MECHANIC FALLS — Town councilors learned Monday that this year’s town budget has a $120,000 revenue shortfall.

Town Manager John Hawley told the council that going into the holidays he received a Christmas card from the governor informing him that Mechanic Falls could expect $308,000 in municipal revenue sharing this year.

In May, voters at a town meeting approved a budget that anticipated $400,000 in revenue sharing.

The state later adjusted Mechanic Fall’s allotment to $388,000.

“The state can look good. They aren’t raising taxes, but all they are doing is passing the expense down to smaller communities to deal with,” Hawley said.

The remainder of the shortfall is due to a decline in local revenues. The latest estimate, according to Hawley, shows the amount of interest that the town can expect on its accounts is $28,700 under projections.

Hawley didn’t ask the council to decide where the $120,000 to balance the budget for the fiscal year, that ends June 30, might come from. However, he advised them that at next Monday’s meeting to begin preparations for next years budget; they will have to come up with a plan that closes the hole in the present budget.

“I expect we’re going to have to anticipate even less (state) revenue for next year,” Hawley said, noting that the options are to reduce services, reduce staff or raise taxes.

Hawley added that the council usually sets a pay increase percentage for town employees at the start of budget deliberations, but that this year they should wait.

The council agreed when Chairman Dan Blanchard said that town employees ought to be given some sort of raise. Blanchard noted that in last year’s budget employees were scheduled to receive 4 percent pay increases, but that was reduced to 2 percent, and this year’s budget had no pay increases for town employees at all.

In other business, the council tabled action on awarding the water department truck bid. The bids were for 2010 model trucks and the council directed Hawley to ask Water Department Superintendent Steve French to first go out and see what 2009s there might be on dealers’ lots that he could get for less.

Hawley also reported that he and Poland Town Manager Dana Lee had reviewed the services the two towns share and concluded that this past year the balance of services had tipped slightly in Mechanic Falls’ favor.

Each spring Poland supplies Mechanic Falls with a street sweeper and operator for 60 hours work. In return, Mechanic Falls paints the striping in Poland’s parking lots and Route 26 crossings, puts up Poland’s Christmas decorations and does roadside bush hogging. Hawley noted that a wet spring reduced the amount of bush hogging this past year.

Commenting on the town’s Santa program, Hawley noted that donors came through in spite of the economy, and that 39 families with 126 children participated.