Commentary: Ten things you need to know about the governor’s budget

On Feb. 8, Governor Malloy unveiled his proposal for the fiscal year 2018-2019 biennial budget.  Given that what he is proposing could cause Darien’s property tax (mill) rate to rise significantly, budgets to be cut and reserves to be drawn down—it is a budget worth getting to know.  All quotes re: policy are from official budget documents.

  1. We have a $3.6 billion hole in a $40 billion two-year budget. Why?  Our state has an enormous and rapidly growing set of fixed costs.  Spending next year is projected to increase by more than $1.5 billion, and revenues (tax receipts) are not growing fast enough to keep up.  Almost three-quarters of the increase in spending is attributable to union benefits and debt service, with unions representing 57% and debt service 17% of the bump.  In fiscal year 2018, we will spend over 30% ($5.4 billion) of our general fund budget on union benefits and debt service alone.
  2. Only 31 towns (of 169) will receive more funding from the state next year. Waterbury, Hartford and New Britain will take home more than $100 million in new funding from the state next year.  Darien will lose more than $7 million and become a net payer next year—sending a check to Hartford for over $3.6 million.  Hartford, in particular, needs an infusion of cash to avoid bankruptcy.  But, cutting aid to or asking for money from the vast majority of Connecticut’s towns could make it hard for the governor to get this budget passed.  The state needs a better solution.
  3. This “balanced” budget relies on $700 million in labor concessions in fiscal 2018 and $800 million in FY 2019. Governor Malloy has attempted and failed to achieve this type of savings from state employees before (2011).  If he does not get the concessions he needs from the unions, he has stated that up to 4,200 employees could be laid off.  With Connecticut’s credit ratings currently at Aa3/AA- (second worst in the nation and outlook “negative” by S&P) we should all hope he keeps that promise and does not attempt to borrow, instead
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  4. One-third of teachers’ retirement costs (over $400 million next year) is being assigned to towns. For the first time ever, Connecticut towns are being asked to contribute to state negotiated teachers’ pension (retirement) and benefits payments.  Darien’s 33% share in fiscal year 2018 equals roughly $4.5 million, and will rise in the years to come.  The governor believes this puts “skin in the game” for towns, because they set the salaries used to calculate pensions.  The concept sounds fair, except that towns currently have no say in negotiating pension and/or benefits contracts.  Interestingly, neither does the full legislature—thanks to a party line vote by the Democrats on Jan. 4 that would have required a vote on all union contracts.  These defined benefit plans (salary and health care for life) are negotiated and approved behind closed doors.  An important question arising from all this is, will towns/taxpayers have a voice in contract negotiations in the future, since they are now being asked to pay for them.
  5. The governor has rewritten the funding formula for education, but the money it grants to towns is not restricted to education. With this budget, Governor Malloy has restructured the way the state will finance education.  In a nod to September’s CCJEF vs. Rell decision, the new Education Cost Sharing (ECS) formula will distribute state grants using an assortment of wealth calculations applied to both towns’ finances and student body demographics.  English learners are no longer given special weighting as a part of the ECS equation, and special education funding has been separated entirely.  Darien has not received much ECS (general education) funding from the state in the past few years (roughly $400,000 is expected in FY2017), but it will be officially cut to $0 with this new formula.  As the Darien Times and CT Mirror have reported however, there is no guarantee that extra education funding will indeed be spent on education.  Hartford Mayor Luke Bronin has been quoted saying he will use increased state funding to close budget shortfalls.  So, while many districts are forced to make cuts to their education budgets and programs, schools in troubled districts may still not see the benefits of dollars being steered their way.
  6. Special education students will be funded separately from general education, and the Excess Cost Reimbursement system is going away. In his reengineered ECS formula, Malloy has carved out resources from the old pool of education funding that were previously allocated to special education (22%, equaling $450 million) and created a new “Special Education” fund.  To it, he has added the $140 million previously allocated to the Excess Cost Reimbursement program, and kicked in an additional $10 million for a total of $598 million.  This new special education funding will be distributed based solely on towns’ relative wealth, and according to the ct.gov website, on a “sliding scale of 0% to 54%.”  At best, towns will still be responsible for 46% of their special education expenses.  At worst (like for Greenwich), they will be responsible for 100% of these costs.
