State statute requires that the state provide payments in lieu of tax (PILOT) grants to towns for property taxes that these towns cannot collect on exempt property. Property tax exemptions are mandated by the state and include private colleges, hospitals and other not for profit landowners. Connecticut General Statutes Section 12-20a requires that the state pay each town a PILOT grant of 77 percent on the property taxes that could have been collected on private non-profits but for the exemption. The state, however, has not fully funded these PILOT grants leaving towns bearing much of the cost for these state mandated exemptions from property tax.
It is generally agreed that the property tax system is regressive in that it penalizes property owners for improving their properties and falls hardest on those earning the least. Nonetheless it is the only significant taxing authority that the state has granted to the towns. In fact, Connecticut relies on property taxes more than any other single tax to fund local government services. The property tax raises more than $1 Billion more than the state personal income tax. As a result tax-exempt property is a major issue for towns.
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