As municipalities brace for a massive hit in state assistance this fall, absent a new state budget, House Speaker Joe Aresimowicz said Wednesday his chamber may vote on a fiscal plan next month — even if it acts alone.
And the head of the association representing more than 100 small Connecticut towns warned Thursday that some communities would face cash shortages and supplemental tax bills if the budget standoff continues into October.
“Throughout this whole process I’ve tried to make this as nonpolitical, cooperative and compromising as I could,” Aresimowicz said. “I never thought it would be to my advantage to call them (other caucuses) out and criticize them.”
But House Democrats, who hold 79 out of 151 seats in that chamber, have developed a plan to balance the next biennial budget, and believe they have the 76 votes needed to pass it in that chamber, the speaker said.
Negotiations continue with the Senate and with Gov. Dannel P. Malloy’s administration but have not borne fruit to date. The major sticking point, according to several sources close to the talks, involves a House Democratic proposal to increase the sales tax from 6.35 to 6.99 percent, and to impose surcharges on restaurant and hotel transactions, and use those receipts to minimize cuts to municipal aid.
The governor has not ruled out the sales tax increase, but also has said he wants to avoid it and instead has proposed deeper cuts to local grants and a plan to bill communities $400 million per year to help cover teacher pension costs.
The 36-member Senate is divided evenly between Democrats and Republicans, although Democratic Lt. Gov. Nancy Wyman, who is also Senate president, holds the tie-breaking 37th vote.
Moderate Democrats within the Senate reportedly remain wary of the sales tax increase but also have expressed concerns about the governor’s proposed cuts to local aid.
Aresimowicz and House Majority Leader Matt Ritter, D-Hartford, sent a memo to caucus members this week warning them a vote on a new budget could be held at some point between Sept. 11 and 14.
Shortly after that date, cities and towns — which already have had significant state payments withheld because of the budget standoff — are at risk of losing much more.
One year ago towns received $30 million in state grants for road repairs in July and $78 million in sales tax revenue-sharing payments in August.
Absent a new state budget, both of those payments were withheld this summer.
The stakes get much higher on Sept. 30 when $182 million in property tax relief grants also would be withheld if no budget is in place.
Another huge potential hit comes in October when school districts usually receive the first of three installments from the $2 billion Education Cost Sharing program.
The governor already has warned that ECS payments would have to be reduced by 25 percent if no budget is in place for the entire fiscal year. He has not indicated yet, however, whether that reduction would be apportioned equally across the October, January and April payments, or in some other fashion.
If the cut is imposed equally, communities would lose approximately $168 million in October.
Malloy also warned he wants to change the distribution, giving less aid to wealthier and middle-income districts and more to the poorest school systems.
Betsy Gara, executive director of the Connecticut Council of Small Towns, said the payments withheld in July and August were problematic enough. But the potential chaos that communities face in September and October is huge.
“It really is very difficult to plan for this,” she said. We’ve never seen these kinds of cuts in municipal aid to date.”
School districts already have been fixing class sizes and resolving personnel contracts for a municipal school year that begins in roughly two weeks, she said.
But if hundreds of millions of dollars in additional aid are withheld, some communities may not have sufficient cash flow to cover bills, she added. That could force them to tap reserves — if available — borrow, or issue supplemental tax bills.
“Towns really are between a rock and a hard place at this point,” she said.
Aresimowicz said he hasn’t abandoned hope that all sides can agree on a new budget. But he also wouldn’t rule out House Democratic action in September on a new budget that largely shields local aid, even if support from the Senate and the governor is unclear.
“It is important for us to make that statement of our priorities,” the speaker said. “But it is even more important for us to be able to work with everybody.
“I’m hoping that with the pressure of the impending disaster the municipalities face, people will see the timeline I’ve set out is the most realistic to make sure that doesn’t happen.”
Malloy told The Mirror last month that legislators must accept that the days are over when every town could expect to receive at least the same amount of aid it had the previous year.
“There really is not another answer, unless what we’re going to do, I suppose, is perpetually raise taxes to support local government in the manner in which we have supported it before,” the governor said. “ … And that’s not an equation that works anymore.”
State finances, unless adjusted, are projected to run as much as $2.3 billion, or 12 percent, in deficit this fiscal year, and $2.8 billion or 14 percent in the red in 2018-19.
A recently ratified union concessions deal is expected to close $700 million of that deficit this fiscal year and nearly $860 million in 2018-19.