First Selectman Michael C. Tetreau's proposed $272.6 million town budget for fiscal year 2012-13, which carries a 4 percent tax increase as it heads to review by town boards next week, includes some dramatic increases -- and decreases -- in line items.

But Tetreau -- who last week unveiled his first budget as the town's chief executive -- on Wednesday justified the increases as necessary to bolster town reserve funds and move the town from bonding to a "pay as you go" approach on the paving of town roads. Those two objectives, Tetreau said, are designed to eliminate the "negative outlook" recently assigned the town's AAA credit rating and to lay the foundation for lower tax increases in the future.

"We're not growing the town and adding services and doing anything crazy here," Tetreau said in an interview Wednesday afternoon. "We want to go to the rating agencies and show them we've listened and we've been able to strengthen our financial obligations in the areas they talked about." He anticipated going to the rating agencies in the summer when the town plans to sell 20-year bonds.

Of the $9.5 million increase in spending proposed in the 2012-13 town budget, four budget lines each have a $1 million increase -- road paving, annual debt service and contributions to the town's surplus and risk management fund.

Town Fiscal Officer Paul Hiller said the town didn't contribute any money to the surplus account this fiscal year and in years past removed money from the surplus to balance the proposed budget. Bond rating agencies like a town's surplus to be at least 5 percent of its operating budget, and Fairfield's surplus has been just below or at that level for several years. But as the budget grows, so does the recommended level of the surplus, Tetreau and Hiller said.

"We have been at the low end as a percentage of budget, the low end of triple-A towns in the state," Hiller said. "We're just trying to say, `Hey, we've got to get better.' "

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BUDGET PROPOSAL'S UPS ... AND DOWNS Following is a list of what officials call the major "drivers" that influence the proposed town budget of $272.6 million proposed for the 2012-13 fiscal year: Board of Education: $145.7 million now -- rising 2.2 percent to $149 million Salary/wage: $40.5 million now -- rising 1.5 percent to $41.1 million Debt service: $24.9 million now -- rising 4.3 percent to $25.9 million Health insurance (general fund active employees): $10 million now -- declining 1 percent to $9.9 million Other Post-Employment Benefits (retiree health costs): $7.4 million now -- rising 13.1 percent to $8.3 million Pensions (town, police/fire): $3.5 million now -- declining 13 percent to $3 million Workers Comp: $2 million now -- rising 28 percent to $2.6 million Electricity: $1.8 million now -- declining 17 percent to $1.5 million Paving: $1.5 million now -- rising 67 percent to $2.5 million Budget contingency: $850,000 now -- rising 88 percent to $1.6 million Unemployment Comp: $200,000 now -- rising 100 percent to $400,000 Supplemental contribution to budget surplus: Zero now -- $1 million in 2012-13 Supplemental contribution to risk management: Zero now -- $1 million in 2012-13 All other categories: $24.75 million now -- rising 0.15 percent to $24.8 million

"It's going the other way," Hiller said of how town officials view the surplus. "Instead of taking [money] out, we're putting [money] in."

Town officials aren't planning to pave more roads in the next fiscal year, but do plan to move more of the expense from bonding to the operating budget. Tetreau said the goal is for the entire $3.5 million annual expense for road paving to be covered in the operating budget for 2013-14, compared to $2.5 million in the proposed budget for 2012-13 and $1.5 million in this fiscal year's budget.

Annual debt service, scheduled to rise from $24.9 million this year to $25.9 million in the next fiscal year, can't be changed and is based on projects already approved by town boards and bonded, Tetreau said. "It will take a while for it to come down," he said of annual debt service.

Increasing the risk management and worker's compensation funds was a recommendation of bond rating agencies, and the town is making a supplemental contribution of $1 million in 2012-13 to the risk management fund and is increasing its annual contribution to the worker's compensation fund from $2 million to $2.55 million, according to a budget document on the town's website, www.fairfieldct.org.

"At some point, to get rid of the negative outlook on our triple-A rating, we have to address the reserves," Tetreau said.

