Associations representing Connecticut municipalities expressed skepticism this week of an effort to eliminate the state’s car tax, a deeply unpopular but reliable source of critical revenue for towns and cities.
Leaders of the Connecticut Conference of Municipalities and the Connecticut Council of Small Towns testified Monday before a legislative panel charged with drafting recommendations for eliminating the tax and reporting back to lawmakers before the General Assembly reconvenes in February.
The municipal groups told the task force that, though regressive and unpopular, the motor vehicle property tax represented a total of more than $1 billion in local revenue. They cautioned against eliminating the tax in a way that necessitated either shifting the burden to residential and commercial property taxes or relying on state reimbursements that have historically proven to be inconsistent.
“We’ve seen too many times where there have been caps in place or programs designed to reimburse municipalities for lost revenues due to property tax exemptions and other programs and unfortunately that funding has always been vulnerable, particularly when the state is facing some very difficult budget years,” Betsy Gara, executive director of COST, said.
The groups credited state policymakers with consistently funding reimbursements to 75 municipalities under an existing law, which capped mill rates at 32.46.
However, they said that other town reimbursement programs like payments in lieu of taxes on exempt properties including universities, hospitals and prisons have gone underfunded, especially during years when Connecticut faced budget deficits.
And while the state continues to project a more than $600 million budget surplus, fiscal forecasts released Monday suggested that the surging tax revenues that Connecticut has experienced over the last several years were beginning to cool off and were now expected to come in more than $400 million shy of prior expectations.
“Over the last few years we’ve been fortunate with solid budget years and not looking at deficits but when those numbers start to dip, that state aid can become a little inconsistent or it can be reduced, really putting municipalities in a burden of ‘how do they make that up?’” Randy Collins, CCM’s advocacy manager, said.
The groups advised lawmakers to take a comprehensive look at Connecticut’s broader property tax policy rather than focus exclusively on motor vehicles. Collins said towns and cities already grappled with more than 100 property tax exemptions that add up.
The group heard ideas for replacing lost car tax revenue with new sources like a hotel tax or local sales tax.
“It really is a balance of how do we move forward? How do we get away from a very regressive property tax, which I think is one of the biggest hindrances towards home ownership, affordability of housing, economic development,” Collins said. “It’s one of the things we have to look at if we want to move our state forward.”
Middletown Mayor Ben Florsheim, a member of the task force, said the working group faced a “catch 22” as they sought to arrive at a more equitable tax policy that also balanced the municipal need for a reliable revenue stream.
“The question I’m sitting here and asking myself and the question for this committee… is what is the first thread we can start pulling on?” he said. “It’s hard to know where to begin and I think that is partially what leads to, for instance, exemptions being passed. It seems like a relatively small thing that then collectively becomes a larger impact.”
Sen. MD Rahman, a Manchester Democrat who co-chairs the task force, suggested the group create two subcommittees: one to explore mechanisms for towns to raise the lost revenues on their own and the other to look at ways the state might raise the revenue and distribute it to the municipalities.
“This is why we created this task force, to look at it closely and not rushing, hurting the towns and cities or individuals,” Rahman said.
Revenue Services Commissioner Mark Boughton, a long-serving former mayor of Danbury, told the task force that any change to eliminate the car tax must also replace the revenue for towns in a way that local leaders are confident will be reliable.
“Finally, it has to be used to reduce the overall tax burden because if you’re just shifting money around from a car to a house what are we doing here?” Boughton said.