Coventry town manager Elsesser: Connecticut should consider the commercial activities tax

Keith M. Phaneuf / CTMirror.org

Coventry Town Manager John A. Elsesser

John A. Elsesser has been one of the leading figures in municipal government for nearly four decades.

In his 29th year as town manager of Coventry in Tolland County, Elsesser, 58, has been active in policy planning on budget and taxation, economic development, labor, regionalization and other issues affecting municipalities.

Former president of the Connecticut Council of Small Towns, he has served on a wide array of state and regional groups, including the 2016 Connecticut State Tax Panel, the Municipal Opportunities and Regional Efficiencies Commission and the Connecticut Conference of Municipalities.

Before his tenure in Coventry, Elsesser held assistant managerial posts for seven years in Avon and nearly three years in Wethersfield. He holds a master’s degree in public administration from the University of Hartford and a bachelor’s degree in political science from Bates College in Lewiston, Maine.

He and his wife, Holly, live in Coventry. They have two children and two grandchildren.

Elsesser spoke to The Mirror recently about the varied and intensifying fiscal pressures facing Connecticut and its municipalities as well as the obstacles and opportunities related to regionalizing local services.

How is Connecticut faring at this point in its long-running struggle to reduce its reliance on the property tax?

Unfortunately we’re going downhill. I think people recognize that property taxes — as the system is set up now — are neither a fair nor a responsible way of raising money. But it’s very predictable, so in its predictability, it becomes the workhorse.

I think everyone knows we’re in the top couple of states in terms of raising property taxes. I don’t think anyone really likes it. But they’ve been unwilling to look at the reasonable alternatives.

Could you offer an alternative?

One would be something like the Ohio CAT tax, the commercial activities tax, which is a form of value-added tax.

Basically, as an activity goes through a process, there is a very low rate of taxation on that process. It would replace the commercial income tax, which is disappearing.

This idea involves a very, very low (tax) rate at each step of a process, but cumulatively it brings in a lot of money.

If you think in terms of the manufacturing process, for example, it would be a tax based on the value added to a product at each stage.

In small jet engine manufacturing, the step that adds this little screw — that adds 0.3 percent to the value of the product —  there’s a tax on that.

And another company that performs another role in the jet engine’s manufacture pays a tax related to the value of their contribution?

Keith M. Phaneuf / CTMirror.org

Elsesser at the 2017 Council of Small Towns annual meeting.

We could do this. They [businesses]  are already assigning those values on their federal income taxes.

I don’t think of Ohio as this liberal bastion. They’re doing it, and they’re pretty conservative over there, and they’re economy took off when they did it. … But you have to set the rate right and then not increase it. That’s the biggest fear that CBIA [Connecticut Business and Industry Association] has, that the rates will change.

It requires fiscal maturity.

What I learned from the [State] Tax Panel is our tax structure is dying. I believe that property taxes are tapped out. From an economics model, there’s an inelasticity of property taxes. At some point you just can’t charge more because you don’t collect more. And that’s what’s happened in Hartford. People just stop paying.

But when you look at the tax panel and the other study efforts — many of which you have dedicated considerable time to — it seems as though even as this research is being done, there’s a spot being carved out for it on a dusty shelf where it can be forgotten?

Change is hard. [laughs]

Is that what is stopping Connecticut cities and towns from making more progress with regionalization of services?

I think there is a lot more going on between towns than the state knows.

We created a [regional] health district here almost 20 years ago, and it’s a great success. It saves us money, but more importantly it provides a quality level of service. When any of our towns have a water issue, we have a key person who takes the lead in responding. And while he’s not my staff person, he’s treated like my staff person.

We share equipment between towns. … There’s a lot of day-to-day stuff, like one public works department saying [to another], ‘Hey, can we borrow your roller?’”

But the reality is, if you look at the average town, they have the ability to do one or two large things at once, and that’s it. … And once you start with regionalization, you quickly get into the collective bargaining issues.

… It seems like this is a major stumbling block for us. We can’t find any compromise in this area?

Say 10 towns want to get together and do something. That means 10 attorneys, 10 collective bargaining sessions, all independent of each other … and in the end they all have to come together? It just doesn’t make sense.

There has to be a way to negotiate with a new group [representing all unions], but not each of them separately. Just think of the time and energy involved, or the cost of legal expenses.

I’m not saying there isn’t a role for collective bargaining, it just needs to be done differently.

I think some of the larger collective barging units ought to put forward their own proposals on how to do some of these things, because they could help make this happen, which would save people’s jobs.

They understand they need to help. They also need to have some courage, to step forward.

Could the same be said about the need for more state tax revenues?

I think everybody’s going to have to step up. For God’s sake, yes, at some point revenues are going to have to be raised.

You can’t say that revenues can’t be raised. You have to pick the right revenues and probably the least noticeable, which is why sales tax [increase] probably does make sense.

