Property Taxes

In many Connecticut towns, the annual budget referendum is a rite of marking the end of spring and the beginning of summer. Some salesmanship, and an attempt to exercise fiscal discipline is required by the town administration, because after all, the voters will make the ultimate decision.

However, in some towns in Connecticut, there is no automatic referendum. For example, consider this article in the Courant about recent events in posh West Hartford:

The West Hartford Taxpayers Association has decided to petition for a referendum on the town’s $215.9 million budget.[...]

The association has 25 days from the budget’s enactment to collect about 2,400 signatures from registered voters and deliver the petition to the town, West Hartford officials said.[...]

The taxpayers’ group is asking that the town cut its 7 percent spending increase in half, to 3.5 percent, according to Torino. He did not specify what kind of cuts could be made.[...]

At Tuesday night’s council meeting, Democrats described the budget as a painful but necessary “maintenance” plan that will preserve the town’s cornerstones — good schools and public safety — in difficult economic times. The Republican minority rejected the plan, saying homeowners won’t be able to afford to live in town because of rising property taxes. Town officials project that many homeowners will face a minimum 6.9 percent increase in their tax bills.

I still maintain that the state would be well-served by permitting towns more flexibility how they derive their revenues. Rather than being so reliant on a one-mill-rate-to-rule-them-all property tax, let towns decide (via referendum) to shift some of the burden to sales taxes, piggyback off income taxes, or have some flexibility in applying different mill rates to different classes of property.

I can easily believe that given economic pressures, a town would need a 7% hike in spending to maintain service levels. However, I can also believe that perhaps some services could be delivered more efficiently with less cost, or that some services might not be necessary, especially considering what a property tax hike could do to a family that may have already been hit by (among other things) an ARM mortgage rate reset.

If a town’s residents’ belts are tightening, shouldn’t the town government itself be considering some austerity of its own?

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?

Seen in the Courant:

Residential properties not occupied by the owners should be taxed at higher rates than owner-occupied dwellings, according to a recommendation by Hartford’s Property Tax Task Force.[...]

Under a 2006 revaluation, tax increases on properties not occupied by owners — whether multifamily homes, apartments or condos — are capped at 3.5 percent. But the task force’s plan would eliminate that cap and generate an additional $23 million in tax revenue by 2010, Wareing said.

In turn, the city’s commercial property tax owners would see a significant drop in their tax burden.

The task force was assembled when implementation on the most recent revaluation in the City of Hartford was halted after folks realized the property tax on businesses would double, due to the relative inflation in commercial property values versus residential values.

Considering that the last think that already-blighted Hartford needs is to drive the few remaining homeowners and businesses outside the city, I think it’s not a horrible idea.

The Courant article mentions the understandable fear that rents would rise on rental properties. The response given is that competition from rentals in surrounding towns would keep rental prices in check…which I can only partially buy.

The fact of the matter is given the limitations on how municipalities in Connecticut can raise revenue, someone’s going to feel pain. Thus, given the unlikeliness of additional flexibility being granted to Hartford, this idea seems to be the most reasonable of all the unreasonable solutions possible.