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Connecticut's Cash Crunch: Will Towns And Cities Take The Hit?

Fighting to Save Municipal Aid

Don Stacom

September 07, 2010

When Jim Finley reviews Connecticut's fiscal projections for the next two years, his conclusion is brief but not reassuring: "This is a public-policy time bomb."

Finley, executive director of the Connecticut Conference of Municipalities, worries that huge state deficits projected for the next two years could create further reductions in revenue sharing with local governments, meaning bad times for local governments and taxpayers alike.

"What we don't want is for the state to balance its budget on the backs of municipalities, because that's a false savings," Finley said. "It will just shift the cost onto the property taxpayers." CCM is the main lobbying group for cities and towns.

The group this month began lobbying Dan Malloy and Tom Foley, the two major-party gubernatorial contenders. When the winner takes office in January, he will inherit what looks to be a financial quagmire. The state budget is projected to be more than $3 billion in the red in each of the next fiscal years. The $1.3 billion in "rainy day" reserves are spent, and the Obama stimulus aid that propped up state and local governments across the country is scheduled to end.

Many political leaders privately acknowledge that severe spending reductions coupled with unpopular tax increases are inevitable. But East Hartford Mayor Melody Currey, president of CCM, says cuts must not hit aid to towns and cities. Local governments already are struggling, and most — like East Hartford — exist almost entirely on a mix of state aid and property-tax receipts.

"We know the state is going to take a big hit next year. But on the local level, we've already been making cuts. We're to the point where we'd have to cut services," Currey said. "Our unions have given concessions; town workers made less in 2009 than they did the year before. I've cut jobs at the fire department, the police department. The schools lost 60 teachers."

Wealthy suburbs generally receive the least state aid, but small rural towns and big, poor cities are especially reliant on it. Communities ranging from New Haven and Meriden to Thompson and Canterbury get a third to half of all their revenue from the state.

The biggest percentage by far goes to school systems, mostly through Education Cost Sharing grants. Connecticut is spending more than $2.4 billion on local education this year, including roughly $270 million of Obama Administration stimulus grants.

"The stimulus runs out this year. So next year, the state would need to put in $270 million more just to provide level funding," Finley says. "And another $270 million the year after that."

CCM last week distributed a proposal for the next governor and the General Assembly to help towns and cities by letting them raise revenue on their own.

State law prohibits local taxes except property and conveyance taxes. CCM says more property-tax increases would hurt businesses and local residents.

Instead, it wants municipalities to have the power to levy local entertainment or even local sales taxes. Alternatively, the state could raise the 6 percent sales tax to 7 percent and split the projected $600 million in new proceeds with local governments, Finley said. In either case, municipalities need freedom to diversify from reliance on the property tax, he said.

"There are going to have to be serious discussions at the state level about raising revenue," Finley said.

Rell administration officials say that personal income and sales-tax receipts are edging up in the past few months, and that Connecticut has been able to cut back sharply on borrowing to pay its day-to-day bills. But even in best-case projections, it's likely to take four or five years — at best — before revenue returns to the level before the national financial collapse in mid-2008, they said.

House Speaker Chris Donovan said the General Assembly made good on its previous promises to protect municipal aid, and can do the same thing again. "Everybody said they were worried about '09, then about '10, then about '11. We took care of that. We were going to borrow $900 million this year, that's down to $646 million," he says.