Rollback Of Special Tax A Worry

Planned Move Concerns Some Municipalities

February 21, 2005
By DON STACOM, Courant Staff Writer

Sell a house for $250,000 in Bristol, and the city collects a quick $1,250 in taxes. But sell a house for the same amount just over the line in Plainville, and the tax bill drops to $625.

That difference adds up to hundreds of thousands of dollars a year for Bristol and 16 other communities that used a special tax bonus two years ago. They are mostly the cash-strapped cities and big towns that suffered the worst under state budget cutbacks, and many now rely on the extra revenue to balance their books.

The rest of the state's towns and cities got a smaller share of the tax bonus and have enjoyed windfalls, too. But on July 1, a hefty part of that revenue flow will be shut off. The state is scheduled to roll back local conveyance tax rates, a prospect that has municipal leaders anxiously lobbying the General Assembly for help.

"We're talking about $50 million a year for our cities and towns," said Middletown Mayor Domenique Thornton. "I think you're going to see every one of them oppose this."

Mitchell Goldblatt, first selectman of Orange, is pressing state lawmakers to intervene.

"If this goes through, it's just going to put more pressure on property taxes for my residents," Goldblatt said. "It will push a property tax increase. We're a small town, and we could lose $152,000 next year - that's almost what it costs to hire three cops. Or more than it costs to buy a 10-wheel truck and snowplow for public works."

On the opposite side of the debate are the lobbyists for real estate dealers, mortgage brokers and home builders, who insist that the rollback is overdue. They claim the higher conveyance tax rates are regressive and unfair.

"It's just bad tax policy. It hurts the people who can afford it the least - first-time homebuyers and elderly people who are selling their properties," said Robert Fiorito, president of the Connecticut Association of Realtors. "And remember, the legislature made a promise, and they should live by it."

That promise came in 2003, when the General Assembly was scrambling to get past a vicious budget deficit. Then-Gov. John G. Rowland slashed state aid to towns and cities, and lawmakers hunted for a cost-free way to make up some of the loss. They settled on the conveyance tax, the fee that homeowners pay when they sell.

The state collects its own conveyance tax but historically allowed municipalities to take a small share, too - $1.10 for every $1,000 in property value. In 2003, the General Assembly authorized towns and cities to bump up the local tax. Eighteen towns and cities were told they could charge $5 per $1,000 of property value, and all but Stamford ultimately took advantage of the offer. Other communities raised their rates to $2.50.

The real estate industry fought the move, and lawmakers wrote the bill with a clause that would eliminate the increase after one year. A year later, though, municipal leaders complained that state aid was still lagging badly and successfully lobbied for a one-year extension. And this year, the General Assembly is facing the same debate.

"The conveyance tax issue is one of the top five priorities on our legislative agenda," said Bart Russell, executive director of the Council of Small Towns.

Connecticut's robust real estate market has made the tax a big revenue producer for two years and has undercut the argument that the tax would discourage sales.

"It certainly hasn't hurt sales in our town. The average time a house is on the market here is less than a month," said East Hartford Mayor Timothy Larson. "It's brought about $400,000 in new revenue [annually]. So if we lose it, that's how much we'll be behind next year."

But Fiorito said communities such as Larson's stand to lose the most if the real estate market weakens. A tax of $500 or $1,000 would suddenly be a much bigger part of a deal.

"When prices stabilize or God forbid go back [down], people will look hard and fast at their net sheets. And the irony is that the New Britains and Bristols, the towns that want to encourage more affordable housing, will be adding to the cost of buying there," Fiorito said. "It's the Greenwiches that are getting the real windfall because of the value of their houses."

Leery of losing the conveyance revenue each year, many suburbs earmark the money for one-time projects instead of building it into their day-to-day budgets. Avon, for instance, used its income to buy land for a library expansion.

Bristol leaders debated what to do for months and put off a decision until this spring. A half-dozen city council members want to spend it on various pet projects, while Deputy Mayor Art Ward warns repeatedly against adding it as regular income on the books for fear that it will vanish this summer.

But some cash-strapped cities have quickly grown to rely on the income.

"We don't have the luxury of setting it aside - we have to put it into the general fund," said Thornton of Middletown.

The conveyance tax was offered to Middletown and 17 other towns and cities that have enterprise zones, blighted urban areas where the state provides tax abatements and other incentives to attract businesses. Those municipalities were allowed to levy the additional tax above the conveyance charge that all other communities impose.

Most of those 18 municipalities immediately put through the maximum tax rate, but some - including Bristol - waited a year to see if it would dampen the real estate market.

By the start of this current fiscal year, though, every one of the targeted communities except Stamford has levied the full tax rate.

Unless the General Assembly acts by July 1, the conveyance income will drop for virtually every community in the state. The tax rate will fall by 28 percent in the 17 targeted communities and by 50 percent everywhere else.

That could mean a loss of more than $300,000 for a city such as Middletown, according to City Clerk Sandra Hutton.

The city is already banking on that money to pay teachers or librarians, replace decrepit police cruisers, or pay for street repaving, Thornton said.

Those on both sides of the issue hope to get a final resolution this year.

"It just makes sense to make this [increase] permanent," said Gian-Carl Cafa, legislative services director for the Connecticut Conference of Municipalities.

"It doesn't serve anyone to have this fight year after year."

Fiorito agrees with that last point.

"We know we're in for a battle, but this is a stealth tax and it's time to sunset it," Fiorito said. "People don't even know they'll be hit with this tax until they go to sell. It isn't fair. This isn't the way to build a homeownership society."