Malloy plan hands poorest municipalities a life preserver and an anchor

Gov. Dannel P. Malloy wants to help Hartford and Connecticut’s poorest communities stabilize their local budgets.

But he also wants all municipalities — including the poorest — to begin paying one-third of teacher pension costs set to explode over the next 15 years.

Those goals may not be politically compatible.

Why?

In the simplest terms, the governor’s own study warns that Connecticut’s annual teacher pension bill could grow by a mind-blowing 525 percent — from $1 billion to $6.2 billion — between now and 2032.

No one, neither Democrat nor Republican, not in the administration, the legislature, or local government, is predicting revenues for communities will match that growth rate.

If anything, critics say, the crushing burden of retirement benefit costs — even if a portion is shifted to municipalities — will force the state to reduce aid to cities and towns in the years to come.

Big cities gain funds, then steadily lose them

An analysis of the governor’s budget found that five of the 20 poorest cities and towns — using a state ranking system that weighs grand lists, per capita income and population —  face a net funding loss in the first or second years of the plan.

And while the biggest cities stay in the black longer, their aid peaks right away, and then steadily is reduced.

What happens to the poorest communities in 2024, when the municipal share of the teacher’s pension bill is projected to have grown by more than 50 percent?

Or in 2027, when it has doubled?

By 2032 municipalities would be paying five times what the governor wants them to pay starting July 1.

Hartford Mayor Luke Bronin, whose community stands to gain the most under Malloy’s plan, and Bridgeport Mayor Joseph Ganim, both praised the governor for focusing on the plight of Connecticut’s cities.

But they said the state policies that allowed pension debt to reach historic levels over many decades also neglected the cities for far too long.

“We are suffering from decades of failures to fund commitments that were made, and that is true at both the state and the municipal level,” Bronin said.

“I certainly am worried” about the potential growth of the teacher pension bills, Ganim said. “We are trying to maintain fiscal stability at a local level, but you are always one budget away from who knows what?”

On paper, Hartford would have a net gain of $47 million next fiscal year under the governor’s plan. But after factoring in special education funding the community received this year, the growth is closer to $35 million.

And while that still might go a long way toward helping Hartford plug a projected gap of about $50 million in the next city budget, will that funding last?

Hartford’s share of the teacher pension bill, just over $17 million next fiscal year, could top $25 million as soon as 2024. And then it gets worse faster.

Unless state government increases local aid to the capital city, that potential loss would have to be made up with municipal tax hikes, spending cuts, or some combination.

Bronin has told state officials it’s crucial that they find recurring, and not one-time solutions, if Hartford is to avoid bankruptcy.

Similarly, Bridgeport starts out $19.1 million ahead next fiscal year. By 2024, though, its share of the pension bill will have grown by almost $7 million.

Some poor towns lose money right away

And other poor communities have more immediate problems.

Four eastern Connecticut towns — Griswold, Mansfield, Plainfield and Putnam — lack the big population of cities, but still struggle with poverty. They all lose funding under the governor’s plan.

Malloy’s budget director, Office of Policy and Management Secretary Ben Barnes, and Sen. Mae Flexer, D-Killingly, who represents several northeastern Connecticut communities, sparred over this earlier this year.

Barnes noted that none of these small towns face the high property tax rates Hartford and other cities face.

“It’s only reasonable that they should be able to use some of that money to keep their taxes low,” he said. “A low mill rate is generally indicative of a higher ability to pay.”

“Not in Northeastern Connecticut,” Flexer responded, adding that many of her communities insist upon a “bare bones” level of services because they can’t afford higher property taxes.

Windham County has one of the highest regional unemployment rates in the state, per capita income is well below the state average, and its reliance on government-subsidized health care is relatively higher.

Pockets of poverty can’t be ignored

Mayor of Stamford for 14 years before becoming governor, Malloy has been one of the most vocal advocates for easing Connecticut’s over reliance on a regressive property tax.

Inheriting an education funding system propped up with $270 million in expiring, emergency federal aid, Malloy balanced his first budget in 2011 without reducing local aid, and even grew town grants modestly throughout his first term.

Long recognized as the most regressive tax imposed by any level of government in Connecticut, the property tax was highlighted in a 2015 state report that found that households earning less than $48,000 per year effectively pay nearly one-quarter of their annual income to cover state and local taxes. That also includes families and individuals who rent their housing, and whose rental charges reflect the property taxes their landlord must pay.

The problem was highlighted again twice last September.

First Hartford Superior Court Judge Thomas P. Moukawsher found the state’s method of distributing education funding to be irrational and unconstitutional.

