Connecticut’s Cities Press to Recoup Tax-Exempt Revenue

Looney proposes higher reimbursements, higher taxes

New Haven is facing a $41 million budget deficit in the coming year, said Mayor Justin Elicker, but with  sixty percent of the city’s property non-taxable, the city will be hard-pressed to balance its budget. New London Mayor Mike Passero said that even with the state’s PILOT program, his city loses about $30 million each year in tax revenue from tax-exempt property.

In theory, PILOT, the state’s Payment in Lieu of Taxes program, should reimburse towns for 77 percent of the taxes for property occupied by nonprofit organizations, but in reality, most cities across Connecticut receive a far lower percentage — Elicker said that New Haven receives around 25 percent, and Passero said that New London received between 20 and 25 percent.   

“It’s like I have to appropriate 30 million dollars to pay for the exemption that the state has given to all these property owners in the city of New London,” said Passero. “It’s the biggest line item in my general budget. And the people of New London have to pay that 30 million dollars.” 

That’s added to existing tensions between Connecticut’s hard-pressed cities and the well-endowed not-for-profit institutions they host. Yale University, which is based in New Haven, has an estimated endowment of more than $30 billion. Connecticut College, in New London, has an endowment of more $300 million.

“The university and hospital should want to live in a city that can adequately fund public safety,” said Elicker, adding that the city could not afford to put a guidance counselor or a librarian in all the public schools.

It’s a pattern that’s repeated in Hartford and Middletown.

According to Elicker, Yale University pays $13 million in voluntary payments to the city. But if the University and Yale-New Haven Hospital were not provided with tax-exempt status, the tax revenue generated would equal about $208 million, before additional deductibles, according to estimates from New Haven City Budget Director Michael Gormany. 

Elicker said that the resulting lack of social services is detrimental not only to the residents of the city, but to Yale students and faculty as well.

“The university and hospital should want to live in a city that can adequately fund public safety,” said Elicker, adding that the city could not afford to put a guidance counselor or a librarian in all the public schools.  

State legislators have on a number of occasions tried to force Yale to pay more. 

In 2016, two bills were proposed, one that would tax the university’s endowment and another that would revoke the tax exemption on facilities that earned over a certain amount annually from rent or athletic events. This year, lawmakers have proposed another piece of legislation that would look at Yale’s property exemptions. 

“A university that was created for the public good many decades ago is very different than it is today — which is a very very large, very very wealthy institution,” said Elicker. 

“It’s like I have to appropriate 30 million dollars to pay for the exemption that the state has given to all these property owners in the city of New London,” said Passero. “It’s the biggest line item in my general budget. And the people of New London have to pay that 30 million dollars.” 

Karen Peart, director of university media relations at Yale, wrote in an email statement that the college was “continuously in discussions with the city about ways to support New Haven.”

“The $700 million we spend annually on New Haven includes compensation to New Haven residents who work at the university and many programs and initiatives that we support throughout the city,” she continued. 

“Yale University’s $13 million voluntary payment in FY21 to the City of New Haven was the highest from a university to a host city anywhere in the United States and Yale continues to be among the top three real estate taxpayers in New Haven due to its Community Investment Program. On average, Yale annually also pays about $5 million in permitting fees,” she wrote in a statement.

Vincent Petrini, senior vice president of public affairs at Yale-New Haven Health, said the hospital pays $331 million to the state yearly in provider taxes; that funding, however, does not go to the municipalities.   

According to Petrini, Yale-New Haven Hospital pays $3 million in yearly voluntary payments to the city.

Surviving together in New London

New Haven is not the only city that loses large sums of money in taxes from exempt properties. New London is home to Connecticut College, which according to a document provided by the city’s tax assessor’s office, owns $102.6 million worth of tax-exempt property in the city.

The college said in a statement that its board of trustees has agreed to pay the city $50,000 per year over five years, in addition to a one-time payment of $100,000, “in recognition of a historic and long standing partnership.” 

The city also hosts Mitchell College, which owns about $40.1 million in exempt properties, and Lawrence and Memorial Hospital, owned by Yale-New Haven Health. 

