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AUBURN — A low fund balance could have city councilors making tough choices this year, sacrificing the city’s bond rating or services for lower taxes.

Finance Director Jill Eastman gave councilors an updated report on the city’s fund balances, the money set aside for emergencies.

According to the annual report, released earlier this month, the fund balance is about half of where it should be according to city policy. Monday, she explained those numbers in more depth.

Auburn’s budget policy calls for the city to maintain about 12 percent of its annual expenditures in an unassigned fund balance, enough to run the city for about a month and a half.

Eastman said the city currently has more than $8 million in its total fund balance, about 10.2 percent of annual expenditures. But that includes both assigned money — reserved for budgeted items but not actually spent or workers’ comp insurance, for example — as well as unassigned money. For the 2015 fiscal year, the unassigned balance is $4.97 million.That’s about 6.3 percent of the annual expenditures, and the city would need to bank about $3.5 million to get it built back up.

Eastman said the low balance could hurt the city’s bond rating, although it has not yet. The city’s current rating is AA- from Standard and Poor’s Rating Service  and Aa3 from Moody’s Investor Services. Both are unchanged compared to last year, she said.

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“Every time we do a bond issue, I have to speak very closely with both Moody’s and Standard and Poor’s and they look at our fund balances very closely,” she said. “So I don’t recommend that the city reduce our fund balance amount, although I don’t think it’s necessary to increase it to 16 percent.”

Last year, the council used $1.65 million from the fund balance to buy down the tax rate. Not using anything from the fund balances this year could add 82 cents to the tax rate, she said. That could mean a tax bill of $123 more on a $150,000 home.

Councilors will have to choose this year if they want to build up the fund balance and protect the bond rating, cut spending or let taxes increase.

Councilor Bob Stone said the fund balance should be about 12.5 percent.

“If it were down 1 or 2 percent, I could buy it,” Stone said. “But 6 percent, I just cannot buy. I think now the question is, what are we going to do? How do we get from 6 to 12.5 percent?”

Eastman said she and City Manager Howard Kroll have talked about instituting a hiring freeze and lowering spending for the remainder of the fiscal year.

“But we seriously need to stop using the fund balance to balance the budget,” Eastman said.

Councilors said they want to hear more details at their next meeting.

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