State uncertainty clouds FY18 budget picture

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Michael B Guarco Jr., Chairman, Board of Finance
Once again Connecticut faces a $1.5 billion deficit in each of the next two fiscal years. How it is handled with respect to state aid monies allocated to the municipalities will have a significant impact on local operations and taxation. The reluctance on the part of the state to tackle real structural budget reform continues to just kick the can down the road. Every two years, the state legislature’s majority party leadership and the governor cobble together a two-year budget that, in recent years, has included the largest state tax increases ever. They find themselves two years out facing the same major budget gap again and again. Earlier this month, the governor warned of the potential for a reduction in state aid overall to the municipalities. In particular, he spoke of his desire to focus on the needs of the cities, which most likely means cutting the towns.
On the first Wednesday in February his proposed budget will be delivered to the capitol. The legislature will wrangle over it and their own ideas through the following two months and by mid-April should have their own version reported out of committee. If agreed upon, it may be finalized and voted upon sometime in May. In the meantime, Granby town boards have begun the local budget processes leading up to the budget public hearing April 10 and a machine vote April 24. The uncertainty at the state level leads to the same at the local level. This is potentially significant in forcing either local expenditure restraint or the need for higher property taxes—or both simultaneously.
In late January the three boards meet to begin discussion on the upcoming FY18 budget process. The boards of selectmen, education, and finance share their thinking on what may be requested for the upcoming fiscal year that begins on July 1 and how to deal with the associated costs. Several months ago, the board of finance signaled that, given the impact of anticipated cost changes, its preference would be that the FY18 spending plan have a modest change in the 2 percent range overall while keeping the mill rate increase itself below that.
Many factors affect the expenditure budgets as well as the sources of revenue used to cover them. Roughly three-quarters of the two operating budgets are the cost of people—salaries and benefits. Other cost drivers are the insurances the town must maintain, energy costs, and new state and federal rules and mandates. Some factors, such as declining enrollment, can act to help flatten costs while others, such as special education requirements, can swing up or down. Two significant revenue items were wild cards last year—and will be this year. They have to do with the governor’s proposal to force a flat-tax rate on autos statewide instead of varying the rate by town as it does for property. In our case, the flat-tax rate was to be offset by other revenue sharing accounts. If and when this program is put in place, the trick will be to see if the replacement revenue from the state is left intact, or gradually taken away over time by the state as is usually the case.
The revenue side of the equation is fairly static. The expenditure side of the equation is driven by the increases associated with compensation and vendor contracts that reflect changes within their own cost environments. The concern about state money to the town is pervasive. At the local level, the revenues raised via fees through town hall are a minor component of the budget and essentially flat. Over the past decade the grand list has shown a very modest average of about 0.5-0.6 percent in annual growth, hence the need for a modest annual adjustment in the mill rate to balance out and cover the expenditure side. Over the past decade the commercial component of the grand list has slipped from about 8 percent to less than 7 percent. Gone are the days of an average of 50-60 new homes a year. The apartments being built behind Stop and Shop will bump it up a bit, as would the 34 or so planned housing unit development being talked about in the town center if approved. Another significant addition to the grand list being talked about is for the area across from Floydville Road between Salmon Brook Street and Canton Road. Between the building and autos, the tax impact has been estimated at roughly $1.1 million annually upon completion – the equivalent of 3 percent in property tax. Discussion ensues over what cost impact may come with it, the major component being kids in the school system. However, given the declining enrollment, there is space now after closing a school. Current projections show the district will lose more students over the next half dozen years. If that trend continues, this town may be faced with a situation that it could fit all of our K-5 grades within one of our two lower level grade schools a decade or so from now.