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As he addressed the leaders of small towns Wednesday, new House Speaker Brendan Sharkey warned that state cuts to municipal aid are likely as negotiations for the state’s next two-year budget get under way.

For the past two years, the state has avoided shifting its budgetary burden onto the backs of towns despite facing deficits.

But state spending on municipal aid accounts for about 14.2 percent of the state budget and as Gov. Dannel P. Malloy and the legislature grapple with a projected $1 billion deficit next, they may not be able to continue shielding towns from cuts.

“We’re running out of bullets in terms of the economic reality of the state and the budget reality of the state. I think it’s probably unlikely that we’re going to be able to hold cities and towns harmless again this year,” Sharkey told the Connecticut Conference of Small Towns at a meeting in Cromwell.

“I need to put it out there because I think the elected officials of our towns really need to understand that and plan for that,” he continued.

Towns have lobbied against cuts to municipal aid, arguing it would directly result in higher local property taxes.

Malloy, a former mayor who spoke to the group later in the day, said he would try to prevent the towns from being cut, but he wasn’t making any promises.

“As we make final decisions, I’m going to do everything in my power to spare or hold as small as possible any reductions,” he said, adding that most municipal aid goes toward education. “Education is very important to the state in the long and short term and we want to remain committed to it.”

Like Sharkey, House Republican leader Lawrence Cafero told the group that the state was running low on ways to balance the budget. In the same breath, he blamed the current budget woes on the budget Malloy and legislative Democrats passed two years ago. He said the historic tax increase stifled economic growth, which shunted revenues.

“I’m not sure we can afford to tax another nickel” to close next year’s deficit, he said.

Meanwhile, the agreement the state reached with its employee unions prevents Malloy from laying off workers to reduce the size of government, Cafero said.

“Many of the tools that we had in our toolbox two years ago have been removed. So even though the deficit we are facing is smaller than it was two years ago, the tools we have to work with to fix the problem are far less as well,” he said.

Both Sharkey and Cafero agreed that town leaders should be at the table as the budget is negotiated and potential cuts are made.

“It can’t be a scenario of where it’s just ‘Good luck. Here’s less money for you. Find a way to make this work,’” Sharkey said.

“Because of the depth of this crisis we need you at the table to guide us,” Cafero said. “So in the event we have to cut the amount of money we’re sending back to you, we give you tools to make up the difference.”

Senate Republican leader John McKinney addressed the town leaders before either Sharkey or Cafero. He called for no cuts to municipal aid.

Hugh McQuaid Photo

“Whether its been the governor’s budget, the Democrats’ budget, or the Republican budgets we have offered over the years, none have proposed any cuts to municipal aid,” he said.

McKinney said state officials haven’t proposed cuts to municipal aid because they realize town governments work more efficiently than the state.

“We understand that cutting municipal aid, given all the mandates we put on you, results in property tax increases to our constituents, which is not acceptable,” he said.

Sharkey said that people on both sides of the aisle recognize that driving property taxes up is not the solution to the state’s fiscal woes. Before the economic downturn, he said the property tax was the biggest drag on the state’s economy and will be again after the economic crisis is over if it’s not addressed.

“There’s no better opportunity than right now to start thinking big and going long on the way we need to completely restructure the property tax in the state of Connecticut,” he said.

Sharkey said he was re-instituting the Municipal Opportunities and Regional Efficiencies commission, an effort started by his predecessor, former Speaker Chris Donovan, aimed at encouraging regional cooperation between towns.

Sharkey said he wanted to consider some “seismic shifts” the state could adopt over time that would better position towns. Those included how the state funds education and special education.

Currently, the state pays only a small portion of special education costs. Sharkey suggested the state find a way to pay for more or all of those costs over time.

He also wanted to see funding for boards of education separated from the budgets of towns. If school boards had to levy their own taxes and mill rates they would be directly responsible to the taxpayers, he said.

“As you go out and try to sell at tax increase to your towns — 60, 70, 80 percent of that is actually going to a board of education,” he said.

Some municipal leaders weren’t opposed to Sharkey’s idea, but several complained about provisions included in last year’s education reform package, which they viewed as state mandates.

East Lyme First Selectman Paul Formica said the new teacher evaluation program included in the bill is costing his town an additional $133,000.

Derrylyn Gorski, first selectman of Bethany, said the superintendent and teacher evaluations are causing extra work for her small staff. She said the requirement “may look innocent enough,” but it is adding 43 additional workdays to administrators who already are very busy.

“This is such a burden to the small towns,” she said, getting a round of applause from other town leaders.

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After he addressed the group, the governor seemed surprised towns would complain about the evaluations.

“Really? Really? They’re going to argue whether we should evaluate the effectiveness of people? I mean — really? That’s an argument I’m more than happy to have,” he said.

McKinney said he was surprised by how much the law seemed to be costing towns and said it may need to be tinkered with.

“I’ve always believed that as these things get implemented you need to check in with the people in charge of implementing them and see how it’s working. But the numbers they’re giving me surprise me and that’s of great concern” he said.