Waterville’s new city manager, Nick Cloutier, has one big takeaway for residents as the city begins putting its budget together: It’s going to be challenging.

There’s a few reasons for this, only some of which are in the city’s control. Personnel-related labor cost increases are approximately $1.9 million year over year. Fiscal year 2027 will also be the first year the city is paying principal and interest payments on a bond taken out a few years ago, increasing the total debt services cost by almost $140,000. Finally, the city’s projected revenue share from the state is decreasing by about $500,000.

To balance these factors, Cloutier recommends the city cut $1 million from its municipal budget, and he has ideas for how to reduce costs for years to come.

The proposed budget for FY2027 is just over $67 million, $27 million of which would come from property taxes. The rest comes from other revenues the city collects and fees and services like permits and car registrations. Last year’s budget was approved at just under $63 million, and Waterville’s current mill rate, which calculates property taxes, is $17 per $1,000 of assessed value.

“My priority is just big picture: How to deliver the same services, if at all possible, that people have come to expect,” Cloutier said. “If there’s room for improvement, great, but don’t go backwards.”

For taxes, this means “as minimal an increase as possible to try and keep the services the same level.”

BUDGET CONSTRAINTS

When putting the proposed budget together, Cloutier assumed Waterville would receive a similar payment from state revenue sharing as it did last year, $6.6 million. But Waterville saw a significant change this year.

The state calculates revenue shares for towns using an intricate formula based on how they compare to the state as a whole in a number of areas. According to Gregory Olson, the state’s deputy treasurer, property value and property tax increases — or a lack thereof — are where Waterville differed significantly from the rest of the state.

From FY2026 to what’s projected for FY2027, statewide valuations, which measure the total market value of the taxable property, increased 9.5%, and assessments, which are the specific amount property is worth, went up 7.5%. The state valuation for 2027 relies on data from 2025, as the process takes about 18 months to complete.

By contrast, valuation in Waterville increased 17%, but the assessment only increased by 1.7%. For residents, this meant their mill rate decreased.

In FY2025, Waterville’s mill rate was $20, and saw a brief increase to $20.14 before it dropped to $17, which is its current rate.

This difference from the state means less projected revenue sharing, because the state’s system is designed to reward efficient (higher) tax revenue.

Waterville also accounted for a larger share of Kennebec County’s value than expected this year, which means the city’s payment to the county is projected to increase by $200,000, or 15% over last year. Cloutier said that is another constraining factor, along with debt service.

The city took out a bond in 2024 for just under $5 million to pay for sidewalk paving and reconstruction, an ambulance upgrade and a plow truck among other capital acquisitions and improvements. Last year, the city was only paying interest on the debt owed, but this year it must make interest and principal payments. This means the projected net cost of debt services, about $1.9 million, is up from last year.

Finally, the city’s current proposed budget relies heavily on fund balance — the difference between assets and liabilities, available to the city if it’s at least 12% compared to the full budget.

Mayor Michael Morris identified an over-reliance on fund balance as “the core problem” with the budgeting in his memo to the council. The city relied on this balance last year to reduce the tax levy, and in its initial budget proposal for this year, suggested using $2.75 million.

Now Cloutier and Morris said the goal is to hold the line. The budget proposal suggests using $1.75 million in fund balance, the same as last year.

“In prior years, I’ve seen that such large numbers were used at times,” Cloutier said at the city’s first budget workshop meeting. “But in dialog with the mayor and city staff, we realized that its likely not a sustainable path to keep using the highest amount that we can … scaling back a full million to match last year’s is where we’re starting this.”

To decrease costs in the future, Cloutier said an immediate change to the hiring process is now in effect. Position’s may not be posted or filled without meetings with HR and Cloutier said departments must assess their vacancies, and figure out if they really need filling.

WHAT’S NEXT?

The proposed budget would see a 24.84% increase in the city’s tax commitment, and with no changes the tax rate would increase from $17 to $19.04 per $1,000 of assessed valuation. Annual taxes would increase by 12.01%, and a median priced home would experience an estimated bill change of $459.

If the city manages to reduce the budget by $1 million, Cloutier said this could be brought below 8%, bringing the mill rate to $18.34 and the estimated tax bill increase over this year to $302, based on the median home price of $225,000.

The city’s first budget workshop on April 2 included a review of the city’s customer service, finance, public works, parks and recreation, Pine Grove Cemetery, fire and EMS and police departments.

To reach the $1 million target for cuts, the city’s largest departments will face steep reductions, while smaller departments already working with lean budgets will feel the impact as well. Councilors discussed the difficulty of the reductions, high gas prices and ways the city might cut overall spending.

Public works, fire and police account for the highest budget lines. The fire and emergency services department would need $210,817 in net cuts, police and public safety communications would need $297,956 in net cuts, and public works would need to cut $199,154.

At the workshop, these departments discussed programs that could be cut, with annual bulky waste pick up standing out in Public Works, and new ways to generate revenue — like charging Waterville residents for unpaid EMS bills.

Departments plan to work on their budgets in the coming weeks as workshops continue. The next workshop is set for 6 p.m. Tuesday in city council chambers at 46 Front St. in Waterville, and the municipal and school budget public hearing is planned for 6 p.m. April 23. The city will vote on its budget in early June, and the mill rate is expected to be set in August.