New London - The group Looking Out for Taxpayers has sued the city, alleging the municipality is illegally collecting taxes and paying its bills because it does not have an approved 2012-13 budget.

LOT, according to a lawsuit that was served on the city Tuesday, says the city is operating in violation of the city charter.

City residents rejected the $42.3 million budget in a September referendum. The budget was reduced by $1 million, but residents, still not satisfied, filed a second petition for a referendum.

In November, the seven-member City Council accepted the second petition. The city charter requires the question be put to a vote at the next municipal election, which is this coming November. The council tried to move the vote up to December 2012 but did not have the required five votes to schedule the special election.

Because the vote will take place four months after the close of the fiscal year, LOT is alleging the city does not have an approved budget.

"They (city councilors) created a constitutional crisis in the city,'' said Attorney M. John Strafaci of New London, who is representing LOT, which is listed on the lawsuit as Lower Our Taxes. "They are illegally spending money."

The lawsuit names the city, Mayor Daryl Justin Finizio, Finance Director Jeffrey Smith and all seven city councilors: John Maynard, Donald Macrino, Wade Hyslop, Michael Passero, Adam Sprecace, Marie Friess-McSparran and Anthony Nolan.

The plaintiffs are Susan Plunket, Dwight Gross, Avner Gregory, Andrew Lockwood Sr. and Barbara Hample.

The biggest issue, according to Strafaci, is whether the city can spend more than 25 percent of its budget if there is no approved appropriation ordinance in place, as is stated in the city charter. LOT also alleges that because the council accepted and validated the petition, a budget is not approved until a citywide vote takes place.

City Attorney Jeffrey Londregan did not respond to a request for comment.

The lawsuit is seeking "fair, just and reasonable damages," attorneys fees and costs. It is also asking the courts to clarify that the 2012-13 budget is not valid until it is voted on by residents this November.

It is also asking the court to issue a temporary or mandatory injunction to stop the city from collecting taxes until after the referendum.

Strafaci, who is a former city councilor, said the lawsuit will take time to wind its way through the courts, and no decisions will be imminent.

But the outcome could affect future budget cycles, he said.

"The most important thing is this issue needs to be clarified,'' Strafaci said. "The right to vote in a referendum is one of the most important rights for the citizens of New London."

k.edgecomb@theday.com