Let towns have their own sales taxes
In an effort to fill a projected yawning gap in the upcoming biennial budget, lawmakers in Hartford continue to consider a wide variety of revenue enhancement options. In my last column, we explored the proposed plastic-bag tax.
But a proposal to allow the state’s 169 municipalities to impose their owns sales taxes is an idea worth pursuing. That’s because it would not mandate any new taxes but would instead pass the buck and empower towns to piggyback on the state’s 6.35-percent sales tax. And if implemented the right way, it would also allow the legislators a measure of plausible deniability (e.g. “We didn’t pass new taxes; your town did”).
The idea gained currency in January when the Connecticut Conference of Municipalities issued a sweeping report recommending, among other things, lowering the state sales tax and decreasing the number of exemptions, but allowing regions and municipalities to add a sales tax of their own of no more than one percentage point.
The idea makes sense because, unlike towns and cities in most other states, Connecticut’s municipalities rely almost exclusively on property taxes for revenue collection. The problem is especially acute in Connecticut because we lack any sort of regional government to share the costs of town roads and bridges, among other things.
The idea is popular enough that state Senate President Martin Looney has come up with a modest proposal of his own. As part of his agenda for this year’s legislative session, Looney has proposed giving towns the option of adding a half a percentage point to the state sales tax. To save the towns the expense of hiring additional staff to collect it, the tax would be collected by the state but its revenues would belong to the towns that choose to enact it.
“Throughout the entire history of Connecticut, municipalities have been permitted to directly raise local revenues only through a single source: the property tax,” Looney said. “This restriction is unique to the New England region, a legacy of our shared history dating back to colonial times.”
If all 169 municipalities were to exercise their option to enact the full 0.5 percent sales tax, the nonpartisan Office of Fiscal Analysis estimates they would collectively raise approximately $214.5 million in local sales tax revenue. But CCM’s study is more ambitious and more segmented, though it would bear more fruit.
The study advocates for a 1 percent statewide local sales tax that it estimates would bring in $670 million annually for local government and require that $324 million be used to fully fund the state’s PILOT program and the $346 million remaining would be distributed under the current formula for local construction projects.
For Looney’s part, he emphasized — and this is important — that the goal of the local option sales tax “is not to grow the size of municipal government, but rather to enable our towns to diversify their local revenue base.” Exactly. And Looney added that he believes towns need to reduce their reliance on the regressive property tax.
I don’t know how replacing part of one regressive tax (property) with another (sales) is progressive. But that’s neither here nor there. Giving towns the opportunity to diversify their revenue sources is the more important piece anyway.
Connecticut is one of the few states in the nation that has no local sales taxes. Our neighbor to the north, Massachusetts, has an interesting and, by most accounts effective, system for collecting local sales taxes.
There is no option for a broad-based local sales tax in Massachusetts, but since 2009 towns have had the option of imposing a 0.75 percent tax on meals, which they get to keep. A similar option enables towns to tax hotel rooms. Those taxes have been quite a boon to many Bay State towns and cities and have helped to mitigate upward pressure on property taxes. Yet another proposal awaiting action on Beacon Hill would allow towns to add on to the state’s gasoline tax.
Allowing Connecticut’s towns and cities to impose their own sales taxes could bring in muchneeded revenue for roads, bridges and other infrastructure. And if Gov. Dannel Malloy’s brutal proposal to push onethird of the teachers’ pension costs off onto the towns ever becomes law, the local sales tax option could blunt the trauma. Moreover, Hartford Mayor Luke Bronin has suggested it could potentially save the city of Hartford from bankruptcy. Ironically, Malloy is said to be cool to the idea of local sales taxes.
Perhaps Malloy could be persuaded to reconsider. Or perhaps he could be persuaded to better explain his qualms. After all, drastic times call for drastic measures, no?