    It must be noted that the soon-to-be extinct Excess Cost Reimbursement program does not discriminate.  It reimburses towns equally on a per-child basis for every dollar spent on special education above 4.5 times the average cost per pupil in their district.  This helps absorb some of the impact high-cost special needs programs can have on a town’s budget.  If this ECR program goes away, special education expenses could become a budgetary lightning rod—pitting neighbor against neighbor in an environment of already rising tax rates.  Darien is expected to receive just over $100,000 next year, compared to our five year average of $2.5 million per year.  That is a 96% decrease in special education funding for our town, and our “insurance policy” for high cost scenarios will be gone.
  7. With this budget, the Governor is establishing a new municipal oversight system. With the majority of state aid being steered to the neediest towns, Governor Malloy rightfully assumed Connecticut’s citizens would want to see increased transparency and accountability for how those funds are used.  He has therefore proposed the establishment of a “Municipal Accountability Review Board,” to be co-chaired by the State Treasurer and the Secretary of OPM (Office of Policy and Management).  The board will have 9 members in total, 7 of which will be appointed by the Governor.  The other two will be the chief elected local official and a representative from labor in the area.
    All Connecticut towns will be placed in a Tier system (I-IV) based on a rating of their fiscal health, with oversight ranging from “review of local finances by the Municipal Finance Advisory Commission” (Tier I) to “the ability to authorize debt restructuring and deficit financing, including those using a Special Capital Reserve Fund backed by the state to enhance the local credit” (Tier IV).  It can’t go unmentioned that seven out of nine people on this committee are appointed by or members of the same administration that has us staring down the barrel of a $3.6 billion deficit, and labor represents one of the most inflexible and self-interested groups in politics.  Even Darien, with its AAA credit rating and consistently sound financial management (as evidenced by the Governor’s increasing reliance on our support), will be subject to a certain level of oversight by the state under this arrangement.
  8. The governor claims to have closed the deficit “without increasing major tax rates.” This is total deception.  Sure, the personal income tax rate and sales tax rates haven’t been raised—Governor Malloy and his team in Hartford knew that would bring out the pitchforks.  But, as residents in the 138 “losing” towns already know (or will know, when the property tax bills are mailed out), taxes are most definitely going up.
  9. The governor is relying heavily on “wealthy” towns to close his deficit this year.  But bills pending in the House and Senate point to even bigger strategies yet to come. Billing us for teachers’ pensions and cutting our educational aid will only go so far, and the Governor knows this.  He has spoken about the importance of realizing “efficiencies” via regionalization.  Darien is already a part of WestCOG, a group of 18 towns in our region and one of nine Councils of Governments in the state.  The current rule of COGs is “one town, one vote,” and any new proposals need unanimous support to pass.
    Legislation currently pending in the House and Senate (ex: HB 6920, HB 6924, etc.) aim to give COGs the power to tax, “proportional” voting rights to larger towns (i.e.: Stamford, Danbury), and a “tool” to evaluate just how well we are adhering to their redistributive plans.  If passed, the COGs could levy taxes that would send dollars straight from Darien, Greenwich, etc. to the cities, bypassing Hartford altogether.  Allowing the urban areas to more “efficiently” pay their municipal bills by taxing their neighbors directly is his blueprint for the future.
  10. The budget has not passed yet, and neither have these bills. This budget is like nothing we have ever seen, and some of the most dangerous strategies pending in Hartford are quietly flying under the radar of public awareness.  If enacted, the regionalization bills will create a redistributive machine with the power to drastically alter the financial landscape of Connecticut.  Please reach out to your legislators while there is still time.
    Taylor Carter is a Darien resident and member of the town’s Republican Town Committee.