A state-mandated cap on the growth of property-tax revenue was virtually the only initiative promoted by Gov. M. Jodi Rell in her recent State of the State address that didn't win rousing applause from the assembled lawmakers.
The reason for the quiet reception? It isn't a good idea. At least the way it's been proposed.
Give Mrs. Rell credit for recognizing the need to reform the tax system and especially the property tax — the regressive, overburdened workhorse that provides the lion's share of revenue to most cities and towns and also is the lifeblood of public education in Connecticut.
And give her credit for coming up with at least some kind of concrete proposal (for the second consecutive year) that seeks to give relief to homeowners and businesses that pay among the highest property taxes in the nation. Further, her plan to prohibit — by statute — unfunded state mandates on municipalities deserves applause.
But her cap on property-tax revenue increases is folly if the state won't make up the lost revenue. In one sense it's too timid, loaded with escape hatches, exemptions and overrides. If enforced without a big infusion of state money, however, it would hurt municipalities rather than help them. The Connecticut Conference of Municipalities, which advocates for cities and towns, calls the Rell proposal "a cure worse than the disease."
This is the governor's plan:
On July 1, 2009, municipal property tax levies would be limited to an increase of no more than 4 percent of what was levied the previous year. The next July 1, the limit would be lowered to 3.5 percent, and on July 1, 2011, the limit would be lowered to 3 percent for that year and thereafter.
There are exceptions from the cap, including emergency expenses and utility cost increases of more than 8 percent. A municipality would be allowed to opt out of the cap for a two-year period if two-thirds of the legislative body and a simple majority of the people agreed.
This cap substitutes the judgment of the state for the judgment of local government — the level of government closest to the people — and could hobble town halls and degrade the quality of local services.
Mrs. Rell's revenue-cap designers seem not to take into account that increases in the state's education cost-sharing grant and other state grants often don't keep pace with rising costs. The revenue cap could strangle city and town governments faced with galloping increases in health insurance and energy costs, employee salary increases, retirement benefits and sometimes huge hikes in the cost of special education.
Stuck with few sources of revenue other than government grants, municipalities shackled with a property-tax cap have few options: They can increase user fees or unwisely bond operating expenses. Such actions can imperil a town's credit rating and drive up borrowing costs. A percentage cap on revenue increases could also encourage a town to expand its tax base by accepting poorly planned "big box" developments — contributing to sprawl and diminishing the town's quality of life.
No doubt caps are attractive to taxpayers. New Jersey passed a 4 percent cap on local property taxes last year, and New York Gov. Eliot Spitzer wants to explore the idea.
Backed against the wall by a cap, however, municipalities can — and do — cut services that people count on. In Massachusetts after passage of Proposition 2½, several communities closed schools, libraries and firehouses.
If that's what local taxpayers want, we have no objection. But they and their local governments should make that decision. It shouldn't be forced by a state formula.
Yes, Connecticut property-tax payers need relief. The antiquated system of financing local government needs reform. But a revenue cap that puts local officials in a straitjacket isn't the answer.
Reform that is bigger and more comprehensive — for example, the state's taking over all of the cost of public education — is in order.
Reprinted with permission of the Hartford Courant.
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