Towns Search For A Way Out From

Under Their Property Tax Burden

By Jan Howard

Property tax relief — property owners want it, but how do municipalities provide it when property taxes are the major source of funds to provide necessary services, such as education and other public needs?

That is the question addressed in the recently released report of the State of Connecticut Blue Ribbon Commission on Property Tax Burdens and Smart Growth Incentives. The object of the report is ultimately to reduce the property tax burden on individuals and businesses in Connecticut.

The commission report states that reforms are needed to lessen local reliance on property taxes and addresses the need for coordination of environmental regulations by municipalities and the state.

Connecticut’s property tax burden is the third highest in the nation on a per capita basis and tenth highest in percentage of personal income, according to the commission’s report. Connecticut is also more reliant on property taxation for funding K–12 education than all other states in the nation. The state ranks second in the Northeast and fourth in the country in regard to commercial property tax.

“Reducing reliance on the regressive property tax to pay for local services not only benefits residents of Connecticut, but the business community as well,” the report notes.

Released in October, the report states that fiscal policy and land use policy are inextricably linked and must be addressed together to maintain and improve the quality of life in Connecticut. It finds that the state’s overreliance on property taxes pits towns against each other for tax base growth, leading to development of open space and agricultural lands and less investment in already developed areas.

To address these issues, the commission established two committees on the property tax and on “smart growth.”

The Property Tax Committee was charged with finding ways to reduce Connecticut’s reliance on the property tax to fund local public services. It determined that attention would need to be paid to K–12 public education to achieve this objective.

The Smart Growth Committee was charged with finding ways to adopt more effective growth management measures to address negative consequences associated with current land use practices.

Newtown First Selectman Herb Rosenthal was chairman of the Connecticut Council of Municipalities’ (CCM) Property Tax Reform Task Force and a member of its Smart Growth Task Force.

If the state wanted to help towns reduce their reliance on the property tax, it could do so through increased funding for special education, Mr Rosenthal said this week. He noted it is difficult to plan for special education costs because school systems never know how many special needs children would be enrolled from year to year.

“If the state took over that funding excess, it would be the fairest to all municipalities, and would take a huge burden off the towns,” he said. “It would benefit everyone across the board.”

Another big step in the right direction would be changes in the Education Cost Sharing (ECS) formula that determines how much funding the town would receive from the state for its schools, he said.

There are other ways that municipalities could raise additional revenue if enabled by legislation, he said. Some states allow municipalities to charge impact fees, which developers are assessed for their developments’ impact on open space, roads, sewers, and other town services. Impact fees are, however, illegal in Connecticut. “Unless there is enabling legislation, they can’t be charged,” he said.

“We are limited to the property tax for revenue generation,” he said. “The legislature has not enabled towns to charge other fees.”

Mr Rosenthal said if the state will not support the findings of the Blue Ribbon Commission, from CCM’s perspective four issues should be addressed: a “tax incidents study” of all taxes paid by people in Connecticut, a build-out analysis of Connecticut under current zoning regulations, a coordinated geographic mapping of regions and the state, and a cost-of-sprawl analysis.

Mr Rosenthal said these studies would be good planning tools for municipalities. In the case of the tax study, he said, “We would have a total tax picture of what people pay and if the tax burden is the same from municipality to municipality.”

A build-out analysis would “tell us what Connecticut would look like under current zoning regulations,” he said. He said there should be some similarity between plans of development, and towns should be rewarded for following the plan.

Mr Rosenthal said he hopes that the Blue Ribbon Commission’s study “would cause people to start looking at the big picture” and effects of transportation, land use, and other issues on property taxes.

“I’m hopeful, if people at the local level buy into it, they would put pressure on the legislature to do something about it,” he said of the property tax issue.

He said consideration has to be given to what is the fairest way to generate revenue. Some forms of possible revenue might be municipalities sharing on a regional basis of some percentage of the sales tax revenue raised in each municipality and retention of the current additional real estate conveyance tax. 

According to the report, Connecticut needs to effect changes in the state-local revenue system that would provide alternative means of raising revenue to support needed public services.

The Property Tax Committee’s central focus was to identify ways to reduce the fiscal imperative to grow municipal grand lists to raise revenues for public services, particularly K–12 public education.

