Using a Fiscal Health Analysis to Support the Municipal Budgeting Process
Posted on by Rachel Gretencord
The decline in property values after 2008 created remarkable challenges for Connecticut municipalities, which rely heavily on property taxes to fund local government. Many towns receive over 90% of their revenue from property tax; yet between 2008 and 2016, only 8 of the 169 municipalities experienced an increase in their real (inflation-adjusted) net grand list—which means the vast majority of Connecticut’s towns have experienced an erosion of purchasing power over the last several years. At the same time, budget issues at the state level have resulted in declining aid to municipalities, and other trends such as demographic shifts and regional economic conditions may impact local fiscal performance over the longer term.
While towns may be at the mercy of some factors such as national economic trends, thoughtful long-term planning can have a significant impact on helping towns prepare for potential future challenges. For example:
- An analysis of demographic trends can help anticipate shifting demands for public services likely to be required by the population.
- An examination of the components of the net grand list (NGL) can identify changes in the absolute amounts and relative shares of residential, commercial/ industrial/ public utility, personal property, and other elements over time, and how these impact the municipal mill rate. Further analysis can dissect in detail (by property size, location, number of units, etc) which properties are more likely to increase or decrease in value over time.
- Projections can be used to assess the sustainability of a municipality’s public expenditures, or to develop scenarios to determine what the long-term impact of proposed fiscal changes may be.
The results of this process can help towns identify policies that would strengthen their fiscal health for the future, such as increasing the efficiency and effectiveness of public services; ensuring zoning patterns conform to highest value use; or identifying the key assets that a town should build upon for future growth.
While budget challenges are likely to continue for some time, municipalities should use this opportunity to ensure their financial resources are being used effectively, now and into the future. Contact CERC if you have questions about how a fiscal health analysis can help your town.