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Tie Residents' Taxes To City Spending

Insulated No More: New Tax Plan Gives City Property Owners A Reason To Watch Spending

Hartford Courant Editorial

June 16, 2010

In most towns, residents know that if city hall spending goes up, their taxes will go up. But Hartford homeowners have been somewhat insulated from that unfortunate reality for decades, because the city has capped tax increases for residents and passed the difference on to commercial taxpayers.

That disparity will end next year, thanks to an innovative bill passed in the waning days of the recent legislative session. Under the bill, the more taxes the city collects, the more residential taxes will increase. Thus it should encourage residents to pay more attention to spending, something city government has not done with great skill over the past decade.

Hartford has been trying to help its residential taxpayers since at least 1989, when the city adopted a "cap/surcharge" system that capped tax hikes on certain residential properties at 1.5 percent of fair market value and paid for it with a surcharge on commercial taxpayers of up to 15 percent on their tax bills.

The idea was to protect the comparatively small residential tax base from sharp tax increases and to encourage homeownership. It didn't do much to sell homes, but did drive up the tax rate on businesses, one of the factors leading to the 35 percent downtown office vacancy rate. Business leaders argued that the cap/surcharge was a deterrent to attracting and retaining employers, who could go to a suburban town and see much lower taxes.

This argument prevailed in 2006, when the legislature agreed to end the 15 percent surcharge; this is the final year of its five-year phase-out. Also, a property revaluation is taking place this year, which, in part because of the vacant office space, is expected to shift the burden toward homeowners. Officials worried that if nothing was done this year, residential tax rates would increase next year by 100 percent or more, a potentially devastating blow to people living in the city.

IF CITY SPENDING GOES UP ...

The solution, proposed by state Sen. John Fonfara and Reps. Douglas McCrory and Matthew Ritter, is to peg the residential tax rate to the amount of taxes collected. If the city increases spending and collects more taxes, residents pay more. If not, they don't.

The key to new system is what is called the assessment ratio. Most cities assess property at 70 percent of fair market value - that is the assessment ratio. But to allow the five-year phase-out of the surcharge, Hartford was allowed to assess residential property at a much lower ratio, now 26.17 percent.

Under the new law, if the city collects more taxes than it did the previous year, adjusted for inflation, the residential ratio can increase anywhere from 1.5 to 5 percentage points (until it reaches a maximum of 70 percent, the statewide standard). But if the tax levy goes down by a half a percent or more, the ratio stays where it is.

LEADERS WILL FEEL THE HEAT

Mr. Fonfara said the residential tax breaks have protected city leaders from the pressure of voters, because the voters themselves were protected from sharp tax increases. Meanwhile, spending and taxes have made the city's commercial sector uncompetitive. It is hard to argue with that. In the past decade, the city budget has gone from $422 million to $544 million, with few dissenting voices.

The city, like government entities at all levels, has to rein in unsustainable union contracts and other expenses. For example, workers should not be allowed to retire with pensions that are higher than their working salaries. The new law is a promising approach to making Hartford leaner and more competitive.

"The critical message to be delivered by the passage of this bill is that spending cannot continue to climb upwards without serious repercussions," said Mayor Pedro Segarra. There it is.