Having a Seizure Over Property Taxes

My last story on the New London eminent domain evictions drew this reply from an official at Connecticut College (which was briefly named at the beginning of the story):

I just read your "Endgame In New London" article, and wanted to comment on your statement: "More than half the property in New London generates no tax revenue for the city because it's owned by several colleges (including Connecticut College, the Coast Guard Academy, and Mitchell College), by churches, hospitals, or by the city itself."

This is a popular misconception, as Connecticut is one of a handful of states that makes payments to towns for the revenue that would have otherwise come in from tax-exempt institutions—such as colleges, hospitals, etc. This is based on the recognition of the longstanding tradition that such institutions serve the public good by enhancing the education, health and general welfare of the state's citizens. Overall, the state of Connecticut reimbursed the city of New London $4.65 million in the fiscal year ending June 30, 2006 through the PILOT (payments in lieu of taxes) program.

As for Connecticut College, in FY06 the city received a total of $2.06 million of the $2.87 million from which the college is exempt. Basically, it is 71 percent of the taxes that the college would pay if it were a for-profit business.

For FY07, the reimbursement rate is set to be at 77 percent. So, I believe New London's total PILOT payment will increase to $5.2 million in FY07.

Let me know if I can provide you further information. Thanks.

Eric Cárdenas
Director of Media Relations
Connecticut College

I understand the Nutmeg State's PILOT program is supposed to be the envy of the nation, but it doesn't change the basic situation that all that public, non-taxed real estate creates a burden on the city—it just means part of the burden is offloaded to the state. I don't know how this influences the incentive structure for state decision-makers. It might encourage economic development projects that could take some of the burden off the state. But it also might make the state less inclined to support projects like the New London Development Corporation's, because the aim of those projects is to raise property values, which would presumably increase the amount of PILOT funding the state has to pay.

There's also an argumentum ad corporatem in here somewhere: Former Connecticut College president Claire Guadiani served four years as head of the NLDC, and has written a whole book about using private property for the Greater Good. But I don't know that that history is influencing anybody's thinking at CC today. In any event, my point was that more than half of New London's real estate is not privately held and has to be fed on the public tit. Connecticut's PILOT program doesn't change that.

Comments

[cj]

Same with TIF funding. I wrote my local elected reps decrying TIF funding for Target, etc., in a non-blighted/rapidly-increasing population/high-income area, and was assured that the local school district wasn't hurt because the city had issued bonds to take care of the property tax payment normally assumed by the retail entity.

Various individuals -- local reps/mayors, college PR personnel, etc., just don't seem to understand: SOMEONE is paying for this, and it is usually, ME -- i.e., the taxpayer.

There seems to be a real disconnect in understanding that the money has to come from *somewhere*. (Or, perhaps, better stated -- we TAXPAYERS aren't paying attention, and are willing to be used as sops.)

[Warren]

Oh man, that's almost as good as claiming the Social Security trust fund isn't just a big IOU because it's backed by US Treasury bonds.

[dead_elvis]

Tim, you're going real easy on the guy, not calling him a complete retard. I have an idea of "further information he could provide": How much in state taxes the citizens of the city provide. And how much that would be reduced if colleges, churches, hospitals, and the city were taxed.

Even if we concede that these tax breaks are popular and indeed are generally considered by the teeming millions to be a public good and would never be rescinded, Puh-lease, let's at least be honest about it.

[Bob Lawson]

We have the same issue in Ohio where my university for example pays no property taxes to the local city. This is a big burden on the city of course that has to help police the campus and provide other services. On the other hand, the city in question has a 2% income (actually it's more like a payroll) tax on workers in the city (no matter where they live and vote) that comes close to compensating for the lost property taxes. If there were houses on the campus instead of college buildings, the city would get property taxes but would lose a lot of payroll taxes. I'm not saying it evens out one way or the other, but it does change the calculus a lot. Of course most states don't have municipal income taxes so this doesn't generalize to other states.

[s.m. koppelman]

I took a look at a chart outlining basic property tax policy in the 50 states, and it looks like PILOT's 70-77% FMV contribution relative to a for-profit business is the same discounted level as what Connecticut municipalities collect on primary residential properties, i.e. 70% of fair market value.

In other words, old, stable residential neighborhoods with high levels of long-term home ownership bring in tax revenue short of their proportionate consumption of services at a level not all that different from the campuses. On an intuitive level, I'd guess a low-density, low-revenue neighborhood that consumes disproportionate amounts of city capital expenditures (streets, sewers, police and fire substations, etc.) is going to be a meatier target.

Certainly, any property-tax system that creates clear incentives for municipalities to seize land for the purpose of transferring ownership to higher-tax uses is problematic, as we see over and over. In light of PILOT, however, it doesn't sound like tax shortfalls from New London's universities are a primary source of this kind of pressure, and at any rate it sounds a lot less severe than what happens in states without similar policies or in states where primary residences have their property tax increases capped at a low fixed rate.

[crimethink]

it doesn't change the basic situation that all that public, non-taxed real estate creates a burden on the city?it just means part of the burden is offloaded to the state.

From the city's POV, does it matter whether that real estate brings in property taxes from a private owner or PILOT payments from the state?

[Adriana]

Greetings from PA where the Democratic Governor is trying to get down the real estate taxes by using gambling revenues, and is violently opposed by the Republican legislature...

[Tim Cavanaugh]

From the city's POV, does it matter whether that real estate brings in property taxes from a private owner or PILOT payments from the state?

The city isn't the only decision maker.