Preston — A proposal by the Board of Finance to use $740,000 from the town's surplus fund to offset a tax increase in the 2016-17 budget will have to be decided by residents at the upcoming town meeting, the town's bond attorney told town officials Tuesday.

The Board of Finance and Board of Selectmen held separate special meetings Tuesday to prepare questions for the upcoming town meeting and referendum on the school budget.

Residents overwhelmingly defeated the initial $11.3 million school budget May 17.

The Board of Finance also held two special meetings last week, first to cut $100,000 from the school budget and then to vote on revenues.

After voting to incorporate the cut of $53,824 in state grants to the budget, the board proposed to use a total of $740,000 from the surplus fund to keep the tax increase at 0.8 mill.

But during a telephone conference during the Board of Finance meeting Tuesday, bond attorney Bruce Chudwick advised that the use of money from the surplus fund to offset taxes should be decided by residents.

He recommended placing the item on the town meeting agenda.

First Selectman Robert Congdon also will check with Town Attorney Duncan Forsyth on whether the use of such a high amount of the surplus should be part of the upcoming referendum.

The town has an ordinance requiring referendum approval of any spending of $100,000 or higher.

The issue centers on whether use of surplus to cut taxes is defined as an expenditure.

The Board of Finance in recent years voted on its own to use surplus funds to reduce the tax rate, following a state statute that calls for the board to set the tax rate, including use of any surplus fund to pay for expenses or to erase any deficit, once the grand list of taxable property is adjusted in spring.

Congdon, however, said Tuesday he believes that practice was erroneous.

"I think we've been remiss in not getting town meeting approval," Congdon said.

Selectmen on Tuesday set the town meeting for 7:30 p.m. Thursday, June 9, at Preston Veterans' Memorial School, and the second budget referendum for Tuesday, June 21.

The new proposed school budget is $11.2 million.

Along with the question of whether the school budget should be approved, the referendum will have two advisory questions, asking voters if the budget is too high or too low.

A question may need to be added on the use of surplus funds.

If both the school budget and the Board of Finance's plan to use $740,000 from the surplus fund to lower taxes are approved, the new tax rate for the combined town, school, capital and debt service budgets would be 23.8 mills.

Board of Finance Chairman Norman Gauthier said the town surplus fund would be $2.1 million, still 14 percent of the annual town budget — well above the board's policy of maintaining at least a 9.5 percent budget surplus.

c.bessette@theday.com