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Challenge of Financing Local Government in Connecticut
 

Challenge of Financing Local Government in Connecticut

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CCM Presentation to the MORE Commission on March 26, 2013

CCM Presentation to the MORE Commission on March 26, 2013

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    Challenge of Financing Local Government in Connecticut Challenge of Financing Local Government in Connecticut Presentation Transcript

    • The Challenge of FinancingLocal Government inConnecticutPresentation toMORE CommissionMunicipal Tax Authority SubcommitteeMarch 26, 2013
    • Municipal Funding Sources FY2011 4% 24% 72% Property Tax Intergovernmental Charges, Fees, and Other SourcesSource: OPM Municipal Fiscal Indicators; CCM March 2013 2
    • The Property Tax • Connecticut’s largest and most regressive tax ($9.5 billion in FY13*) • 72% of municipal revenue statewide • Biggest tax on Connecticut businesses • Connecticut is more dependent on it to fund preK-12 education than any other state • $0.60 of every property tax dollar goes to pay for preK-12 education • Income and profit blind*CCM estimate based on $9 billion in FY11 per OPM.Source: CCM 3
    • Property Taxes per $1,000 of Personal Income, FY2010 $50 $45.42 $45 $40 $35.88 $35 $30 $25 $20 $15 $10 $5 $0 CT USSource: CCM calculations based on Census Bureau and BEA data, latest data available 4
    • The Property Tax • 19 municipalities rely on the property tax for at least 90% of their total revenue • 70 municipalities rely on it for at least 80% of their total revenue • 113 municipalities rely on it for at least 70% of their total revenueSource: OPM Municipal Fiscal Indicators 5
    • Statewide Grand List Components Com./Ind./ Motor Res. Util. Vehicle Personal Other 1998 63.2% 18.5% 8.0% 8.4% 1.9% 2001 65.7% 17.1% 8.1% 7.3% 1.6% 2004 67.9% 15.5% 7.1% 6.0% 1.7% 2007 71.2% 16.4% 5.7% 4.9% 1.8% 2010 70.8% 16.8% 5.5% 5.3% 1.7%Source: OPM Municipal Fiscal Indicators, latest data available 6
    • Equalized Net Grand List per Capita, FY2010 Top 10 Ranked High to Low Bottom 10 Ranked Low to High GREENWICH - $719,183 WINDHAM - $54,568 NEW CANAAN - $589,460 MANSFIELD - $54,625 WESTPORT - $555,060 NEW BRITAIN - $56,465 WASHINGTON - $498,243 HARTFORD - $58,600 ROXBURY - $462,465 WATERBURY - $63,715 DARIEN - $454,545 NEW HAVEN - $65,111 SALISBURY - $431,359 BRIDGEPORT - $67,009 SHARON - $431,338 WEST HAVEN - $76,932 CORNWALL - $410,269 ANSONIA - $79,550 WILTON - $373,006 NORWICH - $83,756Source: OPM Municipal Fiscal Indicators, latest data available 7
    • Equalized Mill Rates, FY2011 Top 10 Ranked High to Low Bottom 10 Ranked Low to High HARTFORD - 34.84 GREENWICH - 6.69 WATERBURY - 31.15 SALISBURY - 7.53 NEW HAVEN - 28.30 WASHINGTON - 8.16 BRIDGEPORT - 27.97 ROXBURY - 8.71 WEST HARTFORD - 27.01 DARIEN - 8.75 NEW BRITAIN - 26.70 WARREN - 9.01 NAUGATUCK - 24.31 LYME - 9.30 EAST HARTFORD - 24.25 SHARON - 9.45 VERNON - 23.22 CORNWALL - 9.75 WOODBRIDGE - 23.12 PUTNAM - 9.90Source: OPM Municipal Fiscal Indicators, latest data available 8
    • 2011 Median Household Income Top 10 Ranked High to Low Bottom 10 Ranked Low to High WESTON - $205,563 HARTFORD - $29,107 DARIEN - $193,896 NEW HAVEN - $39,094 NEW CANAAN - $191,750 NEW BRITAIN - $39,838 WILTON - $159,720 BRIDGEPORT - $40,947 WESTPORT - $155,792 WATERBURY - $41,499 RIDGEFIELD - $145,000 WINDHAM - $42,178 EASTON - $141,372 NORTH CANAAN - $45,139 WOODBRIDGE - $129,583 NEW LONDON - $45,509 GREENWICH - $127,201 TORRINGTON - $48,742 SHERMAN - $120,458 EAST HARTFORD - $49,611Source: OPM Municipal Fiscal Indicators, latest data available 9
    • Why the Over-Reliance on the Property Tax? • The only significant revenue tool granted to towns and cities by the State • State has consistently failed to meet its share of the state-local funding partnership, particularly in education funding • Additional burden in the form of unfunded and underfunded state mandates • Additional burden in the form of state-mandated property tax exemptions • Lack of consistent, stable state revenue sharingSource: CCM 10
