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Ax The Cap

By TOM CONDON

January 20, 2008

Republican Gov. M. Jodi Rell's plan to cap municipal property taxes strikes me — as it did when she proposed it last year — as a simplistic and incomplete solution to a very complex problem, and one that will almost assuredly drive more sprawl.

Rell said last month she would revive the proposal, which would require cities and towns to limit property tax increases to no more than 3 percent a year. Municipalities would be permitted to raise taxes above that level if voters approve it in a referendum.

The cap has surface appeal and major underlying problems.

Expenses such as health insurance, energy and special education have been rising much faster than 3 percent a year in many towns. Unless there's a major increase in state aid or new ways for towns to raise revenue, towns must either pay the bills or cut services. The cap wouldn't alter those Scylla and Charybdis options. Bid adieu to school sports, music, all-day kindergarten, field trips, guidance counselors, etc. As we move toward a knowledge-based economy, weakening our public schools is perhaps not our the wisest policy choice.

The state's heavy reliance on the property tax is often cited as a driver of sprawl, because towns seek to develop as much land as possible for the tax revenue. A tax cap could actually exacerbate that problem. Rell's cap, at least as proposed last year, would permit growth above the spending cap indexed to above-average growth in a town's grand list. What better incentive to pave over a farm for a shopping center, or shoehorn more large houses onto ridge lines?

It would work against the governor's anti-sprawl efforts, which are just starting to gain momentum.

Rell's 2007 proposal would have allowed towns to break the cap if they vote to do so. Who is likely to do that to increase school spending? Why, the rich towns, of course. So we end up thwarting another policy initiative, reducing the already troubling disparity between rich and poor communities, the "two Connecticuts."

At present, Connecticut towns waste a lot of time and energy competing with one another for commercial development. A property tax cap would almost guarantee more of this.

Because it measures only property wealth, the property tax regressively treats people of differing incomes the same. It arbitrarily favors towns with more taxable property. For example, my sainted mother lives in tiny New London, a block or two from the Waterford town line. A few years ago, when the Millstone plants were paying much of Waterford's property taxes, my mother's car tax was more than four times the tax for the same car in Waterford.

Land-poor cities with expensive populations and lots of nontaxable property simply cannot raise enough money through the property tax to sustain themselves, and have to rely on whatever state aid is available that year.

When she proposed the cap last year, Rell noted that New Jersey had just passed a 4 percent cap on local property taxes. True enough, but nobody, from Gov. Jon Corzine on down, sees the cap as any more than an initial step in property tax reform, something the state has been struggling with for a couple of years.

Taxation is a delicate balancing act. Government must raise the revenue it needs to compete for business, without chasing business away. Thus it must pay for schools to provide an educated workforce, roads to move people and goods, public safety and other services. The tax burden has to be apportioned fairly, and in ways that minimize negative effects on the state's economy and its quality of life. It's getting harder. For example, should states tax Internet commerce? And if so, how?

The property tax should be part of the mix. What if — just a thought here — the property tax paid the costs attendant to property, and some other set of taxes paid most school costs? A cap could also be part of the mix, assuming there is a mix.

The first thing the state and towns should agree on is movement on the spending side. Mrs. Rell and the legislature should pick up work that began last year on using regional solutions to reduce local spending. Ideas such as bringing municipal workers into the state insurance pool, state assumption of the cost of special education, an end to unfunded state mandates, regional labor contracts — these and more need to be on the table.

There is a commission studying the property tax, due to report before the legislative session begins next month. This could be a starting point for a broader and more nuanced look at taxation. A 3 percent cap might appear to be property tax reform, but it isn't. Nor, for the record, was the governor's idea about eliminating the property tax on cars.

Some credit Mrs. Rell with at least putting the issue on the table. Well, OK, but the Weickerian challenge is to resolve it.

Tom Condon is the editor of Place.