Episode Information

Fixing the Property Tax System
Where We Live - with John Dankosky
Aired:
09/18/2008
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In this episode:

Efforts to ease the property tax burden for Connecticut homeowners

 

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58:36 minutes (28.13 MB)
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Connecticut’s property tax system has been called flawed, broken and in need of reform – so why does nothing ever change?

Our state’s reliance on property taxes to fund municipal services means wild inequities in the cost of living from one town to the next – and spurs sprawling growth in some communities, searching for taxable property to pay the bills.

So, how to fix these problems? A property tax cap – as proposed by Governor Rell? A big decrease in state aid – meant to spark regionalization? That’s being floated in New Jersey.

Today, Where We Live, we’re live at the state Capitol – for a forum on property tax
reform. We’ll talk to lawmakers and policy analysts.

Join the conversation! Add your suggestions, questions and comments below.


Created with Admarket's flickrSLiDR.Photos by Chion Wolf.

 


 
Related Content:

A Note About Property Taxes In Milford CT

Like most towns affected by the new property assessments, Milford got assessed at the peak of the Real Estate Boom. The assessments done in 2007 were completed as Connecticut law requires every town to do. Our taxes are then re-calculated based on a new mill rate of which is based on 70% of your homes "real value" as of its assessment date. To explain this further, a mill is equal to $1.00 of tax for each $1,000 of assessment. To calculate the property tax, multiply the assessment of the property by the mill rate and divide by 1,000. For example, a property with a assessed value of $50,000 located in town with a mill rate of 20 mills would have a property tax bill of $1,000 per year. (In Milford our mill rate as of today is 31.77.)

2008-2009 could be the year that breaks the backs of Milford's residents. This is of great concern to me because most of the towns frustrations are being erratically played out in municipal elections for Mayor. To begin we must look at the fundamentals in our town and the areas town residents will be affected the hardest.

Inflation is affecting everything, this is largely due to federal policy of spending more than the nation can afford to pay. When America continues to borrow, borrow, borrow and then print money to pay our bills, the whole country gets quietly taxed by way of inflation. Simply put that $20.00 in your pocket loses its value at the rate of about a 1.5 cents a week. This happens every time consumer prices go up, and the money supply (M3) is expanded.

Energy, is at the forefront of these cost of living increases in town. Electricity is up 90% over the last 7 years, and Connecticut has the highest gasoline prices in the Continental USA, second only to Hawaii. Oil is at $120.00 a barrel making the cost of staying warm this winter the most expensive in history. Poor people are also affected as Bush cut funding to the energy assistance program.

Mortgages, being in the mess that they are in and set to re-adjust in 2008-2009, is causing the New Haven Milford area to lead the charge in the State Foreclosure fiasco. Milford has a record 350 active forclosures, and the elderly are in decline.

Homeowners Insurance, has also increased this year making the required home owner escrow payments even higher than usual. This escrow is also inclusive of many double digit increases in property taxes.

All our foreign made goods are expected to rise in value as the U.S. dollar continues to purchase less and less. The dollar has already lost over 50% of its value when compared to other major currencies. This makes all those inexpensive foreign produced "Wall-Mart" items more expensive.

Food costs are also up dramatically over the last five years making the cost of feeding a family that much more expensive.

The city and its tax policy is just struggling to maintain the existing infrastructure it already has in place. To lower taxes in Milford one would have to reduce the city services and size of the government. This is a very unlikely and difficult task, given that the largest employer in Milford is the city itself. Would the town support a hiring freeze, or 10% expansion of the teacher student ratio? This could be debated at the local level, but it is usually very unpopular because it gives teachers more work for the same pay.

These ideas, however, may be largely irrelevant because it is entirely possible that the all CT cities may be headed for a large and unexpected involuntary adjustment due in large part to macro-economic monetary policy of which no one has control over. Foreclosures are just the first sign that the city demand is greater than the provisions of the city residents. This is expected to accelerate further, as baby boomers go bankrupt on health care costs, the broader economy struggles, and good paying jobs and people continue to leave our state.

Currently Milford is at risk of mass real estate depreciation, this will put the Mill Rate out of kilter with the true assessed home values. Should the dollar continue its decline, our middle class homes will be all but unaffordable to the next generation of home buyers. Foreigners, however, will find great bargains on America's properties as currencies like the Euro, and Canadian Dollar continue to appreciate.

