April 30, 2018

No relief for Hartford commercial taxpayers

Greg Bordonaro Editor

For anyone who thinks Hartford commercial taxpayers will get relief now that the city is on sturdier financial ground, think again.

Despite its bailout, the city of Hartford is not likely to see a reduction in its tax rate in the next few years, according to Mayor Luke Bronin, and it will likely be a decade or longer before commercial taxpayers see any relief from what is by far the highest tax rate in the state, at 74.29 mills.

That will limit economic growth in the city for years to come and it's a key part of the Hartford financial and economic crisis that is getting overlooked.

Hartford's bailout, in which the state has agreed to pay off the city's $550 million in general obligation debt over the next two decades or longer, has been highly politicized. The grandstanding by Democrats and Republicans isn't surprising given the scope of the financial rescue and the fact that Bronin attempted to run for governor.

Putting politics aside, it's important to clear up a key misconception of the bailout. Some think Hartford is now flush with cash and can freely spend money again or lower taxes. That's not the case, according to Bronin, who says city leaders will actually have to find additional savings in the years ahead in order to balance future budgets.

That's despite tens of millions of dollars in cuts made over the last year or so, and $10 million in labor savings recently derived from renegotiated union contracts.

Bronin makes a convincing argument that we are actually misstating the size of the city's deficit to begin with. To appropriately measure the depths of Hartford's fiscal woes, he said we ought to consider what the deficit would be if the city had a competitive mill rate.

Hartford's 74.29 mill rate is well above Waterbury's 60.21 mill rate, which is second highest in the state. (Hartford assesses commercial properties at 70 percent of their fair market value, but residential properties are assessed at only 33 percent of fair market value, throwing the system further out of whack.)

By comparison, West Hartford has a 41.04 mill rate while Farmington has a mill rate of 26.68. Under those conditions, where would you invest your money if you were a developer, business owner or homeowner? The size of each municipalities' grand list answers that question.

West Hartford, for example, has a population about half the size of Hartford's yet its grand list is more than 50 percent larger: $6.3 billion vs. Hartford's $4.1 billion grand list. Meantime, Farmington, with a population near 25,000 vs. Hartford's 124,000 or so residents, has a $3.7 billion grand list.

The bottom line is this: The long-term sustainability of Hartford depends on the growth of its grand list, but its exorbitant property tax rate chokes off economic activity. When combined with its highly impoverished population and a high density of tax-exempt properties, Hartford's tax base is too small to support the city. As a result, Hartford's economic problems aren't going away anytime soon. Small businesses can't survive a 74 mill rate.

Bronin says the tax rate isn't likely to change in the near-term, even if a scheduled revaluation in 2021 shows that property values surged. The extra tax dollars would likely go toward rebuilding the city's fund balances or supporting capital investments.

"My hope is that if we keep things going in the right direction, then sometime down the road we'll be in a position to reduce the mill rate for our commercial properties," Bronin said. "But getting there is going to take a long time, and it's going to take continued partnership with the state, continued discipline by the city, and an intense focus on economic growth."

Until then, the city will need to rely on tax abatements, further state support and other methods to promote growth and sustain the momentum achieved in recent years, particularly in downtown, which has seen the addition of thousands of new housing units, UConn's new campus opening and significant investments made by major corporations.

But make no mistake about it, the structure on which the city is asked to support itself is still fundamentally broken.

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