Wall Street agency nudges CT to keep funding pledge to municipalities

Yehyun Kim :: ctmirror.org

Connecticut State Capitol on a snowy day on Oct. 30, 2020 in Hartford. State property is tax-exempt, along with hospitals and universities. Moody’s Investors Service recently wrote that a pledge to increase compensation for tax-exempt property will help municipalities borrow money.

Connecticut municipalities aren’t the only ones watching with bated breath to see if legislators keep their pledge to bolster non-education aid to cities and towns.

A major Wall Street credit rating agency hinted this week that the General Assembly’s pledge pump another $135 million into communities — particularly urban centers with large amounts of tax-exempt property — can only help cities and towns borrow cheaply going forward.

“With property taxes the dominant funding stream for Connecticut local governments, the move is a particular benefit for municipalities … with a substantial amount of tax-exempt property,” Moody’s Investors Service wrote in its report.

Moody’s declared the pledge to bolster the PILOT [Payment In Lieu Of Taxes] grant a “credit positive.”

This declaration is not — by itself — a rating upgrade, something that often lowers borrowing costs. But it is a development deemed to be a positive factor in the agency’s evaluation of the state’s finances.

Municipalities, like state government, borrow funds for capital projects and other initiatives by issuing bonds on Wall Street. And with interest rates remaining low throughout the coronavirus pandemic, state and municipal officials in Connecticut have said bonding will play a key role in helping to finance the state’s recovery.

Technically, cities and towns don’t have the extra PILOT money locked in just yet.

The Democrat-controlled General Assembly enacted a measure earlier this month revising the PILOT grant system — but not actually appropriating the estimated $135 million extra that goes with those changes. That won’t be done until the next state budget is adopted, likely a few days before the regular 2021 session adjourns on June 9.

Still, Senate President Pro Tem Martin M. Looney, D-New Haven, who spearheaded the local aid expansion, and House Speaker Matt Ritter, D-Hartford, both said communities should take this as a pledge that the funds absolutely will be delivered.

Gov. Ned Lamont, who signed the bill, said he also supports the expansion.

“I’m very confident we’ll get it done,” Ritter said, adding that if legislators struggle to find dollars in the budget to fund the program, they also could borrow funds to keep the pledge.

“I feel, obviously, very strongly” about keeping the commitment, Looney said Thursday, adding that a polite nudge from Wall Street can only help.

Wall Street rating agencies have criticized the state on several occasions over the past decade for its huge pension debt — a expensive problem that has leached resources away from several other priorities, including municipal aid.

For example, PILOT grants are supposed to replace about 45% of the funds communities lose because they can’t tax state property. Communities currently get less than 15% back, according to the Connecticut Conference of Municipalities.

Similarly, the grants once designed to replace 77% of taxes lost on nonprofit colleges and hospitals now cover less than 25%.

The new system still wouldn’t guarantee communities receive the full reimbursement rates of 45% and 77%.

But it does place new limits on the state’s ability to scale back funding. No community would be allowed to receive less than it received in the current fiscal year, and 157 communities are projected to gain at least a share of the $135 million in additional funding legislators have pledged to the program.

The statute creates a three-tiered system that ranks communities based upon their relative wealth and the amount of tax-exempt property on their books.

Moody’s “recognized the tiered PILOT is going to target relief where it’s needed the most,” Looney said, noting that analysts project Connecticut’s poor urban centers — which have the highest property tax rates — would be the top beneficiaries.

Analysts project New Haven would benefit the most. Nearly 60% of the city’s property base, which includes Yale University and Yale-New Haven Hospital, is exempt from taxation. The city received $41.7 million in PILOT funding this fiscal year and would get $91.3 million in 2021-22.

Hartford and Bridgeport also would be big winners, gaining $15 million and nearly $11 million respectively.

“These cities face a practical hurdle in raising taxes and, in turn, revenue because of elevated poverty levels and already high taxes,” Moody’s analysts wrote.

The Connecticut Conference of Municipalities thanked legislators when they revised the system but also insisted that the increase must be maintained year after year to make a difference for cities and towns, whose budgets have been rocked by the coronavirus.

CCM estimated last summer that the pandemic had stalled or eliminated roughly $400 million in property tax revenues from people who couldn’t pay or became delinquent or businesses that suffered.