.”

The town is hoping to set the tax rate by Sept. 17, depending on the outcome of the meeting, and will then send out tax bills on Sept. 18, said Berry. Taxes are due 30 days after commitment.

Rachel Ohm — 612-2368

[email protected]

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