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CT Must Reform Property Tax System That Undermines Economic Growth, Is Regressive and Unfair; New Study Proposes Steps to Reduce Tax Burden, Inequities

CT Must Reform Property Tax System That Undermines Economic Growth, Is Regressive and Unfair; New Study Proposes Steps to Reduce Tax Burden, Inequities

Source: Tax Policy Collaborative

In a comprehensive report and analysis provided this week to the General Assembly and Lamont administration, a plan to overhaul Connecticut’s inefficient and inequitable property tax system was offered by a coalition of current and former elected and fiscal officials, who urged action during the 2022 legislative session. 

Connecticut Property Taxes:  Opportunity for Change,” describes the state’s longstanding fiscal dependence on the property tax as “a system that undermines economic growth, and is regressive, unfair and economically inefficient.” Written by the Property Tax Working Group as a project of 1000 Friends of Connecticut, a nonprofit advocacy organization, it states that “Connecticut has a rare opportunity, due to its positive budget situation, to correct the greatest inadequacy and inequity in our state’s tax structure: the longstanding over-reliance on the local property tax.”

The 29-page report and analysis proposes that a property tax reduction should be focused on “correcting the serious flaws associated with local property taxes,” which now make up nearly half - 41.9% - of the total tax burden for Connecticut residents. It also indicates that Connecticut relies on the property tax to fund government services, “to a far higher degree than most states,” pointing out that:

  •     Municipalities in Connecticut realize an average of 73.4% of their revenues from the local property tax. 
  •     As a percentage of state-local revenue, property tax revenue is the third highest - 25.4% - in the nation, substantially higher than the national average of 16.6%.

“It is long past time for Connecticut to come to grips with the harm to taxpayers, municipalities, the environment and our state’s future resulting from the property tax,” said John Filchak, a member of the Property Tax Working Group. “We have an opportunity, right now, to correct our property tax system with comprehensive reform.  If we miss this opportunity, we will continue to unfairly overburden taxpayers, harm our cities and towns, and inhibit our prospects for sustainable economic growth.”

Rebalancing the state’s tax system, the report states, would “create a robust economy fueled by increased demand for goods and services by low- and moderate-income families; a solvent stable, and effective government; strong communities/ and a healthy environment.”  Conversely, if the status quo were to remain, the report’s authors paint a stark picture of what’s ahead. The state, they predict, “will continue down a path of widely disparate educational opportunity, fractured and inefficient delivery of needed services, hollowed out cities, widening racial and economic disparities, sprawling suburbs, fleeing businesses and an out-migration of the next generation of talent.”

The report proposes specific revisions to state statutes and outlines a “Framework for Property Tax Reform” described as “achievable change,” focusing on six primary areas for action: 

1.    Fixing the structural vertical and horizontal inequity in the property tax system;

2.    Closing the needs-capacity gap between non-educational service needs and the capacity to fund them;

3.    Closing the cost-capacity gap for education;

4.    Choosing real change, with long-term benefits – NOT gimmicks;

5.    Encouraging regional and collaborative solutions for the delivery and coordination of state and local services; and

6.    Providing policymakers with up-to-date facts and independent analyses.

To achieve these elements, the report urges targeted property tax relief with refundable property tax credits and/or circuit breakers to make the property tax more progressive, a restructuring of municipal state aid, and a modification to the state’s so-called “bond lock” to enable municipalities to better predict state aid. The coalition also calls for fully funding the state’s Payments in Lieu of Taxes (PILOT) program, and exempting grants to distressed municipalities from the state spending cap.  Additionally, the report recommends that the state fully fund special education and provide increased funding to ensure the adequacy of K-12 education in accordance with the state Constitution.

The report, which includes data, analyses and draws on a range of research, describes current laws as “antiquated and an impediment to incentivizing the creation of regional, cooperative and inventive regional or shared approaches for the delivery of education services.” It urges the state’s nine regional councils of governments and the six regional education service centers be better “harnessed for the delivery of services by both the state and our cities and towns.” Currently, taxpayers in different towns receive very different levels of services for the same amount of taxes paid, the report emphasizes.

The “Opportunity for Change” report criticizes the state for repeatedly delaying implementation of a statutory requirement to conduct a tax incidence study every two years, designed to provide up-to-date information on how taxes affect various income groups.  That study has only been conducted once in the past decade, in 2014.  It also urges re-establishment of the legislature’s Program Review and Investigations Committee, abolished in 2017, which could provide expertise to conduct “timely, high-quality research and analysis on public policy issues critical to our state” and laments the lack of a nonpartisan public policy center which could undertake such work.

What the report describes as “superficially attractive” or “seductive” proposals should be rejected by lawmakers, including enabling local-option sales or income taxes, eliminating property taxes on motor vehicles with no replacement revenue to towns, and granting property tax exemptions without full PILOT reimbursement.”

The report also notes that Connecticut’s taxing scheme has a “structural defect” which penalizes businesses for locating in the state’s cities, “making them less attractive for new investment and growth.”  It is a “disincentive” that “must be rectified,” the report recommends, if Connecticut is to reap the economic benefits of having a thriving central city within a region.  

The over-reliance on property taxes, the report states, is also “detrimental to our Connecticut landscape, environmental features and fosters climate change. Property tax inequity, by increasing the dispersion of jobs and housing, increases transportation costs and excessive, non-productive use of energy.” 

In calling for reform, the report’s authors emphasize that “As long as towns must raise the bulk of their revenue using property taxes, they are discouraged from thinking beyond their borders when making decisions. This discourages regional solutions that would protect the environment, improve the economy or reduce duplicative services.”  They add that “over-reliance on property taxes fosters fragmentation in decisions forcing Connecticut’s 169 cities and towns to compete with one another” in ways that are fiscally counterproductive and have adverse implications on and beyond the bottom line.

“Our Working Group has been encouraged that both the Lamont administration and the Democratic leaders of the General Assembly have been promoting property tax reform as a major priority for the new session next year,” said former Norwalk Mayor Alex Knopp, a member of the Property Tax Working Group. “Our paper makes the case for making significant change to rebalance the property tax in Connecticut’s revenue structure and thereby lift the heavy burden that the property tax imposes on taxpayers, municipalities and our state’s economy. Now is the time to move forward on this critical issue."

Click here to download the report.

To see list of people participating in 1000 Friends of CT Property Tax Working Group, please go to: www.taxpolicyct.org/people