Towns Could See Less Revenue, But From More Sources, Next Year

By Keith M. Phaneuf

©The Connecticut Mirror

With the potential for deep municipal aid cuts looming less than ten months away, Connecticut municipalities’ longstanding cry for a new alternative to the property tax could be answered next year at the Capitol.

All three of the gubernatorial candidates support giving communities new revenue-raising options. And legislators did important prep work last spring when they created incentives to encourage cities, suburbs, and rural communities jointly plan their economic futures.

“We sometimes forget that the crisis before the state budget crisis was the property tax,” Representative J. Brendan Sharkey, D-Hamden, said Tuesday. “We need to see the whole picture and come up with good public policy alternatives and I think there is a growing sentiment that now is the time to make some important changes.”

One of the “changes” that likely won’t occur next year, Sharkey said, is any dramatic reduction in communities’ reliance on a property tax that — according to the Connecticut Conference of Municipalities — provides 68 percent of the annual revenue for the average municipal budget in this state.

That’s not because legislators’ don’t recognize the burden, he said. But with nonpartisan legislative analysts projecting a $3.4 billion deficit built into the 2011-12 budget, an amount equal to 18 percent of current spending, tough choices will be needed just to help communities avoid major tax hikes.

But if state and local governments take steps now to diversify the municipal revenue stream, communities will have a more stable fiscal base as they recover in the coming years, he said.

Sharkey, who co-chairs the legislature’s Planning and Development Committee and spearheaded a 2009 task force charged with finding ways to help communities control rising property taxes through regional cooperation, was careful not to endorse any one solution.

The legislature’s Finance, Revenue and Bonding Committee endorsed a bill last year to increase the state’s hotel tax and share of portion of that revenue with communities based upon the amount of hotel commerce conducted within it. Sales, income, and utility taxes also have been mentioned by different legislators as possible vehicles for revenue-sharing programs.

Former Stamford mayor Dan Malloy, the Democratic gubernatorial nominee and a longtime advocate for municipal revenue diversity, has said repeatedly on the campaign trail that the property tax is the most regressive levy in Connecticut, falling particularly hard on middle-income households.

Malloy said the key to any revenue-sharing option is not to create system that pits one community or one region against another. “We don’t want to create additional incentives to strip mall the rest of Connecticut’s highways and byways,” he said.

Greenwich businessman Tom Foley, the GOP nominee for governor, insists he can close the state’s budget shortfall without tax hikes, a charge Malloy disputes.

But Foley said rather than sharing new portions of state tax revenues with communities, he would give cities and towns the option of levying new types of taxes. “Why are we telling cities and towns to limit their revenues to the property tax?” Foley said, agreeing that it is a regressive levy. “I think that state government has no business telling towns how to run themselves, and that includes how to raise revenues.”

Foley did not propose any specific new taxes he would allow communities to levy.

Under current law, cities and towns can tax real and personal property taxes and real estate transactions, though the latter is a relatively small portion of the municipal revenue stream.

Regardless of which new revenue options might be provided, communities will be expected in a tough economy to demonstrate a willingness to stretch those dollars, Sharkey said, adding that the legislature and Governor M. Jodi Rell took a big step this year to encourage that.

They enacted a new law that allows communities to form regional economic development districts that would then become eligible to apply for state and federal development funds

If communities are going to receive a new share of state revenues, they likely will be asked to complement that with new, regional cost-saving programs, Sharkey said, adding these could involve joint purchasing of equipment or services or other cooperative ventures.

(This material originally appeared at CTMirror.org, the website of The Connecticut Mirror, an independent, nonprofit news organization covering government, politics, and public policy in the state.)