DOCUMENT RESUME ED 084 627 EA 005 592 TITLE State of Connecticut; The Report of the Governor's Commission on Tax Reform. Volume II--Local Government, Schools and Property. INSTITUTION Governor's Commission on Tax Reform, Hartford, Conn. PUB DATE 18 Dec 72 NOTE 144p.; Related documents are TA 005 590, EA 005 591, and EA 005 593 AVAILABLE FROM Connecticut State Tax Department, 92 Farmington Avenue, Hartford, CT 06105 ($1.00, Complete Report $3.00) EDRS PRICE MF-30.65 HC-$6.58 DESCRIPTORS Assessed Valuation; Budgets; *Educational Finance; *Equal Education; *Equalization Aid; *Property Taxes; *State Government; Taxes IDENTIFIERS Assessment; *Connecticut ABSTRACT The Commission made an in depth study of the entire tax structure of Connecticut and developed a model for tax reform for the State that would allow for lessening of inequities for many classes of taxpayers and create a more favorable climate for industry to increase employment for Connecticut people. This volume (the second of three) contains four parts, all related to local level problems. 1+ complete review of, and recommendations with respect to, the property tax are contained in the first part. School finance and a detailed proposal for local option equalization with projections through 1985 for each town are contained in the second part. Proposals for reform of the assessment system, including an estimate of revenues presently being lost through improper (and unlawful) underassessments are set forth-in the third part. A recommendation for a Uniform Municipal Practices Act dealing with referendum requirements, town budgets, and town financial reporting is contained in the final section. (Author/JF)
Transcript
DOCUMENT RESUME
ED 084 627 EA 005 592
TITLE State of Connecticut; The Report of the Governor'sCommission on Tax Reform. Volume II--LocalGovernment, Schools and Property.
INSTITUTION Governor's Commission on Tax Reform, Hartford,Conn.
PUB DATE 18 Dec 72NOTE 144p.; Related documents are TA 005 590, EA 005 591,
and EA 005 593AVAILABLE FROM Connecticut State Tax Department, 92 Farmington
ABSTRACTThe Commission made an in depth study of the entire
tax structure of Connecticut and developed a model for tax reform forthe State that would allow for lessening of inequities for manyclasses of taxpayers and create a more favorable climate for industryto increase employment for Connecticut people. This volume (thesecond of three) contains four parts, all related to local levelproblems. 1+ complete review of, and recommendations with respect to,the property tax are contained in the first part. School finance anda detailed proposal for local option equalization with projectionsthrough 1985 for each town are contained in the second part.Proposals for reform of the assessment system, including an estimateof revenues presently being lost through improper (and unlawful)underassessments are set forth-in the third part. A recommendationfor a Uniform Municipal Practices Act dealing with referendumrequirements, town budgets, and town financial reporting is containedin the final section. (Author/JF)
Ln
Lt
State of Connecticut
U S DEPARTMENT OK HEALTHEDUCATION A WELFARENATIONAL INSTITUTE OF
EDUCATIONTHIS DOCUMENT HAS NI I N 41 I'411(WC! (1 I: It AC It r AS I4l CI I) 141111T o g ( P i tiSON OW ONOANit A 1 ION OW t.INA 1 ING 1 POINTS 01 SIt 1P1N1ON,StATro 00 NOT NI("I'SsAii,,, 4t 14+1SENT OC 1 if IAL NA 1 ICINA1 1 LIT I OIEDUCATION POSITION 014. POI II
TV 1iEPOli1 -01,' C()V Eli NO II'S (..()1111ISSION
ON TAX fiEF()Ii31
Submitted to Governor Thomas J. IleskillPursuant to iExecutive Order 13 of 1.972
VOLUME II LOCAL. GOVERNMENT
Schools and Property
PART A PROPERTY TAX REFORM
PART B SCHOOL FINANCE REFORM
PART C ASSESSMENT REFORM
PART 1) MUNICIPAL FISCAL PROCEDURES
HARTFORD, CONNECTICUT
December 18, 1972
This Report Consists of the Fllows
SUMMARY OF COMMISSION REPORT
VOLUME I STATE FINANCE
Revenues and Expenditures
VOLUME II LOCAL GOVERNMENT
Schools and Property
VOLUME III TAXPAYERS
People and Business
Copies of the Sionniary available Nvithotit charge.
Copies of the Report 81.00 per volume; 83.00 per set
from
STATE TAX DEPARTMENT
92 Farmington Avenue, Hartford, Connecticut 06105
7 he BOIld Prco,. Inc0.1111nrcl. Connecticut
GOVEHNOWS (1031311SSION ON TAX REFORM(aointed the Gosentior vor.utott to 1..\eetttise Order No. 13 of 1972)
Paul 13. Altermatt.IimIlrance CommissionerState of ConnecticutHartford
I'. George BrownTax ef)/////liA8ifEnerState of ConnecticutHartford
Ernest E. Courchene, Jr., President.Digitech Data I ndustries, Inc.Ridgefield
Charles V. Benson, ProfessorSchool of EducationUniversity of CaliforniaBerkeley
Frank S. Berall, Esq.Schor & BerallHartford
Robert H. Franklin, Executive Direct ».Connecticut Public Expenditure CouncilHartford
John F. Tarrant, Research DirectorState Tax DepartmentHartford
Jean F. Hankins, EditorMansfield Center
CHAIRMAN
Francis E. Usher, .1r., /Yes/dratAndersen Laboratories, Inc.Bloomfield
COMMISSIONERS
Philip M. Drake, Ntl.Cummings & LockwoodGreenwich
Robert O. Harvey, //canSchool of Business AdministrationUniversity of ConnecticutStorrs
CONSULTANTS
Dick Netzer, DeanNew York UniversityGraduate School of Public AdministrationNew York
James A. Papke, ProfessorDepartment of EconomicsPurdue UniversityLafayette
COMMISSION STAFF
Christopher L. NobleYale Law SchoolNew Haven
Gregory J. PadickUniversity of ConnecticutStorrs
Peter It. Sat'seleTown of rummvii.ki
nioun.rwid
Gerald .1.Pep.Pity Cu117/11iSgi(ine1'Fillallet. & C011trtliState of ConnecticutIf artford
Carl (1. Ward, PartnerPrice \Vali-Hum:4e &Hartford
Theodore R. Smith, Associate ProfessorHarvard Law SchoolCambridge
Frazar B. Wilde, Cho irmon NmeritasConnecticut General Life Insurance Co.Bloomfield
A. M. Woodruff, PresidentUniversity of HartfordWest Hartford
Roger W. SchmennerInstitution for Social and Policy StudiesYale UniversityNew Haven
Robert R. Weller, Esq.Jones, Day, Cockley & ReavisCleveland
TABLE OF CONTENTS
PART A: PROPERTY TAX REFORM
1:1(N:duct km 3
Findings and Recommendations .1
Summary of Changes Affecting !meal Revenue
Magnitude and Importance of the Property Tax in Connecticut 7
The Burden of the Property Tax 8
Who Pays the Property Tax? 8
Is the Property Tax Regressive? 9
Are Property Taxes Too High ? ii
Inequities in the Property Tax 15
Inequalities in Assessments 15
Geographical Inequities and the Problems of the Cities 15
The School Finance Problem iS
Property Taxes and the Elderly 19
Tax-Exempt Property
The Special Case of Low and Moderate Income Housing 19
Low Rent Public Housing 19
Low and Moderate Rent Private Housing 20
History of the Property Tax in Connecticut 21
Alternative Methods of Taxing Property 21
Classification of the Property Tax Base 21
Site Value Taxation 9')
The Personal Property Tax 23
Shifting the Personal Property Tax 23
. Conclusions of Commission
Relationship to Inventory Tax Phase-out Program 25
Property Tax Limits 27
TABLE OP' CONTE:NTS (( :ontinued)
The Circuit Breaker 98
Existing Law
The Concept of the ('ircuit. Breaker 08
Basic Design of a ('ircuit 'Breaker for Connecticut 98
Relief fm. Homeowners 08
Relief for Renters 09
Administration of the nrcoit Breaker 09
Relief Under Existing Section 12 -129h .
Service Charges on Tax-Exempt Real Property all
The Effects of the Real Property Tax On U r ban Capital Formation
Business and Industrial Location Decisions 000_
Residential Investment :32
Relief from Property Tax Burdens and Attention to the Special Circumstances ofCities
Block Grants 33
Tax Relief on the Basis of Non-Governmental Tax-Exempt Property
Summary
Conclusion 36
Footnotes to Part A 37
PART B: SCHOOL FINANCE REFORM
Introduction 41
Findings and Conclusions 41
History of School Financing in Connecticut 43
Constitutional IssuesRecent Court Decisions and the Connecticut Constitution 45
The Rodriquez Decision in Texas 45
The Serrano Decision in California 45
Judicial Basis for School Finance Reform 46
Other Developments in School Finance Reform 47
Legal Issues of ConnectiCut School Finance 48
iv
TABLE OF CONTENTS (( ontinued)
Public School Finance in Connecticut Today .19
Local Funds .19
State (lovernment 51
Federal Aid 53
NS'hars NS'rong With Our System Now
Measuring. Inequality 56
School Resources and Equal Educational Opportunity 59
Court Attitudes on Expenditures and Opportunity 59
Empirical Studies: Schools and Achievement 59
Impact' of the Current School Finance System on Community Development 60
Alechanics of the Sorting of Suburbanites, 62
Restricted Zoning
Business Location 63
Alternate Approaches to Equity in School Finance
Full State Funding 65
Local Option Plans 65
The New School Finance Program: An Equal Educational Opportunity'System
The Equal Educational Oppotunity System
6
r
6
66
Implementing the System 67
Funding Level Alternati"es (39
Effects on Individual Towns. 71
Impact on Central Cities 80
Timetable for Implementation 81
Implementation of the New System 82
Administration of the Equal Opportunity Fund 89
How SEEOF Would Operate 82
Appendix A 84
Other Issues and the Agenda for Future Study 84
Note On Data Analysis and Projections 84
TABLE OF (A)NTENTS (Continu(d)
Appendix 13
Dissent of Philip Drake 87
Appendix C
Objections to Sections in \'OItlfl( II. Part IL titled "School IZesonrces and EqualEducational Opimrtunity" and -Impac.t of the Current totd Iii ti sy;410non Cornmunity Development" 88
Foot notes to Part 13 8!)
PART C.: ASSFSS:1IENT 1311,1113.11
Introduction: The General Property Tax 9:3
Commission Findings and Recommendations
Findings
Recommendations 9.1
Assessment Reform: ('ost-Benefit Summary 95
Equity of Assessments in Connecticut 94;
Uniformity Among Types of Real Property
Uniformity Within Classes
Personal Property 100
The Special Property of Public Utilities 101.
Valuation Procedures 101
The Market Data Approach 101
The Cost Approach 1.02
The Income Approacn 102
Slate Assistance to Local Assessors 102
State Board of Assessment Supervision 102
Argument for Regional Districts 1.03
Local Board of Tax Review 103
State Board of Appeal 103
Director of Local Assessment 103
Uniform Assessment Dates; Uniform Fiscal Year 10/I
vi
TABLE OF LONTENTS ((:ontititicd)
Certification of Assessors IIII
Slate Supervision of Revaluation Companies 105
Revaluations fi))
Computer .\ssist Itevaluation 101;
t'ombuterized Assessment Systems 107
Application Statistical Tec:linique:. 107
l'se of t'omputers in Valuation 1OS
Implications for Annual Assessment 108
Standardized Data 109
Ett II Value Assessment 1(9
Equalization of Assessments 11.0
Suggested 1;qualization 1-Reforms 110
Establishing. an Assessment Ratio 110
Other Guidelines 110
Compilation of Data 111
Tax-Exempt Property 111
Preservation of Farm:;, Forests. and °Pen' Space (Public Act 490) 112
Public:Act 152: Conveyance Tax 1.12
Undeveloped Land Assessments 1.13
Building Permit Fees 113
Program Implementation Dates 11,1
Footnotes to Part C 1.15
PART 1): . MUNICIPAL FISCAL PROCEDURES
Introduction 119
Recommendations 119
vii
TAIII,E OF coNTENTs ((:ontinued)
Discussion of Vniform :Municipal Finance Act 1'0
:\landatory Referendum on 'Municipal Hudget I20
Special Tax Levy
lload of Education Iludget Approval 121
l'niforin System of Accounts 121
Capital Improvement Review Boards lo)
Financial 1101 Administrative Personnel I22
:Municipal Finance Division at State Level 10.)
