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How Many Cities & Towns Face Insolvency Over Budget Stand-Off? Malloy Begins Counting

How Many Cities & Towns Face Insolvency Over Budget Stand-Off? Malloy Begins Counting

Gov. Dannel P. Malloy’s administration is polling cities and towns to determine how many will run out of operating cash by this spring — or earlier — if the state budget standoff continues.

Office of Policy and Management Secretary Ben Barnes, Malloy’s budget chief, wrote to municipal leaders Wednesday asking them to provide information.

“I know that many towns would face solvency issues next spring if January and April ECS (Education Cost Sharing grant) payments continue at the executive order level,” Barnes wrote. “… I encourage any municipality that believes it will lack cash on hand to pay bills in 2017 to contact my office.”

In the absence of a state budget, Malloy has been running state finances by executive order since the new fiscal year began on July 1. With income and other tax receipts declining and retirement benefit and other fixed debt costs surging, the administration has said it has no choice but to dramatically reduce funds for municipal aid.

And with Malloy and legislators from both parties divided on a number of issues, Barnes said it remains unclear when the budget standoff will end.

“We will get a budget, but we cannot be sure when,” Barnes wrote, adding that the executive order Malloy is using “is only intended to keep basic government functioning for a portion of the year until a full budget is adopted.”

Legislators and Malloy have known since before the 2017 General Assembly session began that Hartford and West Haven were at risk of insolvency in the 2017-18 fiscal year.

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The Norwich Bulletin reported last week that Scotland is at risk of reaching insolvency this spring and is exploring merging with a neighboring community.

Newtown First Selectwoman Pat Llodra said during a Connecticut Conference of Municipalities press conference Wednesday morning at the Capitol that her town is on pace to run out of operating funds sometime between April and June.

That would mean either raising property taxes or tapping reserves. The latter option could harm the town’s bond rating and boost interest costs when borrowing, she said.

“We are caught in an ever-tightening vice for which we have no control,” Llodra said, adding she believes other municipalities are in a similar situation.

By Oct. 1 alone, the potential hit to municipal aid under the governor’s executive order will have approached $500 million in total.

A $30 million road repair grant normally paid in July and a sales tax revenue-sharing grant that was worth $78 million to communities in August last year both weren’t paid out this summer.

And if no budget is in place, property tax relief grants that provided communities with $303 million in aid last September and October would provide just $40.6 million this fall.

The Education Cost Sharing grant, the state’s largest program for funding local school districts, releases aid to communities in three installments, provided in October, January and April.

That grant will be released on Oct. 1, but it will involve significantly less money if no new budget is in place.

The governor’s October ECS payment plan provides $365 million in aid. That’s about $120 million less than communities received one year ago in their October ECS payment.

Portland First Selectwoman Susan Bransfield, president of the Connecticut Conference of Municipalities, urged Malloy and lawmakers to come together on a bipartisan budget.

“It needs to be done and it needs to be done yesterday,” she said.