This is the second article in an occasional series exploring wealth and income inequality in Connecticut and its impact on a state struggling to cope with massive debt. Read the first article here.
When Hartford Mayor Luke Bronin appealed for help to save his municipality from bankruptcy, one response he faced was that the capital city’s big-spending ways had come home to roost.
The perception that Connecticut’s cities, facing struggling schools, poverty, crime and heavily traveled roads, easily outspend their suburban and rural neighbors can be found both around the capital city and elsewhere in the state.
But when municipal spending is examined on a per capita basis, it’s Connecticut’s suburbs — and particularly those in Fairfield County — that lead the way in spending.
Rather than a greater need for government services, it is the availability of wealth, tax reform advocates say, that determines which communities will spend the most.
More importantly, shrinking state aid, a lack of revenue diversity and an over-reliance on a regressive property tax system threaten to widen tremendous disparities that already exist between Connecticut’s poorest and richest communities.
“We’re creating social pathologies in Connecticut,” said University of Connecticut economist Fred Carstensen. “By spending so little in the cities, it forces you to reallocate toward police and social services rather than investing in your future. That means less effectiveness in education.”
“How do we attract job growth into the city when you’re already fighting with a hand behind your back because you have a higher mill rate than your surrounding towns, you have less services than your surrounding towns, you have a higher crime rate than your surrounding towns?” asked Rep. Steven J. Stafstrom, D-Bridgeport.
Suburbs lead the way in spending
The eight municipalities that spent the most on a per capita basis in 2016 — and nine of the top 10 — are Fairfield County suburbs, according to the state Office of Policy and Management’s Municipal Fiscal Indicators report. The other is Woodbridge, a suburb in New Haven County.
Each of the top six communities outspent the statewide average in 2016, $3,931 per person, by 70 percent or more.
Westport ranked first overall at $7,782 per person, nearly double the statewide average.
The next five are:
- New Canaan, $7,517;
- Weston, $7,356;
- Wilton, $7,094;
- Darien, $6,846;
- Greenwich, $6,677.
At the other end of the wealth spectrum, only seven of the 25 cities and towns classified as “distressed communities” by the Department of Economic and Community Development even rank in the top half among 169 municipalities in terms of per capita spending.
Hartford ranked 19th overall, but first among distressed communities, spending $4,697 per person. The top five towns all outspent the capital city, though, by 46 percent to 66 percent.
After Hartford at 19, the rank of the other distressed municipalities and their per capita spending were:
- Derby, 27, spending $4,438;
- New Haven, 41, $4,213;
- East Hartford, 57, $4,026;
- Bridgeport, 71, $3,907;
- Waterbury, 78, $3,852;
- Naugatuck, 82, $3,818.
Only Hartford, Derby, New Haven and East Hartford spent more than the statewide average.
Located just 12 miles apart along Connecticut’s southwestern shoreline, Westport and Bridgeport — at least at first glance — share little in common.
A wealthy suburb of nearly 28,000, Westport is home to one of the world’s largest hedge funds, Bridgewater Associates, and about an hour by rail from Wall Street.
With a median annual household income of $166,307 for the years 2012 through 2016, according to the U.S. Census Bureau, only 4.4 percent of Westport’s population is below the poverty level.
Meanwhile, Bridgeport — the state’s largest city with 146,000 people — struggles with some of the highest unemployment and violent crime rates in the state.
More than 20 percent of its residents live at or below the federal poverty level and the median household income is $43,137, or about one-quarter that of Westport.
About 58 percent of the homeless in coastal Fairfield County reside in Bridgeport, said Pam Ralston, a manager for the Connecticut Coalition to End Homelessness. The city also received nearly 10,000 phone calls in 2017 from people making housing and shelter requests.
Fewer than 4 percent of Westport’s students qualify for free or reduced school meals, according to End Hunger Connecticut. All of Bridgeport’s students qualify for them under the National School Lunch Program’s community eligibility provision, which allows the nation’s highest poverty districts to serve free meals without collecting household applications.
The disparity between the two extremes is “just stark,” Ralston said.
That also extends to local tax rates.
Westport’s tax rate is just below 17 mills, thanks to a growing grand list that features an average house assessment value of about $1 million — market value is closer to $1.5 million — and growing retail, professional and other commercial development.
The tax rate in Bridgeport is 54 mills, and its grand list per capita is about 1/10th the size of Westport’s.
“Our residents expect a world-class public school system,” First Selectman Jim Marpe said, adding that it consumes about 62 percent of a $208 million annual budget.
The town’s schools have high enrollment in advanced placement classes, not just in core mathematics and English programs but also in arts and sciences. And advanced tutoring is available not only for those with remedial needs, but also for those who need to reach beyond the rest of the class just to be challenged, Marpe said.