Sadly, Milford's position on the shoreline may become a great opportunity for foreigners to purchase second vacation homes here in the U.S. This may be good for our town as these vacationers would probably not have children in our local schools and would likely only be here seasonally. This would help our struggling mill rate of which is based on out of kilter assessments. The news today is that home prices across America are the lowest in 16 years. If this is true of our town as well than that makes the current mill rate deceptively higher than what you might think. For now the best thing we can do is be vocal about future State and Federal tax increases, stay out of debt, and get a good deal on a cord of wood this winter.

Posted by Rocco J. Frank Jr.
Candidate Milford State Rep.
www.rfrank118.com

Reform the PT; it has awesome potential for good!

The property tax as we know it is two taxes rolled into one. (I'm putting aside the taxes that fall on vehicles and on so-called "personal property;" I'm talking about that which falls on real estate.

The two taxes are completely different in their effects and their incentives, and they behave very differently in towns like Greenwich and Darien, where land values are very high as a percent of total property value) and in Waterbury, Hartford or Bridgeport, where land values likely represent a relatively low percentage of the property value.

One part has very desirable effects, and we ought to rely on it more.  The other has nothing but undesirable effects, and we ought to rely on it less or not at all.  But our tradition, and currently our law, is that the two are yoked together.

The good part of the property tax is the part that falls on land value.  It turns out that taxing land value is an efficient tax, a tax which incentivizes the private sector to put choice land to intensive and appropriate use and to leave less desirably located land unused and pristine.  Taxing land value will not cause a single lot to leave town in the dead of night.  In places where many people rent their homes, it is particularly good because it cannot be passed along to the tenant; the landholder must bear it.

The bad part of the property tax is the part that falls on building value.  When we tax buildings, we get poorer maintenance: people want their homes and commercial properties to not look too good.  (West Philadelphia is an extreme case of this; some occupied homes look as if they could fall down at any moment, yet their interiors are much better.)  We get slow redevelopment.  We get underused properties.  We get what are known as "taxpayers " -- old buildings with a single tenant, or maybe a couple of families, which cover the carrying costs while the owner waits for the community to make his neighborhood valuable, through local, state or federal spending.  When he's good and ready, and the property is "ripe," he'll sell to the highest bidder, and leave town with dollars that the local taxpayers, the local community, created.  He may not have set foot in town for decades.  But he leaves with the appreciation in his pocket.  

When the tax on land value and the tax on building value must be of equal millage rates, we get weird effects.  In some towns, land value represents 70% or 80% of the value of a typical home.  Most of the tax falls on land value ... and the land gets redeveloped.  A significant portion of Greenwich's residential sales are followed by teardowns -- of homes which almost anywhere else would be considered mansions.  Land value continues to appreciate year after year.

But in places where land values are low relative to building values, the property tax puts a high burden on buildings.  These are the towns where there would be the largest benefit to be gained from tax reform.   

What's the alternative?  Divorce the millage rate on land values from the millage rate on building values.  Follow Pennsylvania's example, and permit towns and cities to impose lower millage rates on buildings and higher millage rates on land value.  This can be done, at local option, very slowly, very quickly, or not at all.   If, say, Stamford, or Bridgeport, or New London, or Danbury, or Waterbury, or Hartford, were to reduce the millage rate on buildings by, say, 15%, and then increase the millage rate on land value so as to remain revenue neutral, the tax burden would be shifted somewhat.  It would be lifted from those who live in the less choice neighborhoods.  It would be lifted from those commercial properties who have developed their properties to something approaching its highest and best use.  It would be shifted onto those who sit and wait.

I've lived in Stamford for 33 years.  For as long as I've lived here, there has been a 4.3 acre property, within 1000 feet of the center of town, which has sat vacant.  Even the city assessment record calls it the "Hole in the Ground."   It sits across the street from Town Center and from the Marriott. Recent reassessments have brought the land value up closer to its real value.  But until we get to the point where the Hole in the Ground and the Marriott, which sits on a similar sized lot and provides jobs, hotel rooms, meeting space, meals, parking for hundreds of people every day pay similar taxes, the out of town owners of that 4.3 acres can sit and wait.  The carrying costs won't bother them enough to motivate them.  We penalize the Marriott for the temerity of putting its land to good use and employing people and facilitating commerce and hosting tourists and visitors, and we encourage the owners of the HITG to continue speculating.  The local taxpayers are providing police protection, and water and sewer and all the other services, and not charging the absentee owners of the HITG their fair share of the costs of Stamford's services.  They are a pothole in our development.  They aren't the only one, but they are the worst one. 

