DAN HAAR Looney’s tax reform has a problem
As I look at the tax reform ideas floating around the state Capitol, especially the ones from Sen. Martin Looney, the Senate president pro tem, I think of the last question in the last interview I had with former Gov. Dannel P. Malloy before he left office.
It was about a conundrum, an economic riddle; the Rubik’s Cube of state and municipal finance.
Malloy, like a lot of Democrats, including Looney, of New Haven, believes with fervor that we can only save cities by reducing their reliance on property taxes. Makes sense, as no other state is so property-tax- centric, and the system we have now leaves the poorset cities in a fiscal death spiral.
The Democrats, led by Malloy and Looney, have responded by saying, OK, let’s cap the city-killing car tax, which they consider unfair at its core. And let’s compensate cities and towns by sending them state money — but not equally. Naturally, we’ll pay more to the towns that need it the most and less to the richer towns.
The trouble is, that has all sorts of bad side-effects. I talked about those with Malloy — not because he still had the power to act on it, but because he’d thought about these issues for a lifetime.
“Trying to find the right formula to address that is a difficult one,” Malloy said.
Looney’s latest, multipronged plan puts the core idea on steroids. He’d end municipalities’ ability to tax vehicles altogether. He’d launch a state property tax on cars at 19 mills or less; some cities are well into the 40s and Hartford is at 74.
He’d let homeowners lop $50,000 off their assessments, thereby lowering their property tax bills by $1,400 or so, in a typical town.
And he’d let businesses knock $25,000 off their real estate assessments.
All of this would reduce towns’ tax revenues unless they raised mill rates. No one has calculated the exact amounts, but it’s way more than $1 billion, since the vehicle property tax alone is worth something in the range of $800 million to $900 million for all municipalities combined.
So Looney would create a state tax of one mill — $100
for every $100,000 of assessed value — and he’d add one-half of 1 percentage point to the 6.35 percent state sales tax. Together, those new state taxes would raise $700 million, more or less.
The 19-mill state vehicle tax would raise maybe $500 million for the state. All told, the state would now have more than $1 billion to give back to the towns, thereby making them less reliant on the property tax. But of course, towns that had poor-performing schools, or lots of untaxable property, or lots of special education needs — big cities and poor towns — would see the larger shares of cash back from the state.
Translation: Maybe it’s good economics, but it’s mostly income redistribution masquerading as property tax reform. And the extra halfpoint of the sales tax would go to the towns that generated the sales, or towns near malls — thereby encouraging more retail sprawl.
True property tax reform means forcing towns to cut their costs, not just paring back their tax collections and sending them more state mon-
ey. Looney and fellow Democrats, notably Sen. Bob Duff, D-Norwalk, the Senate majority leader, want to do that too, with a radical idea about school systems. We’ll get to that in a minute.
First, the conundrum.
The more we pay to the towns that need it most, the more they can lower property taxes, and that can make it easier for them to reverse the spiral by attracting people and businesses. Places like Greenwich, Darien and New Canaan with ridiculously low town tax rates can make it up on their own.
Here’s one perverse effect: Middle-class people who live in those rich towns are now priced out. Maybe they’ve owned their houses since the bygone days when prices were more reasonable, or they inherited homes, or they live in smaller, cheaper abodes.
Suddenly, the goal of having economically mixed cities and towns, already slipping away in Connecticut, disappears all the faster.
Malloy’s answer, and Looney would agree: “We should be less reliant on property taxes.”
As for the conundrum of how to compensate those cities and towns without further dividing the state, he called it a matter of balance. But
he added, “that we underwrite teacher pensions in Greenwich to a much larger financial commitment than we do in New Britain doesn’t make a whole lot of sense.”
He was right, and that’s why it wasn’t such a bad idea to ask towns to pay part of those teacher pensions. But — here comes the conundrum again — that makes the property tax problem all the worse.
There’s an answer for that, too: “Communities could help themselves by doing more things together that they do individually,” Malloy said. “I wish municipalities became as efficient as our state government has become.”
To that end, Looney and Duff have proposed bills that would consolidate small school systems. Looney would create a commission (yeah, it’s government) to “implement regional consolidation of school districts.” The goal: For any town or school system that has fewer than 40,000 residents, “require such school districts to join a regional school district.”
Whoa, does that mean Darien and New Canaan students could be on the same teams and the taunting would stop? Maybe.
The laws would change labor rules to make it easier for cities and
towns to meld schools.
All of this is a lot to digest even before we see the fine print, which doesn’t exist yet. Looney isn’t saying it’s this or nothing; he’s saying here’s a starting point for the debate.
You may ask, where does Gov. Ned Lamont stand on forced school consolidation and Looney’s brand of property tax reform? He’s not saying, but property taxes were a big part of his campaign, and his transition committees recommended some of these ideas, notably the school consolidation idea.
The danger is that we get something less than true reform, and in falling short, we only redistribute income in ways that have harmful effects. One conversation with a ranking lawmaker Friday showed me how hard all this will be.
If we’re collecting car taxes statewide, Rep. Bob Godfrey, D-Danbury, said, “the money should go into the special transportation fund.”
That fund, for highways and transit, “needs money that isn’t tolls,” said Godfrey, a toll opponent.
So, where would the towns get their money? “Local income taxes? Local sales taxes? Local user fees? I don’t know,” Godfrey said.