A 2015 analysis of municipal spending by the Yankee Institute, a Hartford-based, conservative policy group, concluded many Fairfield County towns’ budgets devote above-average resources to retirement benefits.
This is not surprising, since Marpe said the town pays good salaries to ensure not only high-quality teachers, but also police, firefighters, recreation and other municipal staff.
The town also began in recent years to save more for retirement health-care benefits, and its pension fund holds enough assets to cover 90 percent of its liabilities.
But Westport doesn’t get much help from the state, despite the fact that it pays more Connecticut income taxes per capita than just about any other community.
According to the Department of Revenue Services, Westport paid $17,516 per capita in 2016 — fourth out of 169 cities and towns — while Bridgeport ranked last at $1,029.
Rep. Jonathan Steinberg, D-Westport, who has been outspoken about Connecticut’s needs to invest in its cities, said legislators also need to realize most of Fairfield County has a one-way relationship with state government.
Fairfield County pays a majority of state taxes, and receives the smallest share of government assistance back.
“We do it every year, willingly,” he said. “The suburbs are unfairly looked at as hard-hearted.”
Only about 1 percent of Westport’s annual budget is supported by state aid, with the rest coming from local taxes and fees.
And Marpe said the latter plays a key role. The town relies on user fees to fund key amenities like the Longshore Club Park golf course and Compo Beach.
It also uses those fees to shield the popular beach from out-of-towners. The summer beach season parking pass costs $50 for Westport residents, $375 for residents of neighboring Weston, and $775 for anyone else.
Karen Dombrowski, 62, who was walking along Compo Beach last Wednesday morning, moved to Westport from New Jersey 2 1/2 years ago after her husband died. She had always visited an aunt and cousins in town as a child and remembers it fondly.
“I love it here,” she said. “As I walk by, people say ‘Hi.’ I’ve met so many wonderful friends here. We say this place is magical.”
Tammy Roseboro moved to Bridgeport from West Queens seven years ago with four of her six children and a similar goal — finding happiness. But unlike Dombrowski, Roseboro doesn’t see Bridgeport’s P.T. Barnum Apartments — a public housing project that lies alongside a sewage treatment facility and an asphalt plant — as a long-term stop.
Roseboro, who works as a school bus driver, said battling for her children also means fighting for their education in a district with limited resources and no academic support.
“What can you do to make sure they complete high school, for one, to graduate on time, and can they read on a good level?” Roseboro asked. “The school system is horrible.”
Differences in services — and not just those in Connecticut’s schools — are tied in large part to wealth.
The New England Public Policy Center, the research arm of the Federal Reserve Bank of Boston, issued a May 2015 report that attempted to calculate the “municipal gap” — the difference between the public services a city or town absolutely must provide, and the resources available to pay for them.
“Our results show large non-school fiscal disparities across cities and towns in Connecticut,” the report states. “These disparities are driven primarily by differences in revenue-raising capacity.”
Not surprisingly, the largest spending towns in 2016 also were those that had the largest equalized net grand list per capita, according to OPM data.
In other words, those that had the most taxable wealth spent the most.
The top four communities in per capita grand list rankings — Greenwich, Darien, New Canaan and Westport — also were among the top six in spending. Their per capita grand lists topped the statewide average of $165,582 by anywhere from 260 percent (Westport) to 385 percent (Greenwich.)
Of the 25 distressed communities, none were in the top half of grand list wealth and only North Canaan (89) was within the top 130. Hartford, Waterbury, Windham and New Britain ranked 166th through 169th, respectively. The per capita grand lists for all distressed communities were anywhere from 20 percent below the statewide average (North Canaan) to 70 percent (New Britain.)
Is the PILOT program breaking down?
When Bronin began visiting Hartford suburbs in the winter of 2016-17, his appeal for help went beyond citing the city’s high poverty rate and the huge bonded debt amassed by past administrations.
While Bronin conceded past administrations erred by postponing debt payments, he said Hartford’s main problem lies not with poor management, but rather with simple math.
Hartford — already saddled with a 74.29-mill commercial tax rate — cannot tax 51 percent of its property value.
Hospitals, universities, an airport, a trash-to-energy plant, the Capitol and numerous other state offices and facilities all serve the region, yet make no local tax payments.
And while Connecticut’s other major cities lack the state office buildings Hartford has, they also are home to more hospitals, universities, colleges and other exempt properties that provide regional benefits.
Sometimes this argument fell on deaf ears.
“Why should we support a city who’s spending money like drunken sailors?” Andrew Pulvermacher, a small business owner, asked Bronin when he visited Rocky Hill in December 2016.
But Hartford not only failed to lead the state in per capita spending, it didn’t even top the region in 2016, slightly trailing local suburbs like Glastonbury and Avon, despite having significantly higher demand for many services.
