A Centrist’s Platform 2008 — Taxes (the Connecticut Edition)

About a month ago, I offered some thoughts on federal taxes as part of my Centrist’s Platform.  Today, I’d like to visit the local side of the tax puzzle, here in Connecticut.

Specifically — I have a gripe with property taxes in Connecticut.

In this state, the primary source of revenue for the 169 towns of Connecticut are property taxes.   Sure, the municipalities derive some income from miscellaneous fees, and state block grants also provide an important source of revenue…but by and large it is property taxes and municipal expenditures that dominate our thoughts at budget referendum time (at least in those towns that hold public budget referenda).

Unfortunately, towns are generally rather limited in what they can do with their property taxes.  With only a few exceptions, it’s one mill-rate for all, with periodic mandatory revaluations.  It sounds fine at first glance, until you consider the shocks that can come different types of property values changing at different rates…and what those disparities can do to individuals’ property tax bills, and the impact that those shocks can have to folks on fixed incomes or of stretched means.

(Disclosure: I’m aware of this because in the last revaluation, my property taxes went up 25% — just over $1,000 — when the town average increase was only 5%.  I’m expecting similar news with the next revaluation.)

If there were one change I could make to Connecticut’s tax system, it would be to reform how municipal income is derived.  Some changes I’d be interested in seeing would include:

• Permit towns to vary the mill rate by class of property (owner-occupied, residential rental, commercial, industrial, agricultural, etc.)
   
• Permit towns to cap the changes to individual property tax bills, for some (e.g. increase the mill rate by 5%, but limit individual property increases to 10%).  It’s true that some will perceive the potential for identical properties to receive different-sized tax bills as being unfair.  However, if the cap is set above the average change (i.e., if you don’t see the full impact of a change one year, you’re at least moving towards it), you’ll avoid the problem you have in, say, Florida where huge discrepancies are emerging, while promoting some measure of stability to protect those less able to absorb nasty shocks.
   
• Of course, over-dependence on property taxes has some unfortunate consequences, including incenting overdevelopment of commercial and industrial areas.  I would argue that the towns could stand some diversification of revenue.  For example, perhaps some thought should be given to letting towns piggyback onto the state sales tax — charging an extra 1-2% in lieu of some of the property tax burden, if town residents so desire.
   
  For example, I can easily imagine the town leaders in Manchester and South Windsor, who regularly complain about all the out-of-town folks coming into their towns to shop draining the resources through increased wear-and-tear on town streets and increased demand for police services, finding a sales tax option attractive.
   
• Similarly, I would think that permitting towns to piggyback onto the state income tax in lieu of part of the property tax burden, might not be a bad idea….particularly when many towns have concerns about protecting the fixed-income folks from revaluation shocks.

Of course, the biggest change I’d be interested in seeing isn’t a tax change.  With 169 incorporated towns in the state, there is a lot of duplication of services for each and every municipality.  I wish CT towns would get over their excessive municipal pride, and make greater use of pooled resources.  Perhaps many towns should just outright merge, for efficiency’s sake….

Of course, this being Connecticut, none of this will ever happen.  But I can wish, can’t I?