Collective Bargaining Agreemoots 12:1
'Maximum Deht Limit 1'):1
Standards of Investment for Town Funds 121
Conclusion 121
ootnotes to Part I) 125
Bibliography 126
LIST OF 'TABLES
Part A: Property Tax ReformA-1: Total Connecticut State/Local Tax Bill, 196.1 -72 7
A-2: Property Tax Receipts in Connecticut and Total Municipal Expenditures,196.1 -72
A-3: Percentage of .State and Local General Revenue in Connecticut and U.S.Derived from the Property Tax, 19-12,71 8
A -1 : Local Net Grand List, Average Tax Rate, and Grand Levy in Connecticut,1925-71
A-5: Taxes Paid by Connecticut Residents by Level of Government, 1927-71 9
A-6: Connecticut. Federal-State-Local Tax Burden by Income Group
A-7: Tax Rates for al! Connecticut Towns, 1971 11.
A-8 Effect of Personal Property Tax Phase-out .Proposal on 1970 Net Grand Listof Localities with more than $20 Million in Affected Property 24
A-9: Net Effect of Personal Property Tax and Aid to Cities Recommenda-tions on Major. Localities, ri."74-77 20
A-10: Distributions to Localities Receiving more thant% of Either 8-159a or10-:A6k Block Grant. Funds, 1972
Part B: School Finance Reform
B-1 : Summary of Net Current Expenses by Level of Government in Connecti-cut, 1943-44 through 1970-71 50
viii
TABLE OF COVIT \ TS (Continued)
11-2: Summary of Connecticut Local Government Expenditures and Revenues,1961.70
113: Towns !tanked According to Per Pupil Expenses (School Year 1970-71) 52
11-1: School Expenditures and Effective School Tax Rate
11-5: School Expenditure and Tax Rafe, 11111 Towns Ranked by Tax Base
11-11: Variations of Town Tax Base (1971)
B-7: Yield Per Mill Per Student Trends
B-S: Alternative 1 Effective Yield Per Mill Per Pupil by Year of Program
11-9: Alternative 1 SEEM' Balances
11-10: Alternative 2 Effective Yield Per Mill Per Pupil by Year of Program 711-11: Alternative 2 SEEM Balances 71
B-12: ,thernative 3 Effective Yield Per Mill Per Pupil by Year of Program 71
13 43: Alternative 3 SEEM' Balances 71
B-11: Effective Yield Per Mill Per Student by Year by Town 7:1
B-15: Effective Yield Per Mill Per Student Comparison 75
11-1(i: Illustrative School Expenditure and School Tax Rates 79
Part A,--e,ment Reform
C-1: Estimated New Revenue to Towns after Assessment Reform
C-2: Average Ratio of Assessed Value to Sales Price by Property Cse Classifi-cation, Selected Connecticut Tow/H, 1966 (In Percentages) 97
C-3: Assessment-Sales Ratio 'Variations by Real Property Class: Distributionof Connecticut Towns, 19(fi
LIST in, cuA lasA-1: Federal, State, and Local Taxes in Connecticut by Income Group 10
A-9: Hartford Area, Effective Tax Rates 1(1
A-3: Bridgeport Area, Effective Tax Rates 1(i
A-1: New London and Norwich Area, Effective Tax Rates 17
A-5: Waterbury Area, Effective Tax Rates 17
A-(i: New Haven Area, Effective Tax Rates 18
B-1: School Expenditures by Source, 1970-71 .19
B-2: Yield Per Mill Per Student Comparison 58
13-3: Yield Per Mill Per Student Comparison under Current and RecommendedSystems 79
C-1: Disparity of Values between Real Estate, Motor Vehicles, and PersonalProperty 100
ix
['ART A
Property Tax Reform
IntroductionThe property tax occupies a place in the state
and local tax structure second to none in termsof revenue raised. It has been and continues tobe the major revenue source of municipalities inConnecticut and throughout the United States,Recently the Property tax has received increasednational attention as municipalities have becomemore pressed for additional revenues to pay fortheir ever-increasing expenditures. Like all taxes,the property tax has been subject to charges ofbeing regressive or progressive, or being too high.Also, some courts have held that the existingsystem of school finance by local property taxesis unconstitutional, and critics have charged thatthe property tax cannot continue as the majorsource of educational .Iiiiance if we arc to providean equal opportunity for the education of Con-necticut's children.
After study, the Co?nmission concluded that theproperty tax is an. appropriate vehicle for thefinancing of expenditures of our towns midcities, including the financing of public education.The Commission did, not find the property taxunduly regressive, in the context of total taxespaid by Connecticut itizens. But there are numer-ous inequities, including the way in which theproperty ,Itx is administered. This Report consid-ers and affirms the proposition that the propertytax should be preserved and improved as an equi-table means of raising a major portion of munici-pal revenue.
Part A of Volume II is devoted to an analysisof the property tax, its importance in our taxingsystem, the impact of the tax on our citizens, andthe existing inequities found by the Commission.Alternate methods of assessing the property taxand of establishing property tax limits were ex-plored. The Commission concluded that the solu-tion is a three-fo!.1 program to reform the exist-ing property tax structure.
In, the Commission's riem. the number one re-form which, is needed is the uniform administra-tion and assessment of the property tax. This isdiscussed fully in Part C of this Volume.
The second major area of reform is in the:method of financing public education in this State.'The Commission considered the problems andconcerns raised by recent court decisions and bythe President's Commission on School Finance,
the most critical being inemiality of educationalopportunity and the role of the property tax.These issues are discussed fully in l'art 1. of thisVolume, \vhich sets forth a definitive program ofschool finance reform aimed at equalizing theeducational opportunity afforded every Connecti-cut child \vithout surrendering local autonomy.
The third area of reform deals with correction01 certain other inequities. Here, 'Commissionsrecommendations include assistance for our cities.mid for the elIlerly. These and other recommend-cid improvements and refoyins are discussed inthe balance of Nrt A Of this Volume.
'rile problems ,of the cities are discussed atpape 33 and the specific relief which the Com-mission is recommending is set forth on page 31.The Commission concluded the property lax is
disproportionately burdciisomc in core citieswhich hare unusually high 'municipal and edua-tional costs ordinarily not found elscilicre. Thereliance on the property tax in the major citiespushes the property tax to levels NVIli11 distortmarket behavior and investment decisions. Thereappears to he a vide range of "acceptability" ofreal property taxes, but Once property tax ratesreach a critical point, the property tax becomes amajor influence on location and investment de-
-cisions,
The Commission concluded that m ior citiesare forced ti finance programs and offer servicesnot need,;(1 elsewhere and that these cities desper-ately require financial assistance in order thatproperty taxes may be reduced. The Commissionrecommends the adoption of programs which. willchannel revenues to cities dealing with suchproblems..
The State presently has two "block grant" pro-grams which are well designed and which canprovide effective assistance to cities. These pro-grams channel unrestricted funds to localitieswith special problems. The Commission recom-mends the appropriation of an additional $5 mil-lion to each program.
Urban centers, contain the greater part of thisState's non-governmental tax-exempt property.In addition to advocating charges for servicesrendered, to tax-exempt Properties, the C0111,MiS-SiOn. recommends that an annual $10 million, fundbe divided among cities with large concentrationsof non-governmental tax-exempt property.
The :11-11 propo.se, that tile exi,tingHog:ram for in hell it taxe, for State-i,%% lied propert ho continued.
(.1.11011i:.;1,)11 till' ri.fltitillati,111cf :irogratii of the personal propertyt;ix rniler existing ,tattites, hull'inithill,tctorers and merchants' inventories are
hl ono, ra no .1 I t///,/)/0,1 111'1'11 Ile, nr,.lyt s. 11 oft (Ili 11 1' 111'1"Sto Oat prop, rt r.I'vo
woloi roil of/ .0o,'1,* nl remici,cf(Hs,111(f Hurl/ iho fir isoirtei /It 4/p, I/0- of ptrl,I,r s,,rnHr /al I/ ;4 .,,,11(11/111 hr rr,irl't I I row I ho ?SOHO(
1,1 i,loo I I rl 111,r, The is that 1Ill`111 years-:.
not CoM?//;Ns;/),, / I coOl Ho' clOO;po r.smof o r. g til.rott ( I)
Hog.), aro inherent difficulties in suchproperty, and 12) the tax on niitnufacturers'iieisonalty is non-competitive vith ,ether slatesand counterproductive to ne%v investment.
The net fiscal impact on local .r,overnment asresult if till' Commission's prograni in-
ert'aS(' ;iv:tit:tide to local government I.more than 111i11ii)11 tier year. I1'his does
niit include rederal 1:1,\ onto. Sh.tring hich.iiticipa:.ing a gt..m th v i lucid reve-
nue 197 I ronsIstent ith tilt' pa.st,
pi)grl1T1 Will 311',)'1 (IVO!' ill'.It1,11.0 1'0'011111. 1.11111 1Clelllil ha \e iwt.ti ivy eiVoll IIi
That VC:lr. Willi till 111:111).2:1, iti
.-11011;itit'1.\'. are held tie till'allle liecont:ligo. ;I, till' lirt.iveted griiWt II
in the' 14T:01(1 li t, enactment of the ('ommissionprogram could result in a i.teneral roll-hark ofproperty tax rate, throughout the stale.
.1.11V avail:Wilily nekv grand list value and thelee -s let "Ili value tlirotigh till' new exemption.. on,-
ei I does not fall eirtially on each town. Also,the State funded i/r/q.nil».- rit city and s1'liiii)1
al'l' desigheil to compensate for special condi-tions. For a review of till' impart of special pro-grallts. see Part II of Volume I.
The urnmi...::.ion feels that this reilistrihutionof resiiiirces is in the interest of the entire State.and its 1IiU indicates that the initial impactwill lienetit most localities. In the long run, alllocalities will henetit through improved services,lower property taxes. and a healthier economicclimate in t lie State.
Findings and Recommendations'll'he ('ommission finds that :I. Cmi of et fl r.( s iii of 01 of ifs
Striti. um! local on-sourer rece aloe from thepropert if lax:
lb No-M:11PN Cal e of loch! !IfOrerio MeHt.,; !feesincreased faster thorn the propert lose' base, andthis has ca risco! propert tax rates to increasesteadil 11;
I. tier prop, I'IIj too... has lo« a the main soareric re 11 Or for local schools (1 hol nthrr 11111 rr lc,' pal
services:
`o rrpeal of the protocol!/ tax is mot f. e(tsibir81ifficireit rerctiiie rtiPtifof be prodned from
other son rees at realist le rotes.
The ('ommission recommends that :.1. the jot'', Ix should continue to be the
rr pplOprielle MOO? . erre of rerenne for localschools and other moo to iripal scrr ices.
The ('ommission finds that :5. over ;;0'i of the property taxPs are !cried
4
of /Dina 11'8Oletit Olt ITO proper, while oboist one-?hi rol of the total property taxes hare their initial:nopact propo it's. awl floc ro'onaiaderfall into ow pions other riplefloi'leg:
IL Co PI riecticrit 1.00(1 legally adopt a system offli fiereat lot elas.ifiration to drift. the impart ofthe property tax boot the expo riences cif otherstates which bare adopted systems of Oussifiofl-lion ;awe not been StICCCSNfOl.
The Commission recommends that :R. tlo institution of a system of differential$817iralt ;MI of ,orOpert g for parp0804 Of property
Iii tion i1 nnf XH ilea 611' for Con twetieut.
The Commission finds that :7. alleged advantages of the site value tax hare
not been proren;
R. Conversion to a system of site value taxationis not appropriate for the nurture economy ofColInertiont,
The Commission recommends I hat :4, f NIX!, ;bp is not dr si 0114 f
io 1111.S Stll fr.
I'he ('Iommission finds that:I ex limit:: ere( be st alit I.:rd (eh ( Sirrtr
her ernu nr, (I-prove 11 n to reeN',
The ('onimission recommends that :I). cmichn CO Of tit it:: ef 0111It 10
lato-uq to urriforrr (isscs., M fl oil ion"1. 1111. 1,1"1)(.1.1!1 111,r Ti f r1 ot. I/ ) nnel ) Its(Tenn; me oda ions room r'rrirrg rrrrrrrieilrrrl !ismlpen et ices (l'ea'f rt 1), I'M. 111, re be core (1f «., i cr.(.11 rout rid ))ropert tux ru!es Limn ann ini-pos( (I li or to I irons,
The Commission finds that :0, Sect ion 1,2-1,291) of the C r, I et lea G hero!
