Fed economist says state can shave big dollars off towns’ spending

Connecticut can reduce the cost of municipal government dramatically over time, but it won’t happen unless state leaders pave the way, a top economist with the Federal Reserve Bank said Friday.

Yolanda Kodrzycki, vice president and director of the reserve’s New England Public Policy Center in Boston, also said other states particularly have cut costs in health care services, technology, capital programs and administration of retirement benefits.

“There is a huge need for the state to be involved,” Kodrzycki told a crowd of several hundred Connecticut business leaders who gathered for an economic summit at the Hartford Sheraton South in Rocky Hill.

“To get the big dollars, you are going to have to go after a lot of services,” she added. “This is going to take time, but it is going to pay off. The state, though, is really going to have to push.”

Though many know Connecticut has 169 cities and towns -– the chief political subdivisions below the level of state government -– it has nearly 650 municipalities once boroughs, service districts and regional school systems are included.

Connecticut has 134 municipalities per 1,000 square mile, compared with a national average of less than 25, Kodrzycki said.

The key to saving

And the key to saving dollars, she added, lies not with cities and towns, but with these smaller entities and with consolidating services that lend themselves to economies of scale.

For example, there are 111 different emergency dispatch operations that receive 9-1-1 calls here. As far as this service goes, Connecticut is the fourth-most fragmented state in the nation, Kodrzycki said.

Other small states have used as few as eight regional call centers, and not only cut operating costs in half, but used it as an opportunity to upgrade equipment and improve call-handling.

Kodrzycki also suggested Connecticut could ask the state to assume the duties performed by its 77 local health districts – water quality and restaurant inspections, and responding to various environmental hazards.

This could reduce costs by as much as 28 percent, she said.

And by creating a merged pension plan for all new state and municipal workers, plan administration costs could be cut by more than 40 percent.

“How do you do it?  This is hard,” Kodrzycki said, adding that the politics behind changing traditions that go back decades, or longer, aren’t easy.

Carrot vs. stick

On one hand, state officials need to be relentless in making this a priority,” she said. But they also might overcome local resistance more easily, she added, by offering incentives rather than mandates, whenever possible.

By offering grants or other funding, state officials could lead communities to seek consolidation of services on their own.

A panel spearheaded by state House Speaker J. Brendan Sharkey, D-Hamden, has been studying this issue this legislative session, and is expected to issue a report early next week.

The Municipal Opportunities & Regional Efficiencies (MORE) Commission met with Federal Reserve Bank officials and Sharkey said several of the Fed’s recommendations are “a cornerstone” of his panel’s report.

The speaker also said that while some proposals are aimed at long-term savings, other recommendations would promote efficiencies right away.

For example, the panel will recommend modifying the criteria for some municipal grant dollars currently distributed among all communities.  Cities and towns could qualify for these funds “if they demonstrate they are developing, or already have in place … a number of the items that we know will create [budget] efficiencies.”

The MORE Commission also is expected to unveil a plan to gradually implement repeal of the municipal property tax on motor vehicles.

The Legislature’s Finance, Revenue and Bonding Committee adopted the governor’s plan in mid-April — with one huge change. While the governor wanted to end the tax in the 2014-15 fiscal year, the measure the finance panel adopted postpones that until 2018.

The principal objection legislators raised to the governor’s proposal is that it does nothing to replace more than $600 million in property tax revenue communities collect annually from motor vehicle levies.

Members of the finance and Planning & Development committees have been talking with administration officials and Sharkey’s panel to try to reach a compromise.