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Connecticut Summer Could Be Gloomy For Taxpayers

Don Stacom

May 09, 2010

After dodging and weaving through financial threats for years, officials in many Connecticut municipalities predict that this summer is when taxpayers will have to face an unpopular new reality: It's time to pay more and get less.

Expenses are up, income is plunging and the quick, one-time fixes have been used already. The reserves are spent, the surplus land is gone, the debt restructurings are played out.

That means an unwelcome flip of the standard budget scenario this summer. Usually, small tax increases are enough to allow significant extra spending on schools and municipal services. But this summer many towns and cities will extend hiring freezes, postpone road repairs, cut popular services and possibly lay off more workers but still levy significant tax increases just to balance the books.

Mid-size cities are getting hit especially hard, according to preliminary budget proposals. Bristol wants to bump up spending by $439,000, but taxpayers will have to put up an extra $6.4 million. New Britain is considering a 2.5 percent spending increase, but proposes to raise taxes by 7 percent.

Middletown's situation is particularly difficult. Schools and city services are costing $129.7 million this year, and Mayor Sebastian Giuliano is proposing to cut that by $200,000 for the new fiscal year that starts July 1. Even so, the city will have to hit property owners with a hefty 7 percent tax increase.

"You tell citizens 'We're spending less,' and they expect everything will stay the same. They think 'Why would taxes go up?'" Giuliano said.

Windsor Locks and Groton also plan to raise taxes even though they'll spend less next year than this year.

What's gone wrong?

The ongoing financial crisis is the most immediate answer. City managers have been warning that the impact of frozen economic development and beaten-down pension funds would hit local governments hardest from 2010 through 2012, or longer.

The recession damaged nearly every source of revenue that fuels government. Construction stalled, eating into fees for permits. The housing market plunged, cutting conveyance tax receipts. Tax bases stopped expanding, and in many communities actually shrank. Investment income evaporated. Connecticut sank into a multibillion-dollar deficit and shut off the flow of new school aid to towns and cities.

"Revenue streams such as interest income, building fees and conveyance charges remain stagnant," said Ann Harter, Newington's finance director. "The grand list growth is minimal and there is a threat of state cuts to funding municipal aid which could be severe."

Often, the extent of the revenue dropoff is huge. Windsor's investment income is budgeted to be 45 percent less next year, with conveyance tax revenue dropping by 50 percent, Town Manager Peter Souza said.

That leaves the property tax as the only way to raise money. And many communities need to raise plenty, precisely because they tried to give taxpayers a break last year. With unemployment up and private sector wages flat or dropping, local governments tried all kinds of one-time moves to get by with little or no tax increase. Some sold municipal buildings and land, and most raided their reserve funds.

Those moves are called "one-time solutions" for a reason, and that means trouble this time around.

"People are beginning to understand you can flimflam your way through budgets for only so long," Giuliano said. "The council established commitments to spending and pulled rabbits out of hats but it wasn't sustainable revenue."

In many communities, leaders had hoped that using patches and Band-Aids to get through the current year's budget would give the economy time for a major turnaround. Critics in some towns say the hidden reason was to get through municipal elections without a big tax increase. Mayors and first selectmen don't face voters again until 2011.

Regardless of the motive, the strategy merely postponed the time of reckoning because a tentative economic revival is just taking off. Meanwhile, even communities that ordered layoffs and won concessions from unions last year are still facing higher expenses. Health insurance premiums are up more than 10 percent for New Britain, the cost will top $25,000 a year per employee for family coverage under Blue Cross/Blue Shield. The city doesn't offer that coverage to new workers.

While taxpayer groups demand more job cuts, municipal leaders warn the answer isn't that simple. Bristol has trimmed its workforce by nearly 5 percent over the past several years, East Hartford has eliminated dozens of jobs, and New Britain schools made extensive layoffs last year. Yet all three communities are still facing revenue gaps in their budgets. Ordering layoffs means paying unemployment compensation rates and usually targets only the lowest-paid workers because the top-paid ones are protected by seniority provisions in their contracts, municipal leaders said.

Some communities appear to be recovering already. Greenwich had to order layoffs and put through an early retirement plan last year, but doesn't plan to go through that again this year. Its finances are in strong enough shape that local government has proposed a 5.1 percent spending increase with only a 3.4 percent tax increase.

And finance officials in Bristol predict that once they work their way through this year's revenue gap, city spending and income should line up much more closely in the future.

Many municipal leaders and state legislators, though, foresee a threat on the way: the imminent loss of federal stimulus aid.

The Obama administration's emergency funding has propped up state and municipal budgets but will be phasing out in the next year. Stimulus aid covered more than 15 percent of Connecticut's aid to local schools. When the federal government stops handing out that money in 2011, many educators worry that the cash-starved state will slash grants rather than make up the difference with state funds.

A side effect of the grim financial news is that many taxpayers are starting to pay more attention to what's happening, Giuliano says.

"The people don't get it, but they're starting to," he says. "They're starting to look at where the money is going."

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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