:".1111,1 les toCid('S for rope if if lux relieff 1-1(11.1111 )/1.1,111 y11'110'11'4 i.. (1i1.111-111, t() (1(1-ntini.1( r raft doe's not yowl relief to elderlyrent( es,
The Commission recommends that :o circuit breaker be odapted
gear,' relief Hp to ."::;00 for pl'Opert IN (DidITO ((err (ii; ,fears erf affe, (le pc ndent on i H-
errin( , rrrrrl ir(O1111 9111(10(111.11 replace therro'stiog Sect ion 1 .2-1 291) laal rehr led sections.
The Commission finds that :II. the persona property
adinister opritobly;
12. the pees/ppml property for falls in largeport on businesses which is n deterrent to indus-trio1 inrestment in the Stole.
fees is (tilficidt to
The Commission recommends that :F. the to .1. nor f ither rnyuisiIions of personal
proper, y eli i rioted c.erept for motor' vehicles,q stock of cold riod ors, i re en ft orrd the per-
sona proper, y ofo, pith( sHric omponies. Thelox ere( on( from c.,.isling somd property willdecline ()err o ten-mar pr riod doe to lower rolnesbeing reported as the cost basis ;slow( red 0110111111depreciation.
G. the "'mots in lien of to.res should be elimi-nated for both manufacturers' rend Inerchants' in-ventories in 1974 simultaneously with the reedit-((lion proposed in Pr( rt C of Volume 11.
The Commission finds that:1.1. the tax-exempt properties in. the State
5
11 Mon t to billion op' n op ),ri HUI t l'1 !I 16' Of
I lir holm' lb.:So HTIMMIG:
1:. t the tot.(' -1,1TiliPt Jrr Oper lies nee10(01 fl ire 1110.
The Commission recommends that :ortmpt shnold be made to hid. losCtn-
tions Caret other to.-e.eempt popertiex al the fullrUl I ,HOSO'll twi11:4 find cities:
I. et ,r-, .)-1 nrf,l Id t ions ,.boatel cony(' (ism' eI 1, ( Ir '1St lr,rr'res for some, of t Sic r r Which
n
s lin rib s for the its, of dnonicipolsealers tax-exempt institntions should be dr-termin( (I in «Ih municipality (rod appropriatecharges mode:
K. d, rod, u,), stair prom rt ie s sh mild 1)1 v.v.--
chute(' from (Ion Nil I'h rho dies:
I., S, et jot( 1,24 fro of floc Con it(SI ortrir should In fol1N f rido (1 ;
11 (1 Slo I, Imo" o )(port Iwo 11() rfanlifilimrf towns of the State hosed on volua-
timis of nor(-ito,.( pimiento, tax-exempt !propertyleeiyhted hu o fortor which is the net growl listper re Mile.
The ('ommission finds that :15. the core cities of the Stat fore pr(ddems
not shored by other municipalities in Conneticnt;111. the block grant program (Sections S-159a
old 10-266k of the Connecticut General Statutes)has been on e /Yogi ve, but 1411de If It ded rehirle foraiding cities.
The Commission recommends that :s clif)pis s_1:7911 and 10-266k be retained and
that the funding of those sections be (..rpanded blleach in F1' 1974 and 1975 and $1.";
e(ah beginning in FY
The Commission finds that :17. additional revenue made (trailable to ?oral
!myrrh, ments f regnently results in increased spend-ing and the development of new programs whichore not always required or essential to the welfareof the town.
The Commission recommends that:0. the funds mode (Imitable through. the pro-
grams set .forth here be used to roll bark propertytaxes so as to encourage new investment and easethe burden on homeowners, Additionally, whenthe entire program for local government is ex-
ambled as detailed in Parts A, R C this vol -lone 11, additional revenues front the present taxstructure will total more than $100 million. (SeeSummary below.) The Commission further recom-
m cud:: each town examine its fiscal proy rainsthe liyht of these new rerenues and wherecerpossible apply excess funds to the reduction Ofproperty taxes.
Summary of Changes Affecting Local. Revenue(in $ millions)
A. Tax Reductions
1. Personal Property Tax:eliminate all except motor vehicles, rollingstock of contractors, and personal property ofpublic service companies
2. Loss of revenue from over - assessments
B. Tax Increases
1. 1.31ilding permits - $5 per $1,000 new con-struction
2. Service charges levied on tax-exempt insti-tutions
3. Conveyance tax P.A. 152-5 ji recapture
C. Additional Revenues from State Sources
FY 74 75 76 77
- 7 -14 _01 -28
- 5 - 5 7 5 - 5
+ 2.5 + 3.0 + 3.5 4- 4.0
+ 8.:' + 4.0 + 4.5 + 5.0
-1- i.0 + 1.5 + 2.0 + 2.5
1. Increased block grant programs
2. State grants to locals sharing a diSpropor-tionate burden of the cost of tax-exemptproperty
+10.
+10.
+10.
+10.
+30.
+1.0.
+30.
+10.
3. State grants in lieu of taxes on Stateproperty + 2. + 2. + 2. + 2.
4. School equalization 'funds +20. +20.
D. Reduction. in. Revenue from State Sources
1. Inventory - grants in lieu of taxes -20 -22
E. Additional Revenue Available from LocalSources
1. UnderassesSed property
2. Cost of assessment program - 2
+50
- 3
+115
- 4
+120
5
TOTAL GAINS FROM COMMISSION PROGRAM +29.0 +80.5 +187.0 +193.5
TOTAL REDUCTIONS FROM COMMISSIONPROGRAM -14 - 22.0 -50.0 -60.0
NET INCREASE AVAILABLE FOR PROPERTYTAX REDUCTION OR NEW PROGRAMS +15.0 +58.5 +137.0 +133.5
6
Magnitude and Importance of the Property Tax in ConnecticutConnecticut derives nearly 50''., of all of its
combined State and local own-ource revenuesand approximately 37% of its gross State andlocal revenue from all sources from the propertytax assessed by its 1.69 towns and cities.'
If the property tax were repealed and Connecti-cut adopted an income tax in its place, Connecticutcitizens would be required to pay an income taxequal to approximately 10% of their total Federalincome tax payments."
The, above two statements demonstrate; in cap-sule form, the major role which the property taxplays in the tax structure of Connecticut. it isthe major Source of revenue for municipal ex-penditure and accounts for over 80% of totalexpenditures in Connecticut's towns and citiesexclusive of capital outlay. Table A-1. shows therelationship between the State and local tax reve-nue over recent years. Table A-2 shows the prop-erty tax receipts in Connecticut from 1964-65 to1971-72 as a percentage of the total expendituresof municipalities in the same periods."
Connecticut is not unique in its dependenceupon the property tax. The importance of theproperty tax nationwide was recently summarizedby the Congressional Research Service of theLibrary of Congress:
Though property tax revenue has increasedsteadily in absolute terms, it has declined asa proportion of State. and local governmentrevenue raised by the States within their in-dividual boundaries, due' to the introduction
TABLE A-1.: Total Connecticut State/LocalTax Bill, 1964-72
Sourer.' 196,1 through 1971: Governmental Finances, LS.Bureau of Census, indicated years. Taxes for1972: Public Document 18, State Tax Dept.,Grand Levy. Expenditures for 1972 are esti-mated.
of the sales tax, the income tax, and othernon-property taxes. It has declined evenmore as a proportion of total State and local.government revenue due to the increasingnumber of Federal grants-in-aid. . . . [How-ever] it still accounts for two-thirds of allgeneral revenues raised by local governmentsfrom their own sources, and more than one-third of the total of all general revenuesraised from their own sources by State andlocal governments:'
Tn Connecticut, the property tax plays an evengreater proportional role as a revenue source. In1970, for instance, only three states (Massa-chusetts, New Hampshire, and New Jersey)raised a higher percentage of their state andlocal own-source revenues from the property taxthan did Connecticut.5
When Federal grants are added as a revenuesource, the percentage raised by the property taxin Connecticut drops to 37.8% in 1971. The rela-tive decline in the importance of the property taxwhen Federal funds are included in post-waryears is illustrated by the consistent reduc,tion of that percentage since 1942 as shown inTable A-3.
in absolute terms, however, as the Congres-sional Research Service has noted for the nation,'Connecticut property tax collections have beengrowing steadily in volume. Table A-4 shows the
growth of the local net grand list, the average taxrate, and the grand levy in Connecticut between1925 and 1971.
This dramatic increase in property tax collec-tions has been the result of an increase in popu-lation, inflation, and the development of our landand economy. lIowever, as can be seen by theincrease in the grand list and the average ta%rates, the spending rate of local governments inthe State has increased even faster than the prop-erty tax base. This has put intense pressure onthe tax, which is the only general revenue sourceavailable to Connecticut towns.
The property tax has been the main source ofrevenue .or local schools and other municipalservices. The Commission considered recommenda-tions (a) to repeal the property tax and (b) topropose reforms in the property tax to remove itsinequities and improve its administration. Afterreview of the major complaints against the prop-erty tax and of the alternatives available to re-place the revenues which the property tax nowproduces, the Commission is of the opinion (1)that repeal of the property tax is not feasiblefrom any point of view, especially since there isno comparable source of revenue to replace theexisting tax other than an extremely high per -sonal income tax; and (2) that the property taxshould continue to be the appropriate main source.of revenue for local schools and other municipalse r ices.
TABLE A-3: Percentage of State and LocalGeneral Revenue in Connecticut and U.S.1)erivedYear
Source : Connecticut Public Document .18, InformationI? to tire to the ssess men t and Collect ion ofTaxes (1971) , p. 7.
*In mills, on stated fractional assessment ratios.
The Burden of the Property TaxWho Pays the Property Tax?
Generations of economists, have debated thequestion of the impact of various taxes and com-binations of taxes, in the hopes of providing a firmbasis to predict what consequences will followfrom the imposition. increase, or decrease of aparticular tax. Obviously taxes have economicconsequences. Equally obviously they are notclearly delineated. Some of the effects of the prop-erty tax seem reasonably clear, others are hard todefine. The purpose of this section is to explorethis subject as part of the Commission's analysisof the impact of the property tax.°
The property tax is paid by several classes oftaxpayers, and generalities as to who bears theburden are difficidt. The tax on undeveloped land
S
can rarely be shifted from the owner. The tax oncommercial or industrial property, on farm land,or other productive land use, can and frequentlyis shifted from the user to a consumer furtherdown the line. The tax on residential property willfall on the owner if the occupant. However, if theresidential property is rented, the tax may again
be shifted to the consumer.Without uniform assessment it is difficult to
state ivitfi, any certainty the aniount of propertytax being paid by classes of property. However,it is clear that business and industry do make asignificant initial cohtribution to the revenues ofConnecticut localities. The Advisory Commissionon Intergovernmental Relations in its 1J72 publi-cation has estimated that in 1967, 32% of Con-necticut's property taxes had their initial impact
on business property. while somewhat over 50("(fell directly on residential real nropert;,-.7
This estimate may he compared with the fol-lowing proportions of business and residentialproperty.on the 1970 grand list of the States
(Billions))) Itr. l l i IlgS (C7 140 tS
llusinesS$10.5 56.4
Business fi IndustrialBuildings $2.0
Machinery, dams, etc. 1.0Business Fur:lit:WeC 00(1ti rehallt.S, manu-
facturers) .9
'Total 5.2 28.0,4,
All Other 2.9 15.G%
Total Net Grand List $18.6 100.0%
Is the Property Tax Regressive?In tax literature the word rep ressire means that
the tax bears` disproportionately upon individualsof low income. The opposite, a prof'ressh e taxbears more heavily on I, -'ogle of higher income.A proportional tax would impose the same taxrate on all income groups. The regressivity of'.the tax on real property has been endlessly de-bated, and most tax economists believe that, asadministered in most American jurisdictions inthe recent past, the property tax is somewhatregressive.
Professor Netzer emphasizes that the propertytax is used to finance services and benefits whichare consumed most heavily by those in the lowerincome brackets. The point is, of course, thatwhile the tax may be regressive, the expendituresdefinitely favor the poor."
Regressivity is usually measured by currentmoney income. Professor Netzer notes that theproperty tax becomes significantly less regressivethan is commonly thought when measured bystandards reflecting lifetime income and tax pay-ments.
Another authority, while concluding from Con-necticut data that the tax can be considered re-gressive, suggests that the reforms, like those theCommission is recommending ,gin this Report, caneliminate many of the inequities caused by itsregressive characteristics.")
Those who claim the property tax is progressiveargue that roughly half of the population arerenters who own relatively little property subject
to the property tax and that, for a variety ofreasons, the amount of tax shifted to them isfairly small. nider these circumstances, if prop-erty were properly and correctly assessed, andequitably taxed, the burden would fall moreheavily on those with wealth than is commonlysupposed."
