The Middletown Press (Middletown, CT)
high property tax stifles economic growth
When D&DMarket closed its Franklin Avenue storefront in Sept. 2016, Hartford lost more than a landmark small business.
The thirdgeneration family grocer, caterer and purveyor of fresh foods traces its Capital City roots back to 1932, when presentday owner Daniel D’Aprile’s grandfather opened a bustling market that became a mainstay on one of Hartford’s most vibrant smallbusiness corridors.
However, things changed dramatically over the decades. Shifting demographics, a shrinking customer base and higher rents all made doing business in Hartford more difficult, Daniel D’Aprile said in a recent interview.
But the biggest pain point was property taxes. Though D’Aprile didn’t own D&D’s old Hartford quarters at 276 Franklin Ave. — his father actually does — he was still responsible for paying real estate and personal property taxes. At its peak, he owed $54,000 a year to the city — a sum that became too much to bear and led him to buy a smaller property less than four miles away inWethersfield, where he’d eventually relocate his entire business and 38 employees.
Since opening theWethersfield location onWolcott Hill Road in 2014, sales are up 35 percent, D’Aprile said. Just as important, he’s paying less than a quarter of the property taxes — $12,000 annually — than he did in Hartford.
“I never wanted to move my business out of Hartford, but the rent was skyrocketing, the property taxes were skyrocketing, and sales weren’t going up,” D’Aprile said. “We were working very hard for nothing. There was no money left over after paying property taxes.”
“If we stayed in Hartford we would have been out of business,” he added.
D&DMarket’s story isn’t wholly unique. For years, Hartford’s small and large businesses have complained they’re paying an exorbitant and disproportionate share of property taxes, hurting their ability to prosper.
At 74.29 mills, Hartford’s propertytax rate is by far the state’s highest and among the nation’s highest. In fact, the effective propertytax rate for a commercial landlord in Hartford (over 5 percent) is higher than what New York City, Boston and Chicago landlords face.
That’s stifled economic growth in the city — Hartford’s $4 billion grand list is valued 30 percent below what it was near the turn of the 21st century, and 38 percent below its 1990 peak of $6.5 billion.
By comparison, neighboringWest Hartford — one of the region’s wealthier communities with half the population of Hartford — has a 41 mill rate and $6.3 billion grand list.
New Haven, a city with a comparable population to Hartford but lower mill rate (42.98 mills) has a $6.6 billion grand list.
“[Hartford’s mill rate] has brought development to an absolute screeching halt,” said Hartford City Councilor and lawyer John Gale. “It’s a huge drag. This has been the biggest single financial issue the city has faced in the last 15 years.”
With limited exceptions, private development has eschewed Hartford over the last decade or longer, unless it’s been supported by state government subsidies or city tax breaks.
The city’s small businesses in particular have felt enormous pressure from the high propertytax rate, part of the reason key commercial avenues — Franklin, Maple, Main, Albany, etc. — in various neighborhoods have lost their luster.
And for anyone who thinks commercial taxpayers will soon get relief after the state last year helped the city avert bankruptcy by agreeing to pay off Hartford’s $550 million in general obligation debt over the coming decades, think again.
Despite its bailout, Hartford’s finances remain in a precarious position, and commercial taxpayers aren’t likely to see a taxrate reduction anytime soon, according toMayor Luke Bronin.
“For a small business or any property owner paying the full freight 74 mills, it’s an unsustainable and unfair burden,” Bronin said. “I think it’s a huge issue and one that our state has to confront if we want to be competitive.”
For Hartford’s mill rate to be competitive over the long run, Bronin said it needs to be cut in half. That, however, would likely require major reforms at the state level, or a miraculous surge in new commercial development.
HouseMajority Leader Matt Ritter (DHartford) said he agrees Hartford still has a long road to recovery, but he also thinks the bailout he helped broker provided the city with muchneeded financial stability. He said it could take 10 to 15 years to put any sizable dent in the mill rate, and that’s only if Hartford is able to grow its grand list and secure additional state funding, among other efforts.
He also said the bailout deal was the best the city could have hoped for, given the political environment.
“For anyone who thinks the deal could have been better, they are sorely mistaken,” Ritter said. “There was not an appetite to reduce the mill rate.”
The Hartford Business Journal has spent months interviewing propertytax experts, commercial property owners, landlorddevelopers, policymakers, homeowners, city officials and others about the effects of Hartford’s propertytax system, which is complicated and broken in myriad ways.
