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.
When the state limits the taxing authority of a town and then goes further and exempts large portions of the town's property tax base, it is shifting considerable burdens onto the non-exempt property owners and stressing a town's ability to fund its services. Yet, this year and for several years going back into the past, the state has not fulfilled its statutory duty to pay 77 percent of the property tax lost on the exempt owners. Instead, the state is paying less than 40 percent in 2013-2014.
There have been bills proposed in the past to strengthen the statutory PILOT grant by making it mandatory and not dependent on last minute shifts in appropriation formulas. These efforts have failed.
When the state mandates that property be taken off the local tax rolls, it should be axiomatic that the state should replace that lost revenue. Otherwise, an individual municipality and its property tax payers end up paying for tax breaks granted by the state to favored entities and activities. This is especially true when a state statute claims, but does not actually provide for that reimbursement.
Not funding these grants results in state lawmakers avoiding accountability for their own mandates; and forces local residents to subsidize non profit institutions that benefit adjacent towns and the state as a whole. In other words, the failure to fund these grants results in free-riding.
This free-riding is mainly done on the backs of certain property owners in towns where an abundance of non-profits locate. These towns include New Haven, West Haven, Bridgeport and Hartford all of whom contain a disproportionate number of exempt properties. It is no wonder these particular towns have budgetary crises: They don't have a full tax base due to legislative exemption from their tax rolls. It's time for either an amendment to the statute to make such grants mandatory, or a lawsuit filed by those disproportionately impacted. •