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Malloy Budget Favors Some Communities Over Others

Loss Of Incentives To Manufacturers Would Clobber Municipalities With Lots Of Industry

Don Stacom

February 28, 2011

After the last remnants of the once-mighty Seth Thomas Clock Co. moved out of Thomaston nearly 30 years ago, the town and state campaigned hard to attract smaller industries to the old clock factory and nearby sites.

That strategy saved jobs for decades. But it could be costly this year.

An obscure section of Gov. Dannel P. Malloy's new budget plan would wipe out state grants that pay for ongoing incentives to lure manufacturers to Connecticut communities.

Against the backdrop of Malloy's $19.7 billion budget, the elimination of $47.9 million in so-called MME PILOT funds at first looks almost inconsequential.

But for industrialized communities like Thomaston the loss looms as huge.

"This would cost us $331,000 — that's worth almost half a mill [of property tax income]," First Selectman Edmond V. Mone said Friday. "Our budgets are already as tight as guitar strings. Tighten another quarter-turn and they'll break."

Thomaston's predicament illustrates a fact of Malloy's budget that critics describe as unfair and supporters defend as unavoidable: There will be losers and winners among Connecticut's 169 communities.

On average, the budget proposal makes good on Malloy's campaign promise to maintain revenue-sharing grants to towns and protect municipalities from the state's budget crisis.

Individually, though, some communities stand to score significant new money from Malloy's proposals for a local sales tax and local tax surcharges on rental cars, hotel rooms and nightclub receipts.

Other municipalities would get next to nothing.

At the same time, eliminating the $49.7 million for MME PILOT grants hits some communities, like Thomaston, hard, and others not at all.

Over the years, the state has issued economic development incentives to thousands of companies by exempting their machinery and manufacturing equipment from local property taxes.

To offset the lost revenue, the state sent checks to each town for up to 80 percent of what those taxes would have brought in. Those checks — payments in lieu of taxes — will end June 30 under Malloy's plan.

Rural towns and rich suburbs with little industry never noticed that income and won't miss it now. Cornwall, Preston, Sharon and Sherman got nothing from the MME PILOT program. Roxbury is getting $478 this year and Weston receives just $436.

On the other end of the spectrum, big and mid-size cities with lots of industry get clobbered: Bristol stands to lose $2 million, Middletown $1.6 million and Stratford $2.8 million.

Like Thomaston, several smaller and mid-size towns that house a significant amount of industry will also lose big. Other than education aid, all state assistance to Sprague amounts to about $348,000 this year, and $204,000 is in MME PILOT money.

"The governor has acknowledged a few wrinkles that they're trying to work out, and [budget director] Ben Barnes has reiterated his commitment to make municipalities whole," said Jim Finley, president of the Connecticut Conference of Municipalities.

Just months ago, towns and cities were dreading the possibility of devastating cuts to their main source of state money — state school aid. Since Malloy kept that aid program intact and left most other revenue-sharing programs alone, the general sense of municipal leaders is that the proposed state budget could have been much worse.

But for Mone and others in his situation, there's a different view.

"I understand 'share the pain,' and I applaud the governor's effort to bring some fiscal responsibility to Hartford. But when they talk of offsetting this with some other tax, it doesn't help," Mone said.

"A hotel tax? We have no hotels, so I get nothing. A tenth of a percent sales tax? We don't have much retail. That will never offset what we lose."

Municipalities for years have lobbied state lawmakers for the right to impose new local taxes so they could stop raising property taxes. But usually, their campaigns recommended some form of sharing the proceeds regionally, so that every community would benefit regardless of where the tax was raised.

A town with a major mall, for instance, should be required to split any local sales tax revenue with its neighbors, they said. Privately, many mayors and first selectmen warned that otherwise, suburban and rural sprawl would get worse as outlying towns fought to attract their own big-box stores — ruining the state's remaining open space while sapping business from established retail centers and cities.

Malloy's budget has no regional sharing formula, though.

Connecticut would raise its hotel tax, for instance, and give 1 percent to the town where the hotel stands. Neighboring communities would get nothing.

CCM estimates that tax would raise $5.8 million next year. New Haven, Hartford, Stamford, and towns near Bradley International Airport or Mystic Seaport would split most of that. Communities such as Somers, Burlington and Harwinton, which don't have hotels, wouldn't get anything.

Similarly, a new 1 percent local tax on car rentals would be a bonanza for Windsor Locks, where rental companies have huge fleets to serve Bradley passengers, but mean little or nothing to most suburbs.

The 0.1 percent sales tax surcharge would benefit the hometown of the business where the purchase is made; Enfield and Manchester, with big commercial centers, presumably would gain the most while Stafford and Coventry wouldn't.

"The governor was looking for alternatives to the property tax, and these generally won't be evenly distributed," acknowledged Gian-Carl Casa, an undersecretary in Malloy's budget office. "If you start redistributing the funds, they become subject to the legislative process and the state spending cap. But Secretary Barnes has said we're going to look for ways to make sure there aren't any towns that are losers."

Finley emphasized that communities overall are pleased by Malloy's budget because it's a foot in the door for local-option taxes. The state allows municipalities to raise money only through fees, conveyance taxes and property taxes, and big-city and small-town leaders are clamoring for the right to levy other taxes so they can take the pressure off homeowners.

"The governor's proposals lay the foundation for stronger revenue-sharing arrangements and a way to reform the property tax system in Connecticut," Finley said. "He said job one is to turn around the state's fiscal ship. He included these revenue diversification proposals, and we're very appreciative of that."