The Middletown Press (Middletown, CT)
Report expected to broaden discussion on taxes, revenue
NEWHAVEN >> Anticipating cuts in state aid, towns are scrambling to convince lawmakers to approve new revenue sources to help ease their dependence on the property tax.
“We have to do something,” said Joe DeLong, the executive director of the Connecticut Conference of Municipalities, which recently released a study of the problem and proposed solutions.
While serious negotiations won’t commence until Gov. Dannel P. Malloy releases his biennial budget package Wednesday, the reaction of the state Senate leadership to CCM is mixed.
The report also covers rule changes to allow towns and school boards to combine non-instructional services, as well as for municipalities to share services across town lines.
One big expense the municipalities would like to off-load to the state is the cost of special education.
But the most controversial proposals have to do with tax changes that CCM says will stabilize municipal finances, while mitigating the property tax burden.
The conference, which represents 163 of the state’s 169 towns, has proposed cutting the sales tax rate from 6.35 percent to 6 percent, but then adding a one percent levy that would go directly to the towns.
Now, cities and towns are only allowed to raise money through the property tax.
CCM’s study found that Connecticut ranks 5th in total state and local taxes per capita — taxes that were 55 percent higher than the national average in 2014.
On property taxes per capita, Connecticut ranked 4th-highest in the nation and was 90 percent above the national average.
The organization said Connecticut needs to take a serious look at the many exemptions to the sales tax and eliminate or modify some 10 percent of them in order to replace the $271 million lost in state revenue if the sales tax rate is cut by 0.35 percent.
The one percent tax for the towns would raise an estimated $670 million.
The proposed allocation would be $324 million to cover the unfunded portion of the Payment in Lieu of Taxes program for colleges and hospitals. It would also boost the state property PILOT to 77 percent of value from 45 percent.
This would represent a major solution to municipal centers with a large percentage of tax exempt property, such as New Haven, Hartford and New London.
The remaining $346 million would be distributed according to the Local Capital Improvement Program formula, with every town getting some benefit.
A 7 percent sales tax would leave the state competitive with the region, DeLong said. The property tax, the report said, stands out as a major area where Connecticut is not competitive.
“It hurts economic growth; it hurts home ownership and it really hurts our urban centers,” DeLong said in a meeting with the New Haven Register editorial board.
He said the proposed changes they put forward do not invoke the “Robin Hood” strategy, where funds are taken from suburban towns and given to cities.
“That would not be a structural fix,” he said, but rather just picking “winners and losers.”
Since CCM issued its report, Malloy has proposed mandate relief for the towns, which they welcome.
But he also said he wants to revoke the $200 property tax credit and is asking towns to pay one-third of retired teachers pension, which they will fight,
The devil is in the details, but Senate President Pro Tempore Martin Looney, D New Haven, said the report has some good points that will broaden the discussion as the legislature waits for the governor to release his plan.
Senate Republican President Pro Tempore Len Fasano, R-North Haven, was much more critical.
Looney said the towns have a right to complain about the burden of the property tax on residents, which is counter-productive to business growth.
Howmuch weight CCM’s proposals will get will depend on what the governor proposes to do with municipal aid, given the projected $1.5 billion deficit in 2018.
On Monday, however, Malloy had rejected an increase in the sales tax and income tax and had proposed redistributing the Educational Cost Sharing grant to send more money to urban communities and less to smaller towns with solid tax bases.
Looney found some merit in the proposal that would allow towns within a Council of Government region, through consolidated referendum, to add 0.25 percent to the sales tax to support recreation, tourism, historic and arts infrastructure of significance to that area.
There was also a separate proposal to allow, with voter approval, imposition of a one percent sales tax on food and beverages sold in restaurants and on hotels within a particular COG.
The Senate president pro temp agreed they should look at the level when the prevailing wage rate kicks in, something that hasn’t been changed in two decades.
CCM listed some of the items in Connecticut exempted from taxes and DeLong said there should be a collaborative effort to identify those that could be eliminated or reduced.
The exemptions are for some popular items such as food, which would bring in $408 million in revenue if taxed at 6 percent.
Taxing residential heating fuel, electricity or gas would bring in $202 million; $447 million on motor vehicle fuel; $105 million on labor and services for charitable or religious groups; and $273 million on prescription drugs.
Other current exemptions cover such things as home renovations; weatherization products; sewer sales; pollution abatement; oxygen, plasma, prostheses.
Fasano said he views the report “as a tremendous tax on everyone in the state.”