BELFAST - For over 20 years, the city has kept enough money in reserve to pay salaries, bills and other expenses during the gap between the end of the fiscal year and the arrival of the first tax receipts in October. But this year City Manager Joe Slocum said the margins may be tight enough to warrant taking a loan.

The City Council recently approved taking a tax anticipation note (commonly known as a TAN), and on Sept. 16 is expected to review bids from banks. The amount would be up to $4 million, but Slocum said the financial implications for the city in the long run would likely be minimal.

"The interest rate would be less than 1 percent because we would pay it back within the fiscal year," he said.

The TAN would act as a line of credit, against which the city could borrow up to the $4 million, including any smaller amount.

"If I only need 500 bucks, that's all I'm going to borrow," Slocum said.

The use of tax anticipation notes by municipalities is common according to Maine Municipal Association. The loans may coincide with a big project or simply be used to cover operating costs. The latter was the case the last time Belfast borrowed money in1992, according City Treasurer Rickie LeSan, who said the surplus was relatively small then.

Today she said, the total surplus -- often referred to as "undesignated funds" because the money is not socked away but used to pay expenses and replenished regularly -- is around $2 million.

From July 1 into October, that money has to cover not only city expenses, but payments to county government and the school district, which account for roughly 10 and 60 percent of property tax bills, respectively. LeSan noted that payments to Regional School Unit 20 are around $813,000 a month.

"So, $2 million doesn't get you very far," she said.

Not long ago, the city had more than $4 million in undesignated funds, but the reserves were drawn down between 2010 and 2012 to offset increases in the local share of the RSU 20 budget.

Up front payments on large grant-funded project have also pinched the city's cash flow, according to Slocum.

"We definitely have received more grants in the last three years than in the three years before that, and you do have to front that money and chase it down later," he said.

Slocum projected that by mid-January the city will have to shell out $400,000 in engineering fees for the planned reconstruction of Front Street. In a related expense, the city has agreed to buy a property on the corner of Front and Bridge Streets for $285,000.

The Front Street project is backed by a $1.9 million grant, so the city will be reimbursed eventually. But in the meantime, the city will have to front the money.

"This year, we think it's a little tighter," he said."Do we know that we'll borrow this year? I suspect we probably will."

Slocum noted that the lean budgets of the past few years have haven'tlent themselves to rebuilding the surplus, which either accrues unintentionally because money is left at the end of the fiscal year, or through a conscious "overlay" -- up to 5-percent, by law -- added to the budget.

Slocum said he expects to know by October 15 if he needs to go ahead and borrow against a tax anticipation note.

"We're watching it day by day," he said."Were trying to hold off on paying bills that we can, and hold off on any discretionary spending until taxes start coming in in October."

What does it mean if the city borrows money? Slocum said in real terms it will cost"a few thousand" in legal fees in addition to interest. Beyond that, he said, philosophies differ.

"Some people are proud to never have to use [a tax anticipation note]," he said, "[They]say, 'you don't know what's going to happen, so you should have a suplus in case some unforeseen expense comes along. But there are a lot of people who feel that if you have extra money, it should be in the taxpayers hands."

Ethan Andrews can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Let's discuss the steps you should take to navigate successfully the maze you'll go through before the house warming party.

This article will deal primarily with what most new home buyers consider to be the biggest stumbling block: the down payment.

Oh, so you didn't realize that you've actually got to have some money to borrow some money? There are a few exceptions to that rule and we'll talk about that later.

Generally speaking, the best rates, points and availabilities are for mortgages (home loans) that are for 80 percent of the value of the property. So, 20 percent down is required. If you're looking at a $250,000 home, you'll need $50,000 down.

Interest rates are still at historically low rates, you have a good job and you have a good credit score. Your first step should be to find a reputable, knowledgeable realtor to help you walk through this huge financial undertaking. They have access to most of the homes for sale in the area, mortgage bankers, brokers, property insurance connections and closing companies to legally wrap the deal up.

However, it's going to be up to you to come up with the money. I've bought several homes during my life and never once did the realtors offer to make my down payment. So, where do you go -- how do you begin -- and from what sources will you draw? Let's take the obvious ones first and work down to the less obvious.

1) Cash -- if you fall in that category, you can stop reading and proceed to "Go" and get your deal done.

2) Mom and Dad/Grandma and Grandpa Loan Company -- If your parents/grandparents have the money to loan or give you, that's great! But, brainstorm this with your realtor. Your mortgage company will most likely impute interest, calculate payments and add this to your DTI (debt to income ratio). This may decrease the size of the loan you'll qualify for.

3) CD's (Certificates of Deposit) or life insurance cash values -- Both of these offer loans on your principal at around 2 percent and offer very liberal pay back options. But be sure to understand fully the consequences if you die or default while the loan is in place.

4) Military -- The VA provides no down payment, government insured loans for active and retired member of the armed forces.

5) Your 401k -- This is the most controversial of the options because it is like "borrowing from Peter to pay Paul" (ask your parents -- they'll explain). But, in this case both Peter and Paul should be making money for you. A home down payment is a legal way to borrow money from your retirement plan without having to pay penalties and taxes. So you've made a loan but you're paying yourself back with interest. This is not an early withdrawal, it's a loan!

6) ROTH IRA and traditional IRA -- Remember when you opened your IRA? One of the advantages is you can take a qualified withdrawal from your account, without penalties, if you're a first time homebuyer (no home ownership in past two years).

All of these options will require some planning, explanation and determination of what's best for you. Contact your favorite Certified Financial Planner to help you understand these options and formulate the best direction for you to take financially. Other professionals to contact will be your CPA to help you with the tax consequences for your home buying decision (most mortgage interest is tax deductible) as well as the actuary that provides the administrative over-sight for your company 401k.

Happy house hunting and welcome to the "American Dream".

Joe Psalmonds, is a Certified Financial Planner and is a member of the Ark-La-Tex chapter of the Financial Planning Association, whose members contribute to this column weekly. If you have questions or topics you would like to see addressed in this space, email to This email address is being protected from spambots. You need JavaScript enabled to view it..

Reading Mike McInallys editorial of Sept. 8, I wonder if using CARA money to build the new fire/police facility is not just another way to borrow money, which has to be repaid out of taxpayer's pockets.

If I understand CARA correctly, it borrows money to pay for the CARA projects and pays the loans off out of increased taxes. However, with public projects there is no increase in taxes and therefore the repayment of the loan has to come from general funds or income taxes assessed against taxpayers. Would love to hear corrections to my thinking.

Chuck Leland

Albany (sept. 9)

Editor's note: General fund money is not used to cover urban renewal indebtedness for public projects; the future increase in value of the taxable properties within an urban renewal district is what pays back money used for public facilities.