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Malloy’s new plan axes sharing of sales tax with municipalities

Gov. Dannel P. Malloy challenged his fellow Democrats Tuesday to forego their biggest political initiative — a $220 million sales-tax sharing plan with cities and towns — to help balance the next state budget.

Malloy also proposed more than $100 million in further reductions — aimed largely at social services and education — to compensate for shrinking income tax receipts.

In addition, his plan orders further cuts to education aid to cities and towns while cutting deeper into funding for Connecticut's hospitals.

“If we are to do what's right for the state, if we are to put Connecticut on a better path for the long-term, then we need to make tough but necessary decisions now to adapt to our new economic reality,” Malloy said. “That’s what this budget does.”

Revenue-sharing plan was controversial from the start

The revenue-sharing program has been controversial since Democratic legislators and Malloy established it last June, despite their insistence that it was a “historic and transformative” step to reduce municipalities’ reliance on regressive property taxes.

Connecticut’s 6.35 percent sales tax is the budget’s second-largest source of revenue, worth about $4.2 billion this fiscal year.

The plan pledges to share a portion of sales tax receipts with communities for three purposes:

• To freeze property tax rates on motor vehicles at 32 mills. Communities that tax above that rate would receive sales tax dollars to make up the difference.

• To bolster the state grant that offsets a portion of the local taxes communities lose because state properties, private colleges and hospitals are tax-exempt.

• And to provide general municipal aid.

In exchange, the legislature also established a new municipal spending cap that would reduce a community’s share of the sales tax receipts if local expenditures grow too quickly.

Municipal leaders, though wary of the cap, also were slow to embrace the revenue-sharing plan, given the state budget’s precarious position.

Nearly all of the promised funding wouldn’t be delivered to communities until after the November 2016 state elections — when legislators and Malloy must solve a budget deficit many times greater than the promised sales tax relief.

Communities are supposed to receive an estimated $230 million next fiscal year and $290 million in 2017-18.

Not only are nonpartisan analysts projecting a $930 million deficit in 2016-17, they say the hole tops $2 billion in 2017-18 — the first new budget after the November elections.

“Get rid of that (sales tax) money, get rid of the (municipal spending) cap, and just leave us alone,” Ridgefield First Selectman Rudy Marconi, a Democrat, said March 1 during a municipal lobbying event at the Capitol.

“We’re already sending a message to every single department — including education — in the city,” Torrington Mayor Elinor Carbone, a Republican, said at the same time. “We can’t continue to rely on state aid.”

Several Republican legislators called the plan an election year ploy by Democrats that amounted to fiscal bait-and-switch.

Revenues the state could not afford to share would be dangled now, and then reneged upon after the election.

More cuts for town aid, hospitals

Malloy said he had no choice but to offer these cuts given the state’s fiscal challenges.

“We have an obligation as elected officials to tackle the full scope of our challenge,” the governor said. “That means we must align our spending with the revenue we actually have, not the revenue we wish we had. Our expectations need to change — we cannot afford to fund everything we always have.”

The income tax — which typically funds about half of the annual budget — will raise almost $9.5 billion next fiscal year, according to the legislature’s nonpartisan Office of Fiscal Analysis.

That’s $350 million less than was assumed when Malloy proposed his budget back on Feb. 3, and $878 million below what he and legislators were counting on when they adopted a preliminary 2016-17 budget back in June.

That preliminary budget is about $930 million out of balance, while both the governor’s February plan and an Appropriations Committee budget submitted last week are about $340 million in the red.

The governor's budget also cuts Connecticut hospital funding by nearly $50 million next fiscal year.

Keith M. Phaneuf, Jacqueline Rabe Thomas and Arielle Levin Becker are reporters for The Connecticut Mirror ( Copyright 2016 © The Connecticut Mirror.


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