Communities still feeling the property tax bite, municipal lobby says

Very small increases in municipal aid over the past two years — while appreciated — haven’t been enough to reverse Connecticut’s over-reliance on property taxes, the state’s chief municipal lobby is reminding candidates this fall.

The Connecticut Conference of Municipalities issued its first bulletin Monday to candidates for the state House and Senate, also urging them to make additional education funding one of their priorities.

But leaders of the General Assembly’s budget-writing panel also warned Monday that while cities and towns enjoy strong support in the legislature, few guarantees can be made while the state budget continues to face stiff challenges.

“A property-tax-dependent system only works fairly if the property and income wealth of a community can generate enough property tax revenue at a reasonable cost to taxpayers to meet the need for public services, or [if] state aid is sufficient to fill local revenue gaps,” CCM Executive Director James Finley said.

Connecticut’s 169 cities and towns, along with their boroughs, fire districts and other political subdivisions, levied about $8.7 billion in property taxes in 2009-10, the last fiscal year for which CCM has complete records, Finley said, adding that the total, once updated, likely would clear $9 billion for the current year.

Property taxes provide about 72 percent of the revenue for municipalities, while state aid — which stands at about $3 billion — represents 24 percent, according to CCM.

Finley said Gov. Dannel P. Malloy and the legislature deserve high marks for launching the first state revenue-sharing initiative. Cities and towns got an extra $50 million in 2011, receiving a portion of state sales, real estate conveyance, hotel and car rental taxes.

And communities saw another modest $50 million increase in the education cost-sharing grant this year.

But despite those increases, municipal aid largely has remained flat over the last five years, meaning communities actually have lost ground due to inflation, Finley said.

State officials could make a significant dent in the property tax problem by closing long-standing gaps in education funding programs, according to CCM.

Though the education cost-sharing program provides nearly $2 billion to cities and towns, the formula used to award funds actually called for the state to provide $724 million more than it did this year.

Similarly, state officials also failed to provide another $101 million in special education grants called for in funding formulas because of budget constraints.

“The key to property tax relief is education finance reform,” he said. “The overdependence on the property tax is unsustainable, and hometown Connecticut is in desperate need of revenue assistance.”

The need to examine how schools are financed has caught the attention of top state lawmakers, and the panel whose job it is to figure out how to fix the highly critized and underfunded formula is slated to finish its work by Dec. 1.

Though Finley added that “harnessing the revenue-raising capacity of the state and sharing resources with local governments is one way to reduce the over-reliance on property taxes,” he stopped short of recommending any specific state tax increase.

Democratic legislators from Connecticut’s urban centers began to talk this summer of boosting the state’s top marginal income tax rate on the wealthiest households in 2013 if state budget problems persist.

Despite more than $1.5 billion in new taxes and fees, as well as a major union concession plan, the general fund in the $20.14 billion budget adopted for 2011-12 finished $143 million in the red.

Malloy and legislators closed that deficit and deposited $78 million into the state’s emergency budget reserve. But they did that by raiding $222 million that was supposed to be used to pay down debt from the 2009 state budget.

And the administration reported last week that the $20.5 billion budget for the new fiscal year that began July 1 already is running $27 million in deficit.

But the co-chairwoman of the Appropriations Committee warned Monday against making any promises about town aid.

“Right now it’s kind of premature,” Rep. Toni Walker, D-New Haven, said. “There are so many things that go into the budget and I think we have to wait and see. I think we have to be fair to the whole state.”

“We really pay a lot of attention to what they (municipal leaders) think,” added Sen. Toni Harp, D-New Haven, the panel’s other co-chairwoman, who added that the legislature spared cities and towns from any budget cuts during the last recession. “I can’t imagine we would do any less next year, and I’m hopeful we can do more.”