    • Source: CCM 11
    • State Aid to Municipalities • Second largest component of municipal revenue after the property tax at 23% • Totals about $3.1 billion in the current year • About 85% is education aid and 15% is non-education aid • Education aid was flat-funded for four years • Modest education aid increases for Alliance Districts are conditional, must be applied for, and used only to expand or establish programs • Non-education aid overall has decreased over time in a funding rollercoasterSource: CCM 12
    • Total Municipal Aid $25 50% $21.37 45% $19.98 $20.19 $20 $19.01 40% $18.36 $18.31 $17.72 $16.33 35% $15 30%$ Billions 25% $10 20% 15.6% 15.6% 15.6% 15.5% 15.0% 14.6% 15.2% 14.6% 15% $5 10% $2.77 $2.86 $2.83 $2.85 $2.91 $3.07 $3.12 $2.54 5% $0 0% Total State Budget Expenditures (General Fund and Transportation Fund) Municipal Aid Municipal Aid as a % of State Spending 13Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • PreK-12 Public Education $25 Grants $21.37 50% 45% $19.98 $20.19 $20 $18.36 $19.01 40% $17.72 $18.31 $16.33 35% $ Billions $15 30% 25% $10 20% 15% 12.7% 13.0% 13.1% 13.2% 12.8% 12.3% 13.0% 12.9% $5 10% $2.08 $2.30 $2.40 $2.41 $2.44 $2.45 $2.62 $2.76 5% $0 0% Total State Budget Expenditures (General Fund and Transportation Fund) PreK-12 Grant Aid Education Aid as a % of State SpendingSource: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013Note: FY14 grant total includes $74 million shifted from PILOT: State-Owned Property to the ECS account. These funds willnot be restricted to education uses in FY14, but they would have to used for education beginning in FY15. 14
    • Total Non-Education Aid $500 $458.5 $466.9 $462.9 $456.4 $452.6 $450 $420.9 $411.7 $400 $359.1 $350 $300 $ Millions $250 $200 $150 $100 $50 $0 15Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Funding PreK-12 Education • PreK-12 education expenditures currently total about $10 billion in Connecticut • Funding sources – Towns and cities pay about 51% – The State pays about 42% – The rest comes from the federal government and other sourcesSource: CCM 16
    • Funding PreK-12 Education • Education expenditures are at least 60% of municipal expenditures statewide • In most towns, education expenditures are more than 70% of total expenditures • The education side of municipal budgets has grown as a share of total local expenditures • The non-education side of municipal budgets has shrunk over the last decade as a share of total local expenditures • There are fewer non-education, municipal employees today than there were five years ago • Education finance reform is key to property tax reformSource: CCM 17
    • Municipal General Fund Expenditures (Education and Non-Education %) 100% 90% 80% 40.3% 39.8% 35.8% 39.6% 39.7% 41.6% 41.3% 40.8% 70% 60% 50% 40% 30% 59.7% 60.2% 64.2% 60.4% 60.3% 58.4% 58.7% 59.2% 20% 10% 0% FY2004 FY2005 FY2006 FY2007 FY2008* FY2009 FY2010 FY2011 % Education % Non-Education*FY2008 included a one-time $2 billion payment to the Teachers Retirement Fund. 18Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Education Cost Sharing (ECS) • The primary state funding mechanism for public preK- 12 education • Supposed to equalize the ability of municipalities to fund education without over-reliance on property taxes • Currently underfunded by more than $700 million • Funded at $2 billion this year • Contains a minimum budget requirement (MBR) that forces residential and business property taxpayers to make up for chronic state underfunding • CCJEF v. Rell scheduled to go to trial in 2014Source: CCM 19
    • ECS Grant 12% $200 $182 $180 10% $160 $140 8% $133 $ Millions $118 $120 6% $100 $80 $74 4% $60 $40 2% $20 $7 $5 0% $1 $0 $0 % Change from Previous Year $ Increase from Previous YearSource: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013Note: FY14 grant total includes $74 million shifted from PILOT: State-Owned Property to the ECS account. These funds willnot be restricted to education uses in FY14, but they would have to used for education beginning in FY15. 20
