OP-ED | State‘s Tax Panel Must Resolve Residents’ Biggest Tax Problem—The Property Tax
The State’s Tax Panel is empowered with perhaps the most critical mission of any state task force since the enactment of the state income tax over two decades ago. That is—thoroughly assessing the state’s current tax structure and offering comprehensive solutions for improving the system for the benefit of residents and businesses across Connecticut and the future of the state’s economy.
CCM urges panel members to consider that, while other factors have importance, quality of life issues are the most important factors businesses weigh in determining whether to relocate to or remain in a state. Factors such as quality schools, an educated workforce, safe neighborhoods, reasonable property taxes, and safe and reliable roads and bridges top the list of employers’ “must haves”. Further, all residents believe that laying the foundation for a world-class education, police and fire services and safe roads are core government services. No government service is placed above them. These are the services that towns and cities provide.
The future of Connecticut’s citizens, depends on to a considerable degree on what this state tax panel recommends—and the actions taken by the General Assembly regarding those recommendations.
Overreliance on the property tax to finance local public services, particularly preK-12 public education, is the root cause of many of the public policy challenges facing Connecticut. We have the opportunity to see substantive changes to a dysfunctional property tax system, to catapult Connecticut back into the top of the list of states where businesses and residents strive to remain or relocate to.
The property tax is the single largest tax on residents and businesses in our state. The property tax is income-blind and profit-blind. It is due whether a resident has a job or not, or whether a business turns a profit or not.
The antiquated and inequitable property tax system continues to cause numerous problems, including the fiscal distress and decline not only of our cities, but also of our towns. It encourages the continued economic and racial segregation of our state. It often prevents municipalities from meeting the public service needs of their residents and businesses without levying a heavy local tax burden. It promotes bad land use decisions and contributes to costly and destructive sprawl.
Municipal officials—and their property taxpayers—appreciate the 2015 General Assembly allocating 0.5 percent of sales tax revenue to towns and cities (also, a cap was placed on property taxes for motor vehicles). However, a property tax cap was also imposed – with insufficient exemptions for towns. CCM proposed exemptions that surrounding states included in caps, but they were not incorporated by the Legislature.
CCM is concerned that what’s past is prologue, so towns are reticent. The state has made numerous revenue promises to municipalities that weren’t kept (the PILOT for manufacturing machinery and equipment and the Municipal Revenue Sharing Account, for starters). Further, the State is facing a $1 billion plus revenue shortage for FY 18. Will the sales tax revenue to towns survive? Past history says no.
In the last year, three events highlighted the problem with Connecticut’s dysfunctional property tax system: (a) In March, US Secretary of Education, Arne Duncan, spoke of education disparities in the country and singled out over-reliance on the property tax for public education as a major culprit, (b) Last December, the State Department of Revenue Services released a tax incidence study that confirmed the property tax is the most burdensome and regressive tax on Connecticut residents and businesses; and (c) the Federal Reserve Bank of Boston released a study of Connecticut’s “fiscal disparities” that highlights how our property tax-only system of raising revenue for necessary local services contributes to fiscal stress.
CCM is urging the Panel to:
Fully Fund PILOTs: The State should increase and fully fund PILOT to provide reimbursement to municipalities for 100 percent of the revenue lost due to state-mandated property tax exemptions.
Meet State Obligation to Fund Public Education: Reforming preK-12 public education finance is a key to property tax reform in Connecticut. Chronic state underfunding of preK-12 public education is the single largest contributor to the overreliance on the property tax in our state. The ECS grant alone is underfunded by more than $600 million. Special education costs are now approaching $2 billion per year and impose staggering per-pupil cost burdens on host communities. Special-education costs should be borne collectively by the State, not individual school districts.
Permit Municipal Local Revenue Diversification: Connecticut is one of only 15 states that allows municipalities just the property tax. Plus, remember that most other states have county governments that levy taxes in addition to state and local taxes, and that provide public services. Allowing towns and cities another way to raise revenue would reduce municipalities’ reliance on the problematic property tax.
Connecticut is also the most reliant state in the nation on property taxes to fund preK-12 public education. That means that the educational opportunity of a child in our state is directly tied to the property tax wealth of the community in which he or she lives.
If the state wants to ensure its economic competiveness, it must start with sustaining its towns and cities. Funding critical local public services come from two primary sources – the property tax and state aid, and it is increasingly clear that sustaining state aid is an essential component to thwarting municipal over-reliance on the property tax. CCM urges the Panel to stand strong for residential and business property taxpayers by building on the work of the General Assembly to provide meaningful, predicable and sustained property tax reform.
Susan Bransfield is the First Selectman of Portland and 2nd Vice President of the Connecticut Conference of Municipalities