The property tax is one of many taxes paid byindividuals, including the sales tax, the Federalincome tax and others. The rise of property. taxeshas been overshadowed by the rise in Federaltaxes especially, shown in Table A-5. As indi-cated, Federal tax collections have increased muchfaster than other taxes; by 1971, Federal tax pay-ments represented almost 70':; of the total Con-necticut tax bill, compared to 30"; in 1.927.
TABLE A-5: Taxes Paid by ConnecticutResidents by Level of Government,
Source: Connecticut Tax Study Conunission, PropertyTaxrs in Connecticut (1959), p. 4. 1971) data fromConnecticut Pulilic .Document 48, InformationRelative to the .4 SACtiS went and Collection ofToxrs (1970, p. 4). 1971 data from Public Docu-ment 48, p. 4.
Table A-0 shows the dollar amounts collected,and the percentage shares, of federal, state, localand all taxes combined for Connecticut residentsby income group in 1967. A careful reading ofthose figures shows that as explained in detailin Volume One, Part B local (property) taxesare somewhat regressive, state taxes generallyproportional and federal taxes progressive. Thetotals show how the dominant influence of Federaltax collections makes the combined impact of alltaxes somewhat, progressive across the incomeranges shown. (And, as also noted earlier, Federaltax changes since 1967 are believed to have in-creased progressivity.)
Chart A-1 summarizes the above data ingraphic form, showing that, when the large share .
of the tax bill represented by Federal taxes isincluded, the overall impact of the entire tax
Sala
ry G
roup
Und
er$2
.000
S2,
000-
63.0
00
63.0
00-
OV
Ci7
;"2
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-
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$15,
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and
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and
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rfi
IIII A
II
II
I.
.
TA
BL
E A
-6: C
onne
ctic
ut F
eder
al-S
tate
-Loc
al T
ax B
urde
n by
Inc
ome
Gro
up19
67Fe
dera
l Tax
esPa
id B
yC
onne
ctic
utT
axpa
yers
/(T
hous
ands
)
Fede
ral T
axes
as
Per
Cen
t of
Inco
me
Spen
tB
y E
ach
Inco
me
Gro
up
1967
Stat
e T
axes
Paid
By
Con
nect
icut
Tax
paye
rs2
(Tho
usan
ds)
$34
,141
14.3
$ 12
,638
47,2
6220
.410
,770
68,0
3124
.411
,968
78,7
6024
.614
,412
100,
038
25.8
17,5
6419
4,30
425
.731
,218
457,
069
24.5
70,7
0577
3,93
827
.912
0,96
71,
218,
479
35.8
101,
958
$2,9
72,0
2229
.02
$392
,200
Stat
e T
ax a
sPe
r C
ent o
f In
com
eB
y In
com
e G
roup
1967
Loc
al T
axes
Paid
By
Loc
al T
ax a
sC
onne
ctic
ut P
er C
ent o
f In
com
eT
axpa
yers
= B
y In
com
e G
roup
Tot
al o
fA
LI,
Tax
es. P
aid
livC
onne
ctic
utax
paye
rs1
(Tho
usan
ds)
AL
I. T
axes
as
Per
Cen
t of
Inco
me
Spoi
lB
y E
ach
Inco
me
Cro
up('l
'hou
cand
s)5.
30$
25,9
1110
.90
S72
,770
30.5
4.65
93,3
51. 1
0.10
81,3
8335
.-1
4.30
15,5
965.
6095
,595
34.4
4.50
91,1
316.
6011
4,30
335
.74.
5416
,841
4.36
134,
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34.7
4.14
32,8
13-1
.3(i
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34.2
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78;1
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2060
5,92
039
.54.
3612
7,47
24.
601,
099,
377
36.9
3.00
101,
957
3.00
1,42
2,39
-1-1
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3.83
$443
,298
4.33
$3,8
07,5
2037
.18
Sour
ce: C
onne
ctic
ut P
ublic
Exp
endi
ture
Cou
ncil,
Jul
y, 1
972.
Not
es:
'Est
imat
ed f
rom
Geo
rge
Bis
hop,
Tax
Bur
dens
and
Ben
efits
of
Gov
ernm
ent E
xpen
ditu
res
by I
ncom
e C
lass
, 196
11.
965,
Tax
Fou
ndat
ion.
Inc
. (19
671.
Tax
Fou
ndat
ion,
Allo
catin
g th
e Fe
dera
l Tax
Bur
den
by S
tale
. 196
7.2A
. T. E
apen
, Inc
iden
ce o
f T
axes
and
Exp
endi
ture
s of
Con
nect
icut
Sta
te o
wl L
ocal
Gov
ernm
ents
. Fis
cal Y
ear
1967
( 19
70
3S1a
tistic
s of
Inc
ome
1967
, IR
S; E
stim
ates
mad
e fr
om G
eorg
e B
isho
p, T
ax 1i
umet
ts a
lai B
enef
its o
f G
over
nmen
t Exp
endi
turt
.; bp
hor
owe
19,4
1965
, A. T
. Eap
en, I
ncid
ence
of
Tax
es a
nd E
xpen
ditu
res
of C
onne
ctic
ut S
tate
and
Loe
at G
ovi-
rnm
ents
, Fis
cal I
:4'm
196
7 (1
970)
, and
Tax
Allo
catin
g th
e Fe
dcrt
zt T
ax B
urde
n. b
y St
ate,
1 f
w7.
.-.'St YIN Call lie chi I, l'aCt 1' Zerl goilerallyclonal vitli some amount ,ii pi.,,gressivitry at thetop :Lod tilt. 1.,ttoio lo,ono. ranges..
Perhap.-: most important in ilra\Aingoolichisionsas tit whether the pr(?porty laX is rogress,i vo. ;111(1
,V11(.ther a ...ighilicant shift a vay fowl, thetax reyiltiitiiviiiied, is thy (.(01111ilied
in( prinz.elitiiii iii 1'(111.1114." 1.
11, \Vithout repeating all the (lath. anai.-si.s ,:tate and !oral giivernment taxes and ex-penditures together found that the col/0)111(6d im-pact orogressive, potgressi'it.oof III(' 10111 tiS(11 IM r.t Prg'i !fit COI WI, 11 801/ ho
(I, !lily of rrrlrrs.irifil it the fu,r , 010,11'./col /kg CHin it/ iNSi(1/1 It) CI) tit./ ii(le llirrt (.011
;://1:fiig.01/1 elOSI fill' fisert1 tic fec set ((Jillt its rtlr rtoe `tilt? fri tIfIgtituvt, gnu,
;If I'm I Me I, Pr( ,1, flrnt 11/11.4 il s
the poriperig t(I,1 iiit tint it/S(1.60)11' ()it flit' I:11'0101(1N.of ref, y
Are l'roperty Taxes 'too High?Until adequate niethIlds of measuring tax
rates in various towns and cities in Connecticutare adopted, the answer to this question will nothe forthcoming. Table A-7 is a compilation of
'Yawn
ttIx 1 t's, for :ill tilt' towns and cities in the Mate,It cilitains the pt rientage of the f:iir in:irketValli' ilf thy iiriipYrtythe grand list, (column 1 the year in
the towns propert\ V;1. I lied 1 k., lnirl 1;
I9 7l grand list n.1,11111111 :',1; the 1972 millrate (column 11: and the estin lied grand
II")'' Ill'irkt't!lased oil limited sales ratios and certain 41t11(9'
:lam nilll'tlnll the (..-1.1111ated gra ?HI list (11111( it lie
l'Ogarded ;1. StatkticIllY (4(11e.IlIS iVe, ( )1l111111 I; is
1.11(.' Illatt'd unit) rat° 111Si'd 111)401 tilt' eStilllated1 lillr r grand list ill :In attelilpt II) arrivo :11 rut,"
t1lN rat(' (41111) +arahlt.' a'''lts,Taitle A-7 illustrates that to\vtis of 'onnect icut
alarke(Ily in their tax rates (frith' a lc)N\ ri
1I).2 mills to a high of 91 mills). 11'hile columnsand 6 tin' based upon assumpt I deSS
the 'faille indicates that t()1V11:-.. (kpart frttnl theirStated illtenti1111S concerning percentage or ases-molt and that most or them asses, lint )petty (1111-
s,j(1(Tal dy ander the percentage (If...Oared.
Table A-7 provides rough estimates of thetrue level of property taxes, in relation ti) theestimated niarl:et value of taxable prop-erty,"True" mill rates range from a low of' less than
T UWE 1.7: Tax Rate. For .111 Connecticut Towns. 1971Assess. I.aitt Reval.
13 to a high of nearly 19, with the mean ;;ndmedian ratos at roughly 27 mills. Of Connect icut's
CO) Imvits:
are
areare
areare
heimv 20 mills;hot,%veeit 211 ;Ind 2hot%%'0.11
liet\yeen :',(1 and
;dove :15 mills.
5 ;dui :1()
;15
mills:mills; ;mil
There is no simple way of determining fie levelat, which the effective property taN rate becomes"too high." What is acceptahle differs over timeand among places and surely has much to dothe pitblic services that the tax, makes possible.In the northeastern United States, effective prop-erty tax rates of 2.5 to 2r; (25 to :'1) milk) arevery common and si,:doni considered intolerable.This le% el of rates is nigher than %vas common15 or 20 years ago, hut no higher than the levelsprevaildq., ill the 192P's and well holow the levelsin the 19:10's.
It is true that 56 of Connecticut's towns haverates in eNceS;=, of :-10 mills, with some of thehighest rates in the larger cities. Irowever, theCommission's proposals for revisions in theschool finance system and aid to municipalities%Yid significantly reduce tax rate disparities,especially for the larger high-tax-rate cities andtowns. Tax rates far afore the average shouldhe reduced, but that can he accomplished withoutit drastic statewide shift away from the propertytax..
Another vay of looking at the height of the1)1."Ilerty tax is to tollill:tre property t axes
collie generated in a stiite, the must overall HMIs-lire or a slate'.: eeonoilly. In 19711, property taxe;:,collected ill Colilletit'llt entlaled ,2'; of ,lersoll:11
I.Iit; lot' the country as a\\*hole and 1.:1'; in the median stall'.'' SinceConnecticut depends heavily on the property taxone would expel t property taxes in Connecticutto lie high by national standards, riven so, Con-necticut ranked sixteenth in the ratio of propertytaxes t.) ner;:olial :,\IoreoVer, Connecticutrank( r Very low Indeed in tile ratio or other stale-lot.;11 taxes to nersoll:til income: the Connecticutpercentage was 5.1. compnred to :t national aver-age el 7.1'; . Vor ;t1I State -foal revenue sourcescombined (including fees and charge.: as \yell astaxes), the Counecticut percentage was 12.1, com-pared to :1 nation;,) average of lit;'; . Onlyst.ates had perntayes denoting Yomposite Stateand local tax burden lower than Connecticut's."
(-Hi/no-tic/Ws propt,,./!/ ind.cs (H. high /1cr. thou-sand r/nl /nrs H.f ill'opf g POW' brOlIllsr the
:tinl /(/(0/ llnroi-emr,itt.,.. Critilieclirld de-Iwo(' mare 01r this perentic ;:ottir /Ionmany other dn.
Based upon the above, the Commission con-cluded that the present level of property taxes inConnecticut, while high, is not uniformly onerousand that a general reduction, either through atransfer of burden or through direct relief, is notappropriate. to the overall State/local situation.
Inequities in the Property TaxWhile the Commission did. not find the property
tax either exceptionally regressive or too high,it did find inequities which it wishes to see elimi-nated or relieved.
Inequalities in AssessmentsThe Commission believes this is the most seri-
ous of all of the problems which have been allowedto accumulate in the many years of property taxadministration: ASsessment inequalities existboth within and among the towns of the States.
The list of required reforms is lengthy, and thesubject is of great importance. The Commissionhas decided to devote an entire pant of its Reportto assessment reform. Part C contains a complete
15
analysis of the major problems and the Commis-sion's recommendations.
Geographical Inequities and OleProblems of the Cities
Within any Connecticut metropolitan area,some towns have high tax rates, and some havelow tax rates. Central cities-generally have effec-tive tax rates which exceed those of the surround-ing suburbs. There patterns. are shown in ChartsA-2 to A -6 which are to he found at pages 1648.
Municipal costs in the cities are higher than inthe suburbs because of greater need for municipalservices and higher costs of some services. More-over, as fiscal needs are rising in the central cities,
91
':;-)1.1[13S :dd.1,710S
.1110,11:43M
.1,)1t),111:1111)1i1
tri \ (1U()'11"11*^%...
