Fairfield County is biggest winner under Malloy town aid plan

Gov. Dannel P. Malloy’s municipal aid plan has hit a snag after an analysis showed 15 percent of all communities–including more than a dozen of Connecticut’s poorest–lose funding, while Fairfield County towns are the biggest winners.

The administration conceded this week that this was an unintended consequence of the Democratic governor’s bid to protect municipalities from taking a fiscal hit as state officials try to close a $3 billion-plus gap in state finances.

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But Democratic lawmakers, who control both the House and Senate, as well as municipal leaders, are pressing the administration to settle on a fix now, noting that most communities will adopt their next budgets at least a month or two before the state’s spending plan for 2011-12 is resolved.

“The administration was very receptive in terms of understanding the issue and wanting to rectify it,” said Sen. Gary D. LeBeau, D-East Hartford, whose community stands to lose nearly $2.9 million next fiscal year, an amount equal to about 6 percent of its current state aid package. “But we need to find a way to hold these towns harmless and we need to find it soon.”

East Hartford, which is ranked 162nd out of the state’s 169 towns in terms of wealth based upon both the value of its taxable property and the personal income of its residents, isn’t alone.

Of the 27 communities that would lose resources next fiscal year under the Malloy plan, 21 are in the bottom half in terms of wealth, 13 are in the bottom third, and 5 are among the poorest 10.

“The fact of the matter is towns are putting their budgets together now,” James Finley, executive director of the Connecticut Conference of Municipalities, said Friday, adding that absent an immediate solution, many communities might build a loss in state aid into their budget — and cut vital programs or increase property taxes to cover it. “This is sort of prime time right now.”

“This budget is a delicate balancing act and there are no easy answers,” Roy Occhiogrosso, Malloy’s senior adviser, said Monday. “The governor is trying to find the right mix. Some answers will have to be found along the way and this may be one of them.”

Malloy, who inherited a deficit projected between $3.2 billion and $3.67 billion for 2011-12, a gap equal to one-fifth of current spending, said on numerous occasions he hoped to avoid passing that burden onto municipalities, calling the property tax the most regressive levy in Connecticut.

The governor, a former mayor of Stamford, recommended no cuts to the nine major statutory grants to cities and towns, and kept the overall aid level at $2.8 billion in the $19.74 billion budget he proposed for next fiscal year.

That plan would eliminate a $47.9 million program that reimburses communities for a portion of the property taxes they cannot collect on exempt manufacturing equipment and machinery, while maintaining the exemption.

But the governor also wants to provide communities with several new sources of revenue, which are worth an estimated $85 million next fiscal year and $129 million by 2012-13. These come from subjecting aircraft, boats and commercial vehicles to property taxes, doubling a levy on real estate conveyances and sharing a portion of state sales and hotel taxes collected within each community.

The problem, though, is that for some communities, those potential revenue gains aren’t enough to counter the lost grant tied to manufacturing.

“This is a pretty significant revenue problem,” said Rep. Jeffrey Berger, D-Waterbury, whose community ranks 165 in terms of wealth, yet still stands to lose more than $937,600 next fiscal year.

And an analysis by the administration’s budget office showed a second problem that could pose as many political challenges for the governor as fiscal ones: The communities that do benefit the most from this trade-off are among Connecticut’s wealthiest.

Greenwich, which ranks first in wealth under the Education Cost Sharing program’s formula, gains the most under the governor’s plan, picking up an extra $7.1 million next fiscal year.

Malloy’s home community of Stamford, which ranks 27th in terms of wealth, enjoys the fourth-highest jump in resources under the governor’s plan, gaining just over $2 million.

Among the 12 top winners in the budget are the four wealthiest communities in the state, seven of the top 31, and only one — West Hartford — that falls outside of the wealthiest 51.

Sen. L. Scott Frantz, R-Greenwich and a member of the finance committee, said the shift in town aid should be considered in the context of the overall tax burden: Fairfield County has the highest median income in the state, and will bear the brunt of Malloy’s proposed increase in income tax rates.

Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, told the Finance, Revenue and Bonding Committee during a public hearing Monday that he was aware of the wealth debate, and optimistic a solution could be found. “I’m not yet come to the conclusion that these issues are so significant that they should undermine our efforts” to close the deficit, he said.

But Barnes also did not offer any timetable for resolving the dispute. Traditionally, the state budget isn’t adopted before the final days of the legislative session, and the regular 2011 session adjourns on June 8.

Further complicating matters, Malloy is proposing more than $1.5 billion in new tax hikes, including five new income tax rates topped by a 6.7 percent levy on earnings above $500,000 for singles and $1 million for individuals.