A few days ago Don Pesci offered an interesting monologue on why the property tax picture in Florida seems better than it does in Connecticut.
His monologue comes in the wake of news of Hartford’s property tax woes: the city has long-delayed implementing a revaluation due to the shock that would be imposed on residential property owners, and is now struggling with ways to implement it and comply with Connecticut’s generally inflexible laws on property taxes.
Don writes:
There is no revauation shock on homes in Florida; this is the result of the “Save Our Homes” Amendment to the Florida Constitution which was passed by voters in 1992, and went into effect in 1995. The amendment caps the increase of the assessed value of a home with a homestead exemption to the lesser of 3% or the rate of inflation.[...]
The city of Hartford is forced to go begging for a reprive from the legislature because a) the city itself has not minded its spending, b) revaluation has enriched the government of Hartford while impoverishing its people, c) the city now finds it must reverse an earlier prudent decision to eliminate a tax that is punishing to businesses because people simply cannot afford the hike in taxes.
I’m not going to dispute the notion that part of Hartford’s problem could be a lack of fiscal discipline. That’s a disease common among most government entities to one extent or another.
However, setting that point aside, I do have to point out that problems like Hartford’s are to be expected in a state where municipalities are funded solely through state grants and property taxes where generally only a single mill rate is permitted to apply.
In addition to exercising fiscal restraint, headaches such as Hartford’s could be avoided if towns were granted access to other revenue sources (e.g. piggy-backing off the state sales tax and state income tax), and had the flexibility to vary the mill rate by class of property and/or to permit setting caps/floors on changes in assessed value.
Of course, I could be a bit biased due to my situation. In my town’s last revaluation, I saw our property tax bill increase by 25%. I expect to see another double-digit hike when the next scheduled revaluation hits the books for next budget year.
2 responses so far ↓
1 GMR // 27 May 2007 at 8:04 am
Hartford is in trouble because it spends so much.
Piggybacking onto state income tax or state sales tax in Connecticut is not practical. Connecticut is a very small state (only Delaware and Rhode Island are smaller), yet it has 169 separate municipalities. A huge number of people in Connecticut take the train every day into New York City. Over 100,000 people get on the train each day in Connecticut and take the train into NYC. These people are among the highest income earners in the state. However, since they work in NY, they pay their income taxes to NY and thus pay ZERO income taxes to Connecticut, as NY’s rates are quite higher than CT’s. CT instituted its income tax in 1991 and thus has no tax treaty with NY. It’s even worse than this, because if you have a couple, and the husband works in NY and the wife works in CT, it’s still likely that the couple won’t pay any income tax to CT if they file jointly, if the husband’s NY taxes are higher than the combined CT taxes would be (and assuming the husband earns more…).
There are some people that commute by car from NY’s suburban county of Westchester into CT and vice-versa, but these people probably cancel each other out, or there’s a slight edge to people working in Westchester but live in CT (Pepsi, Mastercard and of course IBM are all headquartered in Westchester). There are many casino workers that commute in from RI, but these are all low wage jobs.
So piggybacking onto the state income tax isn’t practical for border towns, as a significant chunk of the population works out of state. I can’t think of another state that has such a significant portion of workers (especially portion of salaries) going out of state each day. Maryland might (to DC), but if you live in MD and work in DC, you still pay your taxes to MD due to an agreement.
Piggybacking on sales taxes really isn’t practical, unless the state were to establish a uniform sales tax across the state and then let the municipalities keep a portion (say 1%). Even this could lead to distortions, as groceries and clothing under $50 are exempt from sales taxes. Towns would have great incentives to not zone for grocery stores or cheap clothing stores because they wouldn’t bring the sales tax revenues that say a drugstore or hardware store or expensive clothing store could (clothes over $50 are fully taxed, not just the excess over $50).
Allowing all 169 municipalities to set their own sales tax rates in addition to the state sales tax would be a complete nightmare, for several reasons. First, some towns would exempt other products and others wouldn’t. Mail order businesses that had stores in Connecticut (e.g., Best Buy) would now be faced with having to track all these various taxes. Furthermore, there are many places in Connecticut that have mailing addresses that are different from the actual municipal borders, as the post office does not always use municipal boundaries. For instance, there are 10 to 15 houses with a Greenwich address but which are actually in Stamford. These people cannot vote in Greenwich, cannot send their children to Greenwich schools and cannot go to the beach in Greenwich. So piggybacking onto the sales tax would be incredibly complex. Plus, with 169 towns, it’s not that far until you are in a different tax zone.
Not revaluing properties on a regular basis is completely ridiculous. It essentially is another form of wealth transfer from young to old. If you have two identical apartments in the same building, but one has been owned for 20 years and the other for 1 year, why should the former have significantly lower property taxes than the latter?
The solution to high property taxes is to cut spending, or to promote new development.
2 Mike The Actuary’s Musings » Property Tax Reform Quote of the Day // 29 May 2007 at 8:02 pm
[...] — In the comments of a post I made last week, I expressed a desire for towns to have the ability to cap tax bill changes. A commenter raised the [...]