Print

Property Tax Cap Would Perpetuate Inequalities

Opinion By JIM STODDER

February 06, 2008

Gov. M. Jodi Rell's proposed property tax cap will limit increases to 3 percent per year. That sounds like relief to many state residents who ask why property taxes are so high.

But a better question to ask is, "Why are some property taxes so high, and others so low?" We've had eight state property tax commissions so far, and none of them has faced the basic fact of a highly regressive tax.

The poorest 40 percent of Connecticut households spent 3.9 percent of their incomes on property taxes in 2003, after federal deductions for interest on their mortgages. The next 40 percent of households did a bit better, spending 3.1 percent of their incomes on property tax after deductions.

When we look at the richest 20 percent of state households, they spent just 1.6 percent of their incomes on property taxes after deductions. And the richest 1 percent of households actually got a rebate — averaging 1 percent of their incomes.

Of course, the wealthier communities have more valuable property to tax, so lower rates can still add up to nice revenues for their schools. Figures from the state Office of Policy and Management for 2005 show that the lowest tax town (Greenwich) had an equalized tax rate of a bit more than 5 mills, or about one-half a percent of local property values. (The state uses a formula to create an equalized tax rate for municipalities, which allows for a more accurate comparison of the property tax burden.)

For the municipality with the highest equalized tax rate (Waterbury), it was a bit above 30 mills, or more than 3 percent of property value — about six times the rate in Greenwich. This disparity has been growing, along with the increasing concentration of wealth.

Once we see the inequality of property taxes, we face a more troubling question: How can we provide "substantially equal" educational opportunities — as Connecticut's Supreme Court says we must — if education is funded mostly by local property txes?

The answer is clear: We can't.

In terms of a crude dollar-per-student measure, it's not the poorest cities that are falling farthest behind, but lower-income small towns. The lowest-spending 5 percent of towns spent an average $8,962 per student in 2006, while the highest-spending 5 percent spent $15,198 per student — or about 70 percent more.

Other measures of spending inequality, including the state Department of Education's needs-based measures, show a similar trend.

Not only has state spending failed to provide substantially equal educational opportunities to students in rich and poor towns; it hasn't even kept their substantially unequal opportunities from getting more so.

Of course, it would take much more than equal spending to equalize student outcomes — given vastly different starting places of family stability, income and education. If the spending gap grows, however, this guarantees that outcomes will only diverge even further.

Gov. Rell promises the state will make up for slower growth in town revenues. But as most town officials will tell you, our state has a long history of such promises. So when state funding fails, poorer towns have little choice but to cut services.

Towns do have one other choice — they can always allow more sprawl. Under the governor's cap, increasing the taxable base will be the only way, barring an override, for a town to grow revenue beyond 3 percent. Connecticut's property taxes have already given our state the unhappy combination of development that sprawls in an economy that crawls. The cap will guarantee that this cancer continues to metastasize.

What are the alternatives to a cap? Promising alternatives include:

• Real "circuit-breakers" to guarantee that no state residents ever spend more than a low fixed percentage of their income.

• A larger homestead exemption to keep more of a home's value off the tax rolls.

• Full state funding for any statewide initiative and for payments in lieu of taxes.

The so-called tax cap is a Band-aid over a wound that is badly infected. We can neither build a more equal educational system nor ensure vital public services on the back of something as unequal as local property taxes. Connecticut's traditions of local control and schools working with parents are good things, but we shouldn't have to live in a rich town to get them. We need to guarantee all towns, and all our kids, a more equal place at the starting gate.

Jim Stodder teaches economics at Rensselaer-Hartford. This article summarizes a study funded by Council 4, American Federation of State County and Municipal Employees.