SB.1 and regional property tax sharing

We have been following SB1 with some interest these past few days, as it introduces some significant long term reforms to our tax system. Although the car tax portion of the bill has received more attention (here is a one pager on the issue. We like it), the really interesting part is the regional property tax sharing.

 Remember, property taxes pay for education in Connecticut, and they are  very regressive .  I know it sounds boring, but bear with me - it is actually really interesting.

 Here is what SB1 does:

A regional property tax revenue sharing system for new commercial and industrial development.  Under this framework each community contributes 40 percent of the growth of its commercial and industrial property tax base after a specific year (2013 under S.B.1) to a regional pool. That is, the new property tax income is split - 60% stays in the town to cover infrastructure and traffic costs, and 40% is shared region-wide.  The funds are redistributed based on a formula that takes into account a jurisdiction's population and fiscal capacity, as defined as per capita real property valuation

Why it is important for low income families:

One thing to keep in mind: right now, the poorer a city is, the higher are their property taxes. Poor cities have smaller grant lists, so they need higher mill rates to cover their costs. Higher mill rates makes them less attractive to business, as they prefer to wealthier towns with lower taxes. The less business you get in, the more you need to tax what you have, so cities end up being left behind. checkbook-pen.jpg

The impact of this reform goes beyond revenue, as it reduces the incentives for municipalities to compete for new development to shore up their tax bases . Under S.B. 1 cities and towns would be able to plan on a regional level. As any new development would benefit the region as a whole, with the town hosting the new development receiving additional revenue to pay for their costs, municipalities can work together to protect open spaces, focus on infill development and placing new projects close to infrastructure hubs.
This legislation would give rural communities and suburbs the tools to stop using their lower mill rates to steer development out of the poor urban cores,  while also enabling cities to attract new development more effectively.  Connecticut metropolitan areas would be able to re-balance their growth patterns between the core and outer areas, avoiding the harmful tax competition that penalizes the poor inner cities with smaller grant lists, or more non-taxable property.  S.B.1, as written, has  the potential to helpreverse decades of under-investment in our cities and urban sprawl while ensuring that no municipality is left behind.

Has anyone else done something similar?

Yes! A very similar law has been in operation in Minnesota with very good results. Property taxes are one of the most regressive taxes in the state, and they are set up in a way that actively penalize development and growth in our poorest cities. This reform is a very good step to reverse that.

Take Action!

SB1 was voted out of Planning, and it is currently sitting on the Finance committee. The bill has very strong support from the leadership, so it is likely to go to the floor, but once there things get dicier.

If you want to get involved in an effort to bring some real, long term change to the state in one of its most dysfunctional policy areas, e-mail me. This is an area where not many people are paying much attention right now, and we can make a big difference.

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