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Constant Tax Problems Are Symptoms Of A Broken System

June 17, 2007
Commentary By TONI GOLD

Until they got a last-minute break, Hartford's small businesses were up in arms over their soaring property taxes. Who can blame them? Some were facing increases as high as 200 percent, while homeowners like me got a break. The 2006 revaluation hit small businesses hard. The city finally has given them a five-year phase-in, after their request to the General Assembly for relief died at the session's end last week.

Hartford homeowners, on the other hand, have already received their "relief" in the form of a phase-in that caps overall residential tax increases at 3.5 percent a year for the next five years, as city officials seek to keep the meager portion of homeowners in the city. Historically, homeowners have received breaks at the expense of commercial properties, which were saddled with a 15 percent surcharge. That surcharge will be phased out over the same five-year period that their tax increase will be phased in. Is this crazy, or what? And the city relentlessly chases developers for downtown, who in most cases have to be subsidized.

Meanwhile, in the hinterlands, suburban and rural towns play out their own kabuki dance around property taxation. These voters in many years, and sometimes repeatedly, reject the budgets put forth by their selectmen with the cry that they are overtaxed, and that the schools in particular (which are by far the largest item in municipal budgets) must be cut, even as school expenses grow inexorably due to high fixed costs and union contracts.

The towns also plead annually for relief from the state, usually seeking increased education grants, which may or may not be forthcoming. In the meantime, they compete with one another for sprawling commercial development that they don't even want in an attempt to increase the property tax base, at the same time that they discourage families with schoolchildren from moving in, in order to keep down school expenses.

These repetitive urban and suburban fiscal dances are manifestations of the same harsh reality: the entire state-local revenue system in Connecticut is broken. Much too large a proportion of town and city budgets are dependent on the only revenue available to them: local property taxation.

The system doesn't work for anyone, but unfortunately the urban and suburban constituencies don't act in common around the reform issue. Each asks the legislature for its particular form of temporary relief instead of asking for permanent structural reform.

All of which makes the current budget stalemate between the governor and the General Assembly doubly depressing. Even when our state officials finally reach agreement - which they will - in all likelihood they still won't have addressed this most fundamental structural issue. The current debates about whether "taxes will be raised," about whether or not to have a gas tax "holiday," about how to use the burgeoning revenue surplus, and at what level education grants to towns will be funded, are all talking around the edges of the main issue.

The right conversation would be about the overall Connecticut revenue portfolio - state and local - and its obvious inequities, specifically the excessive amount of public expenditures that must be borne by the local property tax. Although all state and local taxation is part of a single system, we pretend they are separate because they are imposed by different levels of government.

A permanent, structural shift of the burden off the local property tax and onto other, more broadly based and fairer sources - mainly the state income tax - would be fairer and more efficient. It would also act as a deterrent to the sprawl that is gobbling up Connecticut's countryside and character and encourage investment in cities that is desperately needed.

Even the debate over whether to increase the progressivity of the state income tax is a second-order issue compared with the lopsided and inequitable nature of the overall system. We have a dysfunctional revenue system in Connecticut that typically and regularly has disastrous consequences across the board. Property tax reform is much less an issue of party principle or philosophy than of simple common sense and effective governance.

There are a variety of approaches to rebalancing the revenue portfolio, all of which have been studied for years. One very thorough and thoughtful proposal was put on the table this session by 1,000 Friends of Connecticut, but was then promptly stripped of its central features. The problem is well-known and understood by many officials at both levels of government and in both parties, so why is this so hard?

To watch the legislature come to the close of its regular session not only without a state budget, but hung up on ancillary issues, at the same time that towns and cities tie themselves in their yearly knots is worse than depressing, it's tragic - particularly when this session began as a rare year when reform at last seemed both fiscally and politically possible.

Obviously there will be a special session of the General Assembly. After some cooling off, can reason prevail? What about starting over at square one: permanent structural reform to the whole system as the first order of business, while leaving aside for now the second-order issues. Each side could give a little and still get a lot - but only if they are willing to have the right conversation.

Toni Gold of Hartford is a private consultant and a senior associate with Project for Public Spaces, a nonprofit whose mission is to create and sustain public places that build communities. She is a member of the board of 1,000 Friends of Connecticut and the Place Board of Contributors.