Hartford, Conn., Mayor Proposes Property Tax Reform to Counter Rising Home Values
Thanks to soaring real estate values, Florida property tax burdens have become incredible for millions of Sunshine State residents. The state has attempted to counter the adverse impact of rising property values via the homestead tax exemption, which caps the amount by which taxes can increase annually on citizens’ primary residences.
In Connecticut, where residents allocate a greater percentage of their income to real estate taxes than anywhere in the U.S., reform has reached crisis mode. In an attempt to lure business and keep residents from fleeing, Hartford Mayor Eddie A. Perez has taken the drastic approach of tying property taxes to a homeowner’s income.
The Hartford Courant reports that under the new plan, people who own and live in multi- and single-family homes in Hartford would pay no more than 4 percent of their income on that property. The city will be reassessing its property values soon, for the first time since 1999. With the recent rise in real estate values, owners are looking at tax hikes of 50-100 percent if things go unchanged.
Take a property in Hartford’s West End, currently assessed at of $114,660. Its owner now pays $4,701 in taxes each year, but when the revaluation takes place, city officials estimate it would be assessed at about $269,000. Under the current tax scheme, the owner would pay $8,350 in property tax. That’s a huge burden, but under Perez’s plan, the tax depends on one thing: who owns it.
If the owner lives in the house and makes $90,000 annually, the local tax is capped at 4 percent, or $3,600. If the owner-occupant makes a more modest $50,000, the cap is set at $2,000. But, if the property is owned by a person who lives elsewhere (much like the current Florida tax policy), the city will assess the full increase under the old system — and receive more than $9,500 in revenue.
The plan also offers an incentive to businesses, in that it eliminates the 15 percent surcharge on commercial property taxes — which until now has been in place to defray the cost of residential taxes. But the State of Connecticut dictates how municipalities may raise money, so the plan needs approval by the General Assembly. Perez admits its chances are questionable, but he believes the current system will crush homeowners and shatter his affordable housing iniative.
“This plan deals with two critical issues facing the city,” said Matt Hennessy, Perez’s chief of staff. “It provides homeownership incentive in the city with the lowest homeownership rate in Connecticut and one of the lowest in the country. It provides an incentive for businesses of all sizes to reinvest in our city.”
“Instead of our homeowners absorbing the brunt of revaluation, we’ve set aside owner-occupied units to receive a credit,” Hennessy continued. “Now instead of it being pushed entirely onto commercial property owners, our investor-owned properties of every type pick up some of that credit.”
The mayor, who has never been bound by convention, urged Connecticut’s lawmakers to approve his revolutionary plan.
“It would be crazy for the General Assembly to allow us to go off the cliff, knowing how big the cliff is,” Perez said. “Why would they be so foolish?”
Connecticut currently allows municipalities to cap individual homeowners’ taxes at 8 percent of income, but those that do must place a lien on the property and get reimbursed when it sells. Although various states, such as Florida, try to protect vulnerable owners from burdensome taxes with homestead exemptions or breaks for the elderly, several authorities say they know of no city where an arrangement like Perez’s is in effect.
“I can’t think of anything in the country that links taxes directly to their income. If you do that, you sort of turn it into an income tax for property owners as opposed to a property tax,” said Fred Chmura, a former official at the state Office of Policy and Management and the 2004 president of the International Association of Assessing Officers.
In 2004, Perez backed a proposal for a homestead exemption that would have allowed cities and towns to exempt 50 percent of a home’s value (or up to $150,000) from local property taxes. Heavy opposition from the Connecticut Business and Industry Association, along with the MetroHartford Alliance, the region’s chamber of commerce, got the bill shelved.
In addition to Perez’s efforts, the state legislature will be addressing state property tax issues via a bill sponsored Jonathan Harris, a state senator from West Hartford. His plan would enable all cities and towns to phase in revaluation over five years after the assessment in the case of properties that increased by more than 50 percent in value. There are precedents for Harris’ proposal, so legislators believe it has a better chance of passage than Perez’s.
Fred Carstensen, director of the Connecticut Center for Economic Analysis at UConn, thinks the Hartford proposal is going in the right direction. He likes the idea of making the property tax what he calls a “surrogate income tax,” because he thinks it’s a fairer way to collect revenue. But while the motivation is right, the mechanism might not be.
“There are real problems with Hartford trying to solve the problem by itself,” Carstensen said. “What you come back to is the desperate need for each of these ideas to be studied. We have the capability… but we don’t do it. So we end up flying blind.”
If the plan fails, as Perez concedes is likely, he’ll settle for his backup plan, which is to delay the reassessment yet again.
“I realize that it’s a short [legislative] session, I realize that these are tough decisions and people may not want to make these tough decisions. So if we put off the question for two or three or four more years, that’s fine,” he said.
While policies such as this are sure to draw the ire of conservative policy makers who view it as a penalization of success, it’s clear that the South Florida housing market (along with numerous other markets in the U.S.) have boomed so loudly that action is necessary to keep people afloat. It will be interesting to see if this measure passes, and whether it inspires other local governments around America to pass similar reform.
