Examining NL's tax problems, take two

Two weeks ago I wrote about the state's property tax system and its lack of any county government as being at the heart of New London's budgetary problems. The city provides the region many of the services any healthy community needs - a hospital, colleges, public housing - yet it alone takes the hit because these things are exempted from property taxes.

And property taxes, along with largesse provided by the state, provide the revenues needed to operate a municipality. The problem created by this tax system is particularly acute for New London. As a densely developed city, New London must provide all the services expected of a city, including a paid fire department and sizeable police force. But because of its relatively small size, and with so much of the available land utilized by non-profit entities, New London's tax base is too small to pay for the services it needs.

The state provides some compensation to make up for these losses, PILOT money - Payment In Lieu of Taxes - on some of this property but it does not cover the full cost of the tax loss.

The column generated a lot of interest, with nearly three dozen comments on line at last check and a few phone calls and emails sent directly to me. So I decided to look deeper. Working with officials in the New London Finance Department, I discovered that the situation is even worse than I would have estimated.

New London has $931 million of tax exempt property (based on assessments). If that property were taxed it would bring in $25.5 million in revenue. The city estimates it will receive only $5.5 million in PILOT money. That's a net tax loss of about $20 million, or roughly one-quarter of what it will cost to operate the city.

The assessment on private colleges and hospital property in the city is $444 million, and there is $64 million of state-owned property. State regulations call for the state to provide revenues equal to 77 percent of the tax loss on hospitals and colleges, and 45 percent on state properties. But the state is also free to adjust those payments, based on its own fiscal problems.

To be fair, New London gets much state aid, including an estimated $22.9 million in Education Cost Sharing (ECS) grants; and $484,000 for town road aid and capital improvements. Still, the system needs reform.

While property tax reform has traditionally been a cause taken up by city Democratic leaders (with little success) it could make a great platform for a Republican gubernatorial candidate. In 2010 Republican Tom Foley lost by a few thousand votes, mainly because he was killed in the cities. Foley was the choice for governor among voters almost everywhere else in Connecticut.

A Republican taking up tax reform could cut into that Democratic domination in the cities. Such a strategy may seem counterintuitive, since sharing the tax burden more equitably would mean shifting some of it to the suburbs, normally where Republicans find their electoral support. But as they say, only Nixon could go to China.

Much as Republicans in Congress have paired their calls for tax rate reductions in Washington with plans to simplify the tax code and eliminate most deductions, a perceptive gubernatorial Republican candidate in Connecticut could package property tax reform with a push for greater efficiency in government and reduced spending.

Start taxing and organizing on a regional basis and there are many opportunities for savings - larger, regional high schools (see Norwich Free Academy), single superintendents for much larger school districts, regional police and fire services with reduced administrations, and the list goes on.

This would mean radical change for the land of steady habits and would require driving a stake through the sanctified heart of home rule. But having 169 separate bureaucracies for 169 communities (more if you count the myriad boroughs and fire districts) is not a sufficient way to run things. And it certainly is not working for New London.

Paul Choiniere is editorial page editor.

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