Given the coronavirus and economic downturn, all of Connecticut’s 169 municipalities have options for making local tax collection more lenient for local residents by taking advantage of one or both of two options laid out in Governor Ned Lamont’s executive orders on April 1 and April 9.
“We do believe a great majority of people will be paying their taxes on time and that’s important for cash flow reasons for the town, but we do know and recognize that there are those who are having economic difficulty,” said Mark Nickerson, first selectman of East Lyme. The East Lyme Board of Selectmen voted to adopt the deferment option on Wednesday.
The governor’s order creates two programs.
The deferment program will allow taxpayers who file applications to “attest to or document significant economic impact” from the COVID19 pandemic, to delay by 90 days the deadline for paying local property taxes without interest.
The low interest rate program significantly reduces the interest that all of the municipality’s taxpayers would owe on delinquent local government payments for the first 90 days after those payments are due. The program would reduce interest to 0.25 percent per month or 3 percent per year.
Both of the programs only apply to payments that would usually be due between March 10 and July 1 of 2020, and taxpayers would lose the benefits if their payments are more than 90 days late. The orders also apply to payments for municipal water or sewer, special taxing districts, beach associations, and similar quasi-municipal payments usually collected by local governments.
The governor’s order requires all municipal legislative bodies or boards of selectmen to adopt one or both of the two programs. Town governments then must notify the Office of Policy and Management of their choice prior to Saturday, April 25.
Under Connecticut state statute, local governments have very limited authority to offer their own relief on interest for local property taxes, leaving most of that power to the governor.
Advocate for small towns cautions cash flow could be impeded
The relief programs are intended to benefit taxpayers throughout the state, but they could also pose challenges to some local governments in having enough cash on hand to make their payments in July, according to Besty Gara, executive director of the Connecticut Council on Small Towns.
“Our towns recognize that residents and businesses in their community are having a very difficult time right now so they definitely understand the need to provide them some relief from property taxes and high interest rates at this point,” Gara said in a Thursday phone interview. “Certainly, towns are concerned as to how this will impact local revenues. As a result we’ve been asking the governor’s office to ensure that other sources of municipal funding are made available more quickly.”
Gara said that the State Bond Commission’s passage of $136 million in municipal aid on Thursday was more important than ever given the pandemic and the tax relief program. She said she was also advocating for the state to release education cost sharing funds to towns earlier than usual.
“It does make it hard that towns are still required to pay school employees and contractors as a result of the federal CARES Act and similar impacts of [state] executive orders,” Gara said. “They’re not anticipating a lot of savings as a result of building closures because they do have to continue to pay personnel costs. It is putting towns in a very difficult position, but I think everybody is in a difficult position right now.”
Carl Fortuna, first selectman of Old Saybrook, said in a Friday phone interview that he didn’t expect the low interest rate program would cause significant problems for Old Saybrook’s cash flow. He noted that about a third of Old Saybrook’s real estate tax payments are escrowed, and the governor’s order would generally require escrow agents to pay on a regular timetable.
“I don’t know if this will make a huge difference, but it does give people basically an extra few months for finding new employment, or hopefully their old employer hires them back,” said Fortuna. “It does buy some time for people who absolutely need it.”
Old Saybrook’s Board of Selectmen voted on Tuesday to enter into the low interest rate program, which Fortuna said would be easier for the town to administer, especially while the town is operating with a “skeleton crew” in response to the pandemic and social distancing guidelines.
Fortuna added that, under the low interest rate program, it still makes sense for most taxpayers to pay on time because “if your money is sitting in a bank account, it’s not earning 3 percent [annual interest] so you may as well pay it if you’re able to.”
Nickerson said similarly that he expects that most residents of East Lyme will pay taxes on time and noted that escrow payments to the town can still be counted on.
“If everybody did a tax deferment and everybody had economic strife that would be an issue and we’d have to work through that… I’m confident that a great majority of our citizens will end up paying their taxes on the regular schedule, but those who are unemployed or dealing with economic setbacks, that [deferment] will be available.”
The deferment program would require taxpayers seeking the relief to apply for it by July 1. Nickerson, who is also president of the Southeastern Connecticut Council of Governments, said that most of the towns in SCCOG had chosen or planned to choose the deferment program.
Nickerson added that the work of town governments over recent weeks has been constantly “evolving” due to the coronavirus.
“Our reality keeps changing,” he said. “Every day you wake up there’s a new executive order or a new problem to deal with or a new budget expense within our town. We are fully aware that what we plan for today might change tomorrow, and that’s been some of the challenge.”