Passero said he’s not questioning whether Lawrence and Memorial Hospital, which owns over $61.7 million in non-taxable property, should be tax-exempt. Passero said that the hospital has been a good partner for the city, having recently donated money for the city to turn a vacant lot into a small park. 

But Passero said that while Lawrence and Memorial supplies about 2,400 jobs – it’s the second largest employer in the city after Electric Boat — he’s not sure how many of those jobs are for New London residents, and commuting employees benefit from the city’s police, emergency services and roads without the hospital having to contribute to the costs of these services. 

“They are also trying to survive, in a very difficult environment,” he said. “And now especially, with COVID, we’ve all been trying to survive together.” 

Petrini said that Lawrence and Memorial spent $41 million last year on investments in the city, the bulk spent providing free care for people without insurance. Petrini also said that two-thirds of the patients served by the hospital receive Medicare or Medicaid, and the hospitals do not receive full reimbursement for that care.

And Passero acknowledged that the hospital, the university and nonprofits are also suffering from revenue loss due to the COVID pandemic. 

“They are also trying to survive, in a very difficult environment,” he said. “And now especially, with COVID, we’ve all been trying to survive together.” 

But Passero expressed frustration with the state legislature,which he says constantly introduces bills that give more and more properties tax-exempt status. 

“If the state legislature is going to exempt any property, then they should have to make up that loss of revenue to that municipality,” said Passero.  

He also said that he would like to see surrounding communities, like Waterford, that use the hospital’s services to share in the burden of the hospital’s tax-exempt status — ideally, Passero said, there would be a county government that could facilitate an equal sharing of the fallout of the region’s tax-exempt properties.

Half of Hartford

Hartford Mayor Luke Bronin of Hartford said the state capital faces a similar struggle — 50 percent of properties and 125,000 people are supporting services for a much wider area. 

“Hartford, like other Connecticut cities, plays an enormously important role, as a center of services that the entire region relies on,” he said. 

According to a 2019 news story published by CT Mirror, University of Hartford, Hartford Hospital, St. Francis Hospital and Trinity College own a combined $1 billion in assessed property.

Bronin said that Hartford received just over $30 million in PILOT funding this year – 28.5 percent of what the city would have received if the program had been fully funded. 

“Hartford, like other Connecticut cities, plays an enormously important role, as a center of services that the entire region relies on,” he said. 

Neither Hartford Hospital – whose tax-exempt properties value about $481.8 million – nor the University of Hartford or Trinity College make any voluntary contributions to the city, according to Bronin.

But he estimated that if these institutions and state buildings paid taxes, the city would receive an additional $223 million. 

In a statement to CT Examiner, Trinity College, which owns over $172 million in tax-exempt property, said that the college invested in community organizations like the Southside Institutions Neighborhoods Alliance and the Boys & Girls Club of Hartford, as well as academic enrichment programs and a neighborhood internet cafe. 

“We have long recognized the responsibility we have to the community given our non-profit status and have invested in a number of initiatives that directly benefit our neighbors in Hartford,” the college explained. 

“We have long recognized the responsibility we have to the community given our non-profit status and have invested in a number of initiatives that directly benefit our neighbors in Hartford,” the college explained. 

The University of Hartford, whose tax-exempt property exceeds $196 million, said in a statement that it, too, invested in a large number of community partnerships, including community programming, free college courses for high schoolers and scholarship programs. The university said that it had also housed first responders and provided PPE during the pandemic, despite dealing with financial struggles of its own.

“We take great pride in our contributions and partnerships in the region, but at this time we are not considering additional voluntary payments,” the university explained.  

Questioning the revenue model

Middletown is home to Wesleyan University — with an estimated endowment of more than $1 billion —  and Middlesex Hospital, but the city doesn’t receive any kind of direct payments from either institution, Mayor Ben Florsheim said, and he doesn’t plan to ask. 

“Listen, I’m not going to say no if they want to write us a check,” said Florsheim, “But to me it’s really a band-aid solution that isn’t really even that effective of a band-aid.”

