Towns call dibs on any April windfall in state tax receipts

How tight is state revenue? Even the possibility of a small windfall is causing cities and towns to stake a claim.

Municipal leaders, who were disappointed last week by the lean town aid package recommended by legislators, called dibs Tuesday on any last-minute revenue bonanza that sometimes is found after the April 15 income tax filing deadline.

The Connecticut Conference of Municipalities "urges you to take advantage of expected increases in projected state revenues and craft a state budget that protects the interest of hometown Connecticut and its residential and business property taxpayers," municipal leaders wrote to top Democratic and Republican leaders in the House and Senate.

State government tests revenues three times annually, including on April 30 -- usually a few weeks or a month before legislators adopt a budget for the next fiscal year.

Throughout much of the past three decades -- whenever the economy wasn't in recession -- that late April assessment was the budget equivalent of Christmas morning.

State fiscal analysts, armed with fresh data from the recent income tax deadline filings, would increase revenue assumptions for the coming fiscal year, often by hundreds of millions of dollars.

And past legislatures and governors often used those dollars to placate those special interests who didn't get as much funding as they had hoped in earlier budget proposals.

Connecticut hasn't enjoyed any April windfalls since before the last recession began in 2007, but Gov. Dannel P. Malloy has been optimistic that this year finally would show some modest growth.

Since November, when voters re-elected President Obama, Malloy predicted the expiration of the President-Bush era federal income tax breaks would spur a December surge of stock sales. The wealthy would take capital gains while they could still pay taxes at the lower rate, and Connecticut would enjoy a surge -- at least for now -- in state income tax revenues.

Whether that actually comes to pass likely won't be clear until analysts for the legislature and executive branches issue their next revenue forecast on April 30. According to nonpartisan legislative analysts, income tax receipts through Monday were running $51.6 million ahead of projections for the current year, though that number can fluctuate by tens of millions of dollars in one day.

But municipal leaders are lining up now after cities and towns fared little better last week in the Appropriations and Finance, Revenue & Bonding committees' budget proposals than they did in the governor's in February.

Technically, Malloy proposed a $46 million increase in overall town aid package of about $3 billion for the upcoming fiscal year.

But that proposal moved huge sums of state resources into education aid. Unrestricted grants to communities drop under the governor's plan by $128 million.

And Malloy also proposed removing communities' ability to tax motor vehicles starting in 2014-15, which would cost cities and towns a whopping $600 million per year.

The legislature's budget-writing panels recommended a $36 million increase in town aid for next year, with unrestricted aid dropping about $152 million.

Legislators did vote, though, to delay the car tax repeal until 2018, noting that some plan to help communities deal with the $600 million in lost revenue first must be developed.

The committee proposals are "a mixed bag for towns and cities," CCM wrote in a statement last week. "State legislators have answered some of the pleas of their local partners. ... There is still much municipal aid progress to be made as the budget negotiation process continues."

Town leaders also know they aren't the only ones disappointed with the preliminary outlook for the next state budget.

The Appropriations Committee largely maintained one of the most controversial cuts Malloy proposed back in February, a $550 million reduction over two years to Connecticut's 29 acute care hospitals.

The panel did endorse giving some hospitals a small amount back: $15 million per year to bolster payments to hospitals that have lower-than-average costs and where at least 64 percent of patients are covered by Medicare or Medicaid. Rep. Toni Walker, D-New Haven, co-chairwoman of the committee, said approximately 11 hospitals would qualify to share those funds.

Malloy's budget director, Office of Policy and Management Secretary Benjamin Barnes, said Tuesday that, "It's very likely that we will receive more tax revenue than expected this spring."

This is due both to a surge in capital gains- and dividend-related income and a one-time surge in the state's gift tax receipts, Barnes said.

But he added that because there is no guarantee either of these projected revenue increases will happen again next year, state officials have to use any one-time increases carefully.

"If we allow that dollar to be spent on recurring expenses like municipal aid, we will falling back into Connecticut's old bad habit," Barnes said. "Taxpayers want their state and local governments to manage their finances responsibly.  When local governments call on the state to make reckless decisions with scarce taxpayer dollars, we need to say no."