State Budget Affects Suffield Budget

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As you read this, unfortunately, the Board of Finance will have submitted its proposed budget of the Public as required by the Town Charter. This year’s budget process was far from “business as usual.” The unhappy circumstance that Connecticut’s towns are facing is driven in large part by the fiscal irresponsibility emanating from the Governor’s Office and the legislature. Not only is the state ending this fiscal year with a deficit, but, as a result of past gimmicks, the future of the state to operate with a balanced budget appears grim. Indeed, starting with the Governor’s proposed budget, this can only be accomplished by burdening towns like Suffield with indirect tax increases.

Specifically, one must review how towns throughout the state derive revenue to operate with a balanced budget. Real Estate and Personal Property Taxes (primarily motor vehicles) are the primary source of revenue. Suffield’s grand list for the property that is taxable did not grow for the upcoming fiscal year. The other source of income revenue consists of a combination of sources coming from the state which is euphemistically called State Aid. Whatever the term used (aid, grants, payment in lieu of taxes, etc.) the source of these funds is the sales taxes, income taxes, estate taxes, business taxes which we all pay. The stewards of these funds, the Governor and the legislature have simply mismanaged our affairs with a proposed reduction of funds directed to towns like ours. For Suffield, this amounts to approximately $1.6 million, but that could change given the state does not finalize their budget until after towns throughout the state finalize theirs. However, Towns like ours cannot pretend that proposed cuts are not real, and must prepare our budgets with the most current information available coming from Hartford, and at the time of this writing, the Governor’s proposed budget is the best we have. If everything else were flat, that cut would represent the need for an increase in property taxes of over 4%.

We all know our expense structure, which is largely driven by contractual increases under our various union contracts and increases in items such as debt service related to needed capital improvement, will result in tax increases without facing cuts from the state. These state reductions in revenue can only be covered by a combination of reduction in expenses and an increase in taxes. Additional burdens imposed by the legislature limit our ability to manage the tax impact of proposed cuts. Examples include: 1) a statute that limits the amount by which the Town can reduce the Board of Education’s Budget (MBR); 2) paying funds directly to the Board of Education, which further limits a town’s options; and 3) unfunded mandates too numerous to mention, which impose financial obligations with no revenue offsets from the state.

With this background, the Board of Selectmen proposed a budget that even with the built in raises for employees was essentially flat. The Board of Education came in with what would be considered a reasonable request in a normal year of approximately 2.6% when all outside grant revenues are taken into consideration, but we continue to see declining enrollments that do not necessarily correlate to a reduction in cost. This is driven largely by increasing benefit costs for employees that outpace inflation and significant increases in special education funding requirements. What both budgets create is an inability by the Board of Finance to maintain its policy of limiting overall tax increases to the Consumer Price Index of inflation without material cuts. Given 1) the legislature’s self-imposed inability to return a fair share of the taxes Suffield’s tax payers pay into the state’s coffers, 2) the zero growth of our Grand List, 3) the legislatively imposed inability to meaningfully reduce the Education budget, it will be impossible to reach that goal. Looking at the municipal side of Suffield’s governance, there has been an overall reduction in Town personnel over the years to the point where reductions in capital spending may provide the short term answer. However, this is a very dangerous alternative which will only postpone the need to future budgets and result in the Town taking a page from the state in kicking the can down the road.

Another concerning component of the Governor’s proposal, which will have a monumental impact on this and future budgets, is the gradual imposition on Suffield and like communities of shifting of the state’s responsibility to pay for teacher’s pensions. Historically this has been the state’s obligation; however, the state has failed to properly finance this obligation, generally funding this obligation by bonding the debt rather than paying for this obligation as incurred. Suffield’s initial impact of this additional burden for the coming fiscal year alone is anticipated to be approximately $1.9 million. Regardless of where the Governor’s proposals end up, Suffield must take drastic action to minimize the tax impact to its residents, especially those on fixed incomes that do not rise beyond that of general inflation.

Suffield’s financial status is excellent. The Town has funded its obligations as required by law and recommended by our actuaries. Our undesignated fund balance is at the level recommended by our bond advisers to maintain a high rating and lower borrowing cost levels. The Board of Finance is likely to fund a portion of this year’s budget by using some of that fund balance to make somewhat more palatable a very grim financial picture of this next fiscal year. However, if we fund too much from fund balance, it will create a hole which will need to be filled in future years, which is ultimately unsustainable. In any event, you will see a budget full of compromise and balanced cuts in spending and increase in taxes that would otherwise not have been required outside of the actions at the state level. Be sure to come to the Annual Town Meeting to vote on the budget that the Board of Finance will be recommending to you and reach out and hold the Governor and your representatives accountable to us as a Town. We all pay in one way or another into the state, and we should expect no less than a competent business partner in return. I’m sorry to say that we have not seen that in quite some time ,and things are only going to get worse.

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