How Cities Can Fight CT’s Unfair Property Tax Rules
New Haven just won a big battle.
April 5, Elm City approved historic agreement that would see Yale increase its next six annual payments to the city by millions of dollars. Although the agreement represents only a fraction of the $50 million in annual contributions the mayor promised when he was electedit’s still a significant leap from the relatively paltry sums that Yale, which as a not-for-profit organization cannot be taxed, has voluntarily donated thus far.
It’s a big win. But it’s not enough.
Yale isn’t the disease – it’s just a symptom of a larger problem. Connecticut’s law systematically disadvantages many of its cities by requiring them to raise revenue only through property taxes while simultaneously exempting nonprofit and government-owned property from tax. Corrective measures like paying Yale can help, but to really fight back, cities need to get aggressively creative. One answer lies in their regulatory powers.
New Haven’s critics like to claim the city has a spending problem. The facts tell a different story. According to a 2018 analysis, New Haven’s spending ranked 41st in the state among Connecticut cities, at $4,213 per capita. Bridgeport and Waterbury spent even less per capita – $3,907 and $3,852 respectively.
Compare that with the top spenders: Westport at $7,782 per person, New Canaan ($7,517), Weston ($7,356), and Wilton ($7,094). These cities spend 50-60% of what high-spending suburbs do on paying their teachers, police, firefighters, roads and more, despite the fact that teachers, police and firefighters have tougher jobs in cities and the roads become more difficult. more wear. Cities are doing more with less.
The spending picture becomes even more dire when the role of suburbs and cities is put into context. According to United States Census Bureau, New Haven’s population is growing by more than 30,000 people every day. These increases come from the suburbs, which see their population decrease during the day. In New Haven, spending per diurnal population was only $3,189. That’s less than the state average ($3,816), as well as spending on daytime populations of neighbors like East Haven ($4,413), Hamden ($4,277), Woodbridge ($5,837), Guilford ($5,025) or virtually any nearby town. .
High-spending communities can better fund their services because most of their assets are taxable. In 2015, only 5% of Guilford’s property was tax exempt. In Woodbridge and East Haven, the number of tax exemptions was 9% and 9.6% respectively. In big spendthrift cities like Greenwich and Westport, the level of tax exemption stood at 7.7% and 10.4%.
In 2018, 49.4% of New Haven’s property was non-taxable. Today, 60% is not.
But, New Haven is not alone. More than a quarter of property in Hartford, Waterbury, Bridgeport, New Britain, Middletown, Mansfield, New London and Windsor Locks is also tax exempt. Many of these cities, like New Havenare also more diverse than the state as a whole, with incomes below the state median — meaning depriving them of income contributes to racial and economic disparities.
Changing state law to allow for a diversified tax base would be helpful and should not be controversial. In effect, 35 states enable their cities to generate revenue through a combination of sales and income taxes. Connecticut municipalities should be allowed to decide locally if they want to generate revenue from anything other than property taxes. Cities could then be allowed to experiment with a combination of revenue sources for different results.
It will, however, be a tough sell. There are 151 representatives in the Connecticut House of Representatives and only 35 of them come from municipalities with 25% or more tax-exempt property. The State Senate is more balanced – these cities represent 14 of the 36 seats. But they are still not in the majority and the municipalities with solid land bases and net outflows of day residents want to protect their constituents from a contribution to the tax base of other localities.
With the state unwilling to undertake the necessary reforms, cities must go it alone. The path to getting there is through two arcane state Supreme Court cases and the fine distinctions between taxes and fees.
In the first case of 1959the court ruled that if a fee is charged to cover the cost of administering a regulatory order, it is an exercise of municipal policing – not a tax measure – and is legal as long as ” the fees are reasonably commensurate with the cost of administration”. and enforcement of the order.
In the most recent 2008 case, a housing association challenged New Haven’s right to impose a license and fee on them. The Supreme Court ruled for the city, finding that the state had given cities broad powers over housing policy and that where state law was so broad, cities could charge fees in the under their regulatory regimes, unless expressly prohibited by law.
Taken together, the implications are clear: while cities cannot tax activities for revenue-generating purposes, they are also not required to fund all of their regulatory activities from general revenue. Fees differ from taxes in that they are not paid into the general revenue fund and remain tied to the activity for which they are charged. But they can ease a city’s financial burden.
How would this work in practice? Cities wishing to address the effects of pollution on public health could charge fees to polluters to offset the cost of their contamination. For example, cities could require gas vendors and ride-sharing services to pay a fee per transaction. The resulting payments could be used to clean up the environment or improve transportation.
Cities such as Chicago and Portland, OR already do that. Similarly, cities could offset the cost of public health inspections of restaurants by charging transaction fees to people who use restaurants. The beauty of such a system is that while New Haven provides public health inspections of restaurants used primarily by Yale students and commuters, the cost of this activity is borne by Yale students and commuters and not just by city residents.
As it stands, low-income and racially diverse New Haven residents subsidize these activities for the college community and the disproportionately white and affluent commuter population. Sharing these costs would increase this burden. Although revenue from this regulation cannot go into general city coffers, money that cities would have spent on this activity can now be saved for other public goods.
Ultimately, lawmakers in other cities (and especially the governor who relies on the cities’ Democratic votes) would do well to allow for more diverse tax options. The surrounding towns would ultimately benefit from stronger, fiscally healthier towns. But, in the meantime, if cities want to strengthen themselves, they must fight back on all possible fronts. Higher user fees can result in lawsuits like older cases, but it’s a risk worth taking. Doing nothing is already too expensive for cities.
Liam Brennan is a member of the Connecticut Mirror’s Community Editorial Board.