“There will be some pain going around,” the Democratic governor told small town leaders at a conference in Cromwell Wednesday.
“It is probably unlikely that we are going to be able to hold cities and towns harmless,” Sharkey, D-Hamden, also told the crowd.
Municipal leaders are facing a different reality this year. Their funding was shielded from cuts for the last two years as the state closed a large budget deficit. In fact, the current biennial budget modestly increased town aid by giving town leaders a share of sales and real estate conveyance tax revenue worth about $50 million annually starting in 2011-12. It also increased education funding for towns in 2012-13 by $50 million.
Not likely this time around.
As Sharkey pointed out, there are few options left to close the $1 billion projected deficit for the upcoming fiscal year that begins July 1.
“Cutting municipal aid and driving the property taxes up is not necessarily the solution, but I also think that we are running out of bullets” to close budget gaps, Sharkey said.
Twenty-two percent of the current $20.5 billion state budget is spent on cities and towns. That includes about $3.5 billion in grants, and just over $930 million in payments into the teachers’ pension program.
The Republican minority leaders agreed there are few options left but to reduce the state budget, pointing out that tax increases have to be off the table in light of the historic tax increases implemented two years ago. And on top of that, the state employee union contract guarantees wage increases and no layoffs for the state unionized workforce.
“Many of the tools that we had in our toolbox two years ago have been removed,” said House Republican Leader Lawrence Cafero Jr., R-Norwalk.
Malloy, the mayor of Stamford for 14 years before becoming the governor, promised during his campaign and during his first year in office not to balance the state’s gapping budget deficit on the back of municipalities.
But that tone changed slightly on Wednesday, as he mentioned a possible reduction to state aid.
“I am going to do everything in my power to spare or hold as small as possible any reductions” to municipal aid, he told reporters after speaking to a roomful of leaders. He said his budget will be finished in 10 days. He is scheduled to propose it to the legislature the first week of February.
Sharkey also pitched to the audience a possible change in state law that could help. The change would allow school boards to levy taxes separately from municipal town boards. Currently, a town’s education budget is a line item in a much larger municipal budget.
Sharkey said this system lacks the proper accountability and sometimes necessary dedication to school spending.
“The people spending that money are not directly held accountable to the taxpayer,” he said. “Education systems in the state are probably really where the greatest level of savings can be achieved.”
State Comptroller Kevin Lembo also told the audience that this might be the year that lawmakers make changes to an existing state law that limits municipal leaders from asking employees to contribute more to cover retirement and healthcare costs.
“There seems to be a willingness on behalf of both labor and legislators to talk about change there,” he said.
Last year, a bill that would have increased an employee’s share of pension contributions failed to gain traction. Under the proposal, municipal employees covered by Social Security would have to contribute 5 percent of their salary to cover their future pension costs instead of the current 2.25 percent. For workers not covered by Social Security, they would have to increase their contribution from 5 percent to 7.75 percent over three years. These changes would have saved towns $5.3 million a year when fully implemented.
Malloy said he has not yet made a decision on whether he supports allowing towns to tinker with what they require their employees to contribute to cover their health and pension liabilities.
Follow Jacqueline Rabe Thomas on Twitter @jacquelinerabe