New budget might end property tax on vehicles

State legislative leaders say they are strongly considering eliminating local property taxes on motor vehicles in the state budget they hope to adopt next week.

But while they have proposals to help cities and towns cut costs, leaders conceded communities might have to offset most of the lost revenue simply by boosting taxes elsewhere — on homeowners and businesses.

“You’re being taxed one way or another,” said House Speaker Joe Aresimowicz, D-Berlin, who called the motor vehicle levy a “nuisance tax” that is difficult for towns to administer. “We believe that not taxing a motor vehicle is a good policy.”

“Towns and cities manage their budgets way better than state government ever could,” House Minority Leader Themis Klarides, R-Derby, said.

The House leaders spoke with reporters at separate press conferences after briefing their respective caucuses privately on a tentative, bipartisan framework for a new state budget.

Klarides said repeal of the motor vehicle tax is not certain and is still being discussed by leaders. “These are tentative agreements on major issues,” she said. “That’s why we’re not voting yet, and I will not tell you who’s supporting this or not supporting this.”

But Aresimowicz said that while he remains open to discussions, he believes there is consensus on eliminating motor vehicle taxes.

“To me this is a part of the (budget) deal,” he said. “Obviously if folks want to have further discussions, we can.”

The state’s chief municipal lobby, the Connecticut Conference of Municipalities, wasted no time indicating it would like to discuss the issue.

CCM Executive Director Joe DeLong said his organization opposes eliminating the tax on vehicles — with no complementary plan to help municipalities adjust — but it is not drawing any line in the sand.

“It can’t be dealt with in a vacuum,” DeLong said. “It needs to be handled in a broader conversation.”

“The car tax is inherently unfair. As an organization we know that,” he continued. For example, two identical vehicles in different communities might be taxed at very different rates.

But simply eliminating the motor vehicle tax only will shift burdens onto a residential and commercial property tax base that is “already overtaxed and unstable,” DeLong said.

CCM would be ready to help research other options, DeLong continued. These include, but are not limited to, replacing local car taxes with a uniform statewide rate, and exploring new revenue-raising options for cities and towns besides the property tax, he said.

Betsy Gara, executive director of the Connecticut Council of Small Towns, expressed similar concerns.

“Unfortunately, this proposal will simply shift more of the property tax burden to homeowners and businesses, discouraging investment in real estate and undermining our local economies,” Gara said. “We are hopeful that legislators will understand the impact of this proposal on the state’s real estate and business climate.”

CCM projects that the motor vehicle tax provided municipalities collectively with about $800 million annually until the 2016 fiscalyear. That’s when the state imposed a cap on motor vehicle taxes in select communities with the highest tax rates. Even after the cap is applied, though, the tax provides all communities with close to $700 million in revenue.

Motor vehicle taxes represent roughly 7 to 10 percent of all taxable property in most municipalities, according to CCM.

Both Gov. Dannel P. Malloy and his predecessor, M. Jodi Rell took shots at eliminating the tax — Malloy in 2013 and Rell six years before that. Both proposals bogged down as state officials struggled to find ways to replace the revenue communities raise from the levy.

House Majority Leader Matt Ritter, D-Hartford, said legislative leaders anticipate revisiting the motor vehicle tax issue in the 2018 General Assembly session.

The proposed repeal of the tax would not occur before July 2018. So even if it is approved now, Ritter said, lawmakers would have plenty of time to talk with municipalities about ways to reduce local spending or otherwise offset the loss of tax revenue.

Deputy House Minority Leader Vincent J. Candelora, R-North Branford, said the new budget includes several policy changes to lift unfunded mandates and to ease other burdens placed on cities and towns.

They include:

• Giving towns more flexibility to reduce local spending when state grants to municipalities are cut.
• Revising the binding arbitration process to allow arbiters more flexibility. Currently arbiters must select either the last best offer from a municipality or from a public employee union.
• Easing prevailing wage restrictions that set construction wage levels for many publicly financed capital projects.