Should Municipalities Mulling PILOTs Look to Comprehensive Property Tax Reform?

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May 20, 2012; Source: The Day

Credit this New London, Conn. newspaper for taking a broader view of the revenue challenge facing municipalities and counties with large proportions of tax-exempt properties. The editorial page editor, Paul Choiniere, starts by outlining some of the challenge of New London’s hosting its region’s tax-exempt services and functions such as a hospital, colleges, and public housing. He says that the city’s finance department told him that New London has $931 million in tax-exempt property that would generate $25 million in taxes, but provides the city only $5.5 million in payments in lieu of taxes (PILOTs), “a net tax loss of about $20 million,” he says, if the tax rate basically pays the cost of what it takes to service property owners.

It would seem that Choiniere is leading up to a pitch for increasing the nonprofits’ mandatory-voluntary PILOT payments, but he parts paths with most newspapers and gets to the nub of the problem by suggesting “taxing and organizing on a regional basis.” It isn’t just that New London has more than its share of colleges and hospitals, but that it provides a large portion of the services that parts of the region, including its suburbs, depend on but don’t pay for. A solution, in his view, is property tax reform—getting the suburbs to share in New London’s tax burden for public and nonprofit services. Tax reform has been a policy platform of Connecticut’s Democrats, but hasn’t made much headway. Sort of counterintuitively, like Nixon going to China, Choiniere thinks it is a policy that Republicans should adopt, matching their interest in reduced spending and government inefficiency with sensible property tax reform.

Choiniere concludes, “This would mean radical change for the land of steady habits and would require driving a stake through the sanctified heart of home rule. But having 169 separate bureaucracies for 169 communities (more if you count the myriad boroughs and fire districts) is not a sufficient way to run things.” He concludes that the current system of property taxation isn’t working for New London. Actually, it’s not working for New London’s tax-exempt property owners, no matter how the city calculates its voluntary request for PILOTs.—Rick Cohen