With the potential for deep municipal aid cuts looming less than 10 months away, Connecticut municipalities’ longstanding cry for a new alternative to the property tax could be answered next year at the Capitol.

All three of the gubernatorial candidates support giving communities new revenue-raising options. And legislators did important prep work last spring when they created incentives to encourage cities, suburbs and rural communities jointly plan their economic futures.

“We sometimes forget that the crisis before the state budget crisis was the property tax,” Rep. J. Brendan Sharkey, D-Hamden, said Tuesday. “We need to see the whole picture and come up with good public policy alternatives and I think there is a growing sentiment that now is the time to make some important changes.”

One of the “changes” that likely won’t occur next year, Sharkey said, is any dramatic reduction in communities’ reliance on a property tax that – according to the Connecticut Conference of Municipalities – provides 68 percent of the annual revenue for the average municipal budget in this state.

That’s not because legislators’ don’t recognize the burden, he said. But with nonpartisan legislative analysts projecting a $3.4 billion deficit built into the 2011-12 budget, an amount equal to 18 percent of current spending, tough choices will be needed just to help communities avoid major tax hikes.

But if state and local governments take steps now to diversify the municipal revenue stream, communities will have a more stable fiscal base as they recover in the coming years, he said.

Sharkey, who co-chairs the legislature’s Planning and Development Committee and spearheaded a 2009 task force charged with finding ways to help communities control rising property taxes through regional cooperation, was careful not to endorse any one solution.

The legislature’s Finance, Revenue and Bonding Committee endorsed a bill last year to increase the state’s hotel tax and share of portion of that revenue with communities based upon the amount of hotel commerce conducted within it. Sales, income and utility taxes also have been mentioned by different legislators as possible vehicles for revenue-sharing programs.

Former Stamford Mayor Dan Malloy, the Democratic gubernatorial nominee and a longtime advocate for municipal revenue diversity, has said repeatedly on the campaign trail that the property tax is the most regressive levy in Connecticut, falling particularly hard on middle-income households.

Malloy said the key to any revenue-sharing option is not to create system that pits one community or one region against another. “We don’t want to create additional incentives to strip mall the rest of Connecticut’s highways and byways,” he said.

Greenwich businessman Tom Foley, the GOP nominee for governor, insists he can close the state’s budget shortfall without tax hikes, a charge Malloy disputes.

But Foley said rather than sharing new portions of state tax revenues with communities, he would give cities and towns the option of levying new types of taxes. “Why are we telling cities and towns to limit their revenues to the property tax?” Foley said, agreeing that it is a regressive levy. “I think that state government has no business telling towns how to run themselves, and that includes how to raise revenues.”

Foley did not propose any specific new taxes he would allow communities to levy.

Under current law, cities and towns can tax real and personal property taxes and real estate transactions, though the latter is a relatively small portion of the municipal revenue stream.

Regardless of which new revenue options might be provided, communities will be expected in a tough economy to demonstrate a willingness to stretch those dollars, Sharkey said, adding that the legislature and Gov. M. Jodi Rell took a big step this year to encourage that.

They enacted a new law that allows communities to form regional economic development districts that would then become eligible to apply for state and federal development funds

If communities are going to receive a new share of state revenues, they likely will be asked to complement that with new, regional cost-saving programs, Sharkey said, adding these could involve joint purchasing of equipment or services or other cooperative ventures.

A natural role for these new regional economic development districts would be to distribute revenues shared by the state and oversee regional efficiency programs, Sharkey said.

Democrats, who currently hold large majorities in both the state House and Senate, generally have been receptive to new municipal revenue options, though they generally have been opposed both by Rell and by her predecessor and fellow Republican, John G. Rowland.

Rep. Vincent J. Candelora of North Branford, ranking House Republican on the Finance, Revenue and Bonding Committee, said Tuesday that he believes GOP lawmakers are more wary about how revenues might be distributed than they are about the concept of revenue-sharing itself.

“The cities do hold considerable influence among the Democrats,” Candelora said. “Fairness of any system has always been a concern.”

A similar warning was raised earlier this year by Chester First Selectman Tom Marsh, a third-party candidate for governor.

Marsh said he also favors giving cities and towns a new slice of state revenue streams but worries that any regional distribution system would be biased in favor of Democrat-dominated cities.

But James Finley, executive director of the Connecticut Conference of Municipalities, said that while mandatory regional government “is counter to the political culture when you look at the history of Connecticut. I don’t think voluntary regional cooperation is a lost cause.”

Finley noted that the Capitol Region Council of Governments, a 29-community, regional entity centered on Hartford, has a strong track record of cooperation that dates back more than two decades.

In recent years the council oversaw development of a regional database linking all municipal police departments and currently is preparing a new computer network to help developers navigate the numerous land use boards that operate within the 29 member cities and towns.

“When you put money behind the notion of regionalism,” Sharkey added, “people want to come to the table.”

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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