4 minute read
The Two-Edged Sword of Municipal Finance
by Mayor Michael Passero of New London
On the one hand, the local economy in the City of New London is thriving. Investment is strong, property values have grown by a healthy margin, the fund balance is impressive and the bond rating is up. On the other hand, the city’s operating budget is the prisoner of a regressive state property tax system that disproportionately impacts the households in our city and chokes our general government and school budgets. The already inequitable property tax system is more so in New London because of the state’s exemption from taxation of nearly 45% of the real estate in our 5.5 square mile city. That additional tax burden is transferred onto the backs of the remaining already overburdened taxpayers.
The Payment In Lieu Of Taxes (PILOT) program was designed in the 1970’s to reimburse cities like New London for tax exempt properties. That never completely happened and it remains a bouncing ball our city budget has tried to follow.
Despite our city’s recent rise in influence and financial stability, the city’s FY26 budget is extremely grim. It requires that the city adjust its expenses to match a substantial drop in projected state revenues. Unfortunately, the state’s proposed budgets, both the Governor’s and the Legislature’s, cripples our revenues by cutting PILOT payments by $2.5 million. Such a drastic cut in a single fiscal year is nearly impossible to overcome for a small, tax burdened city.
Without compensation for the loss of this tax revenue, the burden of funding necessary municipal services to the tax-exempt properties shifts to the remaining taxpayers. That means some of the poorest taxpayers in the state are forced to subsidize municipal services to colleges, state properties, religious institutions, and to the numerous nongovernmental agencies located in the city that serve the region, like the hospital and numerous social service agencies.
The housing market in our state, region and city continues to create very difficult challenges but is also providing opportunities. The creation of new housing in our city is robust. The housing sector is providing many benefits including growth in the grand list, thus our tax base, and a growing population to support our small businesses. The new housing demand is proving that New London is a desirable urban community to call home. In the past five to six years over 800 new units have been built and we have close to 1,300 new units in the pipeline, either permitted, planned or under construction.
None of the inequities of our property tax system are new. What is new is the effect of the current housing market, compounding those inequities. New London’s recent state-mandated property revaluation reflects a historic rise in residential property values and a dramatic shift in the tax burden from our commercial sec- tor to our residential households. As a result, the city made the responsible decision to lower the mil rate from 37.27 to 27.5 for the current FY24/25 municipal budget. While that decrease was essentially revenue neutral for the city, it nonetheless did not offset the substantial property tax increase for our households. The revaluation process led to the first increase in residential property taxes in seven years. Since 60% of our families are already housing insecure and working multiple jobs, but still living paycheck to paycheck, and 20% live below the poverty threshold, the shift in the property tax burden fell hardest on our working poor and desperately poor families. For this reason, raising local property taxes to fund next year’s budget is not a reasonable option.
City government does not control the housing market. The impact of the current inflation of housing costs is statewide and nationwide. Indeed, the situation is exaggerated locally because of migration to our area because of a robust employment market. Ironically, lowering the mil rate last year precipitated the dramatic $2.5 million loss in PILOT funding under the next fiscal year’s proposed state budget. Our local legislative delegation and I have been advocating in Hartford for relief from this projected draconian cut and relief from the broken system that led to it.
The city is hoping for a proverbial stay of execution by the legislature for the next fiscal year but we also continue the long fight for reform of our state’s property tax system.
