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

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.