Hartford Business Journal

14 Hartford Business Journal • August 5, 2019 • www.HartfordBusiness.com OTHER VOICES Local option sales taxes and/or income taxes: NOT a solution By Bill Cibes A recent article in the Hartford Business Journal, ("Myriad ideas exist to solve Hartford's high property taxes and unequal tax system,") suggests that a solution to the revenue shortfall in cities might be the use of revenue sources other than the property tax. However, a consultant for the State Tax Study Panel in 2015 found that there were a number of problems associated with municipal use of alternative revenue sources such as those reported in this HBJ article. David Sjo- quist, professor of economics in the Andrew Young School of Policy Studies at Georgia State University, did an extensive analysis of the pros and cons of states allow- ing localities to impose, among others, local sales and income taxes. His research paper — "Diversifying Municipal Revenue in Connecticut" — is included as Chapter 4 of Volume 3 of the panel's report. Sjoquist concluded that while revenue from local option sales taxes would diversify the local revenue structure and could be used to reduce property taxes, • "Differences in local sales tax rates across towns[s] will result in some shifting of sales between towns similar to the shifting across state's border." (p. 31) • "If local governments adopt a sales tax, it is expected that towns will compete for sales tax base in a way similar to how they currently com- pete for property tax base." (p. 31) • "It appears that neither a local or re- gional sales tax will reduce the fiscal disparities between towns." (p. 29) Sjoquist's analysis of the impact of local option income taxes also pointed out that, in addition to difficulties of administration (since income is often earned in towns and states other than the residence of a taxpayers), • Whether imposed on the employer or on the employee, "the employer may decide to move to a city without an income tax." The consequence: "the city will lose jobs." (p. 37) • "The adoption of an income tax will change the incentives for local government competition for tax base. Currently, towns compete for property tax base, with commercial and industrial property being more desirable. . . . An income tax provides an incentive for towns to com- pete more strongly for high-wage households or high-wage jobs, and somewhat less for property." (p. 37) • Because "[income] tax revenue per capita is generally larger for towns with better fiscal health, . . . the adoption of local income taxes will not in general offset existing fiscal disparities." (p. 46) Sjoquist's analysis does not stand- alone. A working paper produced by the New England Public Policy Center at the Federal Reserve Bank of Boston in 2010 found that "Local-option taxes are likely to exacerbate fiscal disparities, because municipalities with low existing revenue-raising capacity often lack the tax bases for new local-option taxes." In short, local option sales or income taxes are not a panacea for fiscally strapped municipalities. The compe- tition for a robust property tax base would simply be replaced by competi- tion for sales tax base or income tax base — and municipalities that are not fiscally healthy would continue to be disadvantaged. Bill Cibes is chancellor emeritus of the Connecticut State University System; was formerly secretary of the Office of Policy and Management under Gov. Lowell P. Weicker; and recently retired as a board member of the Connecticut News Project, publisher of the Connecticut Mirror and CTViewpoints. He is currently serving as a member of the Property Tax Working Group of 1,000 Friends of Connecticut. OTHER VOICES Hartford's property-tax issues similar to other cities By Erin E. Stewart I finished reading a recent edition of the Hartford Business Journal ("Myriad ideas exist to solve Hartford's high property taxes and unequal tax system," July 8, 2019) and found myself nodding in complete agreement with many of the solutions presented to solving Hartford's fiscal issues and high property tax rate. This dire situation is not unique to the Capital City — as mayor of New Britain for the last six years, I can relate. There was a time when you could walk into New Britain's iconic Capitol Lunch and savor the aroma of hundreds of Martin Rosol hotdogs on the grill in an- ticipation of the workers from nearby factories stopping by for a bite to eat. Our Main Street was bus- tling with shoppers and our down- town was still whole, not yet divided by the introduction of Route 72. It was a busy time for New Britain, when we were known as the Hard- ware Capitol of the World. With the shift in manufactur- ing, the dynamics of our city have changed over the last half-century, but we have found unique ways to adapt and provide for our residents. New Britain has a long history of innovation and finding a way to over- come challenges. Situated in the geographic center of Connecticut, New Britain is home to 73,000 residents, with our median household income at $41,128. Our city is 13.4 square miles and is 98 percent developed. While we have been home to For- tune 500 company Stanley Black & Decker for 176 years, (yes, tape rulers are still made on Myrtle Street), we are also the home to many nonprofits, social-service agencies, churches, a state college, a courthouse, the Con- necticut Public Utilities Regulatory Authority, a branch of the Department of Motor Vehicles, and others exempt from paying taxes. In all, there are more than 500 properties in New Britain that are tax exempt. In total, the city loses out on $60.9 million in property tax revenue each year. To put this in per- spective, this would pay for nearly 50 percent of the board of education's annual $126 million budget. While the state does provide Pay- ment in Lieu of Taxes (PILOT) fund- ing to help make up this difference, it is a mere fraction of what we would be receiving if the properties were fully taxed. Even though our grand list has seen growth over the last few years with the addition of new devel- opments, such as Costco, it is simply not enough to keep up with the cost of doing business. I have been vocal at the Con- necticut Conference of Municipali- ties and Capitol Region Council of Governments that something needs to change. State leaders must make amendments to state law to allow municipalities more flexibility in creating new revenue streams. Why shouldn't we be able to offer a service fee to nonprofits who utilize our public services, like our fire and police departments, as well as public works for trash collection? These services cost the city a lot of money and account for more than $45 million in our budget. Other changes in state law could cut down on the number of organiza- tions that qualify for a tax exemp- tion, thus releasing a burden. I run a lean government. I've cut everything to the bone and have even tried to collect money from nonprofits by sending out an annual letter asking them for a donation to put towards our general fund. The most we have received is $300, from non-taxpaying entities that call New Britain home. Something has to give. Our cities will not continue to survive if the state's unequal tax system does not change. Erin E. Stewart is the Republican mayor of New Britain. Opinion & Commentary Bill Cibes Erin E. Stewart

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