SOUTH PORTLAND — The city will save about $7.5 million on the total cost of high school renovations thanks to favorable borrowing conditions.

“This is a substantial savings,” Finance Director Greg L’Heureux told the City Council Monday. “It’s significant.”

The city issued $30 million in bonds recently in the initial phase of financing for the $41.5 million high school project. Because of the city’s best-in-the-state bond rating, creditors offered more money to lock in a slightly higher interest rate: $2.64 million that will not have to be repaid. The city’s effective interest rate is about 2.5 percent.

On Monday, councilors approved using that extra money to cushion the burden of debt on taxpayers: $2 million will be applied directly to the high school renovations, preventing further debt, while roughly $640,000 will be put in a reserve account that L’Heureux estimated will earn more than $700,000 in interest over the next three fiscal years. 

Favorable financial conditions also resulted in the city cutting $100,000 out of the fiscal 2013 budget for the high school construction, which shaved about 3 cents from the property tax rate. 

Councilors on Monday also unanimously approved the fiscal 2013 budget. The School Department portion of the budget, about $40 million, was approved by voters in May.

After some fine-tuning in the past month, the city’s total budget, including municipal and school spending, is $86.2 million, a 1.42 percent increase over the current year. That includes a $55.1 million demand on taxpayers, a 3.49 percent increase over the current year.

The budget results in a property tax-rate increase of 53 cents, up to $16.63 per $1,000 of assessed value. For the average South Portland taxpayer, with a property value of $180,000, that’s an increase of $95.40.

In other business, the council made it more difficult for residents to qualify for General Assistance. Before the change, a single-person household qualified for general assistance if the individual earned less than $812 per month. Now, the income limit has been dropped to $713.

Councilors begrudgingly accepted the change, which keeps the city in line with state requirements. If they didn’t go along, the state would stop matching the city’s general assistance spending. 

Councilor Tom Coward voted against the change. He said he understood the city needed to swallow the medicine to avoid punishment, but that “someone’s got to stand up and say this stinks.”

“This essentially tries to balance the state budget on the backs of the poorest of the poor,” he said. “You can do it, but you’re not going to have my help.”

The council also approved an $18,300 contract with Headlight Audio Visual for the purchase of four SmartBoards, three of which will go to Skillin Elementary School. The remaining teaching device will go to Small Elementary School.

Councilors also approved a 1.5 percent cost-of-living wage increase for its 133 nonunion employees and for the city clerk. The total wage increases will cost the city about $89,800 in fiscal 2013.

Mario Moretto can be reached at 781-3661 ext. 106 or mmoretto@theforecaster.net. Follow him on Twitter: @riocarmine.