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By Hiroko Sato

MediaNews

PEPPERELL — Selectmen are expressing strong concerns about the ongoing merger talks between the North Middlesex and Lunenburg school districts, saying the town cannot afford to borrow tens of millions of dollars to construct a new high-school building.

Selectmen, in a letter to North Middlesex Regional School District officials, urged the School Committee to “fully explore” ways to renovate the high school, including a “performance contract” for energy-efficient equipment, before discussing a merger with Lunenburg,

The board also asked that North Middlesex officials provide a comprehensive financial report, after Moody’s Investor Service downgraded the town’s bond rating, citing the growing school tax burden on the residents.

School spending has already caused the town’s savings to be significantly drained, and any further budget increase would easily result in a budget shortfall of $500,000 or more — a hit the town could not take, according to selectmen.

The board urged the School Committee to cut its budget this past spring, specifically out of concern over the bond rating, Selectman Joseph Sergi said.

“It was ignored by the School Committee and the school superintendent, and here we are today,” Sergi said. “We saw this coming.”

Selectmen asked the district to start drafting its fiscal 2012 budget as soon as possible. It also requested detailed staffing and a slew of other information for both fiscal 2010 and 2011.

The letter followed Moody’s decision to lower the town’s bond rating from Aa2 to Aa3 — a move that could cost the town a lot more to borrow money in the future.

“In reviewing the report, the major concern is the persistent structural deficit that plagues the town of Pepperell and the need to draw down reserves in an alarming rate,” the selectmen wrote in the letter. “Moody’s specifically mentions the pressures placed on our operational budget as a result of North Middlesex Regional School District’s budget requests.”

The School Committee adopted a $40.9 million budget for fiscal 2011, down from $41.9 million last year. Nonetheless, Pepperell’s assessment has increased by $64,313.

According to Town Administrator John Moak, the town’s assessment for the regional school district has steadily increased over the years, from $9.69 million in fiscal 2007 to $11.29 million in fiscal 2011, while the municipal operating budget has decreased from $8.04 million in fiscal 2007 to $7.3 million in fiscal 2011. That forced the town to dip into its free cash and stabilization accounts and other types of reserve funds, Moak said.

In 2007, the town reserve fund totaled $5.36 million, and now it’s $1.59 million, including just above $600,000 in the stabilization fund.

To receive a good bond rating, a municipal government must have a stabilization-fund balance equaling 5 percent of its operating budget or more, Moak said. That translates into above $1 million for Pepperell.

According to Sergi, the school district said earlier this year that it would rearrange its administrative positions to save money.

“Now we need to find out what kind of administrative savings have been achieved, and we are asking to itemize them,” Sergi said.

School Committee Chairman Arnold Silva and Superintendent of Schools Maureen Marshall could not be reached for comment. Marshall wrote in a letter to selectmen, however, that the district is starting the budgeting process two months earlier this year.

She added that she could not provide accurate information to the selectmen by their deadline of Aug. 30 because of ongoing staffing issues and the appointment of a new finance director, but will submit the report by Sept. 30.