The Town of Babylon next week will hold a public hearing on its proposed 2017 budget, which raises taxes but stays under the state tax cap.

The proposed $145.4 million budget calls for a .67 percent tax increase, which amounts to $26.74 more in taxes next year for the average home assessed at $3,467. The increase comes mostly from the general and highway funds, adding $23.69 and $20.13, respectively, to the tax bills, while the residential garbage fund tax portion increases by $5.

Town Supervisor Rich Schaffer attributed the increase to contractual obligations for both the blue and white collar unions, including health insurance and pension costs. He said about 90 percent of the town’s payroll comes out of the general and highway funds.

“I think residents will understand and appreciate that literally the only thing that we’re asking for is to cover the costs and built-in increases that are beyond our control while maintaining all of the different services that people have come to expect from the town,” Schaffer said.

The town applied surplus money to several funds, including about $3.3 million to the residential garbage fund and $499,919 to the part-town fund that covers services designated only for non-village residents.

“We like to maintain surpluses in all of the funds that are between 15 and 20 percent of all expenditures,” Schaffer said. “Our philosophy has been to maintain that, not rely on that to keep your budget artificially in balance. What I mean is that a lot of people use their surplus and say ‘Oh, I haven’t raised taxes so I’m wonderful’ . . . but they’ve gotten themselves into trouble.”

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A 2008 state comptroller’s report criticized the town for excessive surpluses, with the residential garbage surplus reaching 61 percent of budget appropriations for 2009. The state comptroller’s report suggested the town reduce the amount of unreserved fund balances to within 20 to 25 percent of budget appropriations.

Schaffer said the town’s strong surpluses were invaluable in the aftermath of superstorm Sandy. While other municipalities struggled to pay for repairs while waiting for funding from FEMA and other agencies, the town was able to use its reserve funds to pay for emergency repairs, he said.

A public hearing on the proposed budget will be held on Nov. 10 at 3:30 p.m. at Town Hall in Lindenhurst.