Revamp the property tax system to overcome unfairness, inefficiency
This should be the year state policymakers start to revamp the state’s property tax structure. We know that the system is unfair, and there is a clear path forward to fix it.
Current property taxes are unfair in a number of ways. Owners of properties with the same fair market value pay vastly different property taxes based on which town they are in. Owners also pay very different taxes for the same level of local public services. Residents often receive very different levels of local public services for the same level of taxes paid.
Current property taxes also create inefficiencies in a number of ways. Different tax levels spur households and businesses to move from one community to another to lower tax burdens. Because towns with lower tax burdens are likely to be at some distance from central cities, new lower density development is encouraged at the expense of preserving open space and farmland while weakening core cities.
Spread out communities consume more energy per resident, losing the energy efficiencies of denser communities. Private, municipal and state resources are wasted to build and maintain essentially duplicate infrastructure that exists in other communities – churches, power lines, fiber optic cables, schools, roads, water and sewer lines.
Public services – fire, police and emergency response – cost more when there is much duplication. The New England Public Policy Center (NEPPC), for example, has estimated that consolidating 911 call centers in Connecticut from more than 100 to eight would save up to $60 million annually, and produce other benefits as well.
To promote greater equity and efficiency, and provide property tax relief to the people of Connecticut, researchers from the New England Public Policy Center (http://www.bostonfed.org/economic/neppc/index.htm) have presented a promising framework for targeting state aid to those municipalities that need it most. They have suggested mechanisms for closing what they called the “need-capacity gap” — the gap between the underlying costs of providing local public services and the capacity to raise revenue locally to pay for those services.
Around the country, states have moved to reform property taxes using the “need capacity gap” model. To be used in Connecticut, this framework needs to be fleshed out and adapted to the specific circumstances. What are the appropriate cost factors to consider? How large are the gaps in Connecticut? And what are appropriate ways to rebalance the revenue structure to provide property tax relief and reduce or even close the gaps? How should such a framework be phased in over time?
In 2014, the state badly needs a thorough policy analysis that focuses on generating the needed financial and spending information in the state and applying this “need-capacity gap” framework. It will take time, but the state needs to set about a concerted effort to revamp the state’s property tax structure to produce a fairer and more efficient system.