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    Monday, May 06, 2024

    The challenge of fixing tax burden on cities

    Like hungry dogs, Connecticut cities and the nonprofits that inhabit them are left fighting for the scraps the state General Assembly allows to fall from the table. Some nonprofit dogs are bigger than others.

    Many of the nonprofits that serve the poor, people with mental, physical or developmental disabilities and the homeless, and those which enrich life with arts and culture, and provide health care to those who cannot otherwise afford it, have seen their budgets flat-funded for a decade.

    Meanwhile, the legislature has shirked its responsibility to provide funding to make up for the property tax revenues lost to the cities, which are home to the bulk of these nonprofit agencies. Called the PILOT program (payment in lieu of taxes), the law provides for the state to compensate a municipality 77 percent of the revenues lost because it cannot assess a property tax on a nonprofit. In reality, the state is funding at a rate of 32 percent. The same law calls for the state to make up 45 percent of the lost taxes for state property, when in reality it is providing 22 percent.

    And that hurts, because when it comes to paying for education and services, Connecticut is one of the most property tax-dependent states in the country. When a municipality can’t tax a nonprofit, and doesn’t get reasonable help from the state, the burden falls heavy on the remaining property owners and chokes development efforts in the cities.

    About 44 percent of properties are exempt from property taxation in New London, in Hartford about half.

    Property taxes account for 40 percent of total taxes in Connecticut, compared to 31 percent in the U.S. as a whole. Meanwhile, the Connecticut General Assembly returns only 24 percent of its revenues to local governments, compared to a 36 percent average for all states.

    Desperate for dollars to fund struggling schools, provide police and fire services, and fix aging infrastructures, cities are putting the squeeze on nonprofits to find some tax dollars.

    In Norwich, Tax Assessor Donna Ralston ruled that nearly three dozen nonprofits were entirely or partially exposed to property taxation, citing in some cases the failure to meet filing deadlines and in other instances the questionable use of properties — such as unused lots or apartments generating revenue for an organization.

    These often struggling nonprofits are in most cases barely getting by, their employees often receiving salaries that number them among the working poor. Getting blood from a stone comes to mind.

    In a meeting Monday in Norwich of leaders of nonprofit organizations, Gian Carl Casa, president and CEO of The Alliance, which represents nonprofits statewide, said while steps taken in Norwich may be extreme, they are not isolated. The Alliance has received concerns from nonprofits in about 40 towns and cities about being denied tax-exempt status for properties that had been exempted for years.

    It appears that state laws governing tax-exempt status do need updating. Assessors should enforce rules consistently from city to city, which does not appear to be the case. There may be property holdings that a municipality should be able to subject to taxation that are now exempt.

    Credit goes to the Southeastern Connecticut Council of Governments for bringing together a task force of municipal and nonprofit officials to try to find consensus on tax-exempt standards, work that could provide the framework for state legislation.

    But this is not going to address the fundamental problem of insufficient revenues to maintain our cities.

    For that the General Assembly should turn to a recommendation provided by the Connecticut Commission on Fiscal Stability and Economic Growth. Formed by the legislature, its recommendations, released in March, got no traction in the just-completed legislative session.

    The commission recommends the legislature provide municipalities with the power to impose service fees in lieu of taxes (SILOT) on those big-dog nonprofits — colleges and hospitals. Those institutions would retain their property tax-exempt status, but pay a SILOT to help defray the cost of the public safety services and infrastructure on which they depend.

    The legislature should also look at some form of regional assessment, with revenues redistributed to the cities through the PILOT program, because regions are dependent on the nonprofits services largely located in the cities.

    Connecticut suffers from a lack of vibrant cities. That will not change without addressing the backbreaking property tax structure.

    The Day editorial board meets with political, business and community leaders to formulate editorial viewpoints. It is composed of President and Publisher Timothy Dwyer, Executive Editor Izaskun E. Larraneta, Owen Poole, copy editor, and Lisa McGinley, retired deputy managing editor. The board operates independently from The Day newsroom.

    Comment threads are monitored for 48 hours after publication and then closed.