Creative Commons License

Connecticut Conference of Municipalities Executive Director Joe DeLong Credit: Keith M. Phaneuf / CTMirror.org

While the General Assembly is scrambling to adopt a new state budget before its May 6 adjournment date, many cities and towns already have adopted their plans for the fiscal year that starts July 1.

But while state government funds its budget off a broad mix of taxes – income, sales, business, utility, inheritance and other – municipalities, for decades, have gotten almost all their money from just two areas, which has become a growing source of tension.

Here’s a quick look at how cities and towns handle their budgets.

How is the local budget adopted?

Cities and towns begin their budget adoption process very early in the calendar year. Chief executives, such as a mayor, first selectman or town manager, recommend a fiscal plan for general operations and the superintendent of schools does the same for local education.

Depending on local government structure, those plans then are reviewed by boards of selectmen, education and finance, or a town or city council.

Some communities delegate responsibility for final adoption in April or May to a council or representative town meeting, while others send the budget before voters for final action, either through a town meeting or a referendum.

Where do cities and towns get their revenue?

These budgets, unlike the state plan legislators and Gov. Ned Lamont are expected to adopt soon, don’t get their money from many sources.

Connecticut authorizes its cities and towns to generate revenue largely in just one fashion: property taxes. More than 70% of the average local budget is paid for with taxes levied against land, houses, commercial buildings, business equipment and motor vehicles, according to the Connecticut Conference of Municipalities.

Local governments tax these properties at 70% of their fair market values and then impose a mill rate. One mill raises $1 dollar in taxes for every $1,000 of assessed property. For example, the owner of a house assessed at $400,000, in a community levying a 30-mill tax rate, would owe $12,000 in local property taxes.

The state places a cap on the tax rate for motor vehicles at 32.46 mills.

Nearly all the rest of the funds that support local budgets come from state grants, with a much larger share given to low-income communities.

The single-largest expense cities and towns face is their school systems, and roughly 70% of the $3 billion-plus in statutory grants Connecticut sends municipalities is tied to education. But the state also provides communities with grants to cover road and bridge work, other local capital improvements and other general government expenses.

Is CT’s method of financing local government fair?

Many municipal leaders, state legislators and others have argued Connecticut’s over-reliance on property taxes is inherently unfair.

Mill rates are not adjusted based on the property owners’ income or wealth and critics say the system disproportionately burdens poor and middle-class households.

Leaders also say communities are particularly in crisis this year, as municipalities grapple with surging health care and electricity costs. Over the past four to five years Connecticut towns also have been able to spend emergency pandemic relief grants Congress issued to ease burdens created by the spread of coronavirus. But nearly all that relief has been exhausted.

The General Assembly’s Democratic majority is pushing Gov. Ned Lamont to boost education aid by as much as $170 million next fiscal year, which begins July 1. Lawmakers also have recommended that Connecticut divert receipts from a 1% sales tax surcharge on certain prepared meals to cities and towns. This would provide about $90 million next fiscal year.

Lamont, a fiscal moderate, has predicted town aid will increase, but hasn’t committed to any number publicly to date.

“The common theme that I am hearing everybody saying is that this has been the toughest [local] budget cycle for them yet,” Joe DeLong, executive director of the Connecticut Conference of Municipalities, said last week.

The conference, which is the chief lobbying arm for cities and towns, also announced the creation of a new “citizens’ assembly,” including both government officials and members of the public, who will study and seek new solutions to the challenge of financing local government.

DeLong added many communities may not adopt new budgets this spring until after the state budget, and any increases in aid to towns, have been resolved.

“They’re really in this wait-and-see posture,” he said.

Keith has spent most of his four decades 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.