Land-Value Tax Policy Not the Way to Get Results Cities Want

Connecticut’s cities and towns need more economic activity and the tax revenue that comes from it, but a proposal in the legislature to change property-tax policy in three municipalities is not the best way to go about it.
SB 130 requires the Secretary of the State to establish a pilot program allowing up to three municipalities in Connecticut to tax land at a higher rate than land with dwellings on it. The rationale is that higher taxes will spur landowners to develop empty properties or sell to someone else who will.
But would creating a two-tier property tax system actually generate more development? There is no compelling evidence that it is either needed in Connecticut or that it would work here. It’s a risky carrot-and-stick approach.
First, while vacant properties in many urban communities would be better off developed, several factors are involved—including timing, financing and government red tape.
Right now, a gauntlet of state statutes, agency red tape and a complex liability scheme make it very hard for Connecticut developers and communities to get redevelopment projects off the ground.
Second, proposals allowing municipalities to tax different classes of properties at different rates are risky. Once a classification is in place, for example, it may be politically expedient for local officials to increase taxes on one group of property owners as a way of mollifying another class of property owners.
Third—and significantly–businesses that rely on personal property to run their operations would be harmed by initiatives that would increase the tax on their equipment. That would be a significant roadblock to economic growth and job creation.
Two years ago, the legislature allowed New London to implement a pilot land value taxation program in that city. After considering its options, a committee of stakeholders decided that in the interest of fairness, not to move forward with the land value taxation scheme. There were a number of concerns including the LVT’s impact on shopping centers and automobile dealerships with large parking lots.
“The end consensus was that there just isn’t a quick fix,” said New London assessor Barbara Perry. The committee decided to stay with the status quo. “The LVT plan just wasn’t right for New London.”
State lawmakers should avoid starting down the slippery slope of differential tax classification. Not only is it a problematic economic policy, it’s also likely administrative burden on local municipalities that will have to compute land values and improvements and be able to continually update them.
The overall benefit of land value taxation has not yet proven to be positive. It could potentially reduce overall land values, which would harm landowners that have little or negative equity, or no equity, in realty holdings.
Businesses believe that instead of raising taxes, better policy would be for the legislature to make it easier and more cost-effective for developers to clean up contaminated property.
For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.