The other reason is we’re fairly competitive in the sales tax.

Increasingly, mayors, first selectmen and town managers say that while they’ve cut general government costs for more than a decade, most growth in state aid has been focused on education. And that now with aid being reduced, politicians at the state level are wary of any steps to restrict compensation or benefits for municipal school teachers. Is this fair?

I don’t think any one class of employees, public or private, should be immune.

And let’s give the state employees some credit. They have gone without pay raises, in some cases, for three years. So why should one class of taxpayer-funded government employees get a break?

Would it be horrible of the state of Connecticut to set some wage goals for teachers? Would it be horrible to say we hope that over the next three years, as part of this, that you come to a net zero wage agreement? … But if they set a goal, well then that would be something that binding arbitration would have to look at.

When Gov. Dannel P. Malloy recommended towns cover one-third of skyrocketing teacher pension costs, you said: “We didn’t break it, so why should we buy it?” Do you think most legislators understand that the bulk of the cost in teacher pensions stems from decades of under-funding by the state and doesn’t reflect the cost of future benefits for present-day teachers?

Keith M. Phaneuf / CTMirror.org

Coventry Town Manager John A. Elsesser

I would think by this point they do know the history. They may not like it. It’s convenient not to talk about it, but I think they are smart enough to understand that core component.

The problem is they don’t get everyone together to talk. They act like, ‘We’re at a higher level of government, so we can do it by ourselves.’”

But when you ask someone else to be a partner, that means you have to have a dialogue. And there has been no discussion with cities or towns about a path going forward for pensions.

… I think reasonably, going forward, there would be a willingness [among municipalities] to pay a percentage of the current payroll toward teacher retirement. It might have to be phased in over a couple of years to get there, but I think it is reasonable.

But most of the towns say we’re not going to pay a dime until they come up with another tier.

You mean a reduced retirement benefit for future teachers?

The state has three tiers [for state employees], four tiers depending on how you count them.

The state has the legal flexibility to establish a new tier for future teachers. Why do you believe it hasn’t happened?

I think it is votes. The bottom line is the teachers’ union votes.

But it’s a little hypocritical that they create new tiers for their own employees and they don’t for that.

Why is there a double standard? It just frustrates me.

They say we’re inefficient. Well, a lot of the inefficiency is based on the standards that they keep giving us or refuse to change, like legal ads for newspapers. They [state agencies] don’t advertise [to notice meetings] but we still have to.

It’s offensive when I take out this little ad and its two thousand bucks.

We’re inefficient because of their rules.

They say, ‘Can you give us a list of mandates? We didn’t know there were mandates.’ Oh, come on.

You said 11 to 12 percent of Coventry’s annual budget would be eaten up by teacher pension bills by the early 2030s if the governor’s plan were adopted. But some revenue source likely is needed to play a major role to pay off the state retirement benefit programs’ unfunded liabilities. Is Connecticut going to have to make a choice between the income tax and the property tax in terms of which tax covers the majority of this bill?

I wish somebody was looking at the commercial activity tax.

Does it have sufficient revenue capacity to cover this, to do the heavy lifting?

It has the capacity to do it. But I think, like everything this big, there will have to be multiple things. And somewhere out there is the CCJEF [Connecticut Coalition for Justice in Education Funding] case. A lot of expectations are that this could cost another billion dollars, maybe phased in over time.

But which should be burdened more, the income tax or the property tax base?

Because of the predictability it will probably be the property tax. But they should look at a statewide property tax.

Not the personal income tax?

I think it is scary when you are relying on a handful of people to pay a lot of money. I think a lot of people poo-poo that.

These [wealthy] people already own a Florida house or a house somewhere else. So all they are doing is filling out paperwork saying they are going to live somewhere else for six months and a day. It’s not that they are physically moving out of their house up here.

Does that mean most of the burden would fall on the middle class?

No.

What the State Tax Panel talked about was a property tax based on income. … And if you own a multi-million dollar estate, that means you have more money.

There’s a long-term adage that there is no good tax. It is a social responsibility, however.

Do you see us entering a period of opportunities that we are ready to seize, or a period where Connecticut is sticking its head in the sand?

I just texted a picture of an ostrich to somebody. But what’s interesting is ostriches don’t really stick their head in the sand to hide. They’re looking for food.

So I think, in context, even if we’re sticking our head in the sand, we may find the nutrients we need.

My biggest bitch about the state is that we are so mean to ourselves, we are so down on ourselves, we are in a psychological depression rather than an economic depression. … Can we look for the common good?

That’s what we’ve lost in this state, and maybe in the nation, too. And until we decide that this is a good state, that we want to make it better, we’re not going anywhere — and we’re making everyone miserable. But that also means you can’t make decisions.

Here is Elsesser in a video explaining the Connecticut Council of Municipalities.

This Q & A has been edited for length and clarity.

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