House approves big municipal aid pledge, tax incentive bills

MARK PAZNIOKAS :: CTMIRROR.ORG

Rep Sean Scanlon addressing a chamber largely empty due to the pandemic. Most members watched and voted from their offices.

The House of Representatives overwhelmingly approved a measure Wednesday that effectively promises $110 million to $120 million in new annual aid to cities and towns — but doesn’t officially fund the initiative just yet.

The House also endorsed fast-track legislation from Gov. Ned Lamont’s administration to encourage data center development in Connecticut.

Both measures now head to the Senate, which had been scheduled to meet Thursday but now plans to meet on Monday.

“Today is a little different, it’s unorthodox,” House Speaker Matt Ritter, D-Hartford, said before Wednesday’s session, at which lawmakers endorsed a new new program to bolster non-education aid for communities with large quantities of tax-exempt property. “We want to put a marker down.”

The “marker” Ritter referenced involves the state budget for the 2021-22 and 2022-23 fiscal years — a package not expected to be adopted before May or later. More specifically, the enhanced PILOT or Payment In Lieu Of Taxes grant methodology that cleared the House doesn’t include a mechanism to pay for it.

But Ritter said local finance boards and municipal councils across Connecticut can count on those additional funds being included in the next two-year state budget roughly three months from now.

“It’s going to be a cornerstone of what we do,” the speaker added. “We want them to feel confident they can rely on … these figures.”

Changes to our PILOT program will help lift up our cities, the cultural heartbeats of our state, and provide them with the resources they need to thrive. ”— Gov. Ned Lamont

Legislatures and governors have struggled to maintain their commitment to PILOT over the past two decades as surging pension and other debt costs have consumed more and more of the state budget.

PILOT grants are supposed to replace about 45% of the funds communities lose because they can’t tax state property. Communities currently get less than 15% back, according to the Connecticut Conference of Municipalities. Similarly, the grants once designed to replace 77% of taxes lost on nonprofit colleges and hospitals now cover less than 25%.

No community would receive less PILOT aid than it currently does through the bill under consideration, but those in low-income municipalities would receive additional funds.

Gov. Ned Lamont, who did not propose any additional PILOT funding in the biennial budget he recommended on Feb. 10, instead proposed giving towns a one-time $100 million boost in non-education aid next fiscal year — with half coming from state borrowing and half from emergency federal coronavirus relief funds.

Lamont nonetheless backed the measure passed in the House on Wednesday by a margin of 125-24. “Changes to our PILOT program will help lift up our cities, the cultural heartbeats of our state, and provide them with the resources they need to thrive,” the governor said.

Rep. Holly Cheeseman of East Lyme, ranking House Republican on the Finance, Revenue and Bonding Committee, questioned why majority Democrats were enacting a bill that guaranteed no funding, offering little more than a promise.

But Cheeseman, who voted for the bill, added that towns desperately need the funds and warned lawmakers would be held accountable if they don’t deliver the dollars in May.

“If we don’t live up to our word as a legislature,” she added, Connecticut would have to “change our motto from the Land of Steady Habits to the Land of Broken Promises.”

Advocates for cities and towns, which have seen their finances rocked by the coronavirus pandemic and related economic chaos, expressed similar sentiments this week.

“Our hope is that it’s not just very real this year, but that it’s sustainable,” said Joe DeLong, executive director of the Connecticut Conference of Municipalities, who added that communities are grateful for all the added support. “There has to be a commitment here.”

Elizabeth Gara, executive director of the Connecticut Council of Small Towns, called any effort to reverse the trend in PILOT grants “good news” but added the “PILOT funding is only a piece of the puzzle, and we hope this doesn’t impact the other levels of municipal aid.”

Majority Democrats also wrote two other components into the bill that, at other times, might have been offered as separate measures.

One, which enjoyed strong bipartisan support, would clarify that more than 100,000 Connecticut residents who work in other states and pay income taxes to those jurisdictions still can get a credit for those taxes on their Connecticut returns.