Occupying just 18 square miles, Hartford is a tiny city that also houses many taxexempt properties, significantly limiting the city’s ability to grow its grand list.
In fact, 59 percent of the assessed real estate in the city is exempt from taxation because it’s owned by governments, nonprofits, churches or other taxexempt organizations, an HBJ analysis of city property records shows. Meantime, Hartford is also home to one of the poorest populations in the country, increasing the need for social, health care and other services.
Adding insult to injury, Hartford has the state’s only bifurcated propertytax system, in which commercial property owners pay a higher tax rate than residential homeowners.
Hartford’s challenges are a statewide concern because the city’s fortunes are directly tied to the state’s, especially as more employers and skilled workers want to be in or near vibrant cities.
Despite its challenges, some business leaders are still bullish about Hartford’s future, especially given downtown’s new vibrancy in recent years, helped by the additions of Dunkin’ Donuts Park, UConn’sWest Hartford campus, a fledgling tech scene and about 1,500 new apartment units.
“I’m more optimistic about Hartford’s increasing attractiveness as a location for companies due to the urbanization trend,” said Jon Putnam, executive director of commercial realty broker Cushman & Wakefield.
How did we get here?
Hartford didn’t land in its current financial and propertytax predicament overnight. Numerous factors over many decades stacked up to create an unstable and untenable situation with no clear or easy solutions.
The start of the decline of Hartford’s propertytax base and system can be traced to the mid20th century when the city — like many others in Connecticut and across the U.S. — was going through major economic and demographic shifts as more people moved to the suburbs. That squeezed out a large portion of Hartford’s middle class, and the affluence that went along with it. The city’s manufacturing and industrial base also began to shrink, while its impoverished populace grew, leading to higher citygovernment costs.
As taxes rose to compensate, more properties also shifted to nonprofit ownership. That came on top of the enormous share of city property already owned by taxexempt institutions like colleges, hospitals, sewage plants and even the state itself.
Over the past halfcentury, the portion of Hartford’s taxexempt grand list has more than doubled.
State government reimburses the city for some of its taxexempt property, but it doesn’t come close to filling the gap.
City government, too, has exacerbated the problem over the decades by overborrowing, making pension promises whose costs have outpaced grandlist growth, and then kicking the can down the road either through shortterm and costly debt restructurings or by raising taxes.
However, Bronin, who is running for reelection this year, said much larger structural issues have been the leading cause of Hartford’s fiscal stress.
“At the root of the problem is the fundamental flaw of having an 18square mile city with an enormous concentration of nontaxable property and intense concentration of poverty and asking that city to run itself on only one local source of revenue,” he said, referring to the fact that municipalities in Connecticut are only allowed to raise revenue through the property tax (in addition to permit and other fees). “The biggest problem is that you have a city built on the tax base of a suburb. That, from the start, is a structural flaw that has all kinds of consequences.”
Bronin said his administration is running a “very lean government” and has made deep cuts over the last few years. The city council just passed the mayor’s $573.2 million budget for fiscal 2020, which does raise spending by $3.2 million, but doesn’t rely on borrowing and keeps the city’s workforce — excluding publicsafety personnel — 11 percent below 2015 levels. Notably, since taking office in 2016, Bronin has also managed to not increase the city’s skyhigh mill rate.
Even still, Hartford is unable to lower its propertytax rate. That shows excess borrowing isn’t the root cause of Hartford’s problems, Bronin said, since the state essentially eliminated most of the city’s longterm debt.
“If the city had never borrowed a single dollar, you would still have a mill rate of 74.29 to make the city function,” he said, noting that city finances are now reviewed by a state oversight panel.
Without the state bailout or bankruptcy, Hartford would have had to quickly raise its mill rate an additional 10 to 15 mills, Bronin said, which wouldn’t have been sustainable.
He argues much more drastic reforms are still needed at the state level, including giving the city additional ways to raise revenue. The bailout has provided enough relief to prevent a financial Armageddon, but the city still has limited financial flexibility, Bronin said. At the end of the day, he said there is a cost to delivering basic core services in Hartford and the value of taxable property does not come anywhere near funding that.
State Rep. Jason Rojas, a Democrat from East Hartford who cochairs the powerful Finance, Revenue and Bonding Committee, said the city will likely continue to lean on the state.
“Absent pretty significant economic growth in the grand list, which I think is difficult to do, … I think there’s still a lot more work to do for the longterm fuHartford’s