New London - While the mayor is proposing a one-time tax to raise millions for the city's savings account, the Finance Department will be providing an average rebate of $18 next year to property owners.

Finance Director Jeffrey Smith said Tuesday taxpayers are owed about $18 for overpaying a total of $204,000 in 2012-13 taxes. The Finance Department will build into next year's budget a credit to return the money to taxpayers, he said.

"It's the easiest way to do it," he said. "It's the fairest way to get the money back to the most people."

But as the Finance Department grapples with how to give money back, Mayor Daryl Justin Finizio is worried about how to raise money to replenish the city's fund balance. He's suggesting the City Council consider sending out a one-time supplemental tax bill to raise up to $6.3 million to rebuild the city's fund balance.

Council President Wade Hyslop called for public meetings on the proposal and for further discussions on other ways to raise money.

But Councilor Martin T. Olsen, the lone Republican on the council, said he would never approve such a tax.

"So there's no misunderstanding, I am not in favor of this," Olsen said Tuesday. "There's a multitude of things I don't like, and one is getting hit with a midterm tax, unexpected for many folks, and not affordable. People are stretched to the max as it is. This is asking too much."

The fund balance, which is the city's cushion to help keep cash flowing and to cover emergency and unanticipated expenses, has about $1.2 million in it. The council has a policy, adopted in the early 1990s, to maintain a fund balance equal to 8.3 percent of the budget. The fund, which is like a savings account, should be about $6 million.

Finizio said without a strong fund balance, the city will not get good ratings by bond companies, which means it would cost taxpayers more to borrow money. The city is eventually going to have to bond to build or renovate the high school and to replace its aging fleet of municipal vehicles, he said.

"I know this is an extremely difficult time, but responsible public leaders have a duty and obligation to go the public and tell them things they don't want to hear but need to hear," the mayor said Tuesday. "The simple truth is we need to replace fund balance and get the city out of financial danger."

Kevin Maloney, public relations director for the Connecticut Conference of Municipalities, said a supplemental bill to raise money for the fund balance has been done in other communities but is not common.

Municipalities can increase their fund balance in various ways, including saving year-end surpluses and creating a line item in the annual budget that would go directly to the fund balance.

"It's a strong, progressive move by the mayor," Maloney said Tuesday, reiterating the need for a strong bond rating to get good interest rates when borrowing money.

The proposed special tax would apply to all property owners. According to Finizio, a 1-mill increase would generate about $1.6 million in revenue; a 2-mill increase would be about $3.3 million; a 3-mill increase would be about $4.7 million; and a 4-mill increase would raise nearly $6.3 million. The proposed tax levy means a resident with $100,000 of assessed value would pay $100 for a 1-mill tax and up to $400 for a 4-mill tax.

An average single-family home in the city is assessed at $165,900. That property owner could pay between $165 to $663 in a one-time tax.

The tax rebate comes from an overpayment of taxes in the current budget.

Following the defeat of the budget at referendum in July, the City Council reduced the tax rate by 0.13 mills, to 27.37 mills. But tax bills have already been mailed out with the rate of 27.5 mills. The second half of the annual tax bill is due Jan. 1.

During a Finance Committee meeting Monday night, Smith said reducing the tax rate and recalculating all the tax bills, either before the bill is due in January or later in the year in March, would cost the city about $22,500.

"It would be an horrific task," Tax Collector Maureen Farrell told the committee.

The city has in the past re-sent tax bills and issued rebate checks when the budget was reduced. But the process cost more than $40,000, Smith said, and in some cases, checks that were cut to property owners are still not cashed.

"We have a practical problem," Smith said. "How much time and staff do we want to spend on this?"

The committee advised Smith to give out the tax rebate as long as the city law director saw no problem with it. Smith said he spoke with attorney Jeffrey Londregan Tuesday, who did not see any legal barriers to going forward.

k.edgecomb@theday.com