    • Special Education • Currently costs more than $1.7 billion • Growing at double the rate of overall education expenditures • Towns and cities fund more than 60% of these costs • State funding provided primarily through the Excess Cost-Student Based grant, which only begins to partially reimburse school districts after they have spent 4.5 times their average district expenditure on a special-education student • Grant has been flat-funded for five yearsSource: CCM 21
    • Excess Cost-Student Based Grant $160 $140.0 $139.8 $139.8 $139.8 $139.8 $139.8 $140 $129.8 $120 $110.6 $ Millions $100 $80 $60 $40 $20 $0 22Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Non-Education Municipal Aid • Totals about $450 million this year • Essentially level-funded over the past several years • Helps defray some costs associated with state-mandated property tax exemptions • Also helps fund capital and infrastructure projectsSource: CCM 23
    • Non-Education Municipal Aid • Major grant programs – PILOT: State-Owned Real Property – PILOT: Private Colleges & Hospitals – Manufacturing Transition Grant (PILOT: MME) – Municipal Revenue Sharing Bonus Pool – Mashantucket Pequot and Mohegan Fund – Town Aid Road – Local Capital Improvement Program (LoCIP)Source: CCM 24
    • PILOT: State-Owned Property • Provides partial reimbursement payments for property tax losses on tax-exempt real property • Statutes call for 45% reimbursement for most property • Actual reimbursement rate is an estimated 26% • Grants are proportionately reduced if appropriations aren’t sufficient • Total payments are $73.6 million in current yearSource: CCM 25
    • PILOT: State-Owned $350 Property 80% $300 $286.9 $285.1 $288.0 $290.9 70% $264.1 $246.2 60% $250 $236.2$ Millions $206.9 50% $200 39% 40% $150 35% 34% 30% 28% 26% 26% 26% $100 20% $50 10% $81.2 $82.9 $82.9 $73.5 $73.5 $73.5 $73.6 $0.0 $0 0% 0% Municipal Revenue Lost PILOT: State-Owned Property % Municipal Reimbursement 26Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • PILOT: Private Colleges & Hospitals • Provides partial reimbursement payments for property tax losses on tax-exempt real property • Statutes call for 77% reimbursement for most property • Actual reimbursement rate is an estimated 35% • Grants are proportionately reduced if appropriations aren’t sufficient • Total payments are $115.4 million in current yearSource: CCM 27
    • PILOT: Private College & Hospitals $350 $328.1 $331.4 100% $324.9 $303.2 90% $300 $271.3 80%$ Millions $242.9 $250 $226.0 70% $197.4 60% $200 58% 54% 50% 50% $150 43% 38% 40% 36% 35% 35% $100 30% 20% $50 10% $115.4 $122.4 $122.4 $115.4 $115.4 $115.4 $115.4 $115 $0 0% Municipal Revenue Lost PILOT: Private College & Hospitals % Municipal Reimbursement 28Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Municipal Revenue Sharing Account • New in FY2012 • Funded by Sales Tax (0.1%) and portion of the Real Estate Conveyance Tax (0.25%) • Estimated to generate about $90 million in current year • Funds one PILOT reimbursement and one grant – Manufacturing Transition Grant (PILOT: MME) ($47.6 million) – Municipal Revenue Sharing Bonus Pool ($42.8 million)Source: CCM 29
    • Manufacturing Transition Grant • Replaced PILOT: Manufacturing Machinery and Equipment (MME) • PILOT: MME partially reimbursed towns and cities for revenue lost due to state-mandated property tax exemptions on machinery and equipment • Manufacturing Transition Grant is frozen at the FY11 PILOT MME amount for each municipality • Grant totals $47.6 million in this yearSource: CCM 30
    • Municipal Revenue Sharing Bonus Pool • Paid from balance remaining in Municipal Revenue sharing Account after Manufacturing Transition Grants are paid • Amounts distributed 50% based on population and 50% based on LPTRTF formula • Grant total estimated at $42.8 million this yearSource: CCM 31