But the biggest increase in next fiscal year's proposed budget -- at $3.2 million -- is proposed for the Board of Education.

Tetreau trimmed $660,000 from the school board's proposed budget, and it now stands at $148.9 million, compared to this year's budget of $145.7 million. He said the $660,000 reduction was solely due to a lower pension contribution. "It is exactly to the penny the reduction in their pension contribution," he said.

The town's contingency account, traditionally used for unforeseen expenses, is scheduled to rise by $750,000 in 2012-13 -- from $850,000 to $1.6 million -- and Hiller said that is due to "all these labor contracts [with town employees] that have yet to be settled, on the assumption there will be increases."

The proposed budget also has a few notable decreases in several accounts.

Costs of electricity are scheduled to drop from $1.78 million to $1.48 million, and Hiller said that mostly is attributable to favorable rates that the town negotiated for the purchase of electricity last summer. "We were able to negotiate, through a bidding process, a very favorable 7.6 cents per kilowatt hour," Hiller said, adding that the $300,000 reduction also is due to energy-conservation measures the town implemented.

"It's all in the generation and a little bit in conservation," Hiller said of the savings.

The town's contribution to its employees' pension funds also is scheduled to drop in 2012-13 -- from $3.5 million to $3.01 million, a savings of $455,328, according to the budget document on the town's website.

Hiller said the police officers and firefighters' pension plan was overfunded at 104.4 percent as of July 1, 2011, and the town employees' pension plan was overfunded at 105.9 percent as of the same date. "The actuaries tell us we're overfunded slightly, but it's slightly," he said.

The lower proposed contribution to town pension plans in 2012-13 matches the actuaries' recommendation and is driven by a 22 percent return on investments in the last fiscal year -- far higher than the 8 percent anticipated by town officials -- as well as lower-than-anticipated wage increases, lower-than anticipated inflation and the fact that town employees aren't retiring as early as town officials predicted, Hiller said. "People are working longer. We had assumed retirement ages a lot less," he said.

The drop in pension contributions comes even as town officials earlier this month lowered the anticipated rate of return on investments from 8 percent to 7.75 percent, Hiller said.

Tetreau said he wasn't happy the proposed tax increase in the fiscal year that begins July 1 is about 4 percent, but believes it is needed to strengthen the town financially in a difficult economy.

"Now we're going to the rating agencies and saying the pensions are fully funded, we're making the full ARC [annual required contribution], increasing surplus and reserves in the internal service fund," he said. "Given this is the new economy, steps are important to take to allow us to have lower taxes in the future."

Andrew Brophy is a freelance writer.

BUDGET PROPOSAL'S UPS ... AND DOWNS

Following is a list of what officials call the major "drivers" that influence the proposed town budget of $272.6 million proposed for the 2012-13 fiscal year:

Board of Education: $145.7 million now -- rising 2.2 percent to $149 million

Salary/wage: $40.5 million now -- rising 1.5 percent to $41.1 million

Debt service: $24.9 million now -- rising 4.3 percent to $25.9 million

Health insurance (general fund active employees): $10 million now -- declining 1 percent to $9.9 million

Other Post-Employment Benefits (retiree health costs): $7.4 million now -- rising 13.1 percent to $8.3 million

Pensions (town, police/fire): $3.5 million now -- declining 13 percent to $3 million

Workers Comp: $2 million now -- rising 28 percent to $2.6 million

Electricity: $1.8 million now -- declining 17 percent to $1.5 million

Paving: $1.5 million now -- rising 67 percent to $2.5 million

Budget contingency: $850,000 now -- rising 88 percent to $1.6 million

Unemployment Comp: $200,000 now -- rising 100 percent to $400,000

Supplemental contribution to budget surplus: Zero now -- $1 million in 2012-13

Supplemental contribution to risk management: Zero now -- $1 million in 2012-13

All other categories: $24.75 million now -- rising 0.15 percent to $24.8 million