Connecticut Gov. Dannel P. Malloy's proposed budget could have a deep impact on the budgets of East Lyme, Old Lyme, and Lyme—and, local leaders say, none of them are good.
The most obvious cut to town revenues comes in the governor's car tax relief proposal, which would make the first $20,000 of a vehicle's assessed value exempt from property tax. If passed, this would take effect July 1, 2014 and would keep $560 million out of town coffers statewide.
The proposal is likely to be popular with taxpayers, the large majority of whom would no longer have to pay property taxes on vehicles. For most households, that amounts to a savings of a few hundred dollars.
However, it would place a real burden on the towns, which depend on vehicle taxes for revenues that collectively add up to to hundreds of thousands of dollars to help fund their budgets.
"While it does wonders for me—I have four cars (with my children) that qualify for that—it’s a large amount of revenue that we stand to lose," said East Lyme First Selectman Paul Formica.
Small Town Woes
It's not only larger towns, such as East Lyme, that would feel the pinch. Small towns, such as Lyme, would be equally hard hit if they are no longer able to tax vehicles as the governor proposes.
"That’s pretty much every car in Lyme," said Lyme First Selectman Ralph Eno, noting that vehicle property taxes currently bring in nearly $300,000 in revenue, which is not insignificant in the budget of a town of about 2,000 people.
"It's almost at a half a mill in terms of revenue reduction if this were to pass and, guess what, we may be perceived as being a rich town but we’re certainly not so wealthy we can afford to lose half a mill," said Eno. "It’s going to get made up in real estate taxes."
There's not necessarily a big win for taxpayers, Eno notes, as cars are assessed based on Blue Book values, whereas property taxes on homes are far more subjective.
The governor's proposal would also place a larger burden on the every town's tax assessor, too, because to implement the proposal would require assessing each vehicle every year to see if it falls into the realm of taxable property.
Not that Eno's opposed to cutting taxes.
"It’s a noble cause but you can’t just dip into people’s grand list property tax, dealing universal cuts, without making them whole somehow," Eno said. "All up and down southeastern Connecticut, they’re all saying the same thing. It makes up a big chunk of your revenue stream and to have that simply excised with no alternative is just bad policy."
Indeed, Eno said he's not even sure that the state has the right to cut the tax. Property tax falls under the purview of local municipalities. These aren't taxes that are levied by the state.
Bigger Towns, Bigger Losses
Larger towns, such as East Lyme, are likely to suffer even greater losses under the governor's proposed budget. Not only does East Lyme stand to lose a significant amount in property taxes should the governor's budget pass, it will also lose Payments in Lieu of Taxes (PILOT).
For years, the state has contributed PILOT funds to towns where state or federal offices are located, because towns cannot levy taxes on government property. The governor's proposed budget doesn't include any PILOT money. That's a big deal for East Lyme, which is home to two military bases, two prisons, and two state parks.
"This year we’re getting $754,725 in payment in lieu of taxes. In 2014, that goes down to zero," Formica said. Another big item missing from the governor's proposed budget are funds from the Mashantucket Pequot grant, which is money the tribe pays from slot revenues to the state that has, until now, been redistributed in part as aid to towns.
In the current budget year for East Lyme, funds from the Mashantucket Pequots amounted to $329,809. In the governor's proposed budget, that will be reduced to $42,953.
"Between the two items, we're over a million dollars in loss," Formica said.
Money With Strings Attached
The governor's office has made much of the fact that the bottomline funding for towns has remained the same. But while there have been no cuts to municipal aid in terms of dollar amounts, how that money may be spent is significantly different.
For instance, locally the amount of money earmarked for roads has increased dramatically. That's good news for the towns' infrastructure but it robs the towns of discretion when it comes to spending. Similarly, funding for capital improvements that once went to the towns exclusively may now be used by local Boards of Education.
This change may be because the governor's budget doesn't include additional funds to improve school security, a hot-button political issue since the tragedy at Sandy Hook Elementary School.
"So he’s shifting money from municipal government and giving it to board of education," said Formica.
Town budgets may, in theory, be flat-funded but under the governor's proposed budget, the towns have actually lost money that they depended on to maintain town services, pay salaries, and keep the lights on. They've also lost the ability to determine how to spend the money they do receive from the state.
"This has created some logistically problematic situations," said Formica. "If you combine the PILOT and the Pequot grant with the car tax, I have a potential lost income of $3 million. I don't know what he's thinking."