Part of the problem is that Connecticut’s method for compensating cities that are home to tax-exempt, regional assets is slipping.
Connecticut has had some form of PILOT (Payment In Lieu Of Taxes) grant since 1935, and the current system of reimbursement largely was developed in 1969 and 1978, with some revisions afterward.
But since the last recession ended in 2009, legislatures and governors have carved out exceptions and paid less as they grappled with skyrocketing pension and other debt costs run up over decades by the state.
In statute, PILOT grants are supposed to replace about 45 percent of the funds communities lose because they can’t tax state property.
In 2010, communities got $74 million or just 28 percent of the $264 million they lost on state property, according to the Connecticut Conference of Municipalities. That ratio steadily has been reduced, and this fiscal year cities and towns received just $50.3 million — or 14 percent — of the $356.2 million they couldn’t collect.
Similarly, the grants designed to replace 77 percent of taxes lost on colleges and hospitals also have been whittled down.
Municipalities received $115 million or 43 percent of the $271 million they couldn’t collect from colleges and hospitals in 2010. By this fiscal year, communities got $98 million — or 23 percent — of $432 million in lost tax revenue.
Many Hartford officials and its legislators say this erosion was the single biggest factor that pushed the city to the brink of insolvency — averted only this past winter with a state bailout.
“We have to take a deeper dive into how we finance and support our cities,” Rep. Brandon McGee, D-Hartford, said, adding that absent a re-evaluation of PILOT, the capital likely won’t be the last city to seek assistance.
Over the past year, legislators have said Bridgeport, West Haven and Scotland — a small, rural town in Windham County — were slipping closer to trouble, though not insolvent.
“If you look at the existing grants that we have for cities, we don’t even maintain the formula any more,” said Rep. Toni E. Walker, D-New Haven, longtime House chairwoman of the Appropriations Committee. “We’ve got to keep in mind who has the capacity to raise revenue — and who doesn’t.”
Malloy tried to redistribute education aid
Gov. Dannel P. Malloy challenged legislators for much of 2017 to redistribute education aid further to favor poorer school districts, but ran into heavy opposition for multiple reasons.
Some liberals in the legislature didn’t like the governor’s plans because they didn’t go far enough. But to dedicate extra resources to poorer communities while minimizing or avoiding cuts to the wealthy probably would have required another state tax increase.
After major tax hikes in 2011 and 2015, Malloy wasn’t interested in a third, and a majority of the legislature agreed.
Since there wouldn’t be significantly more money to spend, the governor wanted to apportion the $2 billion Education Cost Sharing grant differently.
Instead of dedicating two-thirds of the funds to the 30 lowest-performing school districts — which also happen to be some of the poorest — Malloy wanted to up the ratio to 78 percent.
And the 31 wealthiest districts would get nothing.
The state’s Education Cost Sharing formula for years has been the target of critics who argue it has not moved school districts sufficiently close to equality in spending. For example, most Fairfield County suburbs spend more per pupil than do Connecticut’s four largest cities — Bridgeport, New Haven, Hartford and Waterbury, according to the nonprofit Connecticut School Finance Project.
Darien, Greenwich, New Canaan, Weston, Westport and Wilton each spend at least 40 percent more than Bridgeport’s per pupil expenditure of $14,164.
But many rural and suburban lawmakers, particularly from more affluent communities, balked at Malloy’s plan.
In his annual budget address in February 2017, the governor described Connecticut’s method of funding education as “a broken, disparate system where towns are pitted against one another” and where “their state government has yet to build the kind of world-class education system necessary for growing a new generation of workers.”
Two days before that speech, Malloy had put things in blunter terms during a press event at a New Britain elementary school. “We are failing children because their parents are poor,” he said.
After a historic, nine-month budget debate — and a veto by Malloy — legislators enacted a plan that moved the needle only slightly in terms of education aid and wealth.
They adopted roughly the same $30 million cut to education funding that Malloy had proposed.
A total of 33 poor cities and towns were held harmless while the other 136 municipalities shared a $31 million reduction — a cut Senate Republican leader Len Fasano of North Haven called “absorbable.”
And no community lost its education grant entirely.
“This is not going to pull the rug out from these smaller districts,” said Senate Majority Leader Bob Duff, D-Norwalk, in an interview last October shortly after the budget had been adopted.
The governor also tried to shift one-third of the state’s required contributions to the teachers’ pension fund onto cities and towns. This is projected to be one of the fastest-rising, major expenses in the state budget for another 10 to 15 years as Connecticut makes up for more than seven decades of inadequate contributions.
Municipal leaders quickly realized they would be on the hook for $400 million in the first year and — based on some projections — more than $2 billion per year by the early 2030s.
How would this, many local leaders asked, help to equalize education funding?
