WATERVILLE — City councilors unanimously voted against the city’s budget proposal at its first reading Tuesday.

The rejection came after councilors disagreed on whether to use an additional $250,000 in undesignated fund balance — made up of leftover taxpayer money from prior years — to reduce the burden on taxpayers. City Manager Nick Cloutier recommended doing so, but councilors were split. Mayor Michael Morris broke the tie, voting not to pull the additional money from the fund balance.

Without the disputed $250,000, the town’s tax rate is expected to increase by 6.3%, bringing the town’s mill rate from $17 per $1,000 of assessed valuation to $18.07.

That would mean a $241 increase in taxes on the median home value of $225,000. Using the additional funds would reduce that number by $40, as the increase to property taxes would reduce to 5.3%.

“Increasing this is moving in the wrong direction,” Morris said. “I think that we could use this fund for things that are fixed-cost, not recurring costs.”

Undesignated funds are generally set aside for unforeseen, one-time expenses and capital improvement projects. At the meeting, some councilors expressed concern that the city relies too much on the fund balance, while others worried that the city is collecting too much without it benefitting taxpayers.

The city’s portion of the undesignated fund has increased by nearly $4 million since 2020, but that is largely due to new revenue streams, grants and differences in cashflow the COVID-19 pandemic caused, said city Finance Director Christina Therrien.

Despite the fact the city plans to use the fund to cover budget expenses every year, Therrien said, this year is the first where the city has actually used the fund since 2017. In other years, costs were offset by departments underspending, unexpected revenue streams and revenue sharing from the state, which has allowed the fund to grow. The growth, she said, is not a sign of the city overtaxing.

Cloutier and Mayor Michael Morris said at the outset of the budget process their goal was to hold the line on fund balance use. As of a May 14 budget workshop, the city had identified nearly $1 million in municipal reductions to its budget and planned to use $1.75 million from what Therrien expects will be about $4 million in available undesignated funds, the same amount it used in this year’s budget.

Of the $1.75 million it budgeted for, Therrien expects the city will have spent about $500,000 by the end of the fiscal year.

Councilor Spencer Krigbaum, D-Ward 5, said he’d like to see the fund grow enough that the city could make a massive repaving effort, or make infrastructure upgrades. He wants to grow it as a nest egg that could be used for particular projects.

“The fund balance is to give us a growing source of funds, with which we can do projects within the city without needing to bond or to put that burden on taxpayers in other ways,” Krigbaum said. “We’ve been overusing it, in my opinion.”

Morris said he doesn’t want the fund to grow and would like to use it to pay for or enhance existing projects. Councilor Rebecca Green, D-Ward 4, agreed, but wants the money to go back to taxpayers.

“It keeps growing, and that is taxpayer money,” Green said. “I think that we should use it to offset any tax increase.”

Green and Councilor Cathy Herard, D-Ward 7, both said they want the city to gradually reduce its reliance on the fund balance after using it to lower the tax levy next year.

Councilors Brandon Gilley, D-Ward 1, Scott Beale, D-Ward 6, and Krigbaum all voted against using the additional $250,000 to reduce the tax levy, while Green, Herard and Councilor Flavia DeBrito, D-Ward 2, voted to accept the city manager’s recommendation. With Councilor Samantha Burdick, D-Ward 3, absent, Morris’s tie breaker meant the council rejected the recommendation.

Former mayors Karen Heck and Nicholas Isgro both criticized the decision, and urged the council to vote against the budget as it stood. Green, DeBrito and Herard were visibly surprised by their fellow councilors’ votes, and the council unanimously rejected the budget as amended.

Morris attempted to revive the discussion, but with the budget order dead, the council adjourned.

Beale asked Cloutier to find $250,000 in cuts elsewhere in the budget before the next meeting, and DeBrito asked for clarification on which positions could be funded by Municipal Tax Increment Financing, or TIF. Earlier in the meeting, the council discussed making a number of open positions part-time on Cloutier’s recommendation.

The city council plans to meet next at 6 p.m. June 16 in the City Hall Annex on Front Street.