Property taxes are keeping New London down

I believe that government has the ability to solve problems. But it also has the ability to create or exacerbate problems, sometimes unintentionally. For instance, methods of taxation can interfere with market forces and discourage private investment in declining cities. 

While not unique to New London, the system of local real estate taxation we have in this and other states has several known negative effects, such as reinforcing disparities in educational opportunity. Ultimately, a more regionalized system of taxation could address the problem by evening out the property tax rates among municipalities, but that does not appear to be a politically feasible solution at the moment. 

In many cities, individual tax “deals” are approved to incentivize major new investment. New London has tried this as well, which is how we got Pfizer’s building at Fort Trumbull (and which they abandoned once the tax deal ran out). These “one off” deals have been to the great benefit of corporations like Pfizer, but during the term of the tax deal they don’t lessen the tax burden on the thousands of other small property owners who feel demotivated from making improvements to their own properties — partly because of the resulting tax bill. And these “one off” deals rarely deliver the promised results. 

At the same time, in the last couple of decades, there has been a resurgence of investment in certain places that also experienced significant decline after World War II, like Brooklyn, N.Y., or the South End of Boston. This was not sparked by any one major development incentivized by a tax deal, but by the decisions of thousands of individual property owners, deciding to rehabilitate homes that had fallen into disrepair. In fact, the major building projects in these places only came after these many small investments. 

In order to incentivize the same behavior here, what if the city instituted a temporary tax freeze on property improvements made — by anyone — during a certain period of time, for instance, five years? And the freeze on those improvements would continue for another period of time — for instance, another five years. Those improvements would then be taxed normally after, at most, 10 years. 

We know that tax policy affects economic behavior. The federal government routinely uses it to encourage investment in certain locations and industries. Some of these incentives are available to properties in New London (affordable housing and historic tax credits, for example), but they are complicated and only practical for large projects. What I am suggesting is easy for the individual property owner to understand and accessible to everyone, which frees it from accusations of favoritism or corruption. 

State legislative approval would be needed. But as one of Connecticut’s smaller cities, New London could serve as a relatively low-cost experiment with this approach that, if successful in spurring a significant number of small investments, might be applied in the state’s larger cities, which also experienced similar disinvestment in the last 50 years. 

Peter O’Connor, a New London native, is a lawyer, development consultant, and former city and state government official.

 

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