    • Municipal Revenue Sharing $100.0 Account $90.0 $80.0 $70.0 $42.8 Millions $60.0 $50.0 $40.0 $30.0 $47.6 $20.0 $10.0 $0.0 $0.0 FY2013 Est. FY2014 Proposed PILOT: MME/Manufacturing Transition Grants Municipal Revenue Sharing Grants 32Source: Governors Proposed FY14 Budget; CCM March 2013
    • Mashantucket Pequot and Mohegan Fund Grant • Payments to all 169 municipalities based on number of need factors • Revenue generated from casino gaming payments • Grants are proportionately reduced if appropriations aren’t sufficient • Total payments are $61.8 million in current year • Fully funded grant would total $135 millionSource: CCM 33
    • Mashantucket Pequot- $450 Mohegan Grant $411.4 50% $400 $375.0 $377.8 $384.2 $359.6 $344.6 40% $350 36.0% $300.1 $298.6 $300 $ Millions 30% $250 $200 22.6% 22.8% 20.6% 20% $135.0 17.2% 17.9% $150 16.1% $93.0 $86.3 $100 10% $86.3 $61.8 $61.8 $61.8 $50 $0.0 $0 0.0% 0% Indian Gaming Revenues Mashantucket Pequot-Mohegan Grant % Municipal Share of Total Indian Gaming Revenues 34Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Town Aid Road • Used for various purposes, including the construction and maintenance of local highways, roads, and bridges • Calculated on factors that include population data and number of road miles • Total payments are $30 million this year • Level funding for several yearsSource: CCM 35
    • Town Aid Road Grant $70 $60 $60 $50 $ Millions $40 $30 $30 $30 $30 $30 $30 $30 $30 $20 $10 $0 36Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • Local Capital Improvement Program (LoCIP) • Used to reimburse the costs of local capital improvement projects • Calculated on factors that include population, density, road miles, and net grand list • Towns must request reimbursement for an approved project within seven years of its approval date • Total payments are $30 million this year • Level funding for several yearsSource: CCM 37
    • LoCIP $100 $90 $86 $80 $70 $60 $ Millions $50 $40 $30 $30 $30 $30 $30 $30 $30 $30 $20 $10 $0 38Source: Comptroller Annual Reports; Governors Proposed FY14 Budget; CCM March 2013
    • What It All Means • Connecticut towns and cities are over-reliant on the property tax • Present local revenue system to support municipal service delivery is not sustainable • Education finance reform is the key to property tax reform • Need to preserve and expand state-local revenue sharing • Mandates relief is cost-effective way to reduce property tax burden • Programs such as the Regional Performance Incentive Program should be expanded • Connecticut needs to take a look at comprehensive reform of the state-local revenue systemSource: CCM 39
    • The Connecticut Conference of Municipalities (CCM) is Connecticuts statewide association of towns and cities.CCM is an inclusionary organization that celebrates the commonalities between, and champions the interestsof, urban, suburban and rural communities. CCM represents municipalities at the General Assembly, before thestate executive branch and regulatory agencies, and in the courts. CCM provides member towns and cities with awide array of other services, including management assistance, individualized inquiry service, assistance inmunicipal labor relations, technical assistance and training, policy development, research andanalysis, publications, information programs, and service programs such as workers compensation, liability-automobile-property insurance, risk management, and energy cost-containment. Federal representation isprovided by CCM in conjunction with the National League of Cities. CCM was founded in 1966.CCM is governed by a Board of Directors, elected by the member municipalities, with due consideration given togeographical representation, municipalities of different sizes, and a balance of political parties. Numerouscommittees of municipal officials participate in the development of CCM policy and programs. CCM has offices inNew Haven (the headquarters) and in Hartford. 900 Chapel Street, 9th Floor New Haven, Connecticut 06510-2807 Telephone (203) 498-3000 Fax (203) 562-6314 E-mail: ccm@ccm-ct.org Web Site: www.ccm-ct.org CCM: THE VOICE OF LOCAL GOVERNMENT