LEBANON — The initial city budget proposal for next year would result in an estimated 4.6% increase in the municipal portion of the property tax rate.

In an overview of the spending plan, city administrators attribute the rising operating costs to a number of factors, including consumer inflation, the cost of labor and contracted services, and the need to upgrade and maintain public infrastructure to keep pace with the city’s growth.

“With a resident population of about 15,044 (and a) day-time population that has been variously estimated at 30,000 and 35,000 (people), that role comes with a cost, as demand for core and other services are high,” according to the overview.

The City Council will begin their annual budget preparation next week for the fiscal year that begins on Jan. 1. City Manager Shaun Mulholland’s proposal totals $144 million, with $24.6 million to be raised in property taxes.

The proposal increases total spending by 15% from the current fiscal year, including a 10% increase in the costs of personnel and departmental services.

The new estimated tax rate would be $9.38 per $1,000 of assessed property value, or the equivalent of $2,345 in taxes on a $250,000 home.

The anticipated 4.6% property tax rate increase would come at a time when home values in Lebanon are at a historic high.

A citywide revaluation last year reported that single-family homes increased in assessed value by an average of 27% since April 2021, while commercial apartment buildings — defined as apartment buildings containing four or more units — increased by an average of 55%.

The city’s home values have risen further since then, despite the slowdown in construction of new residential properties due to higher interest rates and skyrocketing costs of labor and construction materials.

Mulholland said in an interview this week that the city is planning to conduct another citywide revaluation in 2025 because the city’s common level of appraisal, or CLA — a measurement of the difference between a municipality’s assessment of property values and the actual market values of those properties — has exceeded the state threshold.

As of September, the median home sale price in Lebanon is $508,000, an 18% increase from the previous year, according to New Hampshire Realtors Association, a real estate resource provider.

Patrick Flanagan, a real estate agent based in West Lebanon, said that property taxes — as well as home and apartment prices — make it expensive to live in the Lebanon area.

“But (the taxes) are a circle that’s hard to break,” Flanagan said. “People, many who make good money, want to have good roads, good schools and police protection. So I don’t know the answer. The town is growing and the demands are growing.”

The municipal budget represents 37% of the revenues collected from the city’s local property taxes. Of the remaining tax revenues, 56% fund the schools and 7% pay for county services.

Mulholland’s budget proposal offsets some of the tax impact by appropriating $3.4 million in revenue from the city’s fund balance — a reserve of budget surpluses that were retained from previous fiscal years. The fund balance is intended to lessen the tax impact of future budgets, particularly in years with higher expenditures.

However, Mulholland said that the city needs to break from this practice of using the fund balance to stabilize the city tax rate because money from the fund balance is being depleted faster than it is being replenished.

According to the city’s own five-year fiscal outlook, the city’s rainy day fund is currently at $10 million and on pace to fall below $7 million by 2028, at which point it would be less than 15% of the city’s annual general fund.

State and federal budgeting agencies, including the New Hampshire Department of Revenue Administration, recommend that a municipality’s fund balance be at least 19-24% of the municipality’s annual expenditures.

In his presentation to the City Council, Mulholland will recommend that the city reduces or ceases its practice of offsetting the city tax rate using the fund balance. Instead, the city should primarily use the fund to offset the cost of capital projects, such as infrastructure upgrades and building repairs.

The budget proposal increases capital improvements spending next year by over 25%, from $41 million this year to $53 million. The primary driver of this increase is the proposed rebuild of the central fire station on South Park Street, a $22 million project that would demolish the existing facility and construct a new facility in the same location that meets modern operating and safety standards.

This project would be funded with a bond, which would not impact the 2024 tax rate. The city would begin repaying this bond debt in 2027.

The City Council’s first budget work session will take place on Tuesday at 5:30 p.m. in City Hall.

Information on the budget proposal may be  found on the city website at lebanonnh.gov/201/Budget-Information.

Patrick Adrian may be reached at padrian@vnews.com or 603-727-3216.