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Hartford Budget Shortfall Will Mean Tax Hike, Layoffs

By MIKE MCGARRY

March 18, 2012

Hartford will have to grapple with a deficit of more than $50 million in the fiscal year starting July 1 and ending June 30, 2013. The administration will try to present a total budget around $550 million, close to last year's totals. Many factors must come into play, however, to reach the mandated balanced budget.

It probably will take a tax rate increase and service cuts (likely layoffs) to fulfill the city's obligation to come out even. The massive reduction in income, $35 million from lower values on property after revaluation and the dropping of the business tax surcharge, is in real dollars, not projections. Add unavoidable increases in such costs as bonding, step raises and insurance, and you've got a real problem.

The city will have an estimated 10 percent gap between income and outgo. Some may suggest just cutting 10 percent out of each department's budget to solve the problem. Unfortunately, it's not all that easy.

Education is more than half of the budget and most, more than 80 percent, of the Hartford school system's funding comes from the state and federal governments. Those funds go directly for education. Any private funding is also specifically directed. These funds cannot be tapped to balance the budget.

The cost of benefits, such as health care, are contracted and essentially untouchable, at least in the short run.

Finding room to cut expenses in the city's general fund will be difficult. In the past two decades, the number of city employees has been cut by about half. Most of the remaining employees are concentrated in public safety while other departments operate with reduced staffs.The city will have to look at savings in the police and fire departments.

City officials are left with very unattractive options because this is a five-year problem (it will be five years before the next revaluation) and quick fixes mean little to potential investors or bond raters.

This means that any changes have to be structural and long-range. The cost of Hartford's government must be significantly reduced not only this year, but for the foreseeable future. This requires layoffs and reductions in services that people have come to expect.

Everyone would prefer that the 10 percent gap in the budget could be eliminated by normal workforce attrition (not filling jobs when people quit or retire) and new additions to the grand list. Both of these are possible, but to see any real effects before July 1 (when the new budget goes into effect) is extremely hopeful.

The city administration understands that the large tax decreases that come with the revaluation and dropping the business tax surcharge will help to fill empty office space and develop any open space. But in dropping the surcharge, a $35 million bonus to businesses, the city must face possible rage over layoffs or garbage collections once every two weeks instead of weekly.

So, Hartford is likely faced with a hefty tax increase of 3 to 5 mills and and the need to eliminate 50 or so positions. The state could, but is unlikely, to come to the rescue. The state could grant the city the right to charge a sales tax to generate revenue, but this is the short session and major moves usually don't happen in the second budget year.

The problem with any tax rate increase is that motor vehicle taxes will go even higher, along with apartment taxes, which may be passed on to renters, who make up the bulk of the city's population. Many struggling working poor would be hit hard while large corporations see major tax savings.

Raising the tax rate will hurt new businesses the most. Established businesses that have been devalued certainly have a distinct advantage over new businesses that will pay full rate from the get-go. Hardly the way to build confidence in investors. Everyone knows that filling empty offices and adding new businesses is the only-long range answer.

Only one thing is certain: The mayor and council have some tough decisions to make before July 1.

Mike McGarry is a businessman, former Hartford city councilman and Republican town chairman.