Widely Varying Totals Cast Doubt on Reported $400+ Million Impact on Municipal Finances from COVID-19

As advocates for cities and towns push for federal dollars in response to the COVID-19 pandemic, a state-sponsored survey of towns across Connecticut reports widely varying financial impacts.

The results of an April survey from the Office of Policy and Management paint an apparently overall bleak picture of local finances, with municipalities reporting an estimated total of more than $400 million of impacts to local revenues.

Office of Policy and Management Spokesman Chris McClure cautioned against viewing the survey as a definitive account of municipal finances. 

“This report helps us gauge the order of magnitude for municipalities’ potential losses and should be viewed through that lens rather than for precision,” McClure said.

Meanwhile, a National League of Cities report, estimates that Connecticut municipalities will see less direct financial impact than in any other state.

Christiana McFarland, research director for the Center for City Solutions, who co-authored the report, said sales tax revenues change quickly with economic conditions. They’re paid to states and cities soon after the sale, and directly reflect how much money people are spending.

“If stores aren’t making money, neither are cities that rely on sales tax,” McFarland said.

Connecticut municipalities by contrast have benefited from lower unemployment relative to other states and a local reliance on property taxes, rather than sales and income taxes more directly affected by business closures mandated to slow the spread of COVID.

Twelve municipalities reported more than $10 million in projected losses, totaling $289.2 million – about two-thirds of the $438 million reported across all municipalities. But almost all of the losses reported by the twelve municipalities, $258 million, were due to expected property tax deferrals instead of losses. Of those twelve towns, only New Britain and New Haven have populations greater than 50,000 people.

The neighboring towns of Guilford and Madison were two of the twelve municipalities reporting more than $10 million in estimated revenue impacts

Guilford reported an estimated impact of $18 million based on the number of local taxpayers expected to take advantage of a state-mandated tax leniency program — in the case of Guilford, a 3-month deferral of local property taxes.

Guilford First Selectman Matt Hoey explained the town’s estimate was in response to a request by the State to estimate the impact on tax collection. Guilford estimated that half of property taxpayers would use the deferral program, meaning the town wouldn’t see $18 million in revenue it would normally expect in July.

Madison used a similar method to estimate a $30.3 million revenue impact, based on deferred property tax payments that the town expects to receive in October instead of July. 

Madison Finance Director Stacy Nobitz said they looked at past payments and saw that 40 percent came from escrow accounts, which will be paid on time. Those are the only payments Madison estimated it would get on time, so it reported an impact of $30.3 million – 60 percent of all property tax payments. 

In contrast, Old Saybrook reported only an estimated $108,000 impact, driven by beach pass and mini golf revenues that have dipped as the town has limited crowd sizes at both attractions, and limited Harvey’s Beach to residents.

First Selectman Carl Fortuna said the town reported its expected revenue losses through the end of June, which is what McClure said the survey intended. 

Policy and management experts answered questions and provided guidance to municipalities, but they may not have reported their revenue in the same way, McClure said. 

Nobody knows what the full impact will be, Hoey said. The best anyone can do is make a model and use it to come up with an estimate, but it’s still a shot in the dark, he said.

“It’s an interesting time. There’s no baseline to say, well this is what happened last time,” Hoey said.

Delays aren’t losses, but they will cause cash flow issues for many towns – 57 reported to OPM that they expect cash flow problems, while 95 reported they don’t. Municipalities short on cash will have to draw on reserve funds, delay some payments, or look into short-term borrowing options. 

Connecticut’s larger cities that get more of their revenue from the State have more risk of losing revenue considering the state’s financial uncertainty, said Connecticut Conference of Municipalities Executive Director Joe DeLong. 

DeLong noted that the state made $75 million available to municipalities out of the $1.4 billion it received in the first round of federal aid, and those funds can only be used to reimburse unbudgeted costs that came from local responses to COVID-19. 

Federal guidelines recommended making 45 percent of those funds available to local governments, which would be $630 million. DeLong said he hopes the remaining $555 million the state held onto means there won’t be cuts to municipal aid.

Smaller towns and cities will still see impacts. McFarland said cities have already been reporting actual losses in property tax revenue, as more people losing work means more people unable to pay their taxes, and more property foreclosures. 

The impact of an economic downturn on property tax collections won’t be fully seen until towns re-assess or property owners appeal to have their assessment reduced.

“If you have a small shopping center with four stores, and you lose two or three of them, the center is going to appeal their assessed value because the property isn’t worth what it was before,” DeLong said.

The Connecticut Conference of Municipalities and National League of Cities are among many state and national organizations calling for federal stimulus to backfill local revenue losses. They want the funds to go directly to municipalities instead of through state governments, using a formula based on factors like population and economic condition – McFarland said the Community Development Block Grant formula could be a model.

“If we can get that, we’ll probably be okay,” DeLong said. “If not, you’re going to see a tremendous strain on next year’s budgets.”

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