The top Democrat in the state Senate called Friday for an optional local sales tax increase to help cities and towns control property tax rates.
Senate President Pro Tem Martin M. Looney of New Haven endorsed a local surcharge of one-half of 1 percentage point to the existing 6.35 percent state sales tax.
The plan, which Looney released as part of his agenda for the 2017 General Assembly session, echoes one portion of a plan released earlier this year by the Connecticut Conference of Municipalities. But it could put Looney at odds with Gov. Dannel P. Malloy, a fellow Democrat, who has said Connecticut should close a projected shortfall in the next two-year state budget without any major tax increases.
“The goal of this proposal is not to grow the size of municipal government, but rather to enable our towns to diversify their local revenue base,” Looney wrote in his agenda. “I believe that our towns truly need this additional revenue flexibility, so they can diversify their revenue structures and ultimately reduce their reliance on the regressive property tax.”
Long recognized as the most regressive tax imposed by any level of government in Connecticut, the property levy was highlighted in the first tax incidence study ever prepared for state government in late 2015.
That analysis found households earning less than $48,000 per year effectively pay nearly one-quarter of their annual income to cover state and local taxes. That also includes families and individuals who rent their housing, and whose rental charges reflect the property taxes their landlord must pay.
“We can and must change the legacy colonial property tax system that ties the hands of our towns,” Looney added. “Municipalities have long been asking the state for revenue diversification, and this General Assembly can make it a reality this year. Doing so will help to make our state and its towns both more competitive, and more equitable.”
The local sales tax increase, if imposed by all 169 cities and towns, would generate $214.5 million annually, Looney wrote, citing projections from nonpartisan analysts. The state sales tax currently generates about $4.25 billion per year, the second-largest revenue source after the personal income tax.
Looney is not the first Democrat to look at the sales tax as a tool to help plug a projected shortfall of $1.4 billion to $1.7 billion in the next fiscal year — a gap equal to about 8 percent of the General Fund.
Democratic leaders on the Finance, Revenue and Bonding Committee, Sen. John Fonfara of Hartford and Rep. Jason Rojas of East Hartford, told The Mirror they were exploring a sales tax hike as well, though specifics were not released.
Malloy is not the only one who might have an issue with increasing the sales tax.
House Minority Leader Themis Klarides, R-Derby, has said her caucus is opposed to increasing state taxes; while Senate Republican leader Len Fasano, of North Haven, has said it would be very difficult to support any tax increases in the new budget.
Joe DeLong, executive director of the Connecticut Conference of Municipalities, said Friday that while CCM wants to see a discussion at the Capitol on the sales tax, it needs to be broader in context.
“You can’t take pieces of our proposal and look at them in a vacuum,” he said. “Nobody is addressing them collectively and they can be damaging if some of them are done by themselves.”
CCM unveiled a sweeping plan in late January that not only included a sales tax boost to aid communities, but also a wide array of new regionalization incentives and collective bargaining changes.
Another controversial provision would impose fees on property-tax-exempt nonprofits, such as private colleges and hospitals, in the event that certain state grants are curtailed in future years. Malloy has recommended that nonprofit hospitals real property be subject to local taxation beginning next fiscal year.
CCM launched a new online ad Friday to promote the shared services and cost-containment aspects of its plan.