Funding For Education

The commission recommends increasing state aid for K–12 by modifying the Education Cost Sharing (ECS) formula to eliminate the funding cap and to increase funding under a modified ECS grant to $7,900, at an estimated cost of $500 million. In addition, the commission recommends that each municipality receive from the state at least 50 percent of its minimum expenditure requirement (MER) for funding K–12 public education, which would cost at least $300 million, and that each municipality be reimbursed for at least 50 percent of its costs for special education, for a cost of at least $125 million.

The commission also recommends that the ECS formula be modified to strike a better balance between property wealth and income wealth to determine how much a local school district should be expected to pay from local revenue sources. The estimated cost is unknown.

Other Revenues

The commission recommends that the state fully fund payment-in-lieu-of-taxes (PILOT) programs, which compensate municipalities for a portion of the revenue lost because of state-mandated property tax exemptions, at an estimated cost of $250 million to the state.

The commission also examined enabling municipalities to collect and retain revenue other than the property tax. It recommends only a limited expansion. One way would be through continuation of the increase of the real estate conveyance tax, a 15 percent surcharge on top of the existing state room occupancy tax, and sharing on a regional basis of a portion of the state sales tax generated in each municipality.

To increase efficiency in municipal government operations, the commission also examined procedures that could result in cost savings. The procedures, which would require enactment by the legislature, would promote a greater degree of municipal accountability and ensure that the property-tax burden would be reduced if significant state revenues were used to supplant revenues raised from the property tax.

The commission also recommends municipalities place a temporary spending cap of 2.5 percent per year, or the rate of inflation, on all spending. Critical education areas should be exempt from the cap, such as capital construction and debt service, transportation of school children, adult education, special education, and expenditures from income from community use of school facilities.

Land Use Management Policies And Smart Growth

The commission report notes, “Connecticut’s historic fragmented growth patterns have generated the problem referred to as ‘sprawl.’” It stresses the importance of professional land use planning to curb sprawl through “smart growth” incentives.

The commission notes that land use management policies that help curb uncontrolled sprawl, increase density adequate to support transit alternatives, and encourage reinvestment in urban areas need to be developed. It states that municipal land use management is achieved primarily through zoning regulation and can be reformed by policies that target or manage growth, resulting in “smart” growth.

The report notes the aim of smart growth is to encourage development where infrastructure already exists and away from where it does not and where development would harm environmentally sensitive and precious land, such as farmlands, forests, open space, and historical areas.

Smart growth, which calls for a balance of conservation and development, can be achieved through regulatory or incentive-based approaches. Programs that target growth and preserve open space are essential to reversing current sprawl, the report notes.

The commission recommends requiring consistency between municipal, regional, and state plans, and that certain smart growth goals be incorporated into municipalities’ land use regulations. It finds that implementation of smart growth policies will most effectively be accomplished through voluntary consolidation of Regional Planning Organizations (RPOs) and Councils of Governments (COGs), which would be strengthened through legislation.

Their new powers would include state revenue sharing between municipalities and between municipalities and the state and addressing of issues such as land use planning, housing and redevelopment efforts, teacher collective bargaining, joint service delivery, investment in regional priorities, and protection of farmland and other open space.

The report also recommends fiscal incentives for municipalities to develop land use regulations and Plans of Conservation and Development that encourage development in existing urban centers, along major state roads, and near existing transportation centers. Incentives could include state funding for infrastructure improvements and public service costs.

It also recommends that the state’s land use enabling legislation be amended to require municipalities to designate “preferred growth areas” consistent with their regional and state plans of conservation and development. Statutes should grant additional authorization for mixed-use development in existing centers, as well as density bonuses. Legislation should also authorize “fast track” land use review and approval processes under certain conditions.

The commission notes the state should strengthen its commitment to housing diversity. RPOs should establish a fair-share allocation for affordable and mixed-income housing and require municipalities to develop implementation measures to meet housing needs of all income levels.

The commission also recommends three enabling legislations that would authorize and encourage transfer of development rights on an intra- and inter-municipality basis, target land acquisitions to protect natural resources, and permit municipalities to use land value taxation measures to encourage highest and best use of unused real property by private owners without requiring additional municipal or state funding.

The commission recommends amendments to Connecticut’s land use enabling legislation that would require consistency between municipal, regional, and state plans of conservation and development. It also notes that the state should encourage mass transit and railroad transportation by building more parking garages, decreasing rail travel times, and increasing the number of trains.