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City Hall’s Math: Malloy’s Budget Socks Us

by Melissa Bailey | Feb 6, 2013 7:13 pm

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Posted to: State, City Budget

Melissa Bailey Photos Despite a pledge otherwise, the budget plan Gov. Dannel P. Malloy’s released Wednesday would blow a $10-$30 million hole in New Haven’s pocket, city officials calculated.

City officials did the math Wednesday afternoon, after Malloy released a two-year $43.8 billion budget that would avoid raising state taxes and bring about the most radical restructuring of municipal aid in three decades.

“We all agree that we have no desire to shift the burden to our towns and cities. This budget holds them harmless,” Malloy vowed in his budget address. By that he meant cities like New Haven would see no net drop in state aid.

Mayor John DeStefano, who usually attends budget addresses and serves as a vocal advocate for cities at the Capitol, missed Wednesday’s event this year. Instead the mayor, who announced last week that he’s retiring at the end of this year, was slated to speak about immigration Wednesday at a Council of Europe conference in Ireland.

In his absence, other municipal leaders at the Capitol blasted the governor’s claim. And DeStefano’s appointees in New Haven City Hall evaluated the potential damage.

The governor’s budget deals a blow of $10 to $30 million to the city’s general fund, calculated Becky Bombero, the mayor’s deputy chief of staff. She said the cuts leave New Haven with two ugly options: raise taxes by as much as 5 mills, or lay people off.

“There’s nothing left to cut that doesn’t include people,” she said in a late afternoon press briefing in City Hall along alongside mayoral Chief of Staff Sean Matteson.

The size of the shortfall depends largely on whether the city decides to hold off on a new car-tax exemption.

Malloy’s proposed budget would eliminate two longstanding major sources of municipal funding: the Payment In Lieu Of Taxes (PILOT) grant for state-owned property, of which New Haven gets $4.7 million; and the Mashantucket Pequot & Mohegan Fund, of which New Haven gets $6.9 million. Malloy’s budget chief, Ben Barnes, said the governor replaced that lost money in other places. But city officials said the rules attached to the money, combined with other cuts, make it impossible to break even.

Malloy also proposed allowing most taxpayers to stop paying car tax. While the proposal is popular among taxpayers, Malloy didn’t identify how cities would pay for the lost revenue. The proposal would cost New Haven about $15.7 million per year in lost tax revenue, according to figures provided by City Hall.

While the governor’s budget proposal is likely to be changed significantly by the state legislature, it sets the parameters for this year’s budget discussion. It triggered a wave of alarm from municipal leaders who were present at the Capitol Wednesday.

“This is a high-five and then a punch in the gut,” said Torrington Mayor Ryan Bingham (pictured), president of the Connecticut Conference of Municipalities, which represents towns and cities.

“The governor is playing cards with our money,” added Mayor Mark Boughton of Danbury. 

Malloy’s budget wipes out one of the Payment In Lieu Of Taxes (PILOT) grants, the one that reimburses cities for lost revenue on tax-exempt state-owned property. The grant has been around since 1969. Malloy proposed eliminating it, instead sending an equal amount of money to a city’s Education Cost Sharing grant, the major vehicle the state uses to fund cities.

In other words, the city would theoretically be able to make up any lost PILOT money in its general fund from increased money sent from the state to cover school spending.

Depending on whether the city is able to do that, the shift could create a $4.7 million hole in the city budget, Bombero said. It’s unclear whether, as state officials claimed, a city can simply replace lost general-fund money with money freed up by new state education grants.

Malloy also proposes nearly wiping out another pipe of funding for cities, the $61.8 million Mashantucket Pequot & Mohegan Fund. Malloy proposes almost eliminating that money and sending the same amount to cities for capital projects. The change would essentially shift $56.5 million of municipal funding from the state’s general fund to the state credit card.

Bombero said that shift poses a new burden for cities: Whereas New Haven could use Pequot dollars to pay a policeman’s salary, the money now has to be used for capital projects, such as sidewalks or greenways. That’s not an equal trade, she said. The extra capital money means New Haven can borrow less money for infrastructure improvements, but that doesn’t help in the current operating budget, Bombero said. It creates a $6.9 million hole in the city’s general fund, she calculated.

Bombero tallied a $14.85 million net loss to the city’s general fund. The cuts: $4.7 million in PILOT; $1.9 million in school transportation money; $6.9 million in Pequot money; $1.1 million in reimbursements for tax-exempt manufacturing equipment; and $3.4 million in a new local share of the state’s sales tax, which Malloy proposed eliminating. The cuts are offset by a $3.2 million increase in PILOT for colleges and hospitals.

The net loss would be $10.1 million if the city is able to replace the former PILOT money that was sent over to the school system with money sent back to the general fund, she said.

