In today’s email:
In the absence of a budget, the Governor has the responsibility to issue executive orders detailing the distribution of state funding. Last week, the Governor issued an executive order addressing municipal aid.
In a normal year, state government distributes some of its first payments for municipal grants in September and October, based on the appropriated amounts for three major funding sources: the Education Cost Sharing (ECS) formula, the Payment in Lieu of Taxes (PILOT) grant, and the Municipal Revenue Sharing Account (MRSA).
This year, the Governor indicated that he sought to protect the Alliance school districts (that is, the 30 lowest performing and for the most part less affluent school districts) from reductions in state funding. The full picture is, however, far more complicated. Although the allocation of some of the funds has prioritized holding low-income communities and their residents harmless, overall the combined impact of changes in the municipal allocations means steep reductions in funding to some of the state’s poorest communities.
Education Cost Sharing
For ECS payments, Governor Malloy has decided to keep ECS funding levels for the 30 alliance districts unchanged, cutting funding for the rest. The wealthiest districts have seen their state education payments zeroed out; other districts will see considerable cuts. The CT Mirror has a map detailing the town-by-town impact here. The total funding reduction, compared to fiscal year 2017 (FY17), is $139 million in October, when municipalities receive a quarter of their ECS funding. What is not clear from this chart of town-level cuts is the gap between funding and need – a gap that cannot be calculated without a clear funding formula detailing the cost of an adequate education and providing a cost sharing formula.
Although the changes to ECS funding do protect low-income communities from cuts, how funding would be distributed highlights the need of developing a funding formula that truly accounts for education costs and needs. The current budget crisis makes even more urgent the General Assembly’s responsibility to adopt an effective ECS formula that provides equitable funding to all school districts, based on comprehensive adequacy study that considers need, local fiscal capacity and a detailed cost analysis.
PILOT and Municipal Revenue Sharing Account
The Governor’s plan dramatically reduces PILOT and MRSA funding. Unlike the ECS funding changes, these cuts will reduce funding for all municipalities, with poorer cities and towns suffering the brunt of the cuts.
Through PILOT, Connecticut partially compensates municipalities for a state law that removes state, university, and hospital property from local tax rolls. Most tax-exempt property is concentrated in low-income urban areas; as a result, the elimination of PILOT funding will hit the state’s most vulnerable communities the hardest. Again, the cities with the least resources will have to bear most of the burden of supporting key state infrastructure. The PILOT cuts total $182 million; 80 percent of that funding would have gone to Alliance districts.
The MRSA is a state grant that shares a portion of sales tax revenues with municipalities and compensates them for state-mandated revenue losses. The Governor’s proposal eliminates the MRSA’s October sales tax transfer ($128 million) and additional PILOT funding ($44 million) but partially preserves its compensation for capping local mill rates for motor vehicles.
The full list of cuts is available here, and it is clear that even with the ECS limiting harm to the poorest towns, the combined effect of PILOT and MRSA cuts will prove devastating to many cities, putting considerable pressure on municipal budgets. The PILOT will be especially damaging to cities like Hartford or New Haven that have a high percentage of tax-exempt property. Hartford will lose $69 million in funding (including the Mashantucket Pequot and Mohegan Fund Grant, also zeroed out); New Haven, $68 million; Bridgeport, $32 million; and Waterbury, close to $30 million. Unless the General Assembly addresses the budget delays soon, cities and towns will soon be forced to raise taxes or enact painful cuts.
The Need for Reform
The impact of these proposed cuts and the inconsistent ECS funding provide a stark reminder of the need for property tax reform. Connecticut’s municipalities are heavily dependent on their property wealth to pay for local services. Economic and racial segregation, as well as the concentration of many of our state’s key institutions (universities, state government, hospitals) in urban areas, create huge disparities in fiscal capacity between towns, only partially compensated by a hodgepodge of state grants and funding formulas that fail to address the root causes of these disparities.
We proposed, earlier this year, a property tax reform that would provide adequate, equitable funding for education for all children in the state, as well as promote economic growth in urban areas. Lawmakers should consider long-term, structural changes to the property tax system as a first step to address the state’s economic woes.
The budget negotiations appear to be moving forward, albeit slowly. House Democrats will present a new budget proposal this week, with the intention of holding a vote between September 11 and 14. If passed, the Senate would vote the following week. If the General Assembly does not approve a budget by August 22, it will make it the longest budget debate in state history.
We do not have much information on what is included in the new budget proposal other than changes to the sales tax. A consensus seems to be emerging, however, between House and Senate Democrats on the need to raise new revenue to balance the budget, instead of just relying on cuts. Expect a detailed analysis once the proposal is made public in the coming days.
These impending cuts should give us a new sense of urgency. If no budget is approved before the end of September, Connecticut’s cities and towns will face an unprecedented fiscal cliff. State services have endured cuts, furlough days, and layoffs since June. Come October, school districts, cities and towns would be forced to do the same. The impact for children and families across the state would be devastating.
As negotiations slowly move forward, we should keep reaching out to legislators to tell them that it is time for Connecticut to approve a budget that makes children and working families in the state its priority. We need a balanced budget approach that includes both a sound strategy for state spending and new revenue so Connecticut can preserve crucial services and build a strong foundation for the future.
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What We Are Reading / Listening To
- Early Childhood Care and Education: A Prudent Investment, CT By the Numbers.
- The Real Driver of Regional Inequality In America, Vox
- School Year Nears amid Uncertainty, CT Post
- Trump Tax Proposals Would Provide Richest One Percent in Connecticut with 62.8 Percent of the State’s Tax Cuts, ITEP.
- Corporate Tax Cuts Mainly Benefit Shareholders and CEOs, Not Workers; and Vast Majority of Americans Would Likely Lose From Trump Tax Cuts, Once They’re Paid For, CBPP