For years, ideas such as regionalizing school calendars, reforming special education funding and other proposals to trim the cost of local government were given brief discussions at the state Capitol — though nothing more given to their controversial nature.

But since Connecticut’s cities and towns may have to get by with less state funding in the next budget, the time for delicately avoiding politically sticky cost-cutting ideas is over, House Speaker J. Brendan Sharkey pledged Thursday.

Connecticut House Speaker  Brendan Sharkey

House Speaker Brendan Sharkey says Connecticut needs to ”fundamentally change” the way it funds local governments.

Addressing more than 100 state and municipal leaders and social service advocates at a state budget forum at the Capitol, the Hamden Democrat said the days of being able to hold cities and towns completely harmless while dealing with the state’s fiscal woes likely are over.

“We have to fundamentally change the system by which we fund our local government,” Sharkey told the crowd at the forum sponsored by Connecticut Voices for Children.

The Hamden lawmaker, who was elected earlier this month to his first term as speaker, noted that the General Assembly and Gov. Dannel P. Malloy “did not balance the budget on the backs of cities and towns” two years ago when facing a state budget deficit of historic proportions.

The biennial budget he and the legislature adopted in June 2011 not only spared all municipal aid from cuts, it immediately gave municipalities a share of sales and real estate conveyance tax revenue worth about $50 million per year and increased the Education Cost Sharing grant by $50 million starting in 2012-13.

But that budget also increased state taxes and fees by $1.5 billion.

And with a sluggish economic recovery limiting revenue growth and pushing up demand for social services, analysts estimate state finances are headed for a $1 billion-plus deficit in the next fiscal year unless changes are made.

Both Malloy and Sharkey have said, given the recent big tax hike, another further state tax increases must be considered only as a last resort.

The two leaders also have warned cities and towns that municipal aid may not be spared from the budget axe this time.

Malloy’s proposal for the next two fiscal years is due to legislators on Feb. 6.

Despite that gloomy proposition, Sharkey said Thursday that he remains convinced the municipal property tax is harmful for many reasons, and Connecticut must work to reduce its reliance on that levy.

“The property tax will be the crisis once again,” Sharkey said, adding that it fell out of focus at the Capitol during the last recession, but the problems it creates haven’t gone away.

Besides harming low-income households the most, the regressive levy also places a heavy burden on small businesses and discourages economic development here.

But how much can state government do to lower local property taxes if it can’t increase — and may well have to reduce — grants to cities and towns?

“We’ve got to think about some of the big ticket items we impose” on communities, Sharkey said.

That could mean reducing the municipal burden for funding special education, and placing more of that on the state, he said.

It also could mean requiring communities to follow a common school calendar — at least at the regional level. Once that change has been made, Sharkey said, it then becomes possible for neighboring school districts to purchase school bus transportation and other services on a regional basis, and at a lower cost.

A third option could be to split the local tax bill property owners receive.

Rather than receiving one bill that reflects both general government costs — police, fire, public works and general towns administration — as well as education expenses, it might be wiser to bill taxpayers separately for both.

The bulk of local budget dollars are spent on schools, yet the education component of those budgets often don’t receive the same level of public scrutiny, Sharkey said. Forcing local school boards to send bills directly to taxpayers could lead to greater accountability, giving those boards more incentive to find cut costs, the speaker said.

James Finley, executive director of the Connecticut Conference of Municipalities, said CCM is ready to consider all of those proposals.

But Finley also said that state aid, even when it has been spared cuts in recent years, has not kept pace with inflation.

The ECS grant, which is the single-largest grant to communities with about $2 billion distributed this year, is based on a formula that weighs a community’s wealth, its enrollment levels, and numbers of households on federal assistance.

Yet the legislature has not provided sufficient funds to match the level required in the formula for decades. The ECS program is under-funded by nearly $800 million this fiscal year, Finley said.

And while Sharkey called state tax hikes “the absolute last resort,” Finley said CCM has not ruled out supporting higher state taxes as a means to preserve town aid.

“It’s one thing for the speaker to be a cheerleader for towns and cities to be more efficient,” Finley said. “It’s another thing to be a cheerleader for municipal aid cuts. … Cutting municipal aid is a false economy. You are raising property taxes and cutting local services.”

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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