MEXICO — Residents could see lower taxes because of an unexpected windfall of nearly $705,000 to the town.

Town Manager John Madigan told selectmen at their meeting Tuesday night that the town received the money from the Maine State Retirement Association because the town’s account was closed out.

“This is very timely, perfect timing, because of the debt service we have,” he said.

Mexico pulled out of the Maine State Retirement system in 2004. It had been a member since about 1960, Madigan said. The town’s account had been inactive since the town pulled out and no municipal employee is in the system. A couple of months ago, he received a call from the association saying that a refund would be coming.

When it came, it was significantly more than Madigan had expected.

“This is really good news. The Budget Committee will discuss it Thursday night,” he said.

He will recommend that the money be used over five years so the tax rate can remain level. That’s important particularly during the next couple of years because the highest payments on a road bond owed by the town are due during that time, he said.

He said the Maine State Retirement system sets up a separate account for each member town. So when one pulls out, only that money, as well as any investment increases, is returned to the town.

Madigan said at least half the money the town paid in over the years must have been invested because of the amount Mexico received.

He said the funds also come at a time when state revenue sharing has been reduced.

He said the mill rate would have gone up about $2 per $1,000 valuation if the retirement fund money hadn’t arrived. The current tax rate is $21.50 per $1,000 valuation on a $2.6 million municipal budget. The proposed budget for 2012 is expected to be finished when the two boards meet.

Taxes still could go up, contingent upon the amount of the Western Foothills Regional School Unit 10 budget. The town’s share likely won’t be known until June.

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