MEXICO - Town officials may not celebrate in November, but when the final $33,000 payment on a piece of highway equipment is paid then, the town will be debt free.

That was one piece of good news Town Manager John Madigan shared with selectmen and others at the board meeting Wednesday night.

He also unveiled a draft of the annual municipal audit that shows the town is in the best financial shape it has been in since Madigan took over nearly four years ago.

During fiscal 2003 the town had a $170,109 deficit in its undesignated surplus funds and no money in the capital accounts.

For fiscal 2009, the surplus stands at $535,000, almost precisely the amount the state recommends for a budget the size of Mexico's. And the town also has tucked away $350,593 in capital reserve accounts.

The more than 20-page document, submitted by Fairfield certified public accountant Keel Hood, will be finalized next month when the tax rate will be set. Hood makes no recommendations for improving town accounts.

Madigan said the turnaround can be attributed to a variety of factors, ranging from residents' willingness to override the state tax cap, so that accounts would be fully funded, to higher than expected state revenue sharing and excise tax collections.

The town's valuation also rose during the past few years, one winter required lower than anticipated expenses, and another year provided the town with a reduction in school taxes.

Selectmen Arthur Bordeau said the town is in good shape because of the work done by Madigan and the Budget Committee, while Madigan praised residents for overriding the tax cap so the town's finances could be straightened out.

On Thursday, Madigan said the town is undergoing a revaluation of properties. The value is at 82 percent of the state value, he said. New tax rates based on the revaluation won't go into effect until next year.

To compensate for the low state values this year, he said the town will likely add 12.5 percent to all property values before this year's tax bills are mailed. That also would allow homeowners to take the full $13,000 homestead tax exemption, he said. A similar action took place a few years ago to compensate for the undervalued properties.

Right now, the town's tax rate is $25.65 per $1,000 valuation. The net tax increase, when the tax rate is set next month, may be slightly higher, Madigan said, partially dependent on whether some of the town's surplus is used to off set tax liability.

The first tax payment will be due in October.