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Finance Panel Eyes Cap On Property Tax Hikes, Battle Over CT Credit Card

Finance Panel Eyes Cap On Property Tax Hikes, Battle Over CT Credit Card

CT Mirror, February 18, 2021

By Keith Phaneuf

The legislature’s Finance Committee raised separate bills Wednesday that would cap municipal property tax hikes and potentially launch a second battle with Gov. Ned Lamont over control of Connecticut’s credit card.

Both measures were introduced only as “concepts,” meaning the actual bill language hasn’t been drafted yet. 

But each concept has the backing of at least one of the finance panel’s two co-chairmen, making it likely they at least will be sent to a public hearing, once the details of the respective measures have been fleshed out. Rep. Sean Scanlon, D-Guilford, the new House chair of finance, is spearheading the property tax cap, which he says was inspired in part by Massachusetts’ Proposition 2 1/2, a statute that has drawn national attention since Bay State voters enacted it by ballot in 1980.

Scanlon hasn’t settled on all of the details — including whether Connecticut municipalities also would face a 2.5% ceiling on annual property tax hikes.

But given longstanding concerns over the regressive nature of this tax — it charges the same rate on low, middle and high income taxpayers alike — Scanlon said he believes some form of cap is essential.

“I think it’s probably the most significant public policy issue facing Connecticut,” Scanlon said, adding that the state’s per capita property tax burden, one of the nation’s highest, is a recipe for economic disaster.

That system both exacerbates already extreme income and wealth inequality while stifling local economic development efforts, particularly in urban centers which generally have the highest property tax rates.  

Municipal property taxes generate about double the annual revenue than does Connecticut’s income tax — the single-largest revenue engine of state government.

And a December 2014 tax incidence analysis by the state Department of Revenue Services found found that Connecticut’s state-and-local tax system hammers low and middle income people.

The poorest people in Connecticut in terms of adjusted gross income — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011. By comparison, the middle-class paid about 13%, while the top 10% of earners paid 10% and the top 1% paid about 7.5%.  

A tax incidence analysis studies which groups pay taxes and how those burdens are distributed. For example, the analysis found renters effectively pay some or all of their landlords’ property taxes.

And though many details of the cap measure still are pending, Scanlon said a few principles are fixed in his mind.

First, the goal is not to eliminate or destroy the concept of local control in Connecticut’s 169 cities and towns. Rather, it’s to provide stronger incentives for municipalities to consolidate and regionalize services, and thereby control spending.

“We have to understand the importance of saving Connecticut,” he said. “If we continue down the path of maintaining 169 small kingdoms, we’re going to run out of money.”

Muncipal starvation diet back to top

Equally important, Scanlon said, is that the legislation cannot put municipalities on a starvation diet. In other words, if the ability of towns to raise taxes is restricted, but the state doesn’t offer them other revenue options to go along with cost-cutting strategies, then the new system also will fail.

Elizabeth Gara, executive director of the Connecticut Council of Small Towns, warned that communities would be wary of this proposal given the state’s fiscal history.

“It’s premature to talk about property tax caps until we have adopted — and adhered — to an appropriate revenue-sharing mechanism for towns,” Gara said. “Unfortunately, the state doesn’t have a good track record of abiding by proposals to diversify local revenue sources.”

One legislative proposal to share sales tax receipts with cities and towns was suspended in 2012, one year after it was enacted — and before any dollars actually were shared.

A more expansive plan was adopted in 2015 and trumpeted by state legislators as they sought re-election in 2016. But the Municipal Revenue Sharing Account, or MRSA, never came close to delivering the $300 million-plus in annual sales tax receipts it was supposed to share by 2018. 

Legislators effectively suspended most of the program four years ago after failing to find resources in the state budget to support it.

Most Republicans also backed Scanlon’s property tax cap concept, which passed overwhelmingly Wednesday by voice vote.

Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance panel, said “I am always willing, as is my caucus, to look at proposals that would relieve tax burdens on our residents.”  

But Cheeseman also predicted the concept wouldn’t go far unless state officials find a way to deliver the resources they promise to cities and towns.

Another measured raised Wednesday by the Finance Committee targets how the state manages its annual borrowing. 

More specifically, Sen. John Fonfara, D-Hartford, the committee’s other co-chairman, has argued for years that the legislature should play a much larger role in this process.

The state borrows billions of dollars annually, by issuing bonds on Wall Street, to pay for school construction, capital projects at state universities, highway, bridge and rail upgrades, state building maintenance, open space and farmland preservation, and various smaller community projects.

Lawmakers largely control the first step in the borrowing process, adopting a two-year bond package, but after that the Executive Branch is mostly in charge.

The State Bond Commission has sole authority to decide when — and if — the government actually borrows money to finance any of the projects within the bond package.

The governor is chairman of the 10-member bond commission and legislators only get four seats on the panel — two from each party. In addition, the governor’s budget office has sole authority to set the panel’s agenda.

Though the details of Fonfara’s bill still aren’t set, he offered a measure in 2019 that largely put the bond commission under legislative control, and also reassigned some bonding and finance specialists from the governor’s budget office to the legislature’s nonpartisan Office of Fiscal Analysis.   

The finance committee overwhelmingly passed the 2019 bill, but Lamont and legislative leaders ultimately decided to kill the measure two years ago.

Since Lamont took office in January 2019, he has pressed lawmakers to accept a “debt diet,” and there is evidence to support the governor’s concern. 

Connecticut has one of the largest per capita bonded debt burdens of any state, and its pension debt is in even worse shape. All totaled, Connecticut has more than $90 billion in long-term, unfunded obligations.

But Fonfara says that bonding is an invaluable tool for economic development, particularly in poor cities that can’t afford to invest local dollars to create jobs and foster new growth industries.

And interest rates generally have been extremely low throughout the coronavirus pandemic, making it possible for Connecticut to borrow money cheaply.

But Fonfara said his primary concern is that the entire borrowing conversation is not balanced between the governor and the legislature.

“We are completely out of the loop,” he said. “This is not about saying, unilaterally, that we want to take what he has. This is about ensuring the legislature has a role to play.”  

The administration is expected to battle any proposal the committee might offer this year.

“While we do not have specifics, we generally do not support efforts to change the structure and organization of the State Bond Commission at this time,” Melissa McCaw, Lamont’s budget director, said Wednesday.

In its first two years, she said, the Lamont administration has made key investments in affordable housing, school construction, the environment, municipalities, and modernization of state services, all while reducing Connecticut’s overall reliance on its credit card.

This, in turn, has prompted Wall Street credit rating agencies to improve their ranking for the state, further controlling the state’s borrowing costs, McCaw added.

Still, Fonfara received strong bipartisan support for his proposal two years ago and said he’s confident Republicans on the finance committee will join Democrats in supporting it again.

Cheeseman said she’s open to more legislative control over borrowing, provided both parties have an equal voice — and provided it’s not used as an excuse to borrow recklessly.  

“I don’t want the bond process to be used as a slush fund for pet projects,” she said. “There are needs and there are wants. … We should not be the unlimited credit card.”