(1110.1111c 73:1.
sa vti, aAoaaly-3 roay poilapput
111 VII s')
tiumico `,
N().1..!)N1.11:1N:
I 111 1%1.1.11111
(f110.1.1,81 1:01:
H:1.1.S:111.1N1
orir. 711E4(INI :.1
(on: (11111:i.t.11 VII
in:it:m.4w III
.))011 xi? t!poil:i ima v imoyoui
sl111:1
A.11.111'SKI
C A II' A-4.Nev.: London & Norsvich Arca
Effective, Tax Itittis
S.11.E'M2:L9
Sou rcc : Same.
3TORMS27.5
FIN '1 III lIE26.5
EA ST
2 6.7
Fit .1 Nii
B(1% ItA 1130.11
N1ONTV 1, 1.E21.1
NVATE1{1,01t120.$
NEV,I.ON IX IN
LISBON
PRESTON29.7
ii: IV .1 1)
29.5
GROTON37.9
C HA I (I' A-5Waterbury Area
Effective Tax Rates
TiloM.1STON24.07
NSLATERTONVN31.1
\VOOIIIIIRY2L9
/8.9
SOUTI I lit RV18.2
ox Folio19,1
Source: Same.
B11151111.33.5
11.1.310I ill29.3
41:01.00'1"r3 2.7
4,LA TERM RN'36.2
NA23.6
BEACONFALLS
:S5.11
17
PROSPECT25..I
tINIlI ANY30.9
5017111NCTON23.9
(111-.:SHiltE26.7'
IA A 1.1.INGFORDDU;
ClIAWF A-6New Haven Area
EfTective 'Fax Hetes
WA 1,1.1.NNEMID2S.6
HA:SIDES
30,9
sEy.mol'It
ANSONIA26.7
WOMMIt 11M: E22.9
11E1Hil:t 1.Y
S111{TH\ VEN
NORTI1BRANFORH
:12.2
SEW HAN' ES EASTHA ES GI' 1 1.1,01W
2S.S
\ >'1,01t1)21.9
Source: Same.
their tax bases are being eroded through the mi-gation to the suburbs.
The Commission recommends a program of aidto cities which will help to alleviate their fiscalproblems.
The School Finance ProblemThe financing of public education has becrme
a major topic of discussion since the decisions ofthe California Supreme Court in Serrano v. Priestand of a three-judge Federal court in Sol? Antonio[ndependent School District v. Rodriguez.
The theory of these cases has been (1) thatreliance on the local property tax for the financingof local educational expenSes produces tax-ratedisparities between towns, as well as inherentand large differentials in expenditures, and
18
(2) that such funding unconstitutionally discrimi-nates against many students from poor andmiddle income families because it makes thequality of a child's education a function of thewealth of his parents and neighbors.
T./is prOblem can be seen by comparing twotypical towns in Connecticut. Town A spends$1,000 per student from local property tax reve-nues and Town B .:;)ends $500 per student. Bothtowns, also receive $300 per student of State andFederal aid, and both towns spend about two-thirds of their local property tax revenues oneducation. But Town A enjoying high expendi-tur3 for schools imposes an adjusted tax rateof only 15 mills (on full current market value ofall property) while Town B faces a tax rate of 30mills, or twice as great, even to raise half as muchfor education. In short, many towns can tax far
less and Spend ninCli 11101'e. Less fortunate townscan never catch up in school expenditure becausetaxes are already as high as homeowners cantederate.
The Commission proposes the establishment ofa school finance equalization plan. Each town andcity would elect its desired mill rate per pupil andwould be guaranteed it fixed dollar amount permill per pupil. If the local property tax did notyield this. amount, the State would, when the planwas fully el.iective, supply the difference. Thetowns whose tax hase.yielded more than the fixeddollar i)er mill per pupil \You Id Pity the excess intoa common fund. This fund would he used by theState to supply the' shortages in the towns havinga below average tax hare, Over a period of years,the plan wradd neutralize differences in taxpayingability between local school districts. The planwould contain provisions designed to protect thehigh spending school districts against drasticspending cuts and to save any town from drastictax increases. This school finance equalizationplan is full' described in Part B of this Volume.
Property Taxes and the Eider lvThe Commission is aware of the problems which
the elderly of our State face when confronted with011 ever-increasing property tax to pay or whenconfronted with escalating rents which reflect thehigher taxes imposed on landlords. The relativelyfixed and frequently lower incomes of the elderly
Compared to other segments of the populationmake property tax payments particularly burden-some for them.
Connecticut has at present a program for relieffor elderly owners of real preffierty which hasgiven them substantial assistance over recentyears. The Commission proposes to extend reliefto elderly renters. The proposed relief is in theform of a circuit breaker which would grant reliefto those with incomes up to $7,500. An explana-tion of the circuit breaker is contained in the dis-cussion at pages 28 to 30 of this Volume.
Tax-Exempt PrOpertyThe fact that our municipalities supply services
to tax-exempt property has caused certain hard-ships in the host towns. The Commission pro-poses a program for developing service chargeswhich will result in the towns being reimbursedfor some of the services they render to tax-exemptproperties. In addition, the Commission proposes
19
it program of Slate reimbursement to towns withlarge colleen t ra t ions of tax-exempt properly.
The Spey i a 1 Ca se of I,o Ns. antiod era te Income Housing:Although the Commission has not made any
specific recommendations regarding the propertytaxation of low and moder:Ae housing, the com-mission believes that there are significant prob-lems in this area which deserve further study.The purpose of this discussion is to raise sonic ofthe more troublesome problems,
Especially in urban areas, the housing stock ofthe State is characterized. by a high degree ofobsolescence and disrepair. At the same time.standards of quality are rising, along with thecosts of construction and repair. A;; a result ofthese trends, low and moderate income familiesand individuals find themselves in a housing.squeeze, where they carmot afford housing whichis up to code standards unless they are aided bysome form of subsidy.
The major source of housing subsidies neededby these families is the Federal government. Thevery poorest households may be aided by theFederal public housing, program. in \ vhich thegovernment pays the entire initial cost and sonicof the operating cost of units owned by localhousing. authorities. Ilousehol& with slightlyhigher incomes are eligible for units built byprivate developers with Federal interest subsidiesunder the "221(d) (3)" and "230" programs(named for sections of the National Housing Act).These families could not afford such housing with-out; these interest :'ubsidies.
Property taxation plays a role in the productionof both types of subsidized housing.
Low Rent Public HousingLow-income public housing is exempt from real
estate taxes under both Federal and State law.In lieu of taxes, local housing authorities aregenerally required by law to pay 10% of theshelter rent charged their tenants. Since thisshelter rent is rendered artificially low by Federalsubsidies, the payment represents a small per-centage of the revenue which the locality wouldderive fl'om use of the property by private de-velopers."
Public housing can he built by only one agency,the local housing authority. This authority is
created, pursuant to State and Federai law, by thetown or municipality. The decision to utilize landwithin the locality for !minic housing- thereforerepresents a decision by a local public autthorit.yto forego most of the taxes on that, land. Thehigher the tax rate. the more revenue foregone.In addition, family public housing may require aconcentration of municipal services, compoundingthe net fiscal loss suffered by the h).ality. Becausepublic housing cannot be built without the co-operation and active participation of the localitiesthrough their housing authorities, poor familiesmay be deprived of the only decent, safe. andsanitary housing they can afford if local publicofficials decide that they need the taxes whichprivate development can generate on a site whichmight otherwise he devoted to public housing.
Clearly the localities would benefit from somesystem of reimbursement of foregone revenuefrom the construction of public housing especiallysince the concentration of low-income families insuch housing may impose additional burdens onmunicipal services. One form of reimbursementis the block grant program administered underSec. 8-1.59a of the General Statutes, which elis-tributes unrestricted grants to localities under aformula which considers among other thing. thenumber of public housing rooms in the town. TheCommission recommendation of the expansion ofthis program may help remove the economicdisincentives to the construction of public housingwhich now exist.
Low and Moderate Rent Private HousingThe 221(d) (3) and 236 programs have provid-
ed, through interest subsidies, 10,000 units in theState for moderate income families who cannotafford new markt-rate housing. Lower incomefamilies may also occupy these units with addi-tional subsidies through the rent supplement andpublic housing leasing' programs. Unlike publichousing, these developments are not exempt fromproperty taxation. However, because of the rentrestrictions imposed on them, they cannot be builtin many parts of the State if they must bear theirfull share of the tax burden.
The reason for this is that occupancy of theseunits is limited by Federal statute to families oflow and moderate income. For the 236 program,this generally means not more than 1.35c.- ofpublic housing income limits. The Department ofHousing and Urban Development has established
20
maximum permissible rents which can be chargedto these residents, so the rent receipts of subsi-dized developments are strictly limited.
Out of these limited rent receipts must comemanagement., operating, and other expenditures,including debt service. In a growii.g number ofsubsidized developments in the State, there islittle or no money left over for the payment ofproperty taxes. Since typically all of the otherexpenses will have been cut to the bone, abate-ment of some or all of the property taxes on sucha Project is likely to he a precondition to itsconstruction.
What can be done to ease the property taxburden sufficiently to permit. the construction ofsuch needed housing'? 'Municipalities may uni-laterally reduce the assessment or the tax bill.Stain ford has passed an ordinance permitting sucha reduction, taking into account /11Mly factors ofcost and need. Localities are hard pressed forfunds, however, and cannot afford to forego muchrevenue in this manner.
The Department of Community Affairs (DCA)administers a program which is designed to dealwith this problem by reimbursing the localitiesfor the amount of the taxes abated, However. anadministrative limit of $350 per unit has been setby DCA on the permissible. yearly reimbursement.In number of localities this limit has beenshown to he too low, and in any case does notappear to have been contemplated by the statute.
To facilitate the construction and operation ofthis housing., and to spread the liability for itstax burden, low and moderate income privatehousing should perhaps be assessed uniformly bythe income Lpproach. This wotdd take into con-sideration the statutory limitations on the grossreceipts of such developments, and would reducesomewhat their tax liability, The upper limit onState reimbursement would then be the taxesdue on such reduced assessed valuation, not anarbitrary dollar figure. Thus the State and thelocalities would share 1.11e burden of this necessarysubsidy.
Such a change may or may not result in a needfor greater appropriations for the tax abatementreimbursement program. Further study would benecessary to determine its costs, and for thisreason the Commission has not embodied it in aformal recommendation. However, adoption ofsonic such approach is necessary to remove some
of the tax pressure on subsidized housing unitsin the State, over 1000 of which face impendingforeclosure if further tax relief is not granted.
The State cannot afford to lose these needed hous-ing resources for its low and moderate incomefamilies.
History of the Property Taxin Connecticut
The first tax in colonial Connecticut was leviedin 1627 on shares of the Joint-stock Company ofAdventurers, there being little other propertywhich could be used as the basis of taxation atthat time. A year or so later. the land of thecolony was divided, and became the object oftaxation by both the towns and the colonial legis-lature. At this time, real property was not taxedaccording to its value, but according to an esti-mate by the legislature of the average annualincome of certain classes of land. Taxes were setfor these classes by the legislature, not by localassesors. Gradually, houses, livestock, and othertypes of property were brought within this taxa-tion scheme.
By the beginning of the 19th century. it wasbecoming clear that industrialization was dis-torting land values and that agricultural interestswere being burdened excessively. As a result, in1819 the property tax base was shifted from thestatutory area measurement system to the marketvalue assessment of individual properties. Theindustrial sector was further recognized by theinclusion of machinery, inventories, and otherbusiness personalty in the tax base. By 1850,
every type of real and personal property notspecifically exempted was taxed at a 3'; rate.
. The result of this shift to market value assess-ment was the replacement of problems of rigidstandardization with equally different problems ofdisclosure and appraisal which have burdened theproperty tax collection system to this day.
Shortly after 185I), the State government ceasedits levy on individual property owners and beganto take a percentage of the overall grand list ofeach town. The predictable effect of this changewas systematic undervaluation by local assessors,so as to minimize the amount of the State's share.In 1915, the State attempted to remedy this bydividing a fixed annual levy among the towns onthe basis of their tax collections rather than theirgrand lists.
While the property tax remained the only majorsource of local revenues, it was increasingly sup-plemented at the State level by excises and othertaxes. Finally, in 1947 the State property taxwas supplanted by a general sales and use tax.The annual levy on the towns was discontinuedand the State retired from the field of propertytaxation, except in the supervisory role which itmaintains today.