“Listen, I’m not going to say no if they want to write us a check,” said Florsheim, “But to me it’s really a band-aid solution that isn’t really even that effective of a band-aid.”

Florsheim explained that if Middletown’s colleges and hospitals paid taxes, the city would receive an additional $22.27 million in revenue –on top of the more than the $9.2 million, or 43.6 percent, the town received in 2019 from the PILOT program.

But according to Florsheim, the issue goes much deeper even than PILOT. He said it represents a policy problem rooted in Connecticut’s over-reliance on property taxes to fund social services in the city. 

“It asks the most of the people and the municipalities least able to pay,” said Florsheim. “It is the driver of both the really high cost of living and the incredible amount of economic inequality we have in this state.” 

“In a state where local property tax is the only real source of locally-generated revenue, having half the property untaxable means the city is constantly operating with its hands tied behind its back,” said Bronin. 

Bronin agrees. 

“In a state where local property tax is the only real source of locally-generated revenue, having half the property untaxable means the city is constantly operating with its hands tied behind its back,” said Bronin. 

But he said that funding PILOT would allow the city to address some of the structural problems that still plague the city, and to better fund its social services. 

Florsheim said that with the extra money, he would be able to consider programs like universal Pre-K for the schools, support the small businesses and invest in sustainability projects like LED conversions and solar energy for city buildings.   

Who pays?

All of the mayors agree that fully funding the PILOT program would be a huge boon for their cities.

For the moment, no one is proposing that. But Sen. President Pro Tem Martin Looney, D-New Haven, is proposing a tiered system that would send funds to the municipalities in greatest financial distress — a bill that 27 mayors and first selectmen, including Elicker, Florsheim, Bronin and Passero, supported in a mid-January letter sent to Gov. Ned Lamont. 

“Towns and cities with large swaths of non-taxable property are being devastated by the pandemic,” the letter read. “By including these dollars in your proposed budget, you will prevent a property tax hike and lasting damage to the livelihoods of our small business owners and to the sales tax revenue our state takes in.” 

Looney’s proposal would divide PILOT program reimbursements into three tiers.

The top tier would reimburse municipalities with a net grand list per capita of less than $100,000 at 50 percent of the taxes that would have come from tax-exempt properties. The middle tier would reimburse towns with a net grand list per capita of between $100,000 and $200,000 at 40 percent, and the final tier of towns with a net grand list per capita of more than $200,000, at 30 percent. Looney said that 32 towns fall in the top tier, 101 towns fall in the middle level, and 36 in the final tier. 

While the idea of funding PILOT has received support from a number of mayors and first selectmen, the question of how to pay for the $114 million program is a sticking point in the conversation.

Looney’s proposed revenue streams for the program, which include a tax on capital gains tax and a tax on houses with a market value of more than $430,000, has received a mixed response from state leaders, many reluctant to raise taxes.

“I oppose new taxes. I most definitely oppose a statewide mansion tax,” she said. “I firmly acknowledge that the devil is in the revenue details.” 

Jayme Stevenson, the Republican first selectwoman of Darien,  said in a press conference that while she wanted to be a “team player” in the discussions, they needed to find a revenue source that would be “palatable” to all communities. 

“I oppose new taxes. I most definitely oppose a statewide mansion tax,” she said. “I firmly acknowledge that the devil is in the revenue details.” 

Michael Freda, the Republican first selectman of East Haven, said that he too “supports the concept” of funding PILOT, and that he appreciates that Senator Looney has pointed to multiple potential revenue sources. 

East Haven has a net grand list per capita of $100,960, Darien’s is $614,133 in 2019; and New Haven’s is $78,225.  

Under Looney’s proposal, Hartford would receive an additional $22.8 million, Middletown an additional $3.6 million, New Haven an additional $43.6 million and New London an additional $2.47 million in PILOT payments, based on calculations from Fiscal Year 2020. 

Bronin pointed out at the press conference that this amount still does not fully fund the PILOT program that was placed into statute years ago.  

“What it is is a good faith and important effort to get us closer to the funding that matters so much to many communities,” said Bronin.

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