New York and Massachusetts enacted laws holding that telecommuters working from home for “convenience” actually owed taxes first to their employers’ home state. Connecticut responded with its own convenience law in 2019, and those and other northeastern states are battling the issue out in federal court.

The second additional concept wrapped into the municipal grant bill would end the controversial practice of placing liens on the homes of former welfare recipients.

More than 50 members of the GOP minority — many of whom objected to the welfare lien component — tried unsuccessfully to amend the bill to break it down into its components. 

Some Republicans charged that it was a political stunt to force those who wanted to protect workers at risk of double-taxation to support other concepts at the same time.

“Why are we not doing separate bills? I don’t think it’s proper,” said Rep. David Yaccarino, R-North Haven. “It just goes back to transparency.”

Tax incentives for data center development

The House did tackle a second, separate fiscal bill Wednesday, voting 133-13 to approve legislation that would waive state sales tax obligations for 20 years for any data center that invests at least $200 million in the state — or just $50 million if the facility is located within a state-designated enterprise zone.

The sales tax exemption would be extended to 30 years if a $400 million investment is made, or a $200 million investment in an enterprise zone.

I’m concerned that we’re rushing this process and not getting the best deal. ”— Rep. Anne Hughes of Easton

Scanlon said this sales tax relief is crucial for an industry that must continually update its equipment to remain competitive.

“This is a very expensive facility to set up,” he said. “Every two or three years, the technology becomes obsolete, and you have to buy everything again.”

Connecticut also would waive its right to impose a financial transactions tax, such as those proposed last summer by New York and New Jersey on these facilities.

Most states, including Connecticut, impose a sales tax that applies to online shopping. But some states have considered a separate, second levy that would apply to a broad range of online transactions, including purchases and stock transactions.

“All of that is data. All of that has to be managed,” Cheeseman said. “This is an industry of the future.”

But while Lamont’s proposal drew strong, bipartisan support, it attracted some criticism as well.

Rep. Anne Hughes of Easton, co-chairwoman of the House Democratic Progressive Caucus, questioned why the bill was brought forward through an emergency process — without being reviewed, for example, by the legislature’s Environment or Energy & Technology committees.

“We know that these data centers are a huge energy draw, and we know that we pay some of the highest energy rates in the country,” she said. “I’m concerned that we’re rushing this process and not getting the best deal.”

But Rep. Sean Scanlon, D-Guilford, co-chairman of the Finance, Revenue and Bonding Committee, said the potential benefits to Connecticut’s economy and its municipalities are huge. Scanlon said data center development typically creates between 1,000 and 1,500 construction jobs per facility.

The bill also empowers the municipalities where these data centers would be located to negotiate “host fee agreements.”

While the centers, technically, would be exempt from municipal property taxation, communities could impose a host fee that could be less than, equal to or greater than the lost taxes, Scanlon said.

But while the Senate is expected to adopt the PILOT grant bill, the data center measure’s fate was less clear Wednesday.

Thursday’s planned Senate vote was pushed to Monday, said Senate President Pro Tem Martin M. Looney, D-New Haven, because “several” senators had questions. He was not among them.

“Why is the bill that was up for a public hearing [Tuesday,] less than 24 hours later, up for final action by the House of Representatives as an emergency-certified bill?” asked Sen. Mae Flexer, D-Windham.

Flexer said she was grateful that Senate leaders agreed to a postponement to allow questions about the labor, environmental and fiscal impacts entailed in encouraging the construction of data centers that are major consumers of electricity.

New Jersey’s consideration of a tax on nearly every transaction on Wall Street — New Jersey is home to data centers that process trades for the stock exchanges — is making Connecticut an attractive alternative, Scanlon said.

David Lehman, the commissioner of economic and community development, said the administration has been in serious talks with operators of data centers for months, and the exchanges were looking for assurance that a transaction tax was off the table.

“We wanted to show we are serious about growing this business,” Lehman said.

About 30 states either have or are considering similar laws to enhance their attraction, he said.

One potential builder, GOTSPACE Data, already has a signed project labor agreement with the building trades in eastern Connecticut.