Alternative Methods of Taxing PropertyBefore arriving at its decision to continue the
property tax in essentially the same form, theCommission felt it important to investigate al-ternative methods of taxing property in order todetermine whether such variations might be: ad-vantageous to Connecticut citizens.
Classification of the Property Tax BaseClassification of the property tax base is the
division of the grand list into classes of property
21
which bear the tax at different effective rates.Some states have constitutional requirements oracross-the-board uniformity and thus classifica-tion is not legally available there."' Connecticut'sconstitution is silent on the sr;bject, so it would.he legally possible to provide by statute for aclassified tax, subject to equal protection and dueprocess co ns i derati on s.'6
The rate differentials among classes may beachieved by the following methods, among others:
J. differential fractional assessments:fixed assesmnents made without referenceto value. %vhich Koduye different effectiverates;different methods of valuation (income capi-talization replacement cost. etc.) Nvli MI pro-duce rate differentials;
4. different proportional tax rates;5. varying exemptions applied to different
classes.
These methods have been used in many statesto create various classification schemes, includinglow-rate taxes on intangibles, mortgage recordingtaxes. preferential taxes on bank deposits andshares, bushel taxes on grain, tonnage taxes onships, ad valorem taxes on -nineral production,forest taxes, special treatrr...,lit of law! and/orbuildings, the exemption of improvements, home-stead exemptions, and the partial substitution ofservice charges for nrpperty taxes. Classificationhas been used most extensively to deal with theproblem of taxing intangibles, which have oftenbeen taxed at a lower effective rate in order toencourage disclosure and minimize inequity''Since Connecticut has abandoned the taxationof intangibles this reason for adopting a classifiedsystem does not apply here.
At least five states have comprehensive propertytax classification systems: Minnesota, Montana,Ohio, Virginia, and West Virginia. Two otherstates, Hawaii and Pennsylvania, provide fordifferential rates for land and buildings. Otherstates either exempt or give special treatment tosome classes of property. In addition, there iswidespread extra-legal de facto classificationcarried out in many states by local assessors.'This is a danger the Commission wishes to avoid.
The movement for classification seems to havebeen most popular between the turn of the centuryand the Second World War. Recent Attempts toinstitute classification systems, as in Tennessee,have failed.") The classification system adoptel9 years ar,:, in Hawaii is real12,7 a modificati(in ofsite value taxation which, while a form of classi-fied system, is disarsed in the next section.
Even if one could assume the validity and de-sirability of the concept of classification, it may-be too much to expect either economists or legis-latures to fashion a system that actually works.This is the conclusion of the foremost student of
2,2
the classified tax system. who made the followingobservation over thirty years ago:
"Within given states many of the classifica-tions have little to recommend them. They arebased upon questionable assumptions. reflectingpolitical or other pressures rather than soundeconomic. distinctions. Moreover. the inurenumerous the subdivkious into which propertyis divided the more questionable from the pointof view of economic logic do the classificationsand the rate differentials become. It is easyto point out defects in particular classificationsand many of the criticisms are rooted in per-sonal opinions and economic beliefs subscribedto by the critics but it is extremely difficultto say just, what the classifications should beand far more difficult to lay down principles onwhich rate differentiations may be fixed. "2()More recent commentary has adduced no rea-
sons. to alter that judgment of the classified prop-erty tax.
The Commission therefore has concluded thatthe institution of a system of classification ofproperty for purposes of taxation should not berecommended.
Site Value TaxationOne form of classification is the taxation of land
and structures at differing effective rates, by law.For more than a century, there has been a signifi-cant body of opinion holding that land and struc-tureu should be differentially treated. with eitherno taxation of the value of structures at all, orheavier taxes on land than on building values.The argument for such "site value taxation" istwofold. First, the value of any particular siteas unimproved land results from factors that havelittle to do with the actions of an individual land-owner. A given site is valuable because a townor city has grown in population; because streets,roads and water, sewer, and other utility lineshave been put in to serve that site and others inits vicinity; because the owners of adjacent siteshave put up office buildings or stores or houses.Thus, it is argued, an individual landowner haslittle ethical claim to rising land values and itwould be equitable for the community to recoupsuch "unearned increments" by imposing hightaxes on site values.-'
In addition to this equitable argument, there isa closely related economic argument. Since thelandowner himself does not create land values,
taxing them away will not affect the decisionsmade by landowners. The return from hivestmentin land (above and beyond interest costs on theinvestment) is a pure surplus, and taxing awaysurpluses does not affect economic decisions. More-a.er. the supply of sites cannot he reduced inresponse to the reduced net returns mimed bytaxation (the case with regard to all other typesof investment). The net result is that a site valuetax is neutral in its effects on economic decisionsrelating to use of land. The present property tax,most of which falls on buildings. is not neutral,since it tends to discourage investment in build-.ings. Thus, a switch to site value taxation fromthe present unneutral tax would tend to fostermore intensive use of land.
Differential or exclusive taxation of land hasbeen widely adopted in a number of other coun-tries. including Australia, New Zealand, SouthAfrica, western Canada, Denmark, Taiwan, andJamaica. It is also found, in a modified form, inIfawaii and in two Pennsylvania cities. Pittsburghand Scranton. As experience in some of theseareas has shown, the practical realities of a shiftto exclusive or differentially very much heaviertaxation of land in a well-developed place likeConnecticut may create serious problems. Con-necticut has long since adjusted to the existingsystem of property taxation, and major shifts inthe distribution of the burden would be very un-
The PersonalPersonal property taxation began in the United
States during Colonial days at which time the taxwas levied largely against livestock. Taxation ofmachinery. equipment, furniture and fixtures, andinventories began principally in the 19th century.
Netzer places the beginning of the decline ofthe personal property tax as a form of revenuein the 1870's with the trend continuing throughthe late 1930's. Since the end of the 1930's, per-sonal property has accounted for 161.7(:: of theproperty tax base ==
The principal reason for this shift away fromthe personal property tax is the difficulty of locat-ing and valuing uniformly various types of per-sonal property. In addition, personal propertytaxes of business equipment, particularly in manu-facturing, have adverse effects on the location
settling. creating large capital gains and capitallosses. The Commission believes that such shifts.even were they on balance desirable, should notbe lightly made. At I he very least. detailed studiesof now the tax change would work for specificclasses of taxpayers in specific communities wouldbe an essential prerequisite.
some placesfor example, a relatively homo-geneous largely residential suburban town sitevalue taxation would make little difference in thedistribution of tax burdens. There would be littlereason for such 'daces to object to the tax change,but also very little reason to make the change.In other places. the distribution of the tax burdenwould he greatly altered in some cases. fromresidential to business property owners, in othersthe reverse with important land use conse-quences, such as the pressure to redevelop resi-dential sites with good accessibility for commercialpurposes.
Evidence on the specific effec of a shift to sitevalue taxation in Connecticut's towns is far tooskimpy to justify such a move, It should bepointed out that the Commission's recommenda-tions for uniformity in assessments (see Vol. II,Part C) will tend to lead to substantial increasesin the taxes on land, since land on the average isvery much underassessed in Connecticut. In viewof all theSe factors, the Commission finds no basisfor recommending a change to site value taxation.
Property Tax
23
of economic activity both bzcause of the levelof the tax per se and because the personal prop-erty taxes are less certain and uniform than arethe :alternate ways of taxing business activityused in those states without a business personalproperty tax.
Shifting the Personal Property TaxBecause of the competitive circumstances in
which the State's businesses find themselves, itis unlikely that Connecticut businesses can exportmuch of the personal property tax. It is furtherunlikely that very much of the tax is shifteddomestically to Connecticut consumers; Connecti-cut consumers have ready access to non-Connecti-cut products from firms located in non-personalproperty tax states.
\Vightman tested the impact of property taxeson firms and their cost of doing business. Wight-man concludes:
"States that do not tax personal propertyoffered considerable advantages to the manu-facturing sector of the economy. Removal oftaxes on machinery and equipment encouragesolder firms to replace outmoded equipment,and thus remain competitive. Replacement oftaxes On inventory by state corporate incometaxes increases the certainty and uniformity oftax bills, and relates taxes more closely toability to pay. Seldom does a personal propertytax location show up as a relatively low taxlocation in this comparison. This tax becomesincreasingly burdensome as modern industryrequires more and more investments in ma-chinery and equipment per worker, and as apercentage of total assets."2"
Conclusions of CommissionThe Commission concluded that the personal
property lax is extremely difficult to administerequitably. The tax is a major deterrent to busi-ness and industrial investment in the State.Accordingly, the Commission recommends the re-peal of the tax on post-1973 acquisitions of per-sonal property other than motor vehicles, aircraft,personal property of public-service companies(public utilities)," and the inventories which arebeing' removed from the tax rolls under currentlaw. 25 The result of this recommendation wouldbe the phasing out of the tax on affected cate-gories of presently-owned personal property assuch property is depreciated. The Commissionestimates that the bulk of this phase-out shouldbe completed in 10 years. A reduction of revenueto each town would occur not by virtue of the re-moval of any existing property from its grand list,but bt:cause of the fact that no new items wouldbe addled each year. The Commission estimatesthat there would be approximately $150 million inassessed value of new acquisitions each year whichwould not be placed on the personal property grandlist as a result of its recommendations.
This proposal would result in a reduction in theState's grand list of over $1.5 billion over a 10-year period, or less than 1% of the 1970 net grandlist per year. The following shows the statewidebreakdown of affected property, by class.
24
Total Personal Property on WhichTax would be Phased out underCommissiora Proposal (1970 list)
Percent of total net list to be phased outunder this program: Total 8(,';,
Yearly .8%*This category contai .1 some machinery helonging toutilities, and may thus be slightly overstated.
Table A-8 shows the effect of the Commissionproposal on the net grand lists of localities withover $20 million in affected property. These areasof concentrated commerce and industry wouldgenerally lose between 1 and 2c:- of their 1970net list each year for 10 years under the Com-mission proposal.
TABLE A-8: Effect of Personal PropertyTax Phase-Out Proposal on 1970 Net GrandLists of Localities with More than S20 Million
Source: Calculated from Public Doc. 48, pp. 50-81.In some localities, these totals may contain property be-
longing to uitilities, and may thus be slightly overstated.tThese yearly amounts will vary, depending on depre-
ciation rates.
Relationship to Inventory TaxPhase-out Program
The Commission's recommendation that most ofthe personal property tax be phased out is con-sistent with the current program of phasing outtaxation of manufacturers' and merchants' inven-tories.
Manufacturers' inventories are to be progres-sively removed from property tax rolls underSec. 12-81 (50) of the Connecticut General Stat-ute:, according to the following schedule:
1970: 10!.; of assessment is exempted1971: 50%1972: 60%1973: 70%1974: 80%1975: 90%1976 and thereafter: 100(::
Partial reimbursement of these foregone reve-nues is provided by Sec. 12-24a, which providesfor the following distributions to localities basedon the 1964 collections on manufacturers' inven-tories, which totaled approximately $18 million:
1970:1971:1972:1973:
40(): of 1964 collections.50 f,';)
60%70%
There is no provision now in the statutesfor reimbursement after 1973.
Merchants' inventories are to be phased off thetax rolls under Sec. 12-81 (54) which providesthat an additional one-twelfth of such inventoriesbe exempted each year from 1971 to 1982. Reve-nues foregone through these exemptions are to bereimbursed by the State in similar proportions,based upon 1967 collections (totalling approxi-mately $14 million). This reimbursement totals100!.; of 1967 collections on merchants' inven-tories in 1982, and continues at that level there-after (Sec. 12-24c).
The Commission has concluded that these re-imbursement programs are an inflexible andinappropriate method of relieving the hardshipscaused by the removal of some classes of prop-erty from local grand lists. They do not adequate-
25
lv reflect the fiscal needs of the localities. andtheir distribution formulas quickly oecome ob-solete. For these reasox.i.:A, the Commission. recom-mends the repeal of the inventory tax reimburrse-ment programs, effective in FY '76.
The Commission recognized the fact that theserecommendations taken alone result in significantrevenue losses to the localities. However. theCommission has concluded that. over:CI, theselosses \vill be compensated for by other gains.Chief among the projected gains are revenueswhich would accrue to localities tinder the Com-mission's proposed program of aid to cities, setforth in detail later in this Part. This programprovides for increased block grants and for Statepayments based on foregone revenue from privatetax-exempt property. Under this proposal, anadditional $20 million would be distributed tolocalities in FY '7.1 and FY '75. This amountwould be increased to $40 million starting inFY '76, concurrent with the proposed repeal ofthe inventory tax reimbursement provisions.
