New Ideas For Financing Towns

They used to say that money is the mother’s milk of politics, but as public revenue streams have dried up in the current economic draught, political activity seems to have found nourishment from a potent substitute — desperation.

Cash-strapped municipal leaders were in Hartford on Monday, pressing legislators to free them from their near-total dependence on the property tax. Towns and cities across the state, Newtown included, are facing the same dilemma: how to meet the conflicting demands of citizens frustrated both by escalating property taxes and underfunded schools and services. And when voters take aim in frustration, they usually draw a bead on the closest targets — local officials.

The municipal leaders were seeking new authority to levy fees and taxes, broadening the local revenue stream. High on their wish list is a one percent regional sales and hotel tax surcharge, which they say would raise $550 million to $600 million statewide, reflecting a 22 percent increase over the $2.7 billion towns and cities currently get from the state. Similar requests have been made before, and they never seem to make it to the House or Senate for a floor vote. But in this year of desperation, state legislators seem to be taking this growing political imperative more seriously. Members of the Legislature’s Finance, Revenue and Bonding Committee acknowledged that Connecticut’s towns and cities need new sources of revenue, but they were wary of the economic impact of the inevitable regional competition on the economy of the state as a whole.

There is another concern, from a taxpayer’s perspective. Property taxes, as onerous as they seem, are adjusted precisely to the revenue needs of a popularly endorsed budget. The tax rate always seems to go up, but in years when voters are more angry than usual about taxes, those increases seem to be marginal. (And when voters really dig in their heels, the tax rate can even go down.) Sales taxes, on the other hand, have an immutability because angry voters cannot get at them directly; they are controlled only by elected representatives. Once enacted, sales taxes are there pumping money into government in lean times and not-so-lean times. Ironically, it is in those years when the extra tax revenues are not so crucial to a budget’s bottom line that they do the most harm to government by financing bloat. The available revenues from this method of taxation become the starting point for budgets, not the terminal point as the property tax is.

These concerns aside, there are aspects of the regional taxation scheme that appeal to us. The system would give Connecticut’s existing regional councils incentives not only to realize taxes together but to realize economies as well. In sharing tax revenue, municipalities would also share a responsibility to spend it wisely. Small towns and suburbs would have a stake in the cultural and economic viability of cities, and vice versa. So if a region as a whole can reap savings from shared resources and infrastructure instead of competing across local borders for economic development and regional facilities, the money that is collected from regional sales taxes is more likely to be applied to needed services rather than wasted on unneeded redundancies.

We hope the General Assembly gives this idea a full hearing and careful consideration — and not just because town officials are getting desperate. Clearly, the current system of financing local government is not working well for taxpayers or for public servants. It is time to put a few new ideas to the test.