The Connecticut Office of Policy and Management said this week it plans to structure the state budget around information being sought from municipalities about their undesignated fund balances.
In an Aug. 2 letter to Office of Policy and Management Secretary Benjamin Barnes, Gov. Dannel P. Malloy said municipal aid is the state’s single-largest expenditure at $5 billion and hasn’t been cut despite state employee union concessions and decreasing state services.
“It could be said that we have sacrificed state services and raised revenues in order to shield town government from facing difficult choices required of state leaders,” Malloy said in the letter.
At Malloy’s request, Barnes asked all 169 municipalities for updated information on their fund balances including undesignated fund balance as of June 30 and projections for their balances next fiscal year.
OPM spokesman Christopher McClure said Tuesday the purpose is to compile an up-to-date, comprehensive assessment of the financial health of all towns “so we know what we’re looking at as we analyze municipal aid into a fiscal year 2018 and 2019 budget.
“For us, this is a data-collection exercise,” he said, to determine the impact of both positive and negative reactions to changes in state aid.
Towns that are doing well financially will get less money from the state, McClure said, but each municipality must be evaluated to determine if a cut in aid would force them to raise taxes or tap into their undesignated fund balance to the point that bonding costs would skyrocket.
He said he understands there is little incentive for towns to report the information, so the state will use old, outdated numbers if the request is denied. Barnes’ letter set an Aug. 16 deadline for the information, but McClure said responses are continuing to come in, although some towns have outright refused to comply.
Galligan: State ‘bankrupting’ towns
South Windsor Town Manager Matthew Galligan said the state is “bankrupting” towns like his that keep down costs, cutting expenditures and raising extra revenue from things like increased building permit fees. He added that with the town facing a $13.5 million cut in state aid, plans are to pull from and drop its fund balance by a couple million dollars, “putting us back to Square 1 again.
“You want us to bear the burden of the state legislature and the governor not doing what they’re supposed to do,” he said. “I blame them all. You got Republicans and Democrats up there. This is not a partisan issue.”
Galligan said, “it defies logic” for the state to take money from towns that are financially responsible and distribute it to towns that don’t live within their means.
“It’s like having the prodigal son,” he said. “We’re going to reward the people who screw up.”
Galligan pointed out in his Aug. 14 response to Barnes that South Windsor is financially sound, in part, because of a shift from a defined-benefit pension plan to a defined-contribution plan, strict financial policies, cost-saving measures, and economic development programs.
Due to proposed cuts in Education Cost Sharing funding, the town adopted a budget that included more than $1 million in municipal cuts and more than $1.5 million in Board of Education cuts.
With the ongoing state budget impasse, the town began the fiscal year with a spending freeze, approving only essential expenditures and waiting to bill for motor vehicle taxes until the state determines the cap, Galligan wrote.
“The continued non-action on the state level to pass a biennial budget is negatively impacting the town of South Windsor,” he wrote. “We do not deserve to have our services and financial future negatively impacted by the state’s financial crisis that we have no control over.”
He continued, “Failure to address crumbling foundations issues, pension and health care costs, and methods to finance education and other obligations are likely to result in suburbs like South Windsor as the next financial concern to address.”
Depleting municipal resources
Tolland Town Manager Steven R. Werbner said he has the same reservations regarding any municipal aid cuts.
“It makes absolutely no sense in terms of how you’re allocating funds,” penalizing communities that have properly managed their resources, employment practices, and general methods of operation, “and take away their money because they did a good job,” he said.
“What’s the incentive in the future for any community to try to do all the right things,” he asked. “What they’re saying is ‘you should spend every dollar. You should deplete your resources like the state has and then you’d be in a better position to get state aid.’ It’s a philosophy that is so flawed.”
Werbner also noted that while the state is requesting numbers from June 30, fund balances likely would change with the prospect of reduced state aid on Oct. 1, which in Tolland includes the potential loss of nearly 77 percent, or more than $8 million, in ECS funding.
The infusion of money from the fund balance would be a one-time allocation that cannot be sustained in upcoming years, he said, adding that he doesn’t project large surpluses to replenish the fund.
“Everything we have done is contrary to what the state has done over the years, and now we are going to be penalized,” Werbner said.
He added that Tolland was one of the fastest growing communities in the state in the early 2000s, and planned accordingly, including keeping its debt service costs sustainable, and building facilities and infrastructure to accommodate its growth.
Since Werbner became town manager in 2005, Tolland’s financial bond rating has increased from AA- to AAA, and is one of only a handful of towns in the country to have received a perfect score from Standard & Poor’s under its financial management rating scale.
Combined with the crumbling foundation crisis and the potential for substantial increases to its tax rate, in the next five or 10 years Tolland could end up being one of the most financially distressed municipalities.
In his Aug. 8 letter to Barnes, Werbner said “Tolland is the perfect storm scenario,” in part because it is one of the towns most affected by crumbling foundations, with 66 homes with reduced assessments resulting in a loss of more than $100,000 in tax revenue.
“We in Tolland feel that our future is being negatively impacted by factors completely out of our control,” he wrote. “We did not cause or contribute to the crumbling foundation issue, yet we are suffering the impact. We did not cause the financial crisis in the state, yet we are being negatively impacted at a dollar level much higher than the vast amount of other communities.”
In his response to Barnes, Plainfield First Selectman Paul Sweet said the state’s financial situation has nothing to do with how local governments are run, but rather the state’s “lack of fiscal restraint.”
He said that a cut to municipal aid is simply passing the effects of mismanagement to towns.
“If I ran Plainfield like you and the gang run the state I would be shown the door by the town’s people,” Sweet wrote to Barnes. “People on the street and people serving in towns and cities in my capacity would want nothing more than the whole House and Senate to resign, including the governor and all of his overpaid cabinet. I am so disappointed in all of you. The victims here are the Connecticut taxpayers.”
