The Connecticut Conference of Municipalities (CCM), the statewide association of towns and cities, today (Wednesday, May 16) said a property tax cap by itself does not constitute property tax relief or reform.

"While attractive at first blush, a property tax cap by itself does not constitute property tax relief or reform, noted James J. Finley, Jr., Executive Director and CEO of CCM." A cap would have dire adverse consequences for towns and cities - unless municipal aid is increased significantly, over time, and the State prohibits new unfunded mandates on local governments, and smart/responsible growth principles are embraced.

"Remember, a property tax cap without (1) significantly increased education and non-education municipal aid, (2) land use reform, and (3) relief from unfunded and underfunded state mandates is not real property tax relief or reform. Such a property tax cap is look-good, feel-good public policy that delivers only pain to residential and business property taxpayers."

See report below for complete CCM analysis:

Governor Rell and some legislators have proposed mandating a statewide cap on municipal property taxes.

While attractive at first blush, a property tax cap by itself does not constitute property tax relief or reform. A cap would have dire adverse consequences for towns and cities – unless municipal aid is increased significantly, over time, the State prohibits new unfunded mandates on local governments, and Smart/Growth principles are embraced.

There are various proposals for increased state aid now being considered by the 2007 General Assembly, but none of them on their own provides enough assistance to make it possible for municipalities to maintain, let alone increase, quality services if a property tax cap is imposed.

There is no question that the property tax is too high in too many of our communities. It’s inherently unfair and regressive. It’s a tax from yesterday that is no longer up to doing all of the jobs it’s being asked to do today. But an artificial, state-mandated cap would make things worse.

Potential Problems

• Virtually every speaker at the recent Forum held by the Finance, Revenue and Bonding Committee -- including cap supporters -- said that significant increases in municipal aid are needed to make a cap work. Otherwise, the ability of local governments to provide public services, including education, will be strangled.

  The experience in Connecticut shows that aid to local governments isn’t guaranteed – when budgets get tight at the state level, aid to municipalities is slashed. This causes a “tax shift” from the state level to the local level. In 2003 the General Assembly and the Governor dramatically cut aid in several areas – in the middle of the budget year. In some areas, such as Town Aid for Roads and the Pequot-Mohegan Grant, the levels of aid have never returned to pre-2003 levels.

• Most of the states with strict property tax caps allow local governments other sources of revenue. Connecticut’s municipalities only have the property tax and the real estate conveyance tax.
• When property tax growth is capped, local governments in other states have also turned to non-tax methods to finance vital services – for example, user fees go up and municipalities increasingly use bond funding to pay for operations (causing a subsequent increase in interest on bonded indebtedness).
• A tax cap would encourage towns to expand their non-residential grand lists (e.g., “big box” developments, etc.) – and discourage towns from attracting housing for families. This will exacerbate intermunicipal competition for economic development. This is the opposite of what Connecticut should be doing as it seeks to embrace “smart/responsible growth” principles and to expand affordable housing opportunities across the state.
• In states with tax caps, disparities between municipalities get worse. Affluent communities are more likely to override the cap to get better quality public services. The residents of poorer communities simply cannot afford to do so. The result is that schools, parks, public safety and other services improve in wealthier towns – and deteriorate in poorer places. The more-affluent towns become more attractive places to live and do business, while the less-affluent municipalities become less attractive.
• Municipal cost-drivers don’t go away because there’s a property tax cap. For example, health insurance costs continue to rise, and utility prices are skyrocketing. A cap doesn’t control special education costs, and it won’t stop snow from falling beyond what the Old Farmers’ Almanac predicts.
• A cap doesn’t stop the growth in post-employment benefits, such as pensions. Municipalities now face strict new rules for accounting for those post-employment benefits under GASB 13. The need to fund these large liabilities will further drain municipal coffers and put a squeeze on services.
• Municipalities could be hamstrung in responding to emergency situations. Would municipal leaders be forced to wait for approval from the State about what constitutes an emergency before they could respond?
• Municipal services, and the quality-of-life in hometown Connecticut will be hurt. Several Massachusetts communities, after passage of Proposition 2.5, closed schools, libraries and firehouses. Some municipalities went into state receivership. California’s Proposition 13 devastated that state’s education system.
• And ‘starving the beast’ doesn’t necessarily result in more efficient service delivery. The Finance Committee was told that the Massachusetts property tax cap resulted in virtually no move towards more regional cooperation and shared services. Only financial incentives and strong regional organizations can do that.

Can A Cap Work?

Yes, but with a number of important preconditions being met.

CCM has presented a plan to the Governor and the General Assembly that would increase funding to towns and cities over the next four-five years. It would greatly increase aid to education (the largest local expense) and fully fund payments-in-lieu-of-taxes for state-mandated property tax exemptions. It would restore and increase funding for the Pequot-Mohegan grant and Town Aid for Roads. It would encourage cost-efficient regional cooperation in delivering services and planning for economic growth. It would prohibit the imposition of new unfunded state mandates on towns and cities.

At the end of that four-to-five-year period, a temporary cap can be enacted that would ensure that the new state spending results in lower property taxes. It would have reasonable exceptions, similar to those proposed by Governor Rell, and it would phase-out over four years to keep municipalities from falling behind as costs rise.

Remember, a property tax cap without (1) significantly increased education and non-education municipal aid, (2) land use reform, and (3) relief from unfunded and underfunded state mandates is not real property tax relief or reform. Such a property tax cap is look-good, feel-good public policy that delivers only pain to residential and business property taxpayers.

For more information, please contact Jim Finley or Gian-Carl Casa at (203) 498-3000.