A new proposal before the legislature would use taxes on high-value properties and capital gains to funnel more money to distressed municipalities.
State Sen. Pro Tem Martin Looney, D- New Haven, wants to fund the Payment in Lieu of Taxes, or PILOT, program through revenue from a 0.1 percent tax on commercial properties and residential properties with an assessed value of more than $300,000.
Under the PILOT program, municipalities receive back a percentage of taxes that would have been paid for properties that are tax-exempt, such as hospitals, colleges and properties owned by the state.
The program, however, has long been underfunded, and Looney said that he believes the current formula for calculating reimbursement is unfair to low-income communities.
“The compensation is, I think, flawed, because it does not take need into account,” said Looney. Looney’s proposal would revamp the calculations of PILOT to allow communities with a Net Grand List Per Capita of below $100,000 to be reimbursed 50 percent of the taxes from tax-exempt properties. No municipalities would see a decrease in PILOT funding with the new formula, said Looney.
Since the assessed value of a home is equal to 70 percent of its market value, the tax would apply to homes with a market value of over about $430,000.
“A home with a market value of $500,000, that home owner would pay $50,” said Looney. “At a million dollars in value, that would be about $400.”
According to Looney, this could do a lot to help both cities with a large number of tax-exempt properties and small rural towns. He estimates that the new calculation would send increased revenue to at least 35 of Connecticut’s 169 municipalities.
“We have such a great disparity and a great inequity in the property tax in the state of Connecticut,” said Looney. “That has really held us back in terms of development.”
A package of taxes
Looney estimated that the restructured PILOT program would cost about $114 million to fund, and that the property tax would raise about $73.5 million. In order to make up the remaining funds, he said, he’s also proposing a one percent tax on capital gains for individuals with a yearly income in excess of $500,000 and $1 million for couples filing jointly. He said that the two taxes needed to be looked at as a “package” that would have the ultimate goal of funding the PILOT program.
Looney said he did not believe that the tax would increase the cost of multifamily housing, or cause rent increases for residents in apartment buildings.
“One mill is actually, as I said, quite modest,” he said. “It is a very slight increase that would be spread very broadly across the state, so it is not something that would be a burden on anyone.”
Looney said that the tax would probably not include farm equipment and crops in its calculations of assessment, but he said the Finance, Revenue and Bonding Committee would have to flesh out the details of the proposal.
Not all members of the committee are in agreement with the tax. State Rep. Holly Cheeseman, R-East Lyme, a ranking member on the committee, called the idea of a property tax “regressive” and “onerous.”
“I find it impossible to support this proposal. We should be looking at ways to right-size our budget and lessen the amount we are asking from our citizens,” said Cheeseman.
Cheeseman said that while she supported funding PILOT, she would rather do it using funds collected from taxing sports betting and gaming. She said she was concerned that the funds from the property tax would end up going toward something else.
“Too many times, we’ve seen too many proposals aimed at specific things and then the money is diverted,” she said. “It comes down to a question of trust between the voters and our state government.”
Although Looney said the main focus of the bill was on residential properties, the proposal as it is currently written would also place a one-mill tax on all commercial properties, and without the exemption of the first $300,000 of the assessed value.
Eric Gjede, vice president of government affairs at the Connecticut Business Industry Association, said this has caused a lot of contention within the business community.
“It’s only a proposed bill, but it’s amazing how much attention this one bill has gotten from our members so quickly,” he said.
Gjede said he was concerned that this would drive businesses away from the state as they began to recover from the economic effects of the pandemic.
“It’s just one more cost in a place that already has high property taxes,” said Gjede. “This is one more thing that is not in Connecticut’s favor.”
At a press conference yesterday, Gov. Ned Lamont said he believed that the state could balance its budget using a combination of the rainy day fund and federal money, as well as potential taxes from gaming.
“I don’t think we’re going to need any new broad-based tax increases,” said Lamont.
Looney said that in addition to funding the PILOT program, he wants to increase reimbursements for special education funding, which would cost about $68 million. He also said he would encourage the finance committee to consider raising the percentage of market value that assessments are based on from 70 percent to 75 percent or 80 percent.
“We’ve been talking about these issues for years, everyone talks about the inequity in the property tax system,” he said. “This proposal, I think, is a way to do something about it.”