Sen. Cathy Osten, D-Sprague, wants to exempt all pension and annuity earnings from CT income tax. Arielle Levin Becker / The CT Mirror

A state program designed to help small communities launch key economic development projects has lost its way, according to one legislative leader who wants to revive it.

The Small Town Economic Assistance Program, commonly known as STEAP, languished in political limbo from 2016 through most of 2020. When it reemerged last year, communities learned they couldn’t receive more than $128,205.

“There’s no project for that dollar amount, unless you’re breaking the project into four phases,” said Sen. Cathy Osten, D-Sprague, a former first selectwoman and co-chair of the Appropriations Committee. “STEAP was set up to get the most important projects done.”

Osten’s bill would guarantee small towns’ ability to apply for up to $500,000 and would increase that grant maximum to $1 million over the next five years, among other things.

The 2001 legislature created STEAP to complement the Urban Act, a program launched in 1979 to pump tens of millions of dollars annually into key economic development initiatives in major cities.

STEAP specifically was earmarked for municipalities with fewer than 30,000 people. Those communities could apply for up to $500,000 for a wide array of programs to attract development.

Funds could be used to develop commercial and industrial complexes and downtown beautification efforts, but they also could support child care services, housing projects, transit programs and other initiatives that would complement economic development efforts.

Like the Urban Act, STEAP was financed with state bonding.

But unlike the Urban Act, STEAP effectively was suspended for years. 

No grants were issued in 2017 and 2018. Gov. Dannel P. Malloy was at odds with the legislature after it excluded him from budget negotiations during the last two years of his second term, and many bonded initiatives stalled at that time.

And when Ned Lamont was sworn in as governor in January 2019, he challenged lawmakers to accept a “debt diet” and pull back on borrowing. STEAP remained in limbo until July 2020.

But when Lamont finally did revive it, his budget office capped the maximum grant a community could receive at $128,205.

“The Lamont administration wants to ensure as many communities as possible have the opportunity through a competitive process to receive these grants,” said Max Reiss, the governor’s communications director. “Spreading these resources to more cities and towns provides valuable funds to be utilized at the local level and doesn’t concentrate grant distribution too heavily in one part of the state.”

Reiss noted that 95 small communities were able to receive STEAP grants this way.

But spreading funds that thin created other problems

“STEAP was that program [in which] you tried to do somewhat game-changing things that really made a difference to the community,” said Coventry Town Manager John Elsesser. 

A little more than a decade ago, Coventry used the funding to convert a formal landfill into a football field and sports complex, something that couldn’t have been done with the more modest grants distributed now, he said.

Coventry officials have been exploring a new water tower project to increase line pressure and service both for residential and industrial areas, Elsesser said, adding that also would require more state assistance than was available this past year.

Coventry’s concerns were echoed by leaders in many other communities, said Elizabeth Gara, executive director of the Connecticut Council of Small Towns.

Municipalities also didn’t appreciate another wrinkle Lamont added to the program. Whatever grant towns did get from the state, towns had to match at least 50% of that with local funds. In other words, state funding couldn’t represent more than two-thirds of total project costs.

And given the modest size of the state grants, communities that did go forward not only provided a 50% match but usually kicked in more than the state did.

A STEAP program that was supposed to provide the majority of funds for local economic development projects had become a secondary source, Osten and others noted.

According to the governor’s budget office, the 95 projects that will share a total of $11.4 million in state funds through the STEAP program are being supported by $26.1 million in local funds.

And while the state’s coffers are overflowing — with a record-setting $3.1 billion rainy day fund and an equally unprecedented $2.5 billion surplus forecast for this fiscal year — many municipalities’ finances aren’t as rosy, especially after two years of the coronavirus pandemic.

Osten’s bill would eliminate any match requirement, guarantee small towns’ ability to apply for up to $500,000 and would increase that grant maximum to $1 million over the next five years.

Osten’s measure also would authorize $30 million in new borrowing next fiscal year to replenish resources for the STEAP program and another $4 million annually between 2024 and 2028.

The legislature’s Finance, Revenue and Bonding Committee didn’t raise Osten’s bill for a public hearing. But its co-chairmen, Sen. John Fonfara, D-Hartford, and Rep. Sean Scanlon, D-Guilford, said that isn’t a sign the bill is in trouble.

Scanlon noted the committee receives many proposals that include new bond authorizations and usually doesn’t give each separate measure its own public hearing.

“But I certainly understand the importance of STEAP funding and would love to see a new round of authorizations for towns like mine. That is worth looking at.”

Fonfara added he has reviewed the measure and remains in discussions with Osten about the bill.

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.