Anticipating a huge crash in state funding, municipal leaders urged legislators Monday to expand their ability to levy taxes and fees, particularly through a regional sales tax surcharge.

But while members of the Finance, Revenue and Bonding Committee agreed communities need new revenue sources, lawmakers from both parties expressed fears that Connecticut could be left with a patchwork tax system that helps one region while harming another.

“The next few years are going to look pretty bleak for all of us,” East Hartford Mayor Melody Currey said, adding she has had to slash programs and lay off town workers for two years now, and fears things are about to get worse. “It’s the most unpleasant part of the job.”

“Connecticut tax policy continues to encourage the highest property tax burden in America,” New Haven Mayor John DeStefano said. “This shift to property taxes has fallen hardest on central cities where most of the state’s jobs are, and harms the ability of our cities to compete economically.”

Currey and DeStefano joined Cheshire Town Manager Michael A. Milone in backing bills to create new, regional sales and hotel taxes, to continue a temporary increase in the local real estate conveyance tax, and to give communities broad powers to increase local fees.

Municipal leaderss cited the $3.9 billion deficit legislative analysts are projecting for the 2011-12 fiscal year, a gap nearly one-and-a-half times the size of the $2.7 billion in grants state government currently provides cities and towns. The single largest municipal grant, the Education Cost Sharing program, is being propped up by $271 million in annual, emergency federal stimulus aid, which expires after 2010-11.

Town officials estimate an extra $550 million to $600 million could be raised statewide to offset the impending crash by allowing communities to levy an extra 1 percent on the existing 6 percent state sales tax, Currey said. The proposal before the finance committee would require any such changes to occur at the regional level, with decisions made by elected officials serving on regional planning agencies.

Similarly, a second option backed by town leaders Monday would allow regional groups to establish a tax on hotel stays, with the funds raised also going to support municipal budgets within the region.

But Reps. Patricia M. Widlitz, D-Guilford, and Vincent J. Candelora, R-North Branford, cautioned that could create an uneven tax landscape that could driven consumers away from some regions.

And with cities already struggling with the highest poverty rates and property tax burdens in Connecticut, might they also be the most tempted to seek higher sales and hotel taxes as well? Widlitz asked. “I would think that would hurt the cities even more” in terms of attracting consumers and businesses, she said. “It would make them even less competitive.”

The looming budget crisis is so severe, and the prospect of declining town aid so strong, there probably wouldn’t be many regions holding off on sales or hotel tax hikes, Currey responded. “I can’t foresee anyone having that opportunity and turning it down,” she said, “because frankly, we are so desperate for cash.”

Though proposals for regional taxing authority are nothing new at the Capitol, and typically never get to the House or Senate floor for a vote, Rep. Cameron C. Staples, D-New Haven, co-chairman of the committee, said they have a better chance in this time of budget crisis than ever before.

Staples added that a statewide tax hike, such as a sales tax surcharge, along with a pledge to devote all extra proceeds to municipal grants, might garner more legislative support than a region-by-region approach.

But town leaders still pressed for the regional option, adding that state government’s track record on pledges of town aid is poor. “Promises do get broken during tough fiscal times,” Milone said.

Though most municipal revenue comes either from state aid or from local property taxes, cities and towns are able to levy a 0.25 percent tax, or $25 for every $1,000, on real estate sales.

That tax rate is supposed to drop to $11 per $1,000 on July 1, but towns are backing a bill to make the increase permanent, estimating it could provide between $30 million and $40 million next fiscal year.

Michael Casey of Bristol, spokesman for the Connecticut Association of Realtors, urged the finance committee to allow the higher rate to expire, adding that municipal governments aren’t the only ones struggling in this economy.

“It increases a tax on a fragile housing market at the worst possible time,” he said. “Yes, towns and municipal governments are facing a huge challenge deciding what programs and services to fund. Still, this pales into insignificance compared to the trials and tribulations of home sellers.”

The finance committee has until April 6 to act on bills it raised this legislative session.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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