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Perez Tax Plan Bucks Norm

Proposal Ties Property Taxes To Homeowner's Income

March 16, 2006
By JEFFREY B. COHEN, Courant Staff Writer

Almost two years after the General Assembly passed a temporary tax-relief plan to allow municipalities to delay property tax revaluations, cities and towns across the state are still trying to find a way to ease the residential taxpayer's pain.

Some, such as West Hartford, are considering plans to phase in the spike in residential property values over time - shifting the burden to homeowners, but doing so gradually.

But Hartford Mayor Eddie A. Perez is taking a different approach by proposing to tie property taxes to a homeowner's income. Those who own and live in one-, two- and three-family properties would pay no more than 4 percent of their income on that property.

The plan would stabilize or even reduce taxes for owner-occupants who otherwise could see tax increases of 50 to 100 percent or more, according to city estimates. But absentee owners - or their tenants - would pay a steep price. And the plan would create significant disparities in the amount paid on similar properties.

Take a property in the West End now taxed on the most recent assessment - dating to 1999 - of $114,660. The owner now pays $4,701 in taxes. If Hartford conducts a revaluation this year, city officials estimate it would be assessed at about $269,000 and, under the current tax scheme, the owner would pay $8,350.

Under Perez's plan, the amount of tax depends on who owns it. If the owner lives in the house and makes $90,000 year, the tax is capped at $3,600. If the owner-occupant makes $50,000, the cap is $2,000. But if the property is owned by a landlord who lives elsewhere, the city estimates a tax bill of more than $9,500.

The plan does offer an incentive to business: elimination of the 15 percent surcharge on commercial property taxes, which has been used until now to keep residential taxes down.

"This plan deals with two critical issues facing the city," Perez's chief of staff, Matt Hennessy, said. "It provides an incentive for homeownership in the city with the lowest homeownership rate in the state of Connecticut and one of the lowest in the country. And it provides an incentive for businesses of all sizes to reinvest in our city.

"Instead of our homeowners absorbing the brunt of revaluation, we've set aside owner-occupied units to receive a credit," Hennessy said. "And instead of it being pushed entirely onto commercial property owners, now every investor-owned property of every type picks up some of that credit."

Because the state dictates how municipalities may raise money, Perez's plan needs approval by the General Assembly. And the mayor admits it may not have much of a chance in this short legislative session.

But he insists that revaluation under the current system would crush city homeowners and shatter his homeownership initiative.

"It would be crazy for the General Assembly to allow us to go off the cliff, knowing how big the cliff is," Perez said. "Why would they be so pound-foolish?"

Another obstacle for the plan may be its novelty. Although various states try to protect vulnerable owners from burdensome taxes with programs such as homestead exemptions or tax breaks for the elderly, several authorities say they know of no city where an arrangement like Perez's is in effect.

"I can't think of anything anywhere in the country that links taxes of all people directly to their income," said Fred Chmura, a former official at the state Office of Policy and Management and the 2004 president of the International Association of Assessing Officers. "If you do that, you sort of turn it into an income tax for property owners as opposed to a property tax."

Current legislation allows Connecticut municipalities to cap tax payments for individual homeowners at 8 percent of income, but those that do must place a lien on the property and get reimbursed when it sells, Chmura said. As far as he knows, no municipality has acted on that legislation.

Two years ago, Perez backed a proposal for a homestead exemption that would have allowed cities and towns to exempt 50 percent of a home's value, up to $150,000, from local property taxes. It failed to get legislative approval after heavy opposition from the Connecticut Business and Industry Association and the MetroHartford Alliance, the region's chamber of commerce.

This year there are two bills in the state legislature addressing property tax issues: Perez's, and a bill sponsored by state Sen. Jonathan Harris, D-West Hartford, that would allow all cities and towns to phase in revaluation over no more than five years for properties that increased in value by more than 50 percent.

There are precedents for Harris' proposal that make it familiar to legislators, said Senate Majority Leader Martin M. Looney, D-New Haven. But Perez's plan will likely be controversial, he said. As a result, its chances of passage are tough.

"Clearly, anything that becomes highly controversial or creates polarized opinion, coupled with the running of the time clock, is going to be in a difficult position to make it all the way through the process," Looney said. "It's certainly a valid idea, because the objection to the property tax is that it is unfortunately not tied to income. So people who own a home that they could at one time afford, their income may have fluctuated, but their taxes don't change accordingly."

Business interests dislike both plans, but are particularly opposed to Perez's, despite the fact that it would eliminate the 15 percent surcharge.

"This has nothing to do with budgets, or controlling budgets, or stopping the growth in budgets. This has simply to do with who pays the budget, and who pays for future increases in the budget," said R. Nelson "Oz" Griebel, director of the MetroHartford Alliance. "If the choice is the status quo or the proposal the mayor has in place, the commercial property owners are prepared to live with the status quo."

Griebel said the organization also is concerned that other cities and towns might want to follow Hartford's lead. The 4 percent cap in Perez's proposal is based on the average homeowner's property tax burden statewide.

"You would be opening up, in many of our member's minds, a Pandora's box," Griebel said.

Small landlords also have concerns. David Lemkuil, a broker with Shimkus, Murphy and Lemkuil, deals extensively with one-, two- and three-family properties and owns several himself as investments.

Lemkuil said he understands and appreciates Perez's homeownership goals. "But what's going to happen is people may shy away from buying these multi-families because they're not going to be able to make the numbers work," he said.

And renters, he said, could share in the pain. "It could be handed down to tenants with a rental increase, because rents are slowly, slowly catching up to the market values of the prices that these houses are selling for," he said.

Despite the opposition, Hennessy said, the city believes the status quo is unacceptable.

"Doing nothing screws everybody," Hennessy said. "We're not starting from a mythical place where no one gets screwed.

"If we do nothing, renters are going to face a burden, homeowners are going to face a crushing burden, and people living in apartments in two- and three-family, owner-occupied units are going to be forced out of the market," Hennessy said.

Fred Carstensen, director of the Connecticut Center for Economic Analysis at UConn, thinks the Hartford proposal is "very much going in the right direction." He likes the idea of making the property tax a "surrogate income tax," he said, because he thinks the income tax is a fairer way to collect revenue.

So the motivation is right, he said, but the mechanism might not be. "There are real problems with Hartford trying to solve the problem by itself," he said. "What you come back to is the desperate need for each of these ideas to be studied. We have the capability ... but we don't do it. So we end up flying blind."

If the plan fails, as Perez concedes is likely, he'll settle for a plan B: another delay in revaluation.

"I realize that it's a short session, I realize that these are tough decisions and people may not want to make these tough decisions," Perez said. "If we put off the question for two or three or four more years, that's fine."

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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