To pay for $10.1 million in cuts, New Haven would have to raise taxes by 1.8 mills, which would result in a 5 percent tax hike for homeowners, Bombero calculated.

Schools

New Haven would see an overall increase in school funding under Malloy’s budget. Malloy proposes boosting New Haven’s share of ECS by $6.6 million, or 4.52 percent, in the next two years. The grant is the main way the city pays for its schools. The city’s ECS allotment is currently $146,351,428. It would rise by $3.3 million in fiscal year 2013-14, then by another $3.3 million the following year.

The windfall comes as part of $101.5 million in new money Malloy aims to pour into ECS in the next two years, 97 percent of which he earmarked for the state’s lowest-performing 30 districts, including New Haven. The changes come as Malloy seeks to revise the ECS formula based on recommendations from an ECS Task Force. Changes include boosting the ECS “foundation” from $9,867 to $11,754 per student.

Barnes also announced Malloy aims to maintain funding for new “turnarounds”—experiments to overhaul failing schools—in the state Commissioner’s Network. New Haven’s High School in the Community was one of four schools that got state funding as part of that group this year; New Haven has expressed interest in proposing another state-funded turnaround in the fall, though a specific school has not been identified. Malloy’s budget includes money to fund eight new turnarounds in 2013 and another nine the subsequent year.

Car Tax

Malloy’s budget includes a popular proposal to let most drivers off the hook from their dreaded car tax. He called for a new tax exemption of the first $20,000 of assessed value of motor-vehicles. That means taxpayers won’t have to pay tax on any car with a blue-book value of $28,571 or less. Cities would be required to implement the exemption on July 1, 2014; they could choose to do so a year earlier.

The proposal would be a boon for New Haven drivers, 96.6 percent of whom would stop paying car tax, according to City Hall figures.

However, the proposal would shut off a $500 million revenue stream for cities and towns. Would the state compensate cities for the lost revenue? a reporter asked Barnes at a press briefing.

“No,” Barnes replied. He said commercial and residential taxpayers will end up paying a greater share of the tax burden in a given town.

The car tax is the “worst and most egregious” of any tax in the state, he said. It’s unfair, he said, because local tax rates are lower in wealthy towns, while poor car owners in cities are taxed at a higher rate.

Malloy’s proposal would cost New Haven $15.7 million in lost revenue, according to city figures. The shift would effectively shift the tax burden from car owners to residential and commercial property owners. To make up for the lost revenue, the city would have to raise taxes by 2.25 mills, Bombero said.

“The governor’s no-tax-increase budget is really a local increase tax budget,” she said.

Bombero said Malloy’s budget would force the city to make “tough choices.” Mayor DeStefano will be making those choices as he drafts his budget over the next three weeks. DeStefano’s budget is due to aldermen on March 1; he plans to unveil some initial details the week of Feb. 25.

Moments after Malloy’s speech, New Haven State Sen. Martin Looney (pictured), the Senate majority leader, was asked if Malloy’s budget would benefit cities and towns overall.

“We don’t know yet,” replied Looney. “We’ll have to look at the aggregate.”

Looney acknowledged Malloy’s car-tax exemption will squeeze city governments, but he defended the proposal. He said the car tax has long been unfair. While homes have different values based on their location, he said, cars have the same value no matter where they’re parked.

“A car is a car is a car,” Looney said. Cars should not be taxed at wildly different rates, as they are throughout the state, he said. If the governor’s proposal isn’t passed as is, he said, another option is a flat-rate statewide car tax that would be redistributed back to cities.

Malloy’s budget would temporarily cut a new tax credit many New Haveners have been enjoying—the new state Earned Income Tax Credit (EITC) program, which gives money to the working poor at tax time. The state currently pays low-income households up to 30 percent of the federal EITC, for a maximum of $1,767 per household. Malloy proposes lowering that number to 25 percent, or $1,473 per household, in tax year 2013, then bumping the credit back up to 30 percent by 2015.

The state EITC sent $7,773,996 to 11,631 New Haven taxpayers in the 2011 tax year.

Looney, who championed the EITC law, called the 30-percent level “generous.” He said he hopes the state can keep the credit as close to 30 percent as possible.

Malloy would also restore a popular tax exemption on clothing worth $50 or less, which he eliminated in his first year in office. He would phase in the exemption, beginning with a $25 exemption next fiscal year.

After Malloy’s speech, state Rep. Toni Walker (pictured) said it’s “too early to tell” the impact on New Haven. Gary Holder-Winfield agreed: “It sounds good. I want it to be good,” he said, but he had not yet read the details.

State Rep. Pat Dillon said, “There’s an excitement about the direction of the car tax reform.”

She applauded the investment in education, but warned of some cuts to health care. She said she had not done a full accounting, but at initial blush she identified cuts to Yale-New Haven Hospital for uninsured patients; the Connecticut Mental Health Center and the Westville Village Renaissance Alliance (WVRA). She said the budget took place in a difficult economic climate.

