December 14, 2011
MUNICIPAL OPTIONS TO ADDRESS CUTS TO STATE AID
By: Rute Pinho, Associate Analyst
You asked if towns can amend an adopted budget to reflect reductions in state aid.
Towns depend on state and federal aid to fund capital improvements and deliver services. The amount of such aid they receive determines the amount of revenue they must raise from fees and property taxes. Consequently, towns must estimate the amount of state and federal aid when adopting their budgets and setting the mill rate. If they receive less than the estimated amounts, they must address the shortfall.
Generally, towns must estimate the amount of state and federal aid they will receive when adopting their budgets and setting the mill rate. If they receive less than they anticipated, they must address the shortfall. The municipal budget laws do not establish a procedure for towns to reopen their budgets to adjust for a reduction in anticipated state aid or any other revenue source (CGS §§ 7-344 and 7-388). Unless a town's charter provides otherwise, a towns could deal with a revenue shortfall by (1) increasing property tax or other local revenue, (2) cutting services or freezing spending, or (3) using its unrestricted fund balance.
Towns can increase property tax revenue by sending out supplemental tax bills. The statutes allow towns to do this when town revenues are not sufficient to pay expenses. CGS § 12-123 authorizes a town's selectmen to make a rate bill to raise taxes, based on the town's last grand list, for the amount of money that is needed. CGS § 7-567 allows any municipality, not just a town with a selectman-town meeting form of government, to do the same. Towns can also increase revenue by imposing new fees for local services or increasing existing fees.
Towns faced with a revenue shortfall also have the option of freezing spending or cutting services funded with property taxes and other local revenues. But they do not have the authority to make similar cuts to the board of education budget. (The statutes and case law give boards of education the authority to determine how to spend their money to meet the educational interests of the state (CGS § 10-222)).
Lastly, towns that have built up an unrestricted fund balance (i.e. reserve funds carried forward from prior fiscal years) can use it to address the revenue shortfall.