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PEPPERELL — A financial forecast presented to selectmen last week by Town Administrator John Moak is not the doom- and-loom deficit scenario predicted a few weeks ago.

A $400,000 shortfall that has often been mentioned by selectmen and an extreme estimate of up to $1 million made some weeks ago at a joint meeting of the Finance Committee and Selectmen has dropped substantially.

Moak reported that his “finance team” — consisting of Treasurer Michael Hartnett, Assessor Susan Smith, Accountant Thomas Wilson and himself — had derived an estimated $325,000 shortfall then whittled the prediction down to $75,000.

The deficit-reduction scenario did not affect the town’s $600,000 Stabilization Fund and just $50,000 of the current $490,000 in the free cash account would be used.

Moak started with a zero increase to all expenses except health-care costs. Unemployment costs will be cut $25,000. Bonded debt payment has dropped $123,000.

Revenue to fund the 2011 budget will come from property taxes, which will increase by the 2.5 percent allowed under Proposition 2 1/2 (including that from last year’s $647,000 override that is now a permanent part of the budget). He added in an estimated 1.25 percent tax revenue increase ($125,000) in new growth (i.e. new houses) and use of another $200,000 from the retirement fund.

The remaining $325,000 deficit estimate can be dropped to $75,000 through four steps, he said.

Local revenue will likely increase by $75,000. The free cash account would be tapped for $50,000. Another $50,000 could come from an “overlay surplus” (money waiting for tax abatement proceedings), and $50,000 more than the pre-planned $200,000 would be taken from the retirement fund.

“These are solid figures except for new growth. We think we can get something out of that with compromising,” Moak said. “We’ve collected $30,000 more than last year in excise taxes.”

“This does not include the school cost increase or decrease, but it does include the drop in debt service,” Moak said.

“There was a headline a few weeks ago stating we have a $1 million deficit. That’s not true,” Selectmen Chairman Joseph Sergi said. “We must be careful what message we send to the public. Things are still very fluid. We don’t want folks upset with the finance team. This is a forecast.”

Selectman Patrick McNabb reaffirmed that a total of $250,000 will be used from the retirement account, adding, “I want to protect that because last year we stole $418,000 from it.

“The big thing I’m going to harp on is confidence in the numbers,” he said.

As for school costs, Sergi said, “Pepperell has asked that $350,000 be dropped from its assessment. The debt service has already decreased $123,000. It goes back to giving good information to the public.

“No one spoke (to the debt service drop) at the school committee (meeting last week). I’m waiting for it to come out,” Sergi said.

Meanwhile, he added, Governor Patrick has made a commitment not to cut school aid for 2011. Pepperell, being part of a regional school district must fund school transportation (charging a fee is not allowed in regional districts). Pepperell receives about $1.319 million in local cherry sheet state aid.

Moak said that the alternate five percent cutback budget department heads have been asked to submit would come within $34,000 of solving the projected $325,000 deficit.

“My first reaction to the budget is that someone should rank what can be cut without layoffs and making less painful cuts,” McNabb said. “If 10 things totaling $50,000 can be cut it makes sense.”

That would, Selectman Joseph Hallisey said the team’s work should, “Dovetail nicely into what the Finance Committee is doing. We are extremely fortunate the Finance Committee is populated by very intelligent people.”

Hallisey, who is selectmen’s liaison to the FinCom, said the committee has asked him for Board of Selectmen’s input.

“I suggested ‘proceed’,” Hallisey said.

Selectmen delegate Moak to report cutback priorities without staff reductions to the FinCom or, if necessary, more significant cuts.

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