Where is the money going to come from to pay for the changes that need to be made to fundamentally reform Connecticut’s unfair, inefficient and onerous property tax system?
That question has been asked repeatedly in the wake of a report – issued in December by The Property Tax Working Group of 1000 Friends of Connecticut – that called for an overhaul of the state’s tax structure, beginning with three steps that should be taken immediately by Gov. Ned Lamont and the General Assembly: fully funding the Payments in Lieu of Taxes (PILOT) program; having the state kick in more money for local special education; and providing low-income households with a refundable property tax credit.
As it turns out, there could be more than enough money to implement those changes, even without dipping into the whopping $1.48 billion surplus that the state is projected to amass this fiscal year.
In Connecticut’s roughly $23 billion operating budget, less than $18 billion is collected from residents and businesses. Tucked inside the voluminous budget document are $8.84 billion in tax breaks and credits – known as “tax expenditures” in legislative parlance – that are doled out annually to certain taxpayers and special interests.
Amazingly, while the many billions of dollars in state spending are scrutinized each year, there is no requirement that the tax breaks and credits be similarly evaluated. Thus, they simply roll over from year to year, without regard as to whether they are constructive or productive. They ought to be re-examined with an eye toward eliminating or modifying those that are not beneficial to the state’s fiscal health. Of course, deciding which tax breaks to get rid of is a balancing act between sound policy and political judgments. But making those decisions is what lawmakers are elected to do.
Additionally, there are hundreds of millions of dollars to be garnered using a variety of strategies. The problem is: The state doesn’t act, ask or take. Policymakers need to be creative, collect what is rightly owed and shed tax breaks and credits that are counterproductive.
The following are some ideas worthy of consideration:
- Over the past decade, the Department of Revenue Services (DRS) has slashed its audit staff by 10 percent and its collection and enforcement staff by 25 percent. A 2021 study by The Boston Consulting Group, commissioned by the Lamont administration to address the expected wave of state employee retirements by June 30, estimated Connecticut fails to collect hundreds of millions of dollars annually. It’s estimated that each dollar spent to hire more auditors would bring in $8. Restoring auditors to 2013 levels could bring in $200 million.
- The consultant’s report also cited dozens of new initiatives and efficiencies that could produce more than a half-billion dollars annually. Included are such items as digitizing services; pooling resources; consolidating the state’s real estate holdings; and blocking payments to vendors who owe the state money. Many of the consultant’s recommendations could be carried out without trimming the state workforce, which is already undermanned.
- The wealthy now pay a top income tax rate of 6.99 percent. Boosting it to 7.99 percent for wealthy filers and to 8.49 percent for the uber-wealthy — rates that would still be among the lowest in the Northeast — could generate an estimated $504 million a year.
- The one-week tax holiday on the sales tax, which typically occurs in August, could be eliminated for a savings of $5 million.
- Credit card processing companies could remit the sales tax collected by merchants directly to DRS rather than sending the taxes back to the merchant, who then has the responsibility to pay the state. Changing the procedure could reduce paperwork for the merchants and simplify the audits of sales tax receipts.
- A portion of the state surplus that is not designated for debt reduction could be targeted to cities and towns to help defray their borrowing costs.
- State police overtime costs have risen to about $30 million a year. Hiring 100 to 200 troopers would result in $5 to $10 million in net savings.
- Connecticut receives far less of its revenue from the federal government than most other states. Creating a federal funding liaison, both in Hartford and Washington D.C., could produce additional aid.
- Tax amnesty programs that allow scofflaws to escape paying interest and penalties on delinquent taxes, could be eliminated. Such programs, which have proliferated in recent years, essentially provide “get out of jail free” cards.
- The state has roughly $700 million in outstanding revenue that’s deemed “uncollectable” by DRS. Those funds could be securitized and sold for a significant one-time infusion of cash.
In sum, deep in the budget and the bureaucracy are the answers to the dilemma of how to rebalance the state’s inequitable property tax, which accounts for a disproportionate 42 percent share of all state and local taxes. The property tax stifles business expansion and job growth; destroys open space by encouraging unwise land use; impoverishes cities; creates unequal educational opportunities; and has led to an outmigration of residents to no- or low-tax states.
Like buried treasure, the money to reform the state’s property tax system is there for the asking. All it will take is some fortitude and digging.
Michele Jacklin is a member of The Property Tax Working Group of 1000 Friends of Connecticut.