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08/15/2017 12:00 AMWhen first selectmen across the shoreline came into work on Aug. 7, they were greeted by a letter from the state that has put selectmen and local legislators on high alert. The letter, sent by Secretary Benjamin Barnes of the Office of Policy Management, asked for the dollar amounts in town reserve funds, feeding for many the fear that municipalities like Madison, which have kept recommended levels of reserves, will be targeted as the state struggles to pass a budget.
The state entered the new fiscal year on July 1 with no budget. A recent employee concessions deal is expected to save approximately $1.57 billion over the next fiscal year, but the state is still addressing a projected budget deficit of $5.1 billion over the next two years. Under Governor Dannel Malloy’s February budget proposal, Madison and many other municipalities would see a reduction in state aid and would be asked to contribute to the teachers pension plan.
The letter sent to First Selectman Tom Banisch on Aug. 7 asked Barnes, per Malloy’s instructions, to collect information from the municipality regarding municipal aid, local tax levels, expenditure trends, fund balances, and any other relevant criteria. Banisch said his initial reaction was that this is a typical bullying tactic.
“I think it is a very thinly veiled attempt to scare us and get us to start thinking about how we can appease them,” he said.
More to the point, Banisch said the towns reserves are—for the most part—public knowledge, but said is almost impossible to estimate what the towns fund balance might look like in the next fiscal year until the town has a final number on state aid.
“They are asking us where we are going to end up and it’s a stupid question, because we still don’t know what is going to happen,” he said. “We can’t tell them any more than they tell us.”
In response to the letter, Banisch has called a meeting among all of the state representatives, first selectmen, and the senator of the 12th State Senate district to allow selectmen to voice their concerns and ask for an idea of how legislators plan to protect their towns.
The Financial Picture
The amount of aid Madison could stand to lose is still unclear. Under the governor’s February budget proposal, Madison and many other municipalities would see a reduction in state aid and would be asked to contribute to the teachers pension plan. If the governor’s proposal were to pass, Madison would receive $2,275,237 in state aid in the next fiscal year, but would contribute $2,602,739 to the teacher pension plan, effectively negating state aid. In the end, the town would end up owing the state $327,502.
With no clear word on what Madison’s state revenue might look like in the current year, Madison still had to, by charter, put its budget to referendum in May. At the time, rumors and comments from state officials suggested that municipalities taking on a portion of the state teacher pensions this year is unlikely, but Board of Finance (BOF) Chair Joe MacDougald said the town had made assumptions to account for a reduction in statutory state aid. He said the BOF has set aside funds to apply to the mill rate if the state cuts exceed current expectations.
“Some towns assumed no aid and then increased their taxes and some towns assumed no reduction,” said MacDougald. “Madison assumed a reduction and then we also placed...the amount equal to the aid above our required fund balance to offset the account.”
Planning for a reduction doesn’t mean the town can absorb that reduction without an impact, he added.
“Would it hurt? Of course it would hurt...It will matter, but at the moment [if the state reduces aid], we could function as the voter approved the budget, it would just make things very lean.”
State Representative Noreen Kokoruda (R-101) said that while Madison receives a relatively low amount of state aid compared to most other towns, the principle of saying that towns like Madison are overfunded and could theoretically take a hit is just wrong.
“Madison has taken a major hit in education funding since Malloy has been in,” she said. “We are over $1 million cut since Gov. Malloy came in. We have hardly been, as he says, ‘held harmless.’ It is just not true.”
Kokoruda said she, too, read the letter as a shot across the bow.
“What the letter said was ‘Tell us what your fund balance is, tell us what your expenditures are,’ so they are just trying to look and say, ‘Hey if you have got money, we are coming for it’,” she said.
Kokoruda said that while Madison has healthy reserves, the reserves are in that condition because the town has not given in to rampant spending over the years. She noted that the idea of coming after towns that have healthy reserves because they have been well managed is concerning, but not exactly shocking.
“While other towns were putting in recreation facilities and all, we weren’t,” she said. “We have not raised the number of town employees in the 25 years I have been involved. We have fewer police officers and less or even town employees than 25 years ago. We are not growing government. We have taken a very conservative approach to how to run our community and now we are being told, ‘Well you have done all of that and you have done it right, but now we need to take some of it.’”
So why come after a town like Madison? According to Kokoruda, the simple answer is the state has nowhere else to go.
The Pension Problem
The possibility of municipalities having to pay a portion of the teachers’ pensions, initially considered a non-starter by local legislators, seems to have picked up speed again.
For years, teachers have contributed six percent of their salary to their pension and the state has picked up the rest of the tab. However, with contribution rates on the rise and the system notoriously underfunded, the governor is looking to push one-third or $400 million of the contribution onto municipalities. For Madison, that means a bill of $2,602,739.
If that number were to become a reality, MacDougald said there is almost nothing the town could do with existing funds to accommodate any change in the pension funding.
“My problem with this isn’t necessarily finding a structure to fund the teacher pensions, my biggest problem is they are passing down the line the responsibility, but giving us no control,” he said. “Simply using the towns to make up for the underfunding of teacher pensions is really just passing down a state-based tax.”
Pensions have been a hot-button issue this session since the governor announced his initial proposal that relied on labor savings as well as requiring municipalities to contribute to the teacher pensions. Kokoruda said 40 percent of the state budget is tied to the issue of pensions and healthcare benefits and the state needs to be able to gain some control over those expenses—an opportunity she says was missed with the recent concessions deal.
“You are going to have teachers losing jobs, firemen losing jobs, police officers or people getting cut back in hours because 45,000 people got a deal that we really couldn’t afford to give and that is why that letter had to go out,” she said in reference to the state unions contract. “The state has no place else to go. They have given away the store as much as they can.”
As to what comes next, Kokoruda said a clear timetable for the budget is anyone’s guess.
“They are nowhere with the budget and it is pretty remarkable in the middle of August,” she said.
In terms of answering the letter, MacDougald said the best response to the state right now might be, “You first.”
“It seems to me that a reasonable response would be to give them the last audited financial statement, give them the budget that we voted on,” he said. “But when it comes to making a guess, I think the answer is we need information from you.”