STAMFORD -- Limiting next year's tax increase to no more than 1 percent could mean service cuts for residents, said city officials, who pointed to an already overburdened balance sheet in the face of a new fiscal guideline which aims to ease the tax burden.

The strongly worded recommendation from a divided Board of Finance, the city's last word on the tax rate, advised the mayor and the schools superintendent to strive for a property tax increase below 1 percent -- about $4 million in this year's $404 million gross tax levy -- as homeowners await an economic rebound.

But the education budget faces a slightly less dismal picture as favorable contract arbitration will keep salary costs down.

The finance board passed the resolution at its Dec. 10 meeting, marking the first time since 1990 the city has attempted to set an acceptable tax increase, then mold departmental and Board of Education budgets to match.

In the midst of his first budget season, Mayor Michael Pavia said he didn't expect the strict directive before a more accurate picture of fixed costs was determined.

"It was pre-emptive -- there's no question about that, but they wanted to make it loud and clear that this was their expectation," said Pavia, who declined to say if a 1 percent increase was realistic, instead focusing on alternatives such as renegotiating outside contracts and internal restructuring.

Board of Representatives President Randall Skigen had harsher words

for the action.

"I thought it was ill-conceived. I thought it was certainly premature and I thought it may well exceed any authority granted to the Board of Finance," Skigen said.

Board of Finance Republicans Joseph Tarzia and Bob Kolenberg, who championed the move, said the city's main priority this year should be tax relief and bluster that it can't be done is an excuse, Tarzia said.

"If it takes restructuring the budget, then that's what it takes," he said. "The taxpayers have sent a clear message and we can't force these people out because we created a government we can no longer afford."

The problem with setting the overall increase before the departmental budgets are presented is the variety of unknown factors, Skigen said.

Four city unions -- United Auto Workers, Dental Hygienists, Municipal Supervisory Employees and Teamsters unions -- remain in arbitration over contract disputes after the elected boards rejected a contract extension that would have given the employees 2 percent pay increases and extend no-layoff agreements into 2011.

State mediators moderate contract talks, evaluating both the economic climate and the city's "ability to pay," City Attorney Michael Larobina said.

While at first glance it may seem like Stamford could afford the $830,000 in pay raises, the "city is not an open wallet, by any means, and right now, the Grand List is flat, it's moving nowhere," Larobina said.

On July 1, the start of the next fiscal year, 7 city unions will see 3 percent salary increases that were offset by furloughs this year -- impacting the annual tax rate by more than $1.5 million, nearly 0.5 percent of the gross tax levy.

In addition to union obligations, Skigen added, the city is facing about $3.7 million in retirement health benefits -- $1.6 million increase from this year's budget.

Peter Privitera, the director of administration, said he is expecting nearly a 10 percent increase in city medical insurance, necessitating a $3.7 million infusion.

Those obligations equal $6.8 million -- close to a 2 percent increase on the municipal side alone -- and that's not counting contractual increases the arbitrators might award the four unions plus the 2 percent pay increases for the police and fire departments.

The education budget, which makes up half of the city's total budget, needs about a 4.5 percent increase each year to maintain itself, because of contractual increases and rising costs, Schools Superintendent Joshua Starr said.

Last year, after going through three votes by the school board and other city boards, his initial request of $228.6 million was reduced to $219.4 million, a 0.37 percent increase over the previous year.

The resolution "gives me some parameters to work in and that is always appreciated," Starr said, but qualified, "The continued underfunding of Stamford Public Schools hinders our ability to provide the programs and services our community expects and our children deserve and need."

However, an arbitration award released last Monday allows the school board to step closer to a 0 to 1 percent increase by freezing teachers salaries and step movement for 2010-11. This means a savings of $5 million, just over 2 percent.

On the downside, however, Starr said he anticipates that state re-imbursement on some special education costs to decrease.

Jerry Pia, the head of the school board's Fiscal Committee, embraced the move by Board of Finance members to set a number in advance.

"I have been saying the same thing for years," he said. Pia said that he anticipated putting together a request with an increase between 0 and 1 percent, but definitely no higher than 2 percent.

"We're going to try to get down as low as possible," he said. Even so, he said, the board needed to find a way to bring down some classroom sizes.

Wendy Lecker, co-president of Parent Teacher Council, said the resolution could be problematic for city services.

"I understand the Board of Finance definitely has a responsibility to keep taxes low, but they also have a corresponding duty to make our public institutions and our infrastructure viable," she said. "The guidelines are good but it is a little bit troubling they have a fiat before hearing the needs of the city."

The only way to achieve such an optimistic increase is to radically cut the budget and the services that carried within in, Skigen said.

Without cutting public safety funding, the Office of Operations, the second largest portion of the municipal operating budget, is the area that would be impacted the most, he said.

The office oversees garbage and recycling collections, road repair and maintenance and recreational programs.

"I think we still need to plow streets when it snows and I think we still need to pick up garbage," Skigen said. "This would put programs like that not in total jeopardy, we'd get our garbage picked up every couple weeks and not see the streets plowed in the timely fashion that citizens expect or have a right to."

Ernie Orgera, the director of operations, agreed that the directive could mean drastic cuts for the department, though he won't to what extent until the fixed costs and finalized.

The office is trying to prepare a zero-increase budget, Orgera said.

"We're not asking for any new major programs, we're looking to shift personnel to reduce overtime, and we're cutting overtime," he said. "We're just praying that things work out well. We're going to do everything we can to continue giving taxpayers those services."

-- Staff Writer Devon Lash can be reached at 964-2242 or devon.lash@scni.com or 203-964-2242. Staff Writer Wynne Parry can be reached at wynne.parry@scni.com or 203-964-2263.