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MACHIAS, Maine — Municipalities across Washington County — and the county government itself — face an unprecedented financial crisis after voters rejected borrowing up to $11 million to pay off debt by year’s end.
There are few options to pay off the debt without raising taxes or cutting services, and regardless of what decisions are made, the debt is so large that Eastport City Manager Brian Schuth called the effort “rearranging chairs on the Titanic.”
There are also legal questions about whether municipalities can prepay their share of the county’s debt by year’s end to save on interest, and whether mandated services can legally be cut.
“We’ll have to see what we can legally do and what options are open to us,” Baileyville Town Manager Chris Loughlin said. “Because it’s kind of like a brand new game.”
Schuth, who also serves on the county’s Budget Advisory Committee, called the outcome of Tuesday’s vote “extremely disappointing,” but said he believes it was the only way voters felt they could express their frustration with years of financial mismanagement that led to the county’s current $8 million debt — with no cash on hand.
“Unfortunately, this was the only tool the people of the county had to express their displeasure with the situation we are in,” Schuth said. “Unfortunately, that meant destroying the best tool [the county] had to deal with [the financial shortfall].”
During a daylong meeting of the Budget Advisory Committee on Nov. 5 — a day after voters rejected the bond proposal — members discussed adding the $8 million tax anticipation note, or TAN, owed to Machias Savings Bank to next year’s county budget, viewing it as the only way to recoup the funds and avoid defaulting on the current bond.
“To me, defaulting on this bond is not an option, given that we operate on debt,” Ben Edwards, the vice chair of the Budget Advisory Committee and vice chair of the Machias Select Board, said during that meeting.
The county routinely relies on a TAN to fund operations during the first nine months of the year, due to its budget cycle being out of sync with those of the municipalities. However, a combination of COVID-era American Rescue Plan Act funds masking cash flow shortages and significant delays in financial audits has left the county without funds to repay the TAN by Dec. 31.
In response, officials proposed Tuesday’s bond measure as a way to close the budget gap.
Given voters’ strong rejection of the bond, at least one member of the Budget Advisory Committee opposed adding the $8 million tax anticipation note to next year’s budget — a decision that must ultimately be approved by county commissioners as they finalize the county’s spending plan.
“If we add the $8 million to the budget, that’s the biggest slap in the face to the voters,” Commissioner Lewis Pinkham of Milbridge said, adding that, in his view, voters chose to default on the debt by rejecting the bond.
About a month ago, county commissioners offered municipalities the option to prepay their share of the TAN by year’s end to help ease cash flow. If a community chooses to pay early, its portion of the TAN payoff would be excluded from the county’s tax assessment. The incentive for municipalities is the potential to save on interest payments over the bond’s 10-year term.
However, the county’s auditors have questioned the legality of the prepayment option, suggesting it could be considered a second tax bill. According to Schuth, the county attorney is reviewing the matter to determine whether municipalities can legally pay their share early.
The more municipalities that choose to pay their share early, the fewer dollars will need to be added to next year’s budget to raise those funds.
Edwards said the Budget Advisory Committee can add as much of the TAN balance as necessary — whatever amount is not paid off early by towns — to next year’s budget.
“That, currently, is the only option that I see,” he said. “And that is what I will support.”
Schuth said he knows the option would hurt Eastport, but added, “Having to pay this off is going to hurt every community.”
Eastport is exploring all options, including using a city loan or drawing from its surplus, to pay its portion of the TAN, Schuth said. While the financial hit is unlikely to affect services, he noted it would reduce planned capital improvement reserve funds and could add new debt to the city budget if a loan is used.
“The raise in taxes that might have come from the bond is still going to hit us,” Schuth said. “The only difference is we may hold the note instead of the county.”
The town of Machias is also considering prepaying its portion of the tax anticipation note, exploring similar options to Eastport.
At the Budget Advisory Committee meeting Nov. 5, Edwards explained that Machias Savings Bank is willing to issue another TAN to the county to pay off the current one and continue funding services through early 2026, following the failure of the bond proposal.
What happens next remains uncertain because Maine law prohibits counties from declaring bankruptcy or refusing to provide mandated services.
State Sen. Marianne Moore, R-Calais, had introduced a bill that would permit cities and counties to declare bankruptcy, but legislative leaders declined to advance the measure for consideration in the 2026 session, effectively blocking any bailout option.
Additionally, Edwards explained at the Nov. 5 meeting that even if the county were ultimately allowed to declare bankruptcy, it would only permit restructuring existing debt — not guarantee access to new borrowing to fund operations for next year.
Edwards asked the Budget Advisory Committee whether county residents want services to remain at their current level or prefer cuts to reduce the tax burden.
“Cutting services means taking a risk with public safety,” Schuth of Eastport said. “That’s where we’re all struggling.”
In an effort to reduce costs, the Budget Advisory Committee voted to ask county commissioners to request that unions and all county departments limit next year’s employee raises to match the cost-of-living increase, as measured by the consumer price index.
It feels like “you’re rearranging chairs on the Titanic,” Schuth said. “It’s just emotionally difficult to deal with facing this train coming at you with $8 million.”
Loughlin of Baileyville said that if the $8 million were simply added to next year’s county tax bill, it would likely increase the county tax portion of the municipal budget from 5 to 6% to between 8 and 10%.
Also, Woodland Pulp, which makes up a significant portion of Baileyville’s tax base, recently announced a four-week shutdown, a move Loughlin hopes will not extend beyond that period.
“If it’s more than that, things start to get hairy here fast, especially just before Christmas,” he said.
Machias Town Manager Sarah Craighead Dedmon expressed sympathy for county employees who could be affected by the failure of the bond vote.
“I’m personally sorry for the county employees who may now be adversely impacted by the bond’s failure to pass with voters,” Dedmon wrote in an email.
Machias has scheduled a public hearing for Nov. 19 and a special town meeting for Dec. 3 to ask voters whether to pay off its share of the tax anticipation note early — and, if so, how to proceed.
Columbia Falls Select Board Chair Nelson “Tony” Santiago said he plans to propose a special town meeting for Dec. 1 to ask voters whether — and how — to pay off the town’s approximately $98,000 share of the TAN early.
He said the town’s surplus is healthy enough to absorb the cost if necessary, though Columbia Falls could also consider issuing its own TAN or securing a low-interest loan.
Santiago applauded the work of County Commissioner Courtney Hammond of Columbia Falls and the other commissioners, who took office after the budget mismanagement came to light, saying Hammond is doing an “extremely good job.”
“They’ve been handed an awful situation,” Santiago said.