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Malloy Favors Local Options On Taxes

Christopher Keating

January 20, 2011

With towns and cities concerned about possible cuts in state aid, Gov. Dannel P. Malloy said Wednesday that he favors a local hotel tax and increasing taxing options for cities and towns.

Malloy, who was mayor of Stamford for 14 years, said he wants to helps cities and towns in his proposed budget, to be unveiled Feb. 16. The budget gap is projected at $3.5 billion in the next fiscal year, and municipalities are hoping to get at least as much money next year as they receive now, instead of being cut back.

Overall, municipalities now get about $2.8 billion per year in a wide variety of grants, including education.

"Every step of the way, I'm concentrating on how do I avoid hurting municipalities," Malloy told nearly 300 first selectmen and local town officials at a meeting of the Council of Small Towns in a hotel ballroom. "I do understand what's going on in local government."

In the past, Malloy and other big-city mayors traveled to the state Capitol and asked the legislature to approve new methods that would allow them to raise revenue. Those include allowing them to keep part of the state's hotel tax or increase the local sales tax by 1 percentage point. The sales-tax increase, for example, could generate an additional $550 million to $600 million per year that could be distributed among the towns.

Now, as governor, Malloy is in a position to help enact such policies.

"We do need to broaden the tax base," Malloy told the crowd Wednesday in his keynote address.

The legislature's tax-writing finance committee voted last year to increase the state's 12 percent hotel tax to 15 percent, with the additional money to be split between the towns and regional planning organizations. The measure failed in the Senate, though.

In 2009, then-Mayor Malloy came to the Legislative Office Building with New Haven Mayor John DeStefano to say "we need a little sanity in this discussion" so that cities would not continue to be overly reliant on property taxes. While the property tax provides the lion's share of revenue for most municipalities, they also can raise money — though in much smaller amounts — from the real estate conveyance tax, permits and fees.

"The hotel tax would be paid by out-of-state people. It's a no-brainer," Malloy said in 2009. "And the local-option sales tax has been on the table for a long time. But the state is saying, 'We're not going to give you what we promised, and, by the way, no new tools in your toolbox will be allowed.' "

State Rep. Craig Miner of Litchfield, the ranking House Republican on the budget-writing appropriations committee, said he believes money from those taxes would never filter back to the towns that need it most. Instead, he said, the money would end up with a regional entity and not be funneled back, dollar-for-dollar, to the town that initially generated the revenue.

"I don't think the money is going to go to the municipality," Miner told the crowd in a panel discussion before Malloy arrived. "It is not going to happen, ladies and gentlemen."

When told later of Miner's remarks by reporters, Malloy questioned his position.

"I didn't hear Rep. Miner," Malloy said. "So he's arguing for the status quo. I'm not."

Concerning Miner's fear about the towns not receiving the additional money in the future, Malloy said, "Well, I know they're not getting it now. So what's his point?"

"So, is he saying he doesn't trust himself or he doesn't trust somebody else?" Malloy asked.

When told that Miner said he didn't trust the state government, Malloy responded, "Well, I'm trying to build a state government you can trust. That's my answer."

Concerning the status of the tax proposals, Malloy said, "I think — I may be wrong — I think there are bills out there, or at least holders, that talk about additional local-option taxes. ... I'm not endorsing regional versus local versus sharing. What I'm saying is we are too dependent on property taxes. I think that we need to begin the process of allowing more communities to make their own decisions."

He added, "If you're talking about an entertainment tax, a hotel tax, getting to the point of some revenue-sharing on the sales-tax side, those are all things that I think need to be considered and ultimately options given to communities to operate with those kinds of additional revenue flows. In essence, not to feed the beast ... but to broaden the tax base and put less pressure on what is a more regressive tax, in my opinion - the property tax."

Senate President Pro Tem Donald Williams, a Brooklyn Democrat and a former first selectman, said he is open to the ideas regarding the hotel tax and the local sales tax. But he said that allowing all 169 towns to potentially offer different sales-tax rates could be counterproductive.

"Are we exacerbating a problem of haves and have-nots?" Williams asked.

For example, Danbury and Manchester have gigantic shopping malls and conceivably could receive millions of dollars if those communities were allowed to charge an additional 1 percentage point on the sales tax. But some rural towns with relatively few retail stores would not have the ability to generate similar tax money.