Later that month, Bronin urged a state advisory panel to help him convince legislators to reform the municipal finance system that put the capital city at risk of bankruptcy.

Malloy told The Mirror in an interview last week that he takes both warnings very seriously and is determined to address the “pockets of poverty” that persist in Connecticut. Property taxes are a concern everywhere, but the bulk of communities don’t face a property tax problem close to that of the cities, he said.

“What makes property taxes so detrimental to Connecticut as a state … are all of the cities that have mill rates above 35,” the governor said.

Malloy offered a two-fold solution in the biennial budget he unveiled in February:

The Education Cost Sharing grant would be redesigned to increase funds for those communities most in need.

And nonprofit hospitals’ real property would be subject, for the first time, to local taxation.

Sharing the burden of teachers’ pensions

But attacking those pockets of poverty wasn’t the only challenge the governor took on in his new budget.

Massively under-funded retirement benefit programs for state employees and teachers — stemming from more than seven decades of insufficient savings — have begun to take a heavy toll on state finances.

A 2015 study commissioned by the administration and prepared by the Center for Retirement Research at Boston College concluded Connecticut’s two pension programs both were headed in an ugly direction. Annual contributions for each fund — currently just over $1 billion — could surpass $6 billion in the early 2030s as the state tries to make up for past mistakes.

The governor and unions struck a deal earlier this year to restructure payments into the state employees’ pension, limiting how high costs will spike over the next 15 years, but also passing at least $14 billion in costs onto a future generation of taxpayers.

But Connecticut lacks the legal flexibility to restructure the teachers’ pension.

Malloy’s solution: Since the pensions are for municipal teachers, it’s time for cities and towns to pay one-third of the cost.

“I didn’t create this,” the governor told The Mirror. “I’m trying to fix this for the good of the state.”

But municipal leaders respond they didn’t either.

And while state officials say teacher pensions reflect the salaries local boards of education negotiate, municipal advocates fire back that the most of the cost stems from decades’ worth of irresponsible choices by governors and legislatures.

More than 80 percent of the $2.1 billion Connecticut must contribute this fiscal year to pension funds for state employees and teachers involves paying the bills ignored by past state officials. Conversely, less than 20 percent is the cost of saving for the future retirement of present-day workers.

“We didn’t break it, why should we buy it?” Coventry Town Manager John Elsesser, former president of the Connecticut Council of Small Towns, tweeted when Malloy first proposed forcing communities to pay just under one-third of teacher pension costs.

Malloy’s response: “That’s why I don’t think municipalities should pay 100 percent of this obligation. … I’m just raising the obvious fact that the state is not in a position to do all of this.”

If cities and towns own one-third of this bill, it will amount to $407 million out of $1.29 billion next fiscal year.

But by 2032, if the Boston College study is correct, one-third of $6.2 billion is $2.07 billion.

Should Connecticut really shift an amount equal to the value of its entire Education Cost Sharing grant program onto an already regressive property tax base?

“The state can no longer kick the can down the road so now it is trying to kick it onto towns and cities,” said Betsy Gara, executive director of the Connecticut Council of Small Towns.

“We’re still not having the right conversations. That’s what is mind-boggling to me,” said Joe DeLong, executive director of the Connecticut Conference of Municipalities. “Nobody is talking about fixing the broken system. Nobody is saying let’s create a second-tier retirement system” for new teachers.”

Aresimowicz searches for a compromise

House Speaker Joe Aresimowicz, D-Berlin, has been searching for middle ground since the governor unveiled his plan two months ago.

The speaker said he agrees with Malloy that communities should bear at least some responsibility for teacher pension costs.

And the current pension system is regressive, Aresimowicz said. Connecticut pays proportionately far more to cover pensions for teachers from wealthy communities — which can afford to hire more teachers at higher salaries and thus create larger pension costs — than it does to help retirees from poor cities and towns.

But Aresimowicz, who suggested phasing in teacher pension bills for municipalities, added last week that Connecticut also must limit how fast those bills grow over the next 10 to 15 years.

“We all recognize that municipalities’ only ability to raise funds and pay for things is through the property tax,” he said. “The mill rates are already so exorbitantly high in some cities that people don’t want to live there and businesses don’t want to be there.”

Malloy said he remains open to “meaningful discussions” that could lead to a compromise, “but can we go back to square one? I don’t think that’s a good way to start.

“I’m the guy who routinely raises the issues, but I didn’t create a single one. …We still have to get to a budget.”