SOUTH PORTLAND – Budgeting for fiscal year 2015 got under way in South Portland last week, at a joint workshop of the City Council and the Board of Education, with one theme emerging – taxpayers should expect to shell out more in their next tax bills, perhaps a lot more.

On both the school and municipal sides of the ledger, officials blame the imminent increase on state government.

A $10-million shortfall in funding for education still exists from the unbalanced budget approved earlier this year by the state Legislature, said Superintendent Suzanne Godin. Plugging that gap will likely cost South Portland some subsidy dollars, while the formula used to calculate that aid is expected to drive state funding even lower. General Purpose Aid for Education is expected to cover 47.29 percent of the public school costs next year, as the state continues to struggle toward meeting the 55-percent level demanded by voters in a 2004 statewide referendum.

What is available is divvied up according to property values under the theory that communities with higher market values can afford to shoulder a greater share of the tax burden for funding public education. Education subsidies are always calculated using property sales two years in arrears. So, the current fiscal year, which used 2010 data, brought South Portland an $889,000 boost, because property values fell that year as the recession took its toll on the real estate market. The Maine Mall assessment, in particular, was reduced that year by nearly $32 million. By 2011, however, the local market was beginning to rebound, although the Mall did not return to its pre-recession assessment until 2012. Still, the expectation is that next year, state aid is likely to take as good as it gave.

“An increase in local valuation is going to lead to a reduction is state revenue,” said Godin.

Meanwhile, Godin said, health insurance costs for the school department’s 630 employees are expected to jump 8 percent.

“I’m trying hard to not say the world is falling in,” said Godin. “I don’t think it is, but there are some things that are shifting.”

Another factor expected to figure into next year’s budget increase is the amount that must be spent locally – about $3.4 million this year – because it is not covered in the state’s “essential programs and services” funding model, which predicts how many staffers each school district needs, based on enrollment.

Currently, South Portland has about 34 more staffers, not counting custodial staff, than the state says it needs, leading to a little more than $1 million in unsubsidized salary costs. However, school board members say the outsized staffing is not bloat. It’s based almost entirely on the fact that South Portland operates five elementary schools and two middle schools. Ideally, the state says, South Portland should have just four elementary schools and one middle school.

According to a study done three years ago by a specially convened local task force, closing an elementary school would carve about $400,000 from the annual school budget, while consolidating middle schools would save about $1 million.

Unfortunately, says Godin, the city’s elementary schools are not big enough to absorb the overflow if one was closed. The same problem exists at the middle-school level. And, while the new high school will have space for 1,100 students and only 860 currently enrolled, the extra space is meant to accommodate larger classes coming up though the grades, as South Portland seems to be bucking a statewide trend in declining enrollment. The upshot, said Godin, is that even creative solutions like moving Grade 8 to the high school is out the window when it comes to looking for ways to close a school building.

Another $1.5 million in unsubsidized costs comes from co-curricular and extra-curricular spending in excess of the $99,000 the state kicks in. However, the same task force found pay-to-play schemes for athletics to be a non-starter. It also rejected a proposal to save about $900,000 per year by outsourcing janitorial services.

The current school budget approved by voters in June is $39.6 million. However, the EPS formula claims $33.5 million would do the job. The difference between that $6.1 million and the $3.4 million mentioned by Godin is tied to debt service and other items the state would not pay for at all. But even reducing all budget lines to state allowances is not a discussion school board members are willing to have.

“If we were going to take South Portland to an EPS level of education, I would probably resign and walk away, because I certainly would not want to be part of that,” said Chairman Richard Carter.

While it’s too early for the City Council to give guidance to the school board on allowed budget hikes, or even demanding a gross reduction, which may come at the next joint workshop in January, it was clear that most councilors appreciated Godins’ lesson on how EPS is calculated, and why South Portland exceeds it.

“I got an education on education,” said Councilor Michael Pock. “I had no idea what was going on. From the way some people were going on, I was like, ‘Oh, my gosh, those school people are spending money like we’re printing it in the basement.’ I now see why.”

On the municipal side, City Manager Jim Gailey warned that the state budget includes a “$40 million hole.” If left unfilled by a special tax force created to close tax loopholes, the Legislature will likely bridge the gap by gutting local revenue sharing – the amount of the state sales tax kicked back to local communities – said Gailey.

For the current year, even with restorations made by the Legislature in anticipation of tightening loopholes, and a half-cent spike in the sales tax, South Portland saw a 30 percent, $651,000 cut in state revenue sharing. That’s a number that could grow next year, said Gailey, especially given a four-year trend in Augusta of raiding revenue sharing to boost the state’s general fund, reducing payouts from 98 percent of the statutorily required slice of the pie in 2009, to 56 percent this year.

Additional state study groups have been created to look at reducing unfunded mandates to cities and towns and to look for ways to eek some property tax dollars from exempt nonprofits. Still, Gailey, warned, the expectation of a solution that will have no negative impact on South Portland’s municipal budget is low.

Meanwhile, health insurance costs are expected to jump 3.3 percent for the city’s 280 employees, while contract negotiations expected to impact the 2015 budget are now under way with public works, parks and dispatch unions, and slated to begin next spring with bargaining units for police, fire department and transportation employees.

Additionally, Gailey says, several new positions are on the table, including seasonal help in the parks department, a city engineer, a sustainability coordinator, and rescue personnel sufficient to man a third ambulance. Also, there is talk of “adding pennies to the tax rate” to set aside and offset the amount that will eventually need to be borrowed for the new $16 million public services facility approved by voters Nov. 5.

In the end, both the City Council and the school board declared the workshop to be useful, if a bit foreboding.

“It’s been very helpful,” said Mayor Tom Blake. “I expect budget season will still be problematic, but we’re all better for this exercise.”