Table A-9 shows the net effect of these recom-mendations in major localities in the State,through FY '77. it shows the revenue \vhichwould ifie lost due to the repeal of the personalproperty tax and the present reimbursementprograms. It also shows ',lie projected gains fromincreased block grants, payments for tax-exemptprivate property, and increased payments onState property (as recommended elsewhere inthis Part).
The Commission believes that any net lossesshown in this table would be more than offset byother gains, including the following:
1. New industrial and commercial developmentwhich will be encouraged by the repeal of thepersonal property tax.
2. The assessment reforms proposed by theCommission which will resicit in significant addi-tional revenue coming from identification ofunde -assessed property in accordance with theexisting statutes by FY '75 and thereafter.
3. An easing in many localities of their educa-tional finance burdens, under the plan proposed inPart B.
TABLE AO: Net Effect of Personal Property Tax and Aid to Cities lieccannulidaticats
on Major Localities, PV
(thousands of dollars)
FY '74
Revenue Lost: Personal
Har
tfor
dB
ridg
e-po
rtN
ewH
aven
East
Mid
dle-
Stam
ford
Milf
ord
Har
tfor
d W
ater
bury
Nor
wal
k G
reen
wic
h to
wn
Stra
tfor
dN
ewB
rita
inN
orth
Hav
enD
anbu
ryB
rist
olM
ontv
ille
Property Tax Repeal
-1152
-861
-632
-408
-268
-320
-271
-332
-96
-225
-160
-232
-1.10
-128
-156
-84
Revenue Gained:
Block Grant
15.10
1260
1175
35
125
190
535
275
100
110
130
475
30
155
145
18
Tax-Exempt
3:340
1510
:3050
00
0340
0280
110
0410
00
00
State Pilot
289
53
289
48
:14
3 .,
38
21
250
5116
147
11
Total
5169
2823
1514
483
159
193
913
296
382
270
135
1287
31
202
146
19
Net Gain or Loss
4017
1959
3882
75
-101)
-127
512
-36
28C
45
-25
1055
-109
6 -1
-10
- -65
FY '75
Revenue Lost: Personal
Property Tax Repeal
-2104
-1728
- 126.1
-816
-640
-742
-664
-192
-450
-320
-464
-280
-276
-312
-168
Revenue Gained:
Block Grant
15.10
1260
1175
435
125
190
535
275
1P0
110
130
475
30
155
145
IS
Tax-Exempt
3340
1510
3050
00
03.111
0980
110
0410
.0
00
0
State Pilot
289
53
2S9
821
38
212
50
5116
147
11
Total
5169
2823
1511
83
159
193
91:3
296
282
270
125
1287
31
202
146
19
1,0
cr4
Net Gain or Loss
2865
1095
3250
-333
-377
-4.17
171
-368
190
-180
-185
822
-249
-7.1
-166
-149
Pi '76
Revenue Lost: Personal
Property Tax Repeal
-3459
-2592
-1896
-1224
-804
-960
-111:3
-996
-288
-675
180
-696
-420
-414
-468
-952
Manufact. Inventory Repeal
-1084
-2382
-1(172
-721
-308
-892
-1168
-630
-114
-138
-217
-799
-305
-490
- -182
-36
Commer. Inventory Repeal
-1066
-604
-718
-413
-231
-448
-256
-221
-106
-93
-108
-218
19
-172
-99
-10
Total
-5609
-5578
-3686
-2358
-1242
-2299
-2537
-1847
-508
-906
-F,05
-1712
-774
-834
- 10.19
-298
Revenue Gained:
Block Grant
4620
3780
:3525
1305
375
570
1605
825
300
230
:390
142:r
90
465
125
54
Tax-Exempt
:3340
1510
305(1
00
0.
3.111
0280
110
0410
00
I)0
State Pilot
289
53
289
48
21
338
21
250
5116
117
11
Total
8249
5242
6864
1253
409
573
:982
846
582
490
395
1951
91
512
426
55
Net Gain or Loss
26.10
-235
3178
-1005
-934
-1726
-554
-1(101
74
-416
-410
238
-681
-322.
613
-243
Fl" '77
Revenue Lost:Personal
Property Tax Repeal
-4608
-3456
-2528
-1432
-1072
-1280
-1484
-1328
-284
-900
-640
-928
-560
-552
-694
-=6
Alanufact. Inventory Repeal
-1084
-2383
-1073
-721
-307
-89%
-1168
-630
-114
-138
-217
-799
-305
-420
-482
-36
Commer. Inventory Repeal
-1244
-71:4
-837
-4S1
-270
-590
-299
-258
-123
-109
-125
-254
-57
-202
- -115
-12
Total
-6936
-6543
-4438
-2634
-1649
-2692
-2951
-2216
- -621
-11.17
-982
-1981
-922
-1174
-- 1221
- :181
Revenue Gained:
Block Grant
4620
3780
3525
1205
375
570
1605
825
200
220
290
1425
90
465
425
54
Tax-Exempt
3310
1510
2050
00
0240
0280
110
0410
00
010
State Pilot
289
53
289
8--
34
.-,
:38
21
250
5116
147
11
Total
8249
5213
6861
1352
41)9
572
1983
846
582
490
295
1951
9;
512
426
55
Net Gain or Loss
1313
-1200
2.126
-1281
-1240
-2120
-968
-1370
-39
-657
-588
-30
-821
-662
-785
-::29
Property Tax LimitsFrom the taxpayer's point of view, taxes always
sewn too high. The property tax hill is particu-larly onerous for the homeowner. who is acutelyaware of how much he has to pay. Given Con-necticut's heavy dependence on the property tax,there is understandably widespread sentimentthat increases in the tax should he curbed. Onesuggested means of accomplishing this end is toimpose some statutory limits on the property tax.
Connecticut is one of only 7 states'" Nvhich atpresent place no limits, either mild or severe, onlocal property taxation. Of the reasons cited insupport of property tax limits, the most widelydiscussed is the following:
I. By limiting the amount of revenue whichcan he obtained from the property tax, thelocal government is forced to seek othersources of non-property revenue, therehylessening the tax load on the beleagueredproperty owner.
It is also argued that:t). Lower rate limits can be an inducement to
attract industry into a community.3. The use of tax-rate limitations will mean
that the local governmental unit will have totake a new look at the various services itprovides in order to determine whether theyshould be offered locally or by the statewith its broader tax base.
el. The use of tax-rate limitations can meanthat there will be an enlargement of stateaid in order to provide adequate financesfor the services provided locally.
5. The limited amount of property tax revenueavailable because of rate limits will forcelocal governments to be more exacting intheir budget prices.A limitation of particular funds by the statelegislature will ultimately aid in providinggreater uniformity in the various servicesoffered.
7. The limitation on property tax revenue, incombination with the demands of competing
27
local governments for the tax dollar, willultimately hasten the simplification of localgovernments._:
However, the history of property tax limits inother states and the latest pertinent. research havegreatly diminished the strength of these argu-ments. Legislation to limit property taxes is
frequently riddled with exceptions, and often,there are OIltright violations. Tax limits tend totransfer local government services to the state\ith a corresponding loss of local governmentautonomy. Since tax limits do not affect expendi-ture rates, the limits merely shift the burdento a different source of revenue. When thestate assumes the financial burden. it gener-ally assumes the control and there is a furtherloss of the fundamental local government ueroga-tive of budget making. Local governments areruled much more by their expenditure needs thanby their current revenue prospects, and tax limitshave not been able to reverse this state of affairs.
Tax limits make sense only, if at all, when astate seeks to shift local government taxationaway. from property and toward non-property taxsources. When tax limits have not been part ofa new local tax system in a state, their effective-ness in holding down expenditures has been.dubious. Tax limits have enjoyed some successonly when local governments have been givennon-property sources of tax revenue as an alterna-'6ive to the property tax. The imposition of taxlimits in some cases may have accelerated achangeover to a new system.
Connecticut has not authorized local non-property sources of tax revenue and the Commis-sion believes it would be unwise to change thispolicy. The Commission has concluded, therefore,that the imposition of property tax limits wouldvery likely not be effective in this State. TheCommission believes that enactment of its recom-mendations relating to uniform assessment andadministration of the voperty tax, and its recom-mendations concerning tr.unicipal fiscal practices,will be more effective in controlling property taxrates than an artificially imposed tax limitation.
The Circuit Breaker
Existing LawEquity considerations point to the need for tax
relief for the elderly. Most of the really seriouscases of repyessivity are to be fouml among elderlyhouseholds. Not only are elderly house:raids morelikely to be poorer than other age groups of thepopulation, but their incomes are frequently fixed111 amount. The elderly are least able to cope withproperty tax increases.
At present. Connecticut law (C.C.S. Section12-1291.) allows qualifying elderly people a prop-erty tax exemption of $1,000 on their domicilesand a freeze of the tax bill as of the year ofqualification. The State reimburses the localmunicipality for the difference between the billpaid by the taxpayer and what the tax bill wouldbe without both the exempti Al and the freeze.
The administration of this law in its presentform has been very difficult due to the formularequired by law to he used to compute the bene-fits. Furthermore, this law does not treat allelderly households in the same way. Elderlyhouseholds \Vhich rent rather than own theirhomes receive no relief even though a portion oftheir rent undoubtedly goes toward propertytaxes. And, because of the freeze provision,elderly households recently qualified for relief donot receive the same level of benefits as elderlyhouseholds which qualified before them eventhough there are no other differences betweenthe households.
The Commission recommends the adoption ofa "circuit breaker" so that elderly renters andthe elderly owners can he treated more equitably.The Commission further recommends that anyperson currently receiving benefits under Section12-129b greater than those which would be avail-able under the circuit breaker shall be entitledto their existing benefits. The Commission recom-mends, however, that for all other purposes Sec-tion 12-129b be abandoned as a relief section.
The Concept of the Circuit BreakerGiven the desirability of tax relief to elderly
households, one fair means of accomplishing it isto designate a certain percentage of income as alimit above which elderly households of low in-come would not have to pay in property taxes.By designating a percentage of a household's
28
gross rents which is deemed to be devoted totaxes, one can include both renters and home-owners in a tax relief program.
This plan of a property tax "circuit breaker."for the elderly is not a novel idea. The statesof Wisconsin. Minnesota, California, Vermont,Kansas, Colorado, Maine. New jersey, Pennsyl-vania, Iowa. Ftlld Oregon already have some formof circuit breaker in operation.
Basic Design of a Circuit Breakerfor Connecticut
The Commission recommends Connecticut adopta circuit breaker which would grant direct reliefup to $500 per year for qualified elderly house-holds. To qualify for property tax relief, thehead of the household must be 65 years of age orolder, and the total income of the household fromall sources, including Social Security, must he lessthan $7.500 per year (in 1972 dollars).
Relief for Homeowners"Under the plan, a homeowner would be entitled
to direct relief in the form of a credit on hisproperty tax bill if and to the extent that hisactual tax bill exceeded 5%., of his income. Themaximum limit of the credit would be $500 forthose in the lowest income bracket. The Statewould reimburse the municipalities by the amountof the tax credits. As an alternative, the home-owner could he required to pay the full amountto the municipality and apply directly to the Statefor the credit.
The dollar' amount of relief would decline asthe household income increased as follows:
Relief for, RentersUnder the Plan, a renter would be entitled to
relief' in the form of a cash payment from theState to the extent that 20% of his annual grossrent (including utilities) exceeds 5';'(- of his in-come. The maximum limit of cash paymentswould he $500 for those in the lowest incomebracket. The schedule of cash payments exactlymirrors the schedule of maximum credits listedabove.
The tax credits and cash payments would bemade upon presentation to the town assessor ofProof of age, household income, tax bill or rentPaid, and other documentation as may benecessary.
Some examples may help to explain the work-ings of this circuit breaker:
(a) Suppose an elderly household has totalincome of $4,000 per year and rents an apart-ment for $150 per month including utilities.The household is oldigated under the plan topay uP to 5';"( of its $4,000 income or $200 illproperty taxes. It is assumed that 20';; of therent goes toward the payment of property taxes.This means that the household is effectivelypaying $30 per month (20% of $150) or $360per year in property taxes. Since the $360 pay-ment is in excess of the established norm of5% of income or $200, the renter is entitled to$160 direct cash payment from the State.(h) Suppose an elderly household owns itshome and has an income of $4,500 per year.On ,e again, the circuit breaker plan envisionsthat 5c/c of the $4,500 per year (or $225) is theproper amount to be devoted to the paymentof property taxes. Suppose further that theactual property tax payment of the householdis $350. The circuit breaker would then relievethe elderly homeowner from payments above$225 and the State would reimburse the munici-pality for $125 of that taxpayei;'s bill.(c) Suppose an elderly household has total-income of $7,000 per year and rents an apart-ment for $200 per month including utilities.The household is obligated to pay 5% of its$7,000 income or $350 in property taxes. Underthe plan, it is assumed that 20% of the 'rentgoes toward the payment of property taxes.This means that the household is effectivelypaying $90 per month (20% of $200) or $480per year in property taxes. Since the $980payment is in excess of the established norm
29
of 5'; of income or $350, the renter would beentitled to $130 direct cash payment front theState. However, in view of the household in-come level of $7,000, the actual cash paymentwould be I imited to $100.
