Malloy seeks authority to make emergency cuts to local aid

A week after winning accolades from municipal officials for proposing a budget that largely maintains state aid to cities and towns, Gov. Dannel P. Malloy is under fire for seeking authority to reduce that assistance unilaterally if the state's financial problems worsen.

Allowing the governor to reduce aid mid-year "is non-negotiable for us," James Finley, executive director of the Connecticut Conference of Cities and Towns, said Wednesday, responding to new budget legislation drafted by Malloy's office. "We're going to fight this."

Malloy, who was CCM president while mayor of Stamford, inherited a built-in shortfall ranging from $3.2 billion to $3.67 billion for the fiscal year that begins July 1. To help close a gap equal to nearly one-fifth of current spending, the governor proposed several unpopular steps, including:

• More than $1.5 billion in new annual state taxes including increases in levies on income, sales, gasoline, cigarettes, liquor. insurance companies and electricity generation.
• $1 billion from labor concessions and management savings in each of the next two years.
• And $750 in additional cuts affecting social services, health care, higher education and other programs.

He left grants to cities and towns--about 14 percent of the budget--largely untouched, and proposed allowing communities added tax revenue streams. However, he also sought expansion of his budgetary powers--including authority for the governor to cut up to 10 percent of municipal aid without legislative approval.

Current law already gives the state's chief executive broad discretion to reduce most accounts unilaterally by up to 5 percent whenever "the governor determines that due to a change in circumstances since the budget was adopted certain reductions should be made."

Certain spending areas, such as debt payments on bonding and employee salaries and benefits effectively are excluded from deep rescissions because of contractual obligations. But the statute specifically forbids cuts to approved municipal aid without legislative approval.

Malloy's proposal would double the maximum allowable reduction from 5 to 10 percent, and remove the exemption for municipal aid.

Those grants total nearly $2.8 billion, meaning the governor's proposal would allow up to $280 million in potential annual reductions.

"Municipal aid is a promise the state makes to its government partners at the local level," Finley said, adding that a mid-year reduction equal to even a portion of Malloy's proposal would wreak fiscal havoc.

"Cities and towns have already exhausted every opportunity to maintain services and avoid layoffs," Finley said, adding that few communities have any available fiscal reserves above the 5 percent level needed to maintain their local bond rating--and some already have dipped below that threshold.

If the governor were allowed to cut hundreds of millions of dollars from approved aid levels, Finley added, many communities likely would issue supplemental property tax bills.

The co-chairwomen of the legislature's Appropriations Committee reacted cautiously to the governor's proposal Wednesday.

"There's got to be a lot more detail presented to us," Rep. Toni Walker, D-New Haven, said adding she and others also wants more details on the administration's proposed agency consolidations.

"I think there are good reasons why the former legislatures have exempted municipal aid," said Sen. Toni R. Harp, D-New Haven.

The legislature last reduced previously approved town aid levels as part of a state budget deficit reduction measure in February 2003, canceling $40.1 million.

But Harp added that given the scope of the deficit Malloy and the legislature faces, lawmakers have to be careful not to dismiss any proposals too quickly.

"If he doesn't get the $1 billion from labor, where does he go?" she said. "He's got to get it somewhere and this (municipal aid) is one of the major areas in the budget. Municipal grants represent nearly 15 percent of the $19.01 billion overall budget approved for this year.

But Rep. Craig Miner of Litchfield, ranking House Republican on the Appropriations Committee, said he believes the administration is seeking too much power with its proposal.

Malloy's budget director, Office of Policy and Management Secretary Benjamin Barnes, said Wednesday that "I can appreciate why local governments can be concerned. But we believe that it is incumbent on the governor to be able to ensure every year that we live within our means.

Barnes said the governor's proposal does not reflect a lack of appreciation for the property tax burden municipalities face. Malloy, who has called property taxes the single-most regressive tax in the state, not only spared municipal aid from the budget axe, but set communities up to gain $129 million in new annual revenue by 2013 through increased taxing powers and new shares of the state's revenue streams.

His budget proposal would subject aircraft, boats and large commercial vehicles to local property taxes, double the real estate conveyance levy in most communities, and give communities new shares of revenue tied to retail sales, hotel stays, music performances and car rentals.

Barnes noted that state tax revenues tend to shrink rapidly during economic slides. General Fund tax revenues plunged by 14 percent during the depths of the last recession, from $12.5 billion in 2007-08 to $10.7 billion in 2008-09. "Things can change very quickly," he added.