January 11, 2017

Malloy won’t reassure CT towns they are safe from the budget axe

Gov. Dannel P. Malloy offered worried municipal leaders Wednesday no assurances they would be spared from cuts to local aid as he and the General Assembly grapple with another major deficit in the next state budget.

Addressing the annual meeting of the Connecticut Council of Small Towns at the Hartford Sheraton in Rocky Hill, the governor withheld specifics of the new two-year spending plan he will deliver to legislators on Feb. 8.

But Malloy hinted communities would not be shielded as state officials try to close a $1.5 billion projected deficit in the upcoming fiscal year, a gap equal to 8 percent of the General Fund.

And while municipal leaders pressed for fewer mandates and more control over their finances, Malloy noted COST member towns — 110 communities all with populations less than 30,000 — have more robust fiscal reserves than the state's.

With respect to cash balance, you're all in substantially better shape than we are," Malloy said.

"I know we're in this together, and it's a tough situation to be in together, the governor said, adding that state government definitely has a role to play assisting cities and towns. "But from time to time we have to re-examine what that role is."

State government has struggled with budget deficits throughout most of Malloy's six years in office, a dynamic stemming largely from two factors:

  • Decades of inadequate savings to cover retirement benefits promised to public-sector workers are coming to a head, and costs related to these areas are projected to spike in the state budget over the next two decades.
  • And Connecticut's economic recovery since the last recession ended in 2010 has lagged not only that of past recoveries, but also that of most other states.

The governor also told local leaders that his administration would begin an outreach campaign soon to a general public that may not realize state government bears the full cost of paying municipal school teachers' pensions.

"I am going to make sure that more information is shared than ever before with our respective constituents," he said

Local leaders pressed Malloy, to no avail, to give more details about his upcoming budget plan, and whether it would include a recommendation to cut municipal aid.

With retirement benefit costs swamping state finances, "are you looking at pushing that back toward the towns?" asked Goshen First Selectman Robert Valentine.

"I don't actually know today what the final budget (proposal) will look like on Feb. 8," the governor said. "If everyone wants state government to be smaller and less expensive, than everyone's got to play a role."

Mansfield Town Manager Matthew Hart thanked Malloy from shielding local aid from cuts for most of his tenure as governor, but suggested that Malloy consider imposing the sales tax on most goods and services or seeking a series of state fee increases to raise more revenues to protect local aid.

"We all have to play the cards we are dealt," the governor said, explaining that the retirement benefit costs are a problem he inherited from past administrations and legislatures and predicting that today's lawmakers don't want major revenue increases to fix the problem.

"If I send a fee package to the legislature, I will die of a thousand cuts," he said.

Coventry Town Manager John Elsesser, former COST president, said before Malloy's speech that state officials at least need to discuss the prospect of raising more revenue to support communities.

Elsesser likened the surging retirement benefit costs to a flu developed over time. "The state saw all of the symptoms, they knew the climate, but they didn't get a flu shot," he said. "Now we are in it. …We may need to take some medicine we don't like."

The governor did tip his hand somewhat when it came to state mandates on cities and towns during an exchange with Vernon Mayor Daniel Champagne.

"Give us some relief," the mayor said. "Get rid of some of these mandates. …If you can get rid of some of these mandates, we can save money."

Malloy replied that "you will be happy with the budget" he will propose to legislators next month.

Betsy Gara, executive director of COST, said a recently established state cap on municipal budgets is particularly problematic.

Cities and towns receive about $250 million this year from the state through a new sales tax revenue-sharing program. In exchange for that, the state says municipal budget growth cannot exceed 2.5 percent per year. Communities that exceed this threshold would have their revenue-sharing dollars reduced.

Gara said the cap is troubling enough because the cost of resolving one unanticipated crisis can push a local budget over the limit. Local voters know the cap exists but don't understand how it works or how difficult it can be to comply with that restriction.

According to COST, more than 70 communities exceeded the municipal cap over the past year.

The municipal coalition was expected to approve a package of legislative priorities Wednesday that — besides urging mandate repeal — also includes:

Eliminating the municipal spending cap;

  • Giving towns greater flexibility to alter education spending to compensate for reduced state aid;
  • Barring future mid-fiscal-year reductions in state assistance;
  • Authorizing towns to increase and retain a greater percentage of local fees.
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