A Close Watch On Federal Initiatives

CCM looks at Federal Relief for COVID and SALT Tax Cap

Alongside following updates from the Governor and State Legislature, CCM has been keeping a close eye on federal initiatives such as the budget reconciliation bill and efforts to repeal the State and Local Tax (SALT) cap.

For those who are following the Governor’s budget proposal, most of the increase in funds that municipalities will see will be from federal sources. CCM and the National League of Cities (NLC) have been working with the Congressional delegation to ensure that the next COVID-19 spending package include federal aid for all local governments.

As part of the $1.9 trillion relief plan that has begun writing a reconciliation bill to be voted on in the coming weeks, towns will see much more direct federal emergency aid to municipalities without a population requirement. Currently there is $350 billion for both states and municipalities with $130 billion set aside for local governments – in this case counties and municipalities.

Connecticut is set to receive $1.64 billion for municipalities under a modified Community Development Block Grant formula. The state will receive $2.6 billion under this modified formula. There is an additional provision that allows Connecticut to receive funds that would have otherwise been allocated to states with county-level governments, but the amount has yet to be calculated.

Unlike some previous relief efforts, this allocation is anticipated to have no deadline for spending down funds, and eligible expenditures will include replacement of lost revenue.

CCM has been urging the congressional delegation to support efforts to repeal the SALT tax cap that was imposed in the Tax Cuts and Jobs Act, which passed in 2017. This cap has had a noted impact on states like Connecticut, with approximately 41% of this State’s tax returns utilizing a SALT deduction.

Currently there are two bills pending in Congress that would repeal the cap, including S. 85 and HR 613. The former is co-sponsored by Senators Blumenthal and Murphy and the latter by Congressmen Himes and Larson. This initial support by the Connecticut delegation is due in part by the outsize impact the SALT cap has had on the state.

As a result of the reduction in SALT deductions, municipalities have been forced to reduce services or increase property taxes which in turn puts additional pressures on the property taxpayers. All while being limited in the ability to respond to undue burdens by the state and federal governments.

More than ever, towns and cities will be looking directly to our Federal government for immediate relief. CCM, NLC, and others have been advocating for over a year on direct funding for municipalities and it’s beginning to look like that will happen. And we need to look at provisions like the SALT tax cap that have hurt more than they helped, and asking our delegation to un-ring that bell and repeal the cap.