Speaker says CT may need to cap property taxes to fix town budgets

Connecticut should brace for a landmark debate next year on how it pays for local services, including capping property taxes and shifting municipal expenses onto the state’s back, House Speaker J. Brendan Sharkey said Friday.

The Hamden Democrat, who last month outlined a plan to subject colleges and hospitals to local property taxes, said Friday he wants communities to have significant leverage to negotiate the taxes these institutions might pay.

“This requires an overhaul on a grand scale,” Sharkey told a forum on municipal affairs hosted by Goodwin College in East Hartford, adding that Connecticut’s long-ignored property tax crisis must be addressed next year.

Sharkey told The Mirror in an interview last month that it’s difficult to accomplish major reforms during the abbreviated, three-month-long legislative sessions held in even-numbered years – which also are state election years.

“I believe [2015] is the time,” he added. “I don’t want us to find ourselves, 10 years from now, wondering how we missed that opportunity.”

Sharkey has long been one of the legislature’s most vocal advocates for reform of a municipal finance system that relies heavily on revenues from property taxes – a burden that falls heaviest on middle-income households and small businesses, particularly in cities.

The speaker formed a task force last year focused primarily on finding ways to reduce municipal costs through efficiencies.

Sharkey has said certain major expenses, particularly special education costs, could be provided at great savings if removed from 169 cities and towns and transferred to the state.

For example, if the state were to cover the full, $1.8 billion price tag for special education – as estimated by the Connecticut Conference of Municipalities – “that may mean taxes have to get raised, state taxes.”

But the speaker quickly added that only could happen “so that local taxes could drop.”

And to ensure that tradeoff happens, legislators likely would have to break with strong historic precedent and order caps, or some other control, on local taxes, he said.

“That’s certainly controversial,” Sharkey told reporters after the forum. He added that there is no way politically to provide communities with a budget windfall – such as the removal of special education costs – without ensuring local taxpayers benefit from it.

“CCM has long advocated for State taking over the costs of special education within municipalities as a tangible means of relieving property taxpayers,” the chief lobbying agency for cities and towns wrote in a statement Friday. “As a result, local officials remain open to working with state lawmakers on exactly what that State takeover would mean and translate to in efficiencies at the local level.

“The idea of mandating a cap however, is problematic,” the statement continued. “Municipal elected officials need to have the leverage to best determine how to address their local service needs and local tax levels.”

The speaker Friday also expanded on a second controversial proposal tied to municipal finances, a plan dubbed “Reverse PILOT” (Payment In Lieu Of Taxes) at the Capitol.

Connecticut has long spared most colleges and hospitals from local property taxes and reimbursed their home communities with state grants worth a fraction of the lost tax revenue. This year’s grant program will provide $115 million, worth about one-third of the waived property tax revenues.

Sharkey wants effectively to reverse that. Nonprofits would pay property taxes and these entities — not municipalities — could seek state grants to offset a portion of the cost.

The proposal is rooted in concerns about local taxes and the loss of taxable property as hospitals and colleges buy up real estate to use as outpatient facilities or faculty offices. Local taxpayers can’t afford to fund the police, fire and other services needed to support the nonprofit institutions without more help, Sharkey has said, adding that any reversal of tax burdens would likely be phased in over time.

But advocates for colleges and hospitals say Connecticut cities and towns already have it better than their counterparts in most other states, and say the institutions’ tax-exempt status is important to their bottom lines.

Still, the speaker said Friday that he envisions a system in which many nonprofits would not pay 100 percent of the property tax rate in their municipality – even before any state grants are taken into account.

“The idea is to give towns more leverage,” Sharkey said. Those nonprofits that are vital to a community – providing jobs and crucial services – could pay less, if local leaders approve.

“The traditional notion of the nonprofit, of the do-gooder agency, … is kind of going away,” the speaker said, adding that many have acquired huge property holdings in their host communities, increasing the demand for police, fire and other public services. At the same time, he said, these nonprofits have used their tax-exempt status to help finance excessive salaries for top administrators.

But could this system lead to a chaotic arrangement with great disparities between communities regarding how they tax nonprofit colleges and hospitals?

While CCM has endorsed the “Reverse PILOT” concept, it raises concerns about the potential for significant differences.

“The specifics of how a ‘reverse’ proposal would be implemented, however, would still need to be further examined so as not create a system that could fluctuate town-by-town, year-to-year,” the CCM wrote.