Administration of the Circuit BreakerThe operation of the circuit hreaker requires
data on the incomes of elderly households anddata on the rents paid by tenant households. Theplait would make it the responsibility of the elder-ly households to present all appropriate docu-mentation to the town assessor. Income may befurnished by collies 0. Federal tax returns, Rentaldata may be corroborated by checks,. with land-lords. Safeguards would have to be establishedto prevent landlords and tenants from certifyingfraudulent rent payments. The Commission is ofthe opinion that the hulk of the administrationof this relief provision could lie administered bythe existing staffs in offices of the assessors andtax collectors.
It is not possible to provide a detailed estimateof the cost of the recommended circuit breaker.However, from the data available, the followingestimates have been made:
Relief for Elderly Renters1.9 - 5.4 million dollars
Relief for Elderly Homeowners12.3 - 15.0 million dollars
Administration - .5 million dollars
Total 14.3 - 20.9 million dollars
Naturally, these costs are sensitive to the vari-ous eligibility limitations and other parametersof the circuit breakei'. Lowering the $7,500 in-come requirement, raising the percentage of in-come considered applicable to property tax pay-ments to above 5r,4, and reducing the scheduleof.. maximum credits will lower the costs of theprogram. Doing the reverse will increase thetotal cost.
Relief Under Existing Section 12-1.291)Many elderly homeowners are.receiving relief
under the provisions of Section .12-1.29b of theConnecticut General Statutes. The proposed cir-cuit breaker is designed to extend relief to elderlyrenters and to eliminate the cumbersome and dif-ficult administration of Section 12-129b, TheCommission feels that benefits currently received
by any homeowner under Section 12-129h shouldnot be diminished. The Commission thereforerecommends that the benefit levels and recipientlists of Section 12-129b he frozen in lire year inwhich the circuit breaker is enacted, and that the
taxpayer he untitled to .receive the greater nf thebenefits he receives under the existing Section12-1211h or under the eircuit breaker. Newly elig-ible households would receive relief only under thecircuit breaker,
Service Charges on Tax-Exempt Real PropertyCurrently in Connecti.nt about $3.5 billion in
as,sessecl valuation goes untaxed because of statu-tory exemptions, This amounts to about 16!:;, ofthe total assessed valuation in the State. Tax-
broken down as follows:" -8exempt property can beMillions ofDollars of
Assessed Value:179.9
421.11,317.2
260.8194.0349.0
Federal PropertyState PropertyMunicipal PropertyPrivate Colleges and UniversitiesParochial and Private SchoolsChurchesHospitals, Veterans, and Charitable
OrganizationsHousing AuthoritiesOtherTotal
282.1127.0891.0
3,526.4
If Federal properties are deleted because of theimpossibility of levying a tax or service chargeagainst them, and if municipal properties are de-leted. because the municipalities would not registerany net gain by assessing levies_ against them-selves, the total of tax-exempt property in theState is reduced to $2.03 billibn in assessed valua-tion, lf, further, State property were withdrawnfor reasons which will be explained below, thetotal of non-governmental tax-exempt propertywould be -reduced to about $1.61. billion, Non-gov-ernmental tax-exempt property thus ccnnprisesless than half of all tax-exempt property.
If the towns and cities of Connecticut couldsecure additional revenue from the tax-exemptproperties within their borders, reduced taxescould result. For the most part, tax-exempt prop-erties are located in the cities of the State wherethe tax rates are high and where such tax reliefis sorely needed.
In devising policy toward tax-exempt property,at least three approaches can be taken :
30
Approach. A holds that tax-exempt institutionsare just like any other property owners andshould pay their full share. This is the basis forthe strongest attack on property tax exemptions.This view, however, requires the reevaluation ofthe overall desirability of tax exemptions in viewof the likely consequences of imposing taxes onpreviously tax-exempt properties. For example,if churches are taxed it is altogether reasonableto expect church expansion plans may he cur-tailed, that sonic churches will he forced to sharebuildings, and that new construction will not offertall steeples and fine organs. In short, taxes willbe included in cost calculations, and they arelikely to have an important impact. The benefitsdispersed by tax-exempt institutions would un-questionably decline.
Approach. B holds that tax-exempt propertiesare special, that society would lose some of whatit now prizes if tax exemptions were discontinued.Society values education, religion, fraternal organ-izations and hospitals. Accordingly, these valuesmust be encouraged and not hindered by publicpolicy in any way. Tax exemptions are directedtoward these ends, and it is argued that they areimportant in achieving such social goals.
Approach. C holds that tax-exempt propertiesare unique and desirable, and that they shouldnot have to pay the full burden of taxes; but ameasure of sophistication is added by recogniz-ing that tal:-exempt properties do use servicesfrom local government and that exemptions fromthe property tax means that no compensation isrendered for such services. This approach recog-nizes and emphasizes that tax-exempt propertiesshould be encouraged for their overall benefits,as our society has often recognized, and thatgovernment should continue to play a role in en-couraging such institutions because they oftenperform services that either the State or localgovernments might have to perform in theirabsence.
Without violating these conclions or damag-,ig the well-being of tax-exempt institutions, how-ever, the last approach would take into accountother aspects of tax exemptions. Most important,city revenues from taxalde property are requiredto provide services to tax-exempt property own-ers, and these institutions frequently benefit awider population than the residents of the hosttown or city alone. While some lax-exempt insti-tutions benefit peOple in a wide area (and studiesof health institutions and others have documentedthis fact), only the residents of the host towns andcities pay the cost of municipal services providedtax-exempt institutions. Given the desirabilityof matching up costs and benefits, it is not un-reasonable to suggest that cities should be com-pensated for the revenue foregone by exemptionsfor properties which render services to citizensliving outside their boundaries. To this extent, astrong case is made for some mechanism to com-pensate towns and cities with a heavy concentra-tion of tax- exempt properties through the use ofrevenue sources which would spread the costamong the wider population which such institu-tions benefit.
At the same time, recognition that taxexemptinstitutions should not be required to take a fullshare of the cost of local government does notmean that modest and appropriate charges shouldnot he made for city services rendered directly tothose institutions. The city can easily monitorsuch services.and determine their true cost. Thecity could levy service charges on these institu-tions which would not be too onerous to the insti-tution and which could help defray the high costsof local government.
This approach is not new in Connecticut. Manytax-exempt institutions are currently paying forsome of the services which they receive from themunicipality in which they are located. The Co-mission recommends applying this approach tomore towns and cities, and to more tax-exemptinstitutions.
Service charges are much like prices and arerelatively easy to develop when the service pro-vided can be metered. Water, electricity, and masstransit are the classic examples of services forwhich charges are applicable and widely used.The concept can also be extended to sewerage andsanitation.
31
Connecticut ranks low in its use of servicecharges, Only about 13'; of its total local revenuefrom own sources is derivc..; from service charges.The U.S. average is closer to 3W'; . Currentcharges come to only $28 per capita in Connecti-cut as opposed to $51.50 nationwide. Lookingsolely at sewerage and sanitation, charges forthese services account for only (3.7(;;. and 5.2(;?,of expenditures, respectively. The national aver-ages are significantly above that.
towns and cities were able to charge tax-exempt institutions for sewerage and sanitationservices, they would he able to recover more oftheir costs. The costs recovered would naturallyvary from town to town and from property toproperty. As a rough estimate, if towns and citiescharged tax-exempt properties the full cost ofproviding sewerage and sanitation services tothem, they would he able to recover a total ofapproximately $3.o million.
Where not provided by private industry, theCommission recommends that non-governmentaltax-exempt institutions be charged for the costsof providing water, sewerage, and sanitation serv-ices to them.
The Commission further recommends that serv-ice charges for the use of municipal services bytax-exempt. properties should be developed by thechief financiO officer of each town and city in ac-cordance with procedures mandated by the Stateand that such service charges should be levied bythe towns hi which tax-exempt institutions arelocated.
Although it is not recommended that Stateproperty be charged for municipal services, theCommission has considered the provisions ofSection 12-19a of the Connecticut General Stat-utes which provides for State reimbursement totowns for tax-exempt property owned by theState. The necessary funds required to carry outthe provisions of Section 12-19a have not beenfully appropriated. The Commission recommendsthat the legislature appropriate sufficient funds tocarry out the terms of Section 12-19a. It is under-stood that this would require a yearly increase of$1.8 million, making the total amount necessaryto fund the provisions of this section $3.6 million.This additional aid will go primarily to the citiesand will again help to reduce or maintain thecurrent level of those cities' property tax.
The Efieets of the Real Property TaxOn Urban Capital Formation
The market value of real property and the taxcollected from that property are interdependent.As property taxes depend on assessed valuation,so market values of that property reflect the prop-erty taxes levied to a greater or lesser degree de-pending on the functioning- of the market itself.This is the concept of tax capitalization.
The interaction between the property tax andmarket values of real properties complicates andoften distorts the flow of investment into urbanreal estate. Location choices depend on taxes asdo choices tfo invest at all in urban areas.
Business and Industrial Location DecisionsAlthough business and industrial location de-
cisions are influenced by many factors, economicactivities requiring heavy investment in realestate are especially sensitive to real property taxrates. Investors seeking a location for anew eco-nomic activity can ordinarily find several possiblesites with similar characteristic's and non-taxoperating costs. in such a case, the property taxpotential of one location versus others can be-come the deciding factor in investment decision-making. Such a consideration has led many statesand localities, especially in the South, to offer taxconcessions in an effort to attract business andindustry.
Business and industrial location decisions maybe most responsive to tax differentials at the timeof an original location decision,- but relativelyhigh property taxes can thwart additional invest-ment in an area, and expedite a company's deci-sion to move at a time in its development when thecorporate strategy calls for expansion, consolida-tion, operating realignments, or absolute reduc-tions.
Towns actively engaged in seeking new indus-try through tax concessions, or which attract newindustry merely because of low tax conditions,may concurrently enact zoning regulations whichhinder the movement into the town of large nuni-hers of people whose presence might call for vast-ly increased public expenditures. Although thiscan be characterized as fiscally rational behavior,it is adVerse to general social interest. The "game"is won by the town xvhich gets the high value, low-service-requiring business or industrial invest-
32
ment, and manages to deflect population growthinto other areas.
Residential lip: eminentThe isolation of the effect of taxes on residen-
tial location deci ions is extremely difficult. So
many factors enter into housing decisions thatreal property taxation may not he a primary con-sideration, particularly with respect to homeownership. As with industrial location decisions,however, property taxation may lie an importantdeterminant in choosing to invest in otherwiseequivalent residential properties.
In an effort to analyze the influence of the prop-erty tax on residential investment, a simple modeldesigned to explain housing starts was developedand estimated, The results are not put forwardas conclusive since there was insufficient time toexplore other and more complex model specifica-tions. However, the results are suggestive andthe Commission believes that they merit inclusionhere.
A simple correlation of the estimated effectivemill rate and new housing units per capita for the29 towns in the Hartford Region in 1970 indicatesthat housing .construction was systematicallylower in the towns with the higher tax rates. Thisis not conclusive evidence, but it suggests thatthe property tax dues influence housing invest-ment.
As Charts A-2 through A-6 (pages 16 to 18)show, the highest tax rates are found in the ma-jor cities of the State. Even after assessment re-form, tax rate differentials will work againstattracting residential investment in major cities.
The sensitivity of rental housing investment toproperty tax rates is clearly evident. As the flightof households to the suburbs continues, the lawsof supply and demand act to keep rents from in-creasing as rapidly as taxes. As a result, theproperty tax as a percentage of gross rental re-ceipts has steadily increased. The prevailing in-dustry view is that once property taxes reach25'2%, or more of gross rental receipts, new construction of rental housing is severely inhibited.This view is consistent with the Commission'sanalysis of rental housing in the Hartford area.The Commission studied a sample of Hartford
area apartments. