Property car taxes in Connecticut are collected at the local level. Each municipality determines its own mill rate for the tax, creating significant disparities. The same car can be taxed in two towns at completely different levels – and the poorer cities often are the ones that bear the heaviest burden.
To pay as the same taxes as a Hartford Resident for a 2007 Corolla, a Greenwich resident needs to own a 2015 BMW M3 (worth $60,000).
Senate Bill 1 seeks to reform this disparity by creating a statewide car tax system with a uniform mill rate with a $3,000 exemption. Under S.B.1 municipalities would be held harmless, and all taxpayers in the state would face the same tax burden.
You can download a one pager on CT´s property tax and the car tax here.
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.
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.
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.
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.
One of the biggest surprises on the Governor´s budget last week was doing away with the motor vehicle property taxes, or to be more precise, on the taxes for vehicles worth less than $28, 500. In a state where towns rely a great deal on property taxes (a bad idea, by the way), axing one of their potential sources of revenue has been greeted by howls of protest by Mayors and First Selectmen all over the state.
Behind this change on property taxes, however, we should keep in mind two main issues. First the motor vehicle property tax is a fairly lousy way to collect money in the first place. Second, eliminating it without providing an alternative to municipalities is a terrible idea.
We will start with the tax itself. The car tax, by itself, is wildly inconsistent. The same car, owned by two people across municipal lines, can generate a tax bill four or five times larger, just from the huge mill rate disparities. Real state property taxes are similarly unfair, but at least you can´t move a house from New Haven to Greenwich and call it a day. Car taxes, however, make this big differences specially galling.
In addition, Municipal tax collectors really don´t like car taxes that much. For starters, it doesn´t raise that much money in the first place; 5.5% of local budgets, according to CCM, requiring a hefty amount of paperwork to do so. The problem, however, is that some towns barely get any money out of them as they rely more on taxing residential and commercial property (as is the case of Stamford, where it only accounts for 2% of the budget) while it is a big chunk of the taxable grant list in other places (Sprague, 20% of their income). This means that in some towns eliminating the tax could be compensated with a slight adjustment in the mill rates, while in others it will translate into a large tax increase elsewhere. The incidence of this change, as a result, greatly depends on the economic activity of each town. Opening a big hole on municipal budgets without offering any way to compensate for the loss is, by itself, a bad idea.
What are the alternatives? A good, workable alternative would be turning the car property tax into a state tax with a uniform mill rate, and increasing municipal aid from the general fund. After all, the state has to pay for its roads somehow, and with cars getting more efficient the gas tax really doesn´t have the revenue potential it used to. A state car tax would eliminate the regressive silliness of having the same car pay more taxes in Hartford than in Avon, and enable the state to plug the hole in municipal budgets at the same time. What does not make sense is have the Legislature mandating expenditures and cutting taxes to local governments, without putting more money on the table.
The latest row over the property taxes at a big residential development in downtown New Haven looks like a fairly local issue. A big new 32 floor building, 360 State Street was recently hit with an unexpectedly steep property reevaluation. The building owners, MEPT, claim that their tax burden will quadruple next year, and have been furiously lobbying both the city and the state to get some form of a tax break.
I won´t get into the specifics on who is right in this particular debate (as New Haven resident "enjoying" tax reevaluations in East Rock, I am not that impartial) but the underlying issue behind it is important. New Haven, as most Connecticut cities, are "tax-base poor" - most of the buildings or their grant list are comparatively cheap, often part of dense, low-income neighborhoods. Property values are, consequently, fairly modest; although areas like East Rock, downtown and Westville are fairly expensive, the median home price in New Haven is still below $160,000. Trouble is, the need for municipal services is anything but low; New Haven has a similar percentage of residents under 18 that the rest of the state, but they are poorer, 50% more likely not to speak English at home and with steeper education needs. No matter how much money the state contributes to city budgets through the ECS formula, New Haven (and Bridgeport, Hartford, Waterbury and the rest of urban areas) will have higher mill rates than suburban towns with higher property values.
This creates two problems for the cities. First, attracting any kind of new development it is extremely difficult, as the high mill rates quickly become a big barrier. North Haven´s taxes are 20 points lower than on the urban core; Branford´s are even lower. Any new business seeking for a new location to its facilities will probably bypass New Haven based on this disparities alone.
In addition, anyone foolish enough to invest in the urban core (investments that make sense, like building housing besides rapid transit like 360 State does) faces the sad truth of being an island of high property values in an overwhelmingly poor city. An expensive, fancy building in downtown New Haven will get hit almost invariably by a huge tax bill, as what it adds to the grant list is nowhere close enough to leave room for a lower mill rate. Turning a profit is, consequently, much harder, further complicating new development.
The result is a self reinforcing cycle of disinvestment. Cities have a harder time attracting development, meaning they create less jobs. Existing business and residents face a higher tax burden, which drives more of them to leave. The fact that Yale is New Haven´s biggest builder is not an accident; as a non profit, they do not pay property taxes.
The current property tax system reinforces the divide in Connecticut between poor cities and wealthy suburbs, and contributes to the huge income inequality we see in the state. Changing this, or at least seriously tackling how we fund our schools, should be on the table when we talk about poverty in Connecticut.