Hartford Business Journal

www.HartfordBusiness.com • June 24, 2019 • Hartford Business Journal 15 SPECIAL REPORT: CITIES PROJECT fiscal 2020, which does raise spending by $3.2 million, but doesn't rely on bor- rowing and keeps the city's workforce — excluding public-safety personnel — 11 percent below 2015 levels. Nota- bly, since taking office in 2016, Bronin has also managed to not increase the city's sky-high mill rate. Even still, Hartford is unable to low- er its property-tax rate. That shows excess borrowing isn't the root cause of Hartford's problems, Bronin said, since the state essentially eliminated most of the city's long-term debt. "If the city had never borrowed a single dollar, you would still have a mill rate of 74.29 to make the city function," he said, noting that city finances are now reviewed by a state oversight panel. Without the state bailout or bank- ruptcy, Hartford would have had to quickly raise its mill rate an addi- tional 10 to 15 mills, Bronin said, which wouldn't have been sustainable. He argues much more drastic reforms are still needed at the state level, including giving the city ad- ditional ways to raise revenue. The bailout has provided enough relief to prevent a financial Armageddon, but the city still has limited financial flex- ibility, Bronin said. At the end of the day, he said there is a cost to deliver- ing basic core services in Hartford and the value of taxable property does not come anywhere near funding that. State Rep. Jason Rojas, a Democrat from East Hartford who co-chairs the powerful Finance, Revenue and Bond- ing Committee, said the city will likely continue to lean on the state. "Absent pretty significant economic growth in the grand list, which I think is difficult to do, … I think there's still a lot more work to do for the long-term future of the city," Rojas said. Marc Fitch, an investigative re- porter for the Yankee Institute, a free- market think tank, said there's plenty of blame to spread for Hartford's fiscal situation. On the one hand, the city awarded "really generous" labor contracts in the past, so Fitch views the bailout, at least partially, as rewarding fiscal misman- agement. On the other hand, the state has not fully reimbursed Hartford for its tax-exempt property, shortchanging it of vital operating funds. Hartford has avoided bankruptcy for now, but Fitch, who credits Bronin for his budgeting discipline, said the city appears stuck in limbo for the foresee- able future. "Even with the bailout and every- thing, their finances are razor thin and they're relying on potential grand list growth to hopefully fill those gaps in the next few years, and that is a gamble," Fitch said. Out-of-whack property taxes Hartford's financial and eco- nomic instability over the years have birthed arguably the most dysfunc- tional commer- cial property-tax structure this state has seen in the last half-century. Besides the exorbitant mill rate, Hart- ford is the only Connecticut municipality allowed to assess commercial property at a higher tax rate. To calculate any property-tax bill in Connecticut, owners must multiply their property's assessed value by a city's or town's mill rate and then divide by 1,000. In the 1970s, Connecticut passed a law requiring municipalities to adopt a 70-percent assessment ratio. That means to determine the assessed value of a property — whether it's a single-family home, commercial prop- erty or apartment — assessors multi- ply its market value by 70 percent. By the late 1970s Hartford faced a crisis. The city was in the middle of its first revaluation in 17 years and many residential properties experienced a significant spike in value. If all proper- ties were assessed at the same level, some homeowners faced average tax increases of well over 80 percent, which was deemed practically and politically untenable. So, city officials hatched an agree- ment with state policymakers that, among other things, allowed Hartford to lower its residential assessment ratio to 45.8 percent. That shielded homeowners from a major tax hike, while leaving commercial property owners with a higher tax rate. That initial bifurcated tax structure was actually phased out by 1986, but adopted again in 2006 and remains in place today. Commercial and apart- ment properties are assessed at 70 percent of value, while single-family homes are assessed at 35 percent. There is a formula in place that gradually raises the residential assess- ment ratio to 70 percent, but it will take decades before that happens, said owner of tax-exempt property in Hartford. It owns more than 100 par- cels with a combined assessed value of over $820 million, including state and judicial offices, the governor's mansion and state Capitol. Since 2013, the state has increased its Hartford office footprint by 26 percent, adding 1.6 million gross square feet of space, mainly through its acquisition of two major down- town office towers — 55 Farmington Ave. and 450 Columbus Blvd., accord- ing to the state Office of Policy and Management. It bought those buildings as part of a strategy to consolidate some of its leased holdings. Combined, the city and state own nearly 50 percent of the tax-exempt real estate in the city (by assessed value not number of parcels). Hospitals and colleges also own hundreds of millions of dollars in tax- exempt properties, while the federal government, churches and charitable organizations are also major tax-exempt property owners, HBJ's analysis found. Lost opportunity The amount of potential revenue the city cedes to tax-exempt proper- ties is significant. For example, if all tax-exempt real es- tate suddenly became taxable, Hartford would reap, based on the city's current 74.29 mill rate, at least an extra $300 million in annual tax revenues. If you exclude city- and state- owned property from that calcula- tion, Hartford would still raise an additional $168 million in revenues from colleges, hospitals, churches and other tax-exempt organizations. By comparison, the city's current- year budget is about $570 million. An expanded tax base would give the city a chance to lower its mill rate. State government reimburses the city for some of its tax-exempt property, but it doesn't come close to filling the revenue gap. According to the Office of Policy and Management, the city draws annually from the state more than $30 million in payments in lieu of taxes, or PILOT, to help offset lost tax revenues from tax-exempt properties. However, for most of this century, Connecticut — as it's dealt with its own budget issues — has been severely underfunding the amount it owes Hartford (and other municipali- ties) under its PILOT funding formula. Statutorily, the state is supposed to reimburse municipalities 45 percent of lost tax revenue for state-owned property and 77 percent of lost tax revenue for hospitals and colleges. The city estimates it has been shorted $376 million from the state's PILOT program since fiscal 2011. BY THE NUMBERS $7.1B The total value of gross assessed real estate in Hartford's 2018 grand list. 59% The percentage of assessed real estate in Hartford that is exempt from property taxes because it's owned by nonprofits or other tax-exempt entities. $308M The approximate additional revenue the city would collect if all tax-exempt property suddenly became taxable. $827M The approximate assessed value of state-owned real estate in Hartford. Continued on next page >> Bruce Becker, Developer, Becker + Becker Hartford City Assessor John Philip said the city's high mill rate hurts property values. HBJ PHOTO | MATT PILON

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