To make his point, the governor contrasted one of the state’s most affluent communities, Greenwich, with one of its poorest, New Britain.
Both have similar populations and school enrollment totals, but Connecticut spent $24 million more last year to cover pension costs for retired Greenwich teachers than for those from New Britain.
In simple terms, Greenwich can afford to pay much higher salaries than New Britain can, leading to much larger pensions for Greenwich’s retired teachers.
So under the governor’s plan, Greenwich would have to pick up more of the state’s pension burdens — on a per teacher basis — than New Britain would.
But while the governor saw it as a move toward equality, it drew opposition from across the spectrum. Legislators from wealthy communities said teacher pension costs always had been a state responsibility and should remain so. Those from middle-income and poor municipalities said getting a new bill, albeit at proportionately lower rates than wealthy communities were facing, was not the step toward equality they were looking for.
Property tax reform is key
Still, the stakes are huge, because there are plenty of signs indicating Connecticut’s method of funding services at the local level, particularly within cities, is failing.
State government’s first tax incidence report, released in December 2014, helped to confirm what numerous legislators, governors and local officials long have asserted: that the property tax is Connecticut’s most regressive levy. and one that hits hardest in urban centers.
A “tax incidence” report studies which groups effectively pay taxes and how those burdens are shifted. For example, families and individuals that rent their housing effectively pay property taxes that their landlords built into the monthly rent.
Among the key findings of the report were:
- Property taxes represent almost 45 percent of the total state and municipal tax burden households pay.
- The poorest working households effectively pay a far greater share of their earnings to cover taxes than any other group.
For example, the poorest 10 percent in Connecticut — households earning less than $48,000 per year — effectively spend 23.6 percent of their income on state and local taxes.
The next decile, those earning $47,949 to $74,427, paid 13.9 percent of their income effectively to cover state and local taxes.
The $287,630-to-$612,040 bracket was down to single digits, paying 9 percent.
And those in next bracket — $612,041 to $2,019,383 — effectively pay 7.7 percent in state and local taxes.
A state commission empowered to study tax burdens fractured over the issue of property taxes during the final months of 2015.
Nearly half of the State Tax Panel argued it could not complete its charge to assess tax burdens in Connecticut without analyzing property taxes, especially in light of the tax incidence analysis. But others responded that the panel’s charge was limited to studying taxes imposed directly by the state.
The panel was established through a bipartisan compromise among legislators, who stipulated all panel recommendations had to be revenue neutral. In other words, if the group suggested increasing one state tax, it had to recommend an offsetting tax cut of equal value.
So how could any proposals involving municipal property taxes work within that system, leaders of the panel asked.
Anita Singh Lemar, a clinical associate professor at Yale Law School, was among the panel members who protested loudly about that exclusion. “The property tax has gotten short shrift,” Lemar said during the panel’s final meeting in December 2015. “ … “We’ve ignored an enormous problem of inequity and inefficiency.”
She teaches at the Community and Economic Development Clinic, which provides legal services for affordable housing developers, community development financial institutions and neighborhood associations.
Two legislators from different ends of the wealth spectrum agreed Connecticut must solve its urban crisis if the overall state economy is going to thrive.
“There’s no logic in the state’s approach right now,” New Haven’s Walker said. “The cities really are the engines of the economy. They have the jobs.”
“Connecticut lacks the organic relationship between city and suburb that exists in other parts of the country,” Steinberg said. “There is not that sense of shared responsibility, which is too bad. We have the data. We know what the problem is.”
“I think we all recognize that one of the greatest challenges that Connecticut has is we have a broken taxing policy at the local level,” said Joe DeLong, executive director of the Connecticut Conference of Municipalities. “A one-size-fits-all approach does not work. … The General Assembly should be representing the entire state, but it operates in a far more parochial manner than our municipal CEOs do.”
Studies like the New England Public Policy Center report, analyses by CCM and other groups all have stressed the need to give cities and towns new sources of revenue besides the property tax.
Connecticut has tried twice in the past seven years to dedicate a significant portion of sales tax receipts to municipalities, but both initiatives largely were repealed within a few years of enactment as pressures on the state budget increases.
The challenge, Steinberg said, is for the legislature and governor to commit to property tax reform at the same time they try to catch up on decades of unmade pension contributions.
“We have to get rid of this attitude that ‘I’m an individual, not part of a community,’” Walker added. “We all thrive together or we all fail together.”
Future elements of this issue we plan to explore:
- How wealth and income inequality galvanize the racial divide in Connecticut.
- The struggles of Connecticut’s poor and middle-income families to preserve access to quality education, health care and social services.
- The debate over raising tax rates on rich households and major corporations amid fears of an accelerating wealth exodus from Connecticut.
- The competing theories of how the state should resolve massive public-sector pension obligations and other debts.
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