SLOW GROWTH HAMPERS CITIES
Study: State needs urban areas if economy is to thrive
Growth in Connecticut’s cities has lagged that of cities in other states, further stressing tax bases and revenues, according to a recent study by Fitch Ratings.
A sample of 24 Connecticut cities shows a compound annual growth rate of less than 2 percent over the last 12 years. The lack of growth puts added tax burden on existing properties, the study shows.
“I’m surprised in that I thought we’d see a bigger bounce in the last three years. I thought we’d see 3 percent. It just stands out that growth here has been slow,” Kevin Dolan, a director in Fitch’s U.S. Public Finance group, said. “When the state’s economy as a whole is dragging, it’s hard to expect growth in its cities. It’s hard to expect tax bases to improve.”
Joe McGee, vice president of public policy and programs at the Business Council of Fairfield County, said the state’s municipalities are heavily dependent upon property taxes for revenues.
“When taxable assets are not
growing, you’re in trouble,” he said. “The state has to promote growth strategies in cities because they can’t support their level of services.”
Compound annual growth rate, or CAGR, is a metric that provides a constant rate of return over a specific time period. Along with growth prospects, it’s among the measures considered by Fitch for its rating analyses.
Dolan said he looked at a 12-year period instead of 10 to ensure that two revaluations were included for reach city. Cities must re-evaluate their grand list every five years. Residential, commercial and industrial properties, as well as motor vehicle taxes, were factored into the taxable assessed values.
Overall population decline, lagging productivity due mainly to an aging population, slow job growth and few new businesses moving here have hampered the state’s growth prospects, Dolan said.
“It’s harder for businesses to decide to come here when they see the workforce-age population declining,” he said.
A sluggish housing market,
particularly home prices, has slowed taxable assessed values for cities, as well.
“In other states we’re seeing a return to the appreciation of housing values, but that’s not happening in Connecticut,” he said.
A few cities stood out as stalwarts in the study, most notably Stamford, Milford and New Haven. Stamford, with the redevelopment of its South End, led the way with a 5.6 percent CAGR from fiscal year 2007 to 2019. It grew its tax base from $11.2 billion to $21.4 billion.
Milford, having grown from $3.8 billion to $6.6 billion, was next at 4.6 percent. New Haven grew its CAGR 4.3 percent, going from $4 billion to $6.6 billion.
Fourteen of the 24 cities analyzed had CAGR scores under 2 percent. Fairfield, Greenwich, Trumbull and Hamden had negative CAGR scores.
“There is growth in Stamford, Norwalk and New Haven, but we knew that because we’ve seen the actual development happening,” Dolan said. “Milford also stood out as having a lot of growth.”
Bridgeport had a CAGR of 1.1 percent, but Dolan said he expects
to see more growth in that city soon.
Dolan analyzes New England and much of the East Coast. He said many states sputtered out of the gates following the recession, but have recovered over the last few years at a quicker rate than Connecticut. Rhode Island and New Jersey are examples, he said.
Massachusetts, Florida and Virginia stand out as having among the strongest recoveries. Massachusetts has recovered more than 300 percent of the jobs it lost during the recession. Connecticut has recovered 89.9 percent, largely due to a significant reduction in the government sector.
With interest rates rising and some economists saying another recession is already overdue, has Connecticut missed the boat on the recovery?
“I don’t think they’ve missed it completely,” Dolan said. “It still has opportunities to improve the economy. It’s a matter of making the right decisions and implementing them quickly.”
Build up cities
McGee said when a municipality is struggling to build its tax base through development, it has two choices: cut expenditures or raise taxes.
A third option, asking the state for assistance, is not a viable option in Connecticut as the state already faces a $2 billion deficit in its next fiscal year.
McGee said Connecticut must “be bold” in helping its urban areas promote growth. Taxes are high in the state’s cities because of a lack of growth and businesses do not want to move to a city with high taxes, creating a paradox for municipal leaders.
Also, many cities have a significant number of properties occupied by nonprofits, which are tax exempt. McGee said hospitals, churches and universities occupy large spaces and utilize city services, but do not pay taxes.
“That’s a huge disadvantage to those cities,” he said.
Dolan said cities need to make themselves more attractive to lure businesses through actions such as investing in schools, improving streetscapes and upgrading transportation options.
“But all those things cost money and it’s hard to tax your existing residents,” he said. “It can be a hard sell.”