New Haven just won a big battle.
On April 5, the Elm City approved a historic deal that would see Yale increase its next six annual payments to the city by millions of dollars. While the agreement is a fraction of the $50 million in annual contributions the mayor promised during his election, it is still a significant jump over the relatively paltry sums that Yale, which as a non-profit cannot be taxed, has been voluntarily giving so far.
It is a big win. But it is not enough.
Yale is not the disease – it is merely a symptom of a larger problem. Connecticut law systematically disadvantages many of its cities by requiring them to only raise revenue through property taxes while simultaneously exempting non-profit- and government-owned property from being taxed. Remedial measures like Yale’s payment can help, but to truly fight back, cities need to be aggressively creative. One answer lies in their regulatory powers.
New Haven’s detractors like to claim that the city has a spending problem. The facts tell a different story. According to a 2018 analysis, New Haven’s spending ranked 41st in the state among Connecticut towns, at $4,213 per resident. Bridgeport and Waterbury spent even less per capita – $3,907 and $3,852 respectively.
Compare that with the highest spenders: Westport at $7,782 per person, New Canaan ($7,517), Weston ($7,356), and Wilton ($7,094). These cities spend 50-60% of what the high spending suburbs do to pay for their teachers, police, firefighters, roads and more, despite the fact that the teachers, police, and firefighters have more challenging jobs in the cities and the roads get more wear and tear. The cities do more with less.
The spending situation grows even starker when the role of the suburbs and the cities are put in their proper context. According to the U.S. Census Bureau, New Haven’s population increases by over 30,000 people each day. These increases come from the suburbs, which see their populations decrease during the day. In New Haven, spending per daytime population was only $3,189. This is less than the state average ($3,816), as well as the spending on the daytime populations of neighbors like East Haven ($4,413), Hamden ($4,277), Woodbridge ($5,837), Guilford ($5,025), or virtually any other neighboring town.
High-spending communities can better fund their services because most of their property is taxable. In 2015, only 5% of the property in Guilford was tax-exempt. In Woodbridge and East Haven, the tax-exempt number was 9% and 9.6% respectively. In big-spending towns like Greenwich and Westport, the tax-exempt level stood at 7.7% and 10.4%.
In 2018, 49.4% of New Haven’s property was not taxable. Today, 60% isn’t.
But, New Haven isn’t alone. Over a quarter of the property in Hartford, Waterbury, Bridgeport, New Britain, Middletown, Mansfield, New London, and Windsor Locks is also tax-exempt. Many of these towns, like New Haven, are also more diverse than the state as a whole, with incomes below the state median -– meaning that starving them of revenue contributes to racial and economic disparities.
Changing state law to allow for a diversified tax base would help and shouldn’t be controversial. Indeed, 35 states allow their towns to raise revenue through some combination of sales and income taxes. Connecticut municipalities should be allowed to decide locally whether they want to raise revenue through something other than property taxes. Towns could then be allowed to experiment with a mix of revenue sources to differing results.
This will be a hard sell, however. There are 151 representatives in the Connecticut House of Representatives and only 35 of them come from the municipalities with 25% or more of tax-exempt property. The State Senate is more even – these towns represent 14 of the 36 seats. But they still don’t form a majority and the towns with robust property bases and net outflows of daytime residents are keen to protect their constituents from contributing to the tax base of other localities.
With the state unwilling to make the reforms necessary, cities need to go it alone. The path to doing so runs through two obscure State Supreme Court cases and the fine distinctions between taxes and fees.
In the first case from 1959, the court held that if a fee is charged to cover the cost of administering a regulatory ordinance, it is an exercise of a town’s police – not tax – measure and is legal as long as the “fee is reasonably proportionate to the cost of administering and enforcing the ordinance.”
In the more recent 2008 case, a housing association challenged New Haven’s right to place on them a licensing and fee requirement. The Supreme Court decided for the city, holding that the state had granted cities broad powers over housing policy and where state law was so broad, cities could charge fees as part of their regulatory schemes unless the law expressly forbade it.
Together, the implications are clear: while cities may not tax activities for revenue-generating purposes, they also are not required to fund all their regulatory activities from their general revenues. Fees differ from taxes by not going into the general revenue fund and staying tied to the activity to which they are charged. But they can lighten a city’s financial burden.
How would this work practically? Cities that want to remediate the public health impacts of pollution could charge polluters fees to offset the cost of their contamination. For example, cities could require gasoline vendors and ride-hailing services to pay a fee per transaction. The resulting payments could go into environmental remediation or transportation improvements.
Cities like Chicago and Portland, OR already do this. Similarly, cities could offset the cost of restaurant public health inspections by charging a transaction fee to people who use the restaurants. The beauty of such a system is that if New Haven provides public health inspections of restaurants used primarily by Yale students and commuters, the cost of that activity is borne by Yale students and commuters and not solely city residents.
As it currently stands, lower income, racially diverse New Haven residents subsidize these activities for the disproportionately white and wealthy university community and commuter population. Sharing these costs would even that burden. While the revenue from this regulation cannot go into the city’s general coffers, the money that cities would have spent on that activity can now be saved for other public goods.
In the end, legislators from other towns (and especially the governor who relies on cities’ Democratic votes) would do well to allow more diversified tax options. Surrounding towns would ultimately benefit from stronger, more fiscally sound cities. But, in the meantime, if cities want to grow stronger, they need to fight back on every front possible. More user fees may spur lawsuits like the older cases, but it is a risk worth taking. Doing nothing already costs the cities too much.
Liam Brennan is a member of the Connecticut Mirror’s Community Editorial Board.