FRANKLIN—International Paper’s plans to repurpose its Franklin mill could help plug a $1.2 million shortfall in revenue for the City of Franklin beginning in 2012-2013.

Isle of Wight County, however, faces a much larger shortfall as supervisors last month adopted a $91 million budget for 2011-2012 partially funded by a 25 percent property tax hike through a revenue-sharing agreement with Isle of Wight County.

Franklin was receiving around $1.3 million a year in taxes from the paper mill. That revenue, largely derived from a machinery and tools tax, will drop to $1.1 million in 2011-2012 due to last June’s closing of the mill.

Before IP announced plans on May 24 to reopen the mill and create 213 jobs to make fluff pulp, Franklin’s mill-related revenue was expected to drop to $85,000 in 2012-2013, according to interim finance director Shelia Minor. The fluff pulp operation at the mill would double the city’s take to about $160,000 during that same fiscal year.

Mayor Jim Councill said the additional jobs and increased revenue coming in is good news for the community, but it does not solve the financial problems facing the city.

Councill has previously warned of a possible real estate tax increase due to a looming shortfall coming from the mill’s closure.

“I don’t think it’s anywhere close to being resolved,” Councill said.

The city refinanced some outstanding loans in 2010 to prepare for a loss of revenue from the mill closure, Councill said, and an increase in revenue could extend the life of a reserve created from that action.

“Anything that goes against the $1 million shortfall means that much less coming from the reserve,” Councill said.

Recent announcements from Franklin Pellets and Tak Enterprises and their possible future use of the mill property would also benefit the city. Franklin shares about 18-20 percent of all the tax revenue from the property with Isle of Wight County. This is revenue the city won’t benefit from for at least another year, Councill said.

“We’re extremely pleased with the progress as slow as it is,” he said.

Isle of Wight County lost $1 million in mill-related revenue during 2010-2011 and is set to lose $5.6 million for the upcoming fiscal year. The fluff pulp operation is expected to help bring the county $800,000 in tax revenue when it becomes operational in mid-2012. The revenue could materialize as early as 2012-2013.

“The main thing is putting people in Isle of Wight back to work,” said Isle of Wight Board of Supervisors Chairman Thomas Wright.

The repurposing of the mill could mean a lower county real estate tax rate, which is set to rise from 52 cents to 65 cents for 2011-2012, but Wright said it was too early to tell how the revenue would affect the rate.

“It’s good news to hear, but you don’t want to make estimates too far down the road,” he said.