January 19, 2015
Other Voices

Fixing Hartford’s tax problem

Dave Panagore

While the recent Hartford Tax Task Force was charged with making recommendations for Hartford's property tax system, their focus repeated and followed what is now nearly an annual game of hot potato. For about 20 years, Hartford has had a de facto split tax rate, charging the statutory 70 percent of fair market value (FMV) for all commercial property, but only around 30 percent FMV for all residential property.

The split tax rate was imposed as a temporary measure to save residents from damaging property tax increases, with the hope that everything would eventually go back into alignment. That hasn't happened. Since then, the business community and residents have argued over the split tax rate, with businesses shouldering the larger burden.

In my five years here in Hartford I've seen a number of these committees comprised of many of the same players locked in battle year after year, with some but not much progress. Last year's Tax Task Force seemed to make the most progress, but under their agreed upon plan, it will take another five years for the residential tax rate to even be half the commercial rate, moving from 30 percent of FMV to 35 percent.

As we enter a new legislative session at the State Capitol, it is the right time to review the task force's recommendations. In doing so, I am equally struck by what is not there as by what is there and that has driven me to three conclusions.

First, the market forces driving residential value and commercial activity in Hartford are not the same, and split tax rates are permanent features of many urban areas. To try and bring them into alignment under a single tax structure may be doomed to failure. A single tax rate, which may have worked earlier in the city's history when there was far less development, or what currently works in smaller towns with comparatively little commercial activity, may not be successful in Hartford, which has millions of square feet of office space and the many mega-campuses of Aetna, Travelers, The Hartford and Hartford Hospital.

In urban core cities of the 21st century the two classes of property — residential and commercial — are divergent and do not operate under the same market conditions. Assessing both at 70 percent of FMV may in fact be an arbitrary attempt at a false equality. While the relative share of the tax burden must be adjusted if business is to thrive, 70 percent across the board may not be the right target.

Second, Hartford's tax problem is exacerbated by the significant amount of tax-exempt property in the city — roughly 50 percent of the Grand List is not taxable. At the same time, the state has consistently not funded the PILOT (payment in lieu of taxes) program at required levels. While Gov. Malloy has increased the PILOT payment to a degree, it remains far below the required funding levels. If the PILOT was fully funded as the Tax Task Force recommends there would be no budget problem and there could be a great deal of rate relief and equalization of the relative tax burdens between residential and commercial properties.

Third, the automotive tax is the most regressive tax in the state. It has a disparate impact on those least able to pay. It also generates only a little over a tenth of the overall property taxes collected in the city.

One solution to fixing this burden is to expand the property tax conversation to include automotive taxes paid. In other words, we should focus on the aggregate resident tax bill that takes into account taxes paid on both real property and automobiles. If, for example, the automotive tax is cut in half, we can then balance that against an increase in the residential tax rate. Using this approach, the residential valuation can be raised from 30 percent to 35 percent of FMV in one year, not five years. Under these conditions, the net tax impact on the average single-family homeowner is effectively zero, so long as we make the not unreasonable assumption that they own two cars; a family with one car would see their net taxes owed increase by around $200. Raising the property tax to 35 percent of FMV without reducing the auto tax would result in a $500 tax increase for the average homeowner.

This action will also put money back in the pockets of those most likely to spend it here in the community. And, to some degree, car registrations in Hartford would increase as people who want to obey the law, but financially can't afford it, will register their cars in the city.

While the state should fully fund the PILOT, the legislative delegation on whose doorstep this issue always ends up should also start thinking outside the box, taking on an issue the governor has endorsed, which is automotive tax relief.

David Panagore is the former chief operating officer of the city of Hartford.

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