If we shifted our property tax structure, we could motivate such owners -- the private sector -- to either put their land to good use -- which would benefit the entire community, and particularly the business community, or to lower their asking price so that it would be appealing to someone who would put it to good use.  Stamford could use another grocery store.  It certainly needs middle class and working class and retiree and low income housing.  Our incentives are not set up to motivate the private sector.  We reward sloth and penalize industry.

Land value taxation meets Adam Smith's canons of taxation better than any other form of taxation.

I am in nearly total agreement with "1000 Friends" mission statement, but their strategies (at least with respect to the property tax) are 180 degrees off of their objectives.  I hope that those who are serious about smart growth, about creating an environment in which the private sector will be motivated to provide what the market wants and needs -- and not just the luxury 50+ segment of the market might be able to pay for, will take a careful look at land value taxation, also known as split rate taxation [caution: not what Massachusetts calls split-rate taxation!]

For more information, see http://lvtfan.typepad.com/, http://www.wealthandwant.com/, http://www.urbantools.com/

We can create communities in which our children both want to live and can afford to live if we enact this reform.  We need enabling legislation to divorce the millage rate on land from the millage rate on buildings.  Each town can decide whether to utilize it.  I expect that those which utilize this tool will blossom.

Incidentally, I am not persuaded that the local property tax is necessarily the right way to fund local education.  Every child in Connecticut is entitled to a good education, and I don't see why Greenwich's and Westport's land values shouldn't be tapped to fund educational spending in Connecticut's lower-value cities.  (Do you know that Greenwich bills the federal government for aid for snow removal when snow falls quickly?  How many state dollars are used to fund highways, buses and trains which contribute to land values in southwestern CT?)  But we ought to be collecting for common purposes the huge land value which our common spending creates.

School superintendents

Totally agree that Connecticut should have 8 school superintendents instead of more than 100. It's ridiculous that small towns have to pay an extra six-figure salary when you can pay someone less to manage locally and answer to a regional super. Bring back the counties.

I could not agree more.

I could not agree more. School districts need to become decntrailzed like businesses. Their shpuld be one Superintendent and Business office for multiple schools. This would save millions and get rid of the "little fiefdoms" that are controlling the local schhol districts right now.

If the majority of school expenses are payroll, the Business people in these districts must be laughing all the way to the bank as they have ADP take care of that. This is certainly an area where shared "synergies" could be achieved between districts.

email to [email protected]

There was an editorial in the New York Times today which suggests that the recent activity on Wall Street will negatively impact Connecticut, New Jersey and upstate New York in the coming months.  Specifically, the loss of jobs will result in a 30% loss of the state's revenue from income taxes.  The editorial suggests that we use property taxes to help cover these losses.  What do your guests think about this?

--Sara
Southington, CT

http://www.nytimes.com/2008/09/18/opinion/18thu1.html?_r=1&ref=opinion&o...

email to [email protected]

Property Tax is the single most regressive tax in the state. For the home owner, it is levied on non-income producing property, regardless of the ability to pay. Older citizens are often placed in a situation wherein their primary asset is in jeopardy in their old age.

As to spending, municipal employees include teachers. Of course pay can then average $31.00 per hour. We all agree teachers are underpaid. Additionally and as to schools, most of what is spent is mandated by the Federal government. This year alone, schools are hit with higher fuel costs and school lunch costs.

Still, we need to find a better way to pay for local services.

Gordon Adams

email to [email protected]

I think a more honest discussion regarding property tax reform would include at LEAST one Mayor or First Selectperson on your panel.

As the person responsible for economic development for the City of West Haven, I wholeheartedly support more regionalism and less competition with our neighboring towns.  The constant “race” is not helping anyone in our state.

Rather than have our State legislators constantly point the finger at our towns, I think their efforts could be better spent figuring out some solutions.  As everyone knows, municipalities are faced with increasing costs, and many of them involve mandatory increases due to binding contracts and rising energy costs.

The constant finger pointing is counter productive and serves to polarize our towns against the State.  It is a common theme in our state, one town against another, one region against another, and the towns against the State.

ENOUGH. Lets work toward a solution instead of banging the drum about who is wrong. 

Eileen Buckheit
Commissioner of Planning & Development
City of West Haven