Hartford Business Journal

20 Hartford Business Journal • April 30, 2018 • www.HartfordBusiness.com Opinion & Commentary EDITOR'S TAKE No relief for Hartford commercial taxpayers F or 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 surpris- ing 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 Hart- ford'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 per- cent 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 munici- palities' 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 thou- sands 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 sup- port itself is still fundamentally broken. OTHER VOICES Malloy's transportation funding plan inadequate By Nicolas John R ecently, outgoing Gov. Dannel P. Malloy proposed an infrastructure package that may make Constitution State drivers think twice about having their rubber hit the roads. The proposal includes a fee on new tire purchases, as well as an increase in the gas tax and statewide toll- ing. Closer inspection of the plan suggests that it may do little more than leave taxpayers feeling further strapped in a state that is already well-known for its heavy tax burden. Connecticut's current need for infra- structure revenue is dire. The Special Transportation Fund, which fi- nances the state's entire transpor- tation system, is expected to go into deficit this year. For this reason, in Janu- ary, the governor indefinitely sus- pended the allocation of $4.3 billion for infrastructure projects that would have assisted every town across the state. Although Malloy's new proposal is ostensibly designed to make up this multibillion-dollar gap, its actual revenue-generation capability is woefully inadequate. For instance, the governor's plan includes a $3-per-tire fee on new tire purchases. However, Connecticut has a grand total of only 2.8 million registered vehicles. Even assuming that each vehicle owner splurged on four new tires at the same time, the fee would only generate $12 per car — roughly $34.1 million in total. This figure is even more negligible considering that the average car only needs new tires every few years — and even then, many people don't replace all four tires at once. Not only would such a tire fee raise little revenue, it would merely add insult to injury, given that 57 percent of the state's public roads are in poor condi- tion — likely one of the main causes of tire damage in the first place. Malloy's plan also calls for a 7-cent increase in the gas tax. However, with a nearly 40-cent-per-gallon tax already in place, Connecticut ranks sixth-highest in a state-by-state comparison of gas-tax figures. The governor's plan would put the state at No. 3. Hiking the gas tax burden further is even more problematic in a region where drivers already can — and do — fill up their tanks in bordering states to avoid paying Connecticut prices. In nearby Massachusetts, the gas tax falls to 27 cents per gallon — more than 13 cents in savings with- out the proposed increase. It stands to reason that rather than raising the necessary revenue, the gover- nor's proposal will simply send more drivers across the border in search of cheaper prices. Based on projections from the administration, even if all these measures achieved their maximum projected revenue, Malloy still wouldn't even be a quarter of the way to his fundraising goal. What is certain, however, is that Connecticut residents will miss this money more than the state will be able to make use of it. What's more, Malloy appears to be ignoring the wisdom of his residents. Only 16 percent of Connecticut resi- dents would back higher gas taxes, while 30 percent opposed all the proposed payment options. This lukewarm endorsement from state residents is indicative of a larger issue: Taxpayers may be willing to pay a little more in certain areas, but they want guarantees that they will see a return on their invest- ment. Rather than look to another impractical and insufficient tax plan, Malloy should think outside the box — and choose a plan that might actually work. To this end, a viable path to explore would be a tax on vehicle miles trav- eled (VMT). A VMT fee or tax system charges motorists a fee for each mile they drive rather than each time gas is pumped. A VMT system is a more precise and fairer way to pay for roads be- cause it is based on a driver's actual mileage, which is more directly re- lated to their wear on the roads than a gas tax. From an infrastructure perspective, the main benefit of a VMT would be the increased revenue potential and stability. The bottom line is that there are new and different alternatives to tire fees and gas taxes that have the potential to be far more effective at generating revenue — and far less apt to anger residents. Nicolas John is the Northeast region manager at the R Street Institute, a free-market think tank based in Washington, D.C. Greg Bordonaro Editor Nicolas John

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