State Budget: $185k Loss For Newtown

By John Voket

Calling Governor M. Jodi Rell’s proposed biennial budget one of the best “in a long time” from a statewide perspective, First Selectman Herb Rosenthal relented unhappily that if it passes as proposed, Newtown would experience a net loss of $185,068 in state aid.

Mr Rosenthal briefed the Board of Finance Monday before sitting down with The Newtown Bee to get into some details of the governor’s proposal Tuesday. Mr Rosenthal spoke in both his capacity as Newtown’s lead elected official, and the president of the Connecticut Conference of Municipalities (CCM), a part-time elected post he has held for almost two years.

On Wednesday, February 7, the governor proposed a two-year plan that would measurably increase the state’s funding role for pre-K–12 public education, gradually eliminate the property tax on most cars, level-fund or reduce many noneducation grants, and raise the top state income tax rate from five to 5.5 percent.

The governor’s proposed budget for next year would increase municipal aid by a net $204.3 million in fiscal year 2007-08. This net increase includes a $264.8 million (12.7 percent) increase in education aid and $60 million (12.3 percent) decrease in noneducation aid.

The governor’s proposed increase for pre-K–12 public education would be the largest on record in both dollar and percentage terms. However, many noneducation grants would be level-funded or reduced under the governor’s budget proposal.

According to the analysis, Newtown would see an almost 11 percent reduction in its adult education grant, a 20 percent drop in nonpublic school transportation and a 19 percent decrease in aid for public school transportation.

Newtown would see a step-up in its educational cost sharing grant in the governor’s proposal from $3.92 million this year, to $4.25 in 2007, and up to $4.47 million in 2008.

Reviewing a local analysis provided by the CCM, Mr Rosenthal pointed out that most of the noneducation grants were partially funded in the current budget with one-time surplus revenue. This includes last year’s one-time-only, $33 million property tax relief grant, which has not been renewed.

The proposed budget would increase the special education excess cost — student based grant by $18 million, from $106.6 million this year to $124.6 million next year.

Mr Rosenthal said that proposal could enhance the local taxpayer benefit by shifting certain increases from being locally to state-funded.

He noted the governor’s proposal would have state aid to municipalities increase by $334.6 million (13 percent) over the current year. But the CCM report indicates Governor Rell’s proposal overstates the overall impact on municipalities’ because it includes $99.9 million in the form of a “CAR grant” designed to fully reimburse municipalities for the car-tax revenues they would no longer collect.

 More than $30 million of that aid would come from increased funding for the PILOT (payment in lieu of taxes) for manufacturing machinery and equipment, which reimburses municipalities for the property taxes on “old” machinery that they will no longer collect.

The net impact of the governor’s proposal on municipal budgets is less than the state aid it delivers, Mr Rosenthal said.

“The car tax elimination is a wash,” he said, noting it would be phased in over five years. “Some could benefit if the increase in their real estate tax doesn’t overcome the savings in eliminating the car tax.”

The CCM report states in FY 2007-08, $1,500 of the value of each eligible vehicle would be exempt; in FY 2008-09, $3,200 of the value of each eligible vehicle would be exempt; and by FY 2011-12, 100 percent of the value of each eligible vehicle would be exempt. To pay for the elimination of the property tax on most cars, the governor would eliminate the property tax credit against personal income taxes (though maintain the exemption for certain, qualifying seniors) and would gradually designate all of the state’s casino payments for municipalities.

The governor’s proposal to eliminate the property tax on most cars has been described as revenue neutral (or slightly better) for most municipalities. The CAR grant would reimburse towns for its lost car-tax revenue.)

Some aspects of the governor’s proposal are still unclear. For example, it is unclear whether or not the governor’s proposal would reimburse municipalities based on previous years’ grand lists (which would cause them to be less-than-fully reimbursed) or whether municipalities would file reimbursement claims for the current year.

According to Mr Rosenthal, the success of the car tax elimination from the municipality’s standpoint would be if compensation from the state remains in place.

“They are using casino money to pay for the reduction. But if it’s not locked in legally, it could be fair game for the legislature [to re ppropriate] after the five year phase-in,” he said. “I’d hate to see the trade-off eventually come against people’s residential [taxes].”

Nonetheless, Mr Rosenthal said that aspect of the governor’s proposal represents the “first real step in property tax relief in some time.”

Under the governor’s proposed budget, the following grant programs would be reduced in FY 2007-08 compared to the current year:

PILOT: Colleges and Hospitals — The $120 million grant would decrease by $5.3 million (-4.4 percent) over the current year, to $115.4 million. The reimbursement on lost property taxes would fall from 58 percent this year to 52 percent next year. This would not affect Newtown in any way.

PILOT: State-owned Property — The $81.2 million grant would decrease by $5.3 million (-6.5 percent) over the current year, to $75.9 million. The reimbursement of lost property taxes would fall from 37 percent this year to 32 percent next year, representing a $81,383 loss to Newtown.

Pequot-Mohegan Grant — The $91.1 million grant would decrease by $4.8 million (-5.3 percent) over the current year to $86.3 million. This reduction would cost Newtown $284,551.

Property Tax Relief Grant — The proposed budget eliminates the $33 million property tax relief grant for FY 2007-08. Last year’s grant was financed with FY 2005-06 surplus revenue and was intended to be a one-time revenue source. The loss of this one-time revenue represents about $42,000.

Town Aid Road Grant — The $30 million grant would decrease by $8 million (-26.7 percent) over the current year to $22 million. This reduction to Newtown represents a net loss of $62,995.