“We knew there was going to be some pain in it,” she said.

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posted by: TheMadcap on February 6, 2013  2:01pm

On one hand, it is true the car tax is pretty regressive since people in poorer communities generally have to pay higher tax rates. On the other hand though, people in poor communities are also the most likely not to own a car period, or have cars that are barely worth anything to tax in the first place. It wouldn’t worry me so much if these costs are apparently in part being offset by a reduction in the EITC

posted by: SaveOurCity on February 6, 2013  3:25pm

eliminate the car tax?  As much as I hate writing that check, this sounds like a give back to some auto-lobby.  Why not a lower cap?  Or a focus on hybrids? 

And best of all - - our state is drowning in debt from the first two Malloy fantasy budgets.  Now he’s reducing some taxes and holding the line on city funding while the income tax continues to bring in less money.  So, where does he expect to close the gap? 

There are a lot of smart folks who read and respond to these articles.  I look forward to learning something.

posted by: anonymous on February 6, 2013  5:32pm

If we eliminate the car tax people will go out in droves to buy cars that they can’t afford. In the long term that will be destructive to the economy, not to mention the environment. How about we balance out the suburb-city property tax thing but use those funds to improve Connecticut’s atrocious transit systems instead of buying off the car salesmen.

posted by: CreatingUrgency on February 6, 2013  7:39pm

A) I’ve never let the taxes on a vehicle determine if I can afford a car. That argument is ridiculous. You have to be able to afford the month to month payments and insurance.

B) The law was put into effect last year. They are giving the cities money for what in exchange? A take over. The so-called ALLIANCE districts (bought by this so-called “gift”) allows the commissioner to appoint his own superintendent…one WITHOUT A CERTIFICATION!

Garth Harries is going to become superintendent of New Haven schools even though he has never taught in a school. He is going to be appointed. Not chosen by the next mayor.

This law was a crock when it was first introduced. It is a way to union-bust and bring in for-profit charter schools.

Why isn’t anyone asking why Clemente is still a Tier 3 school after it was taken over last year by a for-profit business? Why is the city/state paying an extra $800 per student to a business management company?

New Haven has been bought by a Democrat. For shame! Malloy needs to go.

posted by: Rebecca Bombero on February 6, 2013  8:14pm

I just wanted to clarify.  The mill rates and increases were used as way of an example.

I also included $10M in expenses to make the same comparison. That would be the entire departments of Health 3.1M, Fair Rent 63K, Elderly Services 651K, Youth Services 337K, Disability Services 87K and Libraries 3.6M combined.  Obviously we have some hard choices ahead of us which will be made in the coming weeks.

posted by: robn on February 6, 2013  8:52pm

following Sen Looneys logic, if a car is worth the same everywhere, so is a house.

posted by: Threefifths on February 6, 2013  9:15pm

I love it.Keep voting them in.The Republicans do the Bank Job.the democrats drive the getaway car.

posted by: Nashstreeter on February 7, 2013  1:46am

I guess robn never heard the phrase “location, location, location.”

posted by: beyonddiscussion on February 7, 2013  2:00am

I like Malloy and think he’s a stand-up guy who’s done a good job with a tough hand. But at first glance, this stinks for New Haven. He’s going to cut the PILOT payments for state tax-exempt property, yet still pay out the PILOT for Yale and all the other private tax exempt property in New Haven? In other words, state taxpayers will pay taxes on Yale’s property but not on state-owned property? Huh?

And the car tax phase out sounds good, but it just means 100% of city taxes will now be paid by the already punch drunk 50 percent of real estate taxpayers in the city who are not tax exempt. Rell put this forward but she was going to make up the lost revenue. Malloy says the city gets nada. 

We still need equitable property tax reform. We still need wealthy tax-exempts to pay their fair share. We need the state to fully fund the PILOTs. We need reasonable user fees like highway tolls. Taking away car taxes and state property PILOT is a big step backward. Big disappointment.

posted by: Atwater on February 7, 2013  10:37am

So, New Haven will have to deal with its fiscal mismanagement with a little less help from state taxpayers. So be it. But, I don’t envy property owners in New Haven. If given the option of ‘raise taxes or start layoffs’, the Mayor and BOA will most likely choose the former. New Haven is a tax and spend city.

@robn: the value of a house is not just determined by the value of the materials, labour, age etc. The value is also determined by its location. A house in a nice town is worth a bit more than a house in a financially unstable, violent and crumbling city, like New Haven.

posted by: PH on February 7, 2013  11:37am

I like Looney’s idea on the car tax better.  Take it out of municipality hands and make it a standardized state tax with the money going to the cities that are hit hardest by the proposed cuts in Malloy’s budget. It makes sense to have a modest car tax—people who own cars put a greater strain on the infrastructure and environment than those who do not.

I am more concerned about the idea that money should be earmarked for capital projects when there is a need for the money to pay salaries and other costs.  It is not beneficial to a municipality to hamstring the local administratiors from using money in the best interest of the city by requiring that it be used for capital projects that may or may not be necessary. As stated in the article, sometimes we need a cop, not a new sidewalk, and New Haven should be allowed to make that determination without Malloy’s interference.

posted by: Kevin on February 7, 2013  1:26pm

@anonymous

re “droves” - while any change in the cost of owning a car will affect buying decisions, you are being hyperbolic, as is your wont. Nationally, the total cost of owning a car that is driven 10,000 miles per year is $5,650, using the IRS mileage rate. This includes costs such s depreciation, but not externalities such as pollution-related costs. The cost in Connecticut is likely higher. In contrast, the property tax on a car in CT that costs $15,000 is about $300 assuming a statewide average mill rate of 30. While I am ambivalent about the car tax proposal for the reasons that other commentators have raised, the impact of the tax on the decision whether to buy a car is minimal.

posted by: anonymous on February 7, 2013  1:59pm

Kevin,

1) Many New Haven residents pay more than $300 per year in car tax, so you are minimizing the cost.  $50 or $100 a month may not seem like much to people in the Legislature, but for a lot of New Haven families, it is a chunk of change.

2) The impact of making cars cheaper to own, while simultaneously raising the cost of public transit, may be “minimal” to one person. But there are around 1.5 million households in Connecticut (each averaging about 2.5 residents, and more than one car). If just one out of every 100 households gets frustrated with declining transit and purchases a new car because it is now much cheaper to do so, that’s another 15,000 cars on our city streets and highways - sure sounds like “droves” to me. Considering that the cost of car ownership is on average well over $10,000 per year in Connecticut according to AAA, and that at least 80% of that cost does not stay within the local economy, that’s a $120,000,000 hit to the State’s economy every single year - even before you consider the other costs associated with putting another 15,000 cars on the road. 

Rather than funneling more money to billionaires in Saudi Arabia, I’d like to see the Legislature take a few steps that will promote investment in the families who live here.

posted by: Curious on February 7, 2013  4:32pm

I agree 100% with Kevin.  I highly doubt the number of people in CT who are holding off on buying a car are doing so because they can’t afford the annual tax.

That’s like saying that if you lower taxes on the self-employed, then plumbers will be able to charge less for their services, and people who rent will go out and buy houses in droves because now they can afford to have a drain or two unclogged every year.

posted by: anonymous on February 7, 2013  5:01pm

Curious, I don’t think that your analogy is relevant. 

Cost and demand are related.  If the annual cost to maintain a house decreased for some reason (like $600 per year worth of free plumbing services from the State), then it is likely that homeownership would be slightly more popular. 

Similarly, if you gave every renter in Hamden a $600/year tax credit, more people would choose to rent in Hamden rather than in New Haven, particularly given the fact that rents in New Haven are rising each year. 

Even if the credit does not impact you, across tens of thousands of households, it makes a big difference.  If we eliminate a car tax while simultaneously increasing taxes on homeowners and cutting transit, it has an impact on people’s everyday choices (and therefore, on other aspects of the economy).

posted by: HhE on February 8, 2013  10:38am

“...Month to month payments…?”  am I to understand that people buy motor cars on credit, rather than outright? 

All kidding aside, I opine that this proposal generally makes sense.  A lower cap might be more fitting, however focusing on hybrids is just pandering to middle and upper middle feel good liberalism (My 3 Series, with a six banger, gets the same or better millage than my Mother’s hybrid.  They both carry the same number of people—in theory as well as practise.  Her car has slightly more carrying capacity, but mine is safer.)  At the end of the day, this measure would allow people to buy enough car for commuting and all that, but tax luxury, performance, and all the extras. 

Come tax day, I can say that owning a long in the tooth Miata in Greenwich is a completely different experience from a new Beamer in New Haven.  The former is a week’s walking around money.  The later is a pay cheque.

posted by: parejkoj on February 8, 2013  5:28pm

Looney’s counter-proposal for a flat car tax makes a lot of sense. There’s a lot of infrastructure required to keep all those cars on the road, so the owners of said cars should pay part of it. Having the rate vary significantly throughout the state is rather odd (though I am curious just how much it varies with location).

posted by: HhE on February 8, 2013  6:03pm

parejkoj, I disagree with you in that, the amount of damage is a function of the millage and type of vehicle, and the ability to pay ought to be a function as well.  While I do not believe a motor car is the Essential Transport that many seam to think it is, I opine there is a profound difference between an econobox used to get to work, and a six figure supper car.  That said, the current system is regressive in that the mill-rate varies so greatly.

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