In Tax Reform The Math Matters

By John Elsesser

Property tax reform: Please do the math first.

I think everyone agrees that while the property tax is a predictable workhorse, the nag is tired and overworked. As a result, in this legislative session there are many suggestions for property tax reform to address the inequality of car taxes, the regressive nature of the property tax on income status and proposals to use this local revenue source to shift aid between towns to implement a new concept of intercommunity revenue sharing.

The problem with many of these well-meaning efforts is that no one has done the math to see what the impact is. Once again, this points to the central issue that within the state there is not a non partisan think tank with staffers who can do the math. The state even eliminated or greatly reduced their own employees who once did this type of work. So Policymakers fly blind and throw out ideas and concepts without understanding the hidden consequences.

I suggest that folks look at the work of the Connecticut Tax Panel that suggested approaches to link home property taxes to the owners income and also equalize distribution of state aid through a method based on the gap between the Towns capacity to raise money and their inherent societal needs. This concept was designed to avoid rewarding mismanagement.

Here is an example on how one of the bills raised for a legislative public hearing would affect the semi-rural Town of Coventry. The core changes proposed are: a $50,000 assessment homestead exemption, $25,000 exemptions on personal property assessments, the elimination of local car taxes, then adding 1 mil in property taxes to give to the state, and a 15-to-19 mil car tax now collected for the state. The State then promises to redistribute these new funds to towns based on fully funding Payment In Lieu Of Taxes (PILOT) and other undefined means.

My office did the math for the Town of Coventry and the exemptions and elimination of car taxes shrinks our grand list to the point where it would require a substantial increase in our mil rate from the proposed rate for 2019-2020 of 32.95 to post State reform rate of 51.63 mils. The owners of a median-valued house (half above and half below) with a market value of $207,000 with two cars valued at $10,000 each would see their property tax burden increase by $2,601 per year or 48.86 percent. A $325,000 market valued house with the same two cars would increase $4,950 per year. This is heading in the wrong direction with new Federal limits on the deductibility of State and Local taxes.

Unlike many Towns, Coventry gets almost no PILOT funds because we have little qualified properties and state forest land is valued very low. We do have a lot of Farm and Forest land under the PA 490 but that program doesn’t receive any state reimbursement. We also do not have a strong commercial base with only around 3 percent of our grand list comprised of commercial and industrial real estate. This ranks in the lowest ten percent of the State. For many other communities the State proposal will cause a big shift to the business sector to soften the blow on homes but could harm businesses. I remind you that these commercial entities include our utilities, which will push the tax increase into their rates. Also apartment owners will be forced to increase rent compounding attainable housing issues. The impacts of these paradigm shifts must be fully studied.

I suggest that the State instead study a different approach to property tax reform. I don’t know how the numbers will work out but it could address some of the concerns being discussed. What about:

  • Setting a statewide car tax of 25 mils (like Massachusetts), but all of the funds would stay in each town so there would be a smaller shift between houses and cars and commercial real estate. This will addresses the statewide car tax inequality of the same car paying different taxes depending on the Town they live in. I suggest that the cars registered as Classics (formerly Antiques) also pay their fair share. It is also not fair a $200,000 Lamborghini pays the same amount as a 30 year old Chevy Vega.

  • If the state plans to tap into property taxes that towns collect, instead use the money to pay for the on-going (normal) costs of the Teachers Retirement Program. A half mil should be enough. Then the State's new proposed town contribution could be eliminated (offsetting this increase). This could be a stable source of revenue to address one of the largest state budget issues. To address the regressive qualities of the property tax, we then would need to address the ability to pay to the property tax. The state’s Property Tax Credit was a noble attempt but was severely reduced because the state could not find the funds to grant a significant enough credit. Attention to this issue is required. A fixed income person should not have to sell their house due to property tax increases caused by increasing property value.

  • Exempting the first $10,000 (not the suggested $25,000 in the Senate bill) in personal property tax assessment as recommended by the Connecticut Tax panel. This will be a small boost to small business and recognition that the net proceeds to Towns after the cost of processing and collection are very small.

  • Fully fund the PILOT program to address the lost property tax in primarily urban areas and also give recognition to the lost revenues for PA 490 for communities with over 20 percent of their land in a this development protection program. Including PA 490 land would motivate Towns not to push to develop the land to get new tax revenue and it would also help us address climate change issues and local food production.

  • Fund the revised income based property tax credit and revised PILOT program with a very low Gross Receipts tax (or Value Added Tax) that could also be used to lower the sales tax. It is a very simple tax to process and collect, and the states which are doing it are having success and business growth. Look at the Ohio Commercial Activity Tax (CAT) tax as an example.

It’s good that we are talking about the property tax but we need a comprehensive plan to address the inequality and regressive nature of property taxes. But we need to fully understand the interactions and cost impacts of the change. It is time to put the old property tax workhorse out to pasture and replace it with an updated thoroughbred, strong and nimble for a modern world.

John Elsesser is the Town Manager of Coventry.