Overview: Needs-Capacity Formula

Connecticut distributes municipal aid through a variety of statutory grants to all of its 169 municipalities, regardless of each municipality’s wealth or resident needs. Municipalities face stark disparities in both their ability to raise revenue, exclusively through local property taxes, and in their costs of delivering services.

As a result, many municipalities are not receiving the necessary state support to properly pay for a common level of government service and are facing fiscal challenges. Recently, municipalities have engaged the Municipal Accountability Review Board (MARB) for additional state fiscal support.

A solution to this municipal funding problem is employing a needs-capacity formula that would distribute state non-education municipal aid based on underlying socioeconomic and physical characteristics of the municipality and its capacity to raise revenue.

This document details how a needs-capacity formula could address municipal fiscal disparities by considering a municipality’s costs of delivering a common level of service and the municipality's capacity to raise revenue to pay for those services.