Hartford — New London Mayor Michael Passero joined other municipal leaders Wednesday at the state Capitol to renew calls for the state legislature to pass a state budget and to rebut a recent report from the governor’s office that justifies further cuts to town aid.

The Connecticut Conference of Municipalities news conference gave town leaders a chance to air their frustrations over a report released by Gov. Dannel Malloy last week they say unfairly assigns blame for the state’s fiscal crisis to towns that are now struggling in some cases to remain solvent.

The report produced by the Office of Policy and Management showed municipal aid has increased 21 percent over the past five years and accounts for more than $5 billion of the state’s budget. The state legislature is trying to close a two-year $3.5 billion deficit and Malloy is now running the state through executive order. It’s unclear when the budget stalemate will end.

CCM called the report flawed, countering that municipalities are being fiscally responsible and constantly suffering from unfunded mandates. The state also has underfunded the payment in lieu of taxes program by $1 billion over the past five years and educational cost sharing by $600 million, said John Elsesser, the town manager of Coventry and second vice president of CCM.

“It’s no secret the state has run out of bread to operate with the current revenue sources. They seem to have adopted the ‘let the towns eat cake’ approach,” Elsesser said.

Towns are supposed to be reimbursed by 45 percent of lost tax revenue from most state-owned properties and 77 percent from colleges and hospital property. Elsesser said that in fiscal year 2017 the state reimbursed less than 20 percent for state-owned property and less than 30 percent for college and hospital property.

Tax-exempt properties are a sensitive topic in New London, where Passero and state Rep. Chris Soto, D-New London, have lobbied for ways to better control which entities are allowed tax-exempt status.

New London passed a fiscal year 2018 budget with a more than 9 percent tax hike that is blamed mostly on the loss of state revenue. It caused a backlash from some residents who have petitioned for a meaningful budget reduction or a citywide vote. The City Council has so far delayed action on the petition, hoping for passage of a state budget and a boost in state aid.

Nearly 45 percent of property in New London is tax exempt, Passero said.

“In New London, our problem is the state legislature won’t let us tax the properties in New London. So the burden of providing municipal services for close to 45 percent of the properties is transferred to the other 55 percent. It has been unsustainable for a number of years but this year ... it has been killing us,” he said.

Passero said the city has been fiscally responsible, with an 18 percent increase in expenses over the past 15 years and just a 1.8 percent increase over the last five years.

He said the city is also the hub of social service agencies for southeastern Connecticut.

“They come into our town with the best of intentions, buy properties, set up organizations and take the properties off the tax rolls,” he said.

CCM also argues that the governor’s report fails to consider the impact of unfunded mandates. And with the majority of state aid going to public education and to meet educational mandates, state law only allows towns limited control over education spending. Towns also have no control over teacher contracts and pensions. CCM argued that the latest proposal by Democrats to force municipalities to provide post-traumatic stress disorder benefits for police officers would be devastating.

Newtown First Selectwoman Patricia Llodra said Wednesday that she is predicting her town will be without any cash by the fourth quarter of the fiscal year, which will lead the town to raid its undesignated fund balance or issue new tax bills. Pulling from its reserves could impact the town's bond rating and lead to higher borrowing interest rates, she said.  

“Make no mistake about it, either or both of those actions end up on the backs of property owners,” she said.

Office of Policy and Management Secretary Ben Barnes, Malloy’s budget chief, recently sent letters to municipal leaders to request information about fund balances and planned actions in the event of a prolonged lack of a state budget. On Wednesday he called on town leaders to contact the state if they thought there would be cash flow problems as a result of the lack of a state budget.

“I certainly appreciate the frustration that you all must feel. I know that it is painful to be asked to accept less state aid, and infuriating to be asked to do so this late in the game,” he said in a statement.

Barnes said that Malloy’s executive order spending plan is only intended to keep basic government functioning for a portion of the year until a full budget is adopted.

“Without an adopted budget, the state is more than $1 billion short of maintaining status-quo operations, including municipal aid," he said in the letter. “The Governor has repeatedly said that governing by executive order is not what he wanted to do. It is unacceptable to consider that the legislature would not act soon to adopt a budget, at which time municipal grants and other items that we have had to limit can be brought up to the levels in the adopted budget.”

Susan Bransfield, first selectwoman of Portland and CCM president, called on the legislature to quickly agree and enact a budget that is “balanced and fair to all, including property taxpayers,” and to provide a precise schedule of categorical state aid grants and when they will be paid to municipalities.

g.smith@theday.com