Malloy’s car tax cut leaves towns feeling the fiscal pinch

After wading through a myriad of proposed cuts and grant increases Wednesday, both municipal officials and state legislators were fearful that communities would lose ground under Gov. Dannel P. Malloy's new budget plan. While the municipal grants segment of the Malloy plan featured a mix of cuts and increases that largely balanced out, the governor's plan to end municipal taxes on many, if not most, motor vehicles would leave cities and towns hundreds of millions of dollars in the hole.

But the administration defended its proposals, saying they reflect a shift toward the most essential priorities -- education, job-creating capital projects and middle-class tax relief -- in tough fiscal times.

"Connecticut families have had to buckle down, make tough decisions, pay their bills, make sacrifices and find compromise, and at the same time keep doing whatever they can to invest in their future," Malloy said in his budget address. "And so must their government.

Trying to find dollars for his top priorities while closing a $1.2 billion hole in state finances for the coming fiscal year meant Malloy had to shift dollars between numerous programs.

And for local officials, keeping track of the pluses and minuses in the governor's plan was like working their own fiscal Rubik's cube.

The PILOT (Payment In Lieu Of Taxes) grant that reimburses communities for lost property tax revenue tied to exempt, state-owned property was eliminated, costing them $74 million, at first glance.

But Malloy simply rolled that money into the education cost sharing grant, meaning communities still could spend it, but on their schools.

Communities also would lose $56 million representing their share of video slot revenues from Connecticut's two casinos. But Malloy would replace it with $56 million more in a grant to help municipalities pay for capital improvements. The advantage for the governor is that the capital grant is paid for with borrowing, while the casino revenue sharing was paid for with cash from the operating budget.

Other changes in the municipal aid package for next fiscal year include:

  • A $92 million cut by eliminating towns' share of state sales and real estate conveyance tax receipts;
  • A $50 million increase in education cost sharing funds in addition to the re-directed PILOT funds;
  • A $30 million increase, from $30 million to $60 million, in the Town Road Aid program, though all of those funds would be financed with bonding;
  • A $15 million increase in local bridge repair funds, also financed with bonding;
  • And a $47.2 million increase in the form of a new municipal aid adjustment grant program, offered to offset reductions in other grants.

Add up all of those changes, and municipalities finish about $50 million ahead.

A breakdown provided by the governor's budget office shows exactly what this means for each city and town. In Bridgeport, for example, state funding directed at education will increase by $7.1 million next fiscal year, but appropriations for other operating budget grants are reduced by $14 million. State funding to cover construction projects in Bridgeport is increased to makeup for the difference.

But the town-by-town breakdown does not factor in the $560 million these communities raise annually by levying property taxes on motor vehicles.

Though the governor's budget doesn't project exactly how much cities and towns would lose under his plan to exempt the first $20,000 in assessed value of vehicles from the tax, the Connecticut Conference of Municipalities said Wednesday that the overwhelming majority of that $560 million would be stripped from local government coffers.

Given that, even the governor's fellow Democrats were hesitant about signing onto the car tax exemption as Malloy has crafted it.

House Speaker J. Brendan Sharkey, D-Hamden, who has been pushing to repeal the tax for several years, said municipal tax bases can't deal with that loss without additional dollars from the state.

"To take that revenue away from towns and cities in just two years' time ... I think may be difficult for towns to absorb," Sharkey said. Municipal leaders "don't have many tools in their toolboxes."

Boughton, Mark

Danbury Mayor Mark Boughton:

But the speaker also praised Malloy for "calling the tax out for what it is: a regressive tax that is unpopular in this state."

Hartford Mayor Pedro Segarra also was skeptical that the capital city could bear that loss. "We would have to see what kind of opportunities there are for us to raise the revenue" that would be lost, he said.

Republicans were less kind in assessing the car tax plan in the context of Malloy's overall aid plan for cities and towns.

"Municipalities are getting hurt badly here," House Minority Leader Lawrence F. Cafero Jr. said after Malloy delivered his budget address.

Torrington Mayor Ryan Bingham, president of the CCM, said the prospect of providing relief to municipal property taxpayers was exciting -- until it was clear towns would be left to foot the bill.

"To me it was a good attempt, like a high-five -- and then a punch in the gut," said Bingham, a Republican.

Danbury Mayor Mark Boughton, also a Republican, said what the governor is proposing is shameful.

"It is really, really disturbing," Boughton told reporters at the Capitol shortly after he addressed state legislators. "Saying I increased your [education] grant is almost insulting. You absolutely haven't increased our grant... I can't tell policemen and firemen that I have to lay them off because the governor decided to move money to different pots."

Malloy's budget chief, Office of Policy and Management Secretary Benjamin Barnes, said the proposed increases in education spending will not come at the expense of other municipal costs.
"I do not believe .... that this will require any diversions of funds from general government budgets into education budgets," Barnes said.

Barnes also defended the car tax exemption, noting that cities and towns have several options to deal with it, including cutting spending and raising property taxes on homes and businesses.

"Those remain local decisions that every community across the state is going to make," he said. "We believe taxing cars is the most unfair part of the property tax system."

The governor's plan also would give communities some flexibility in dealing with the shifting priorities.

State law prohibits cities and towns from effectively using their education grants to support non-education programs. In other words, if state education aid to a community rises by $5 million in a given year, the community's education budget must rise by at least that amount.

But Barnes said the the PILOT funds channeled into education cost sharing would not be subject to this restriction. Translation: Municipalities will be able to reduce the share of local dollars they spend on education by an amount equal to their share of these state PILOT dollars.

Segarra said he is still digesting what all of these changes mean for his budget. The governor's PILOT switch would cut Hartford's state funding for their operating costs by $25.3 million next fiscal year while increasing funding directed at education by $18 million.

"It might present the challenge of less operational dollars," Segarra said. "My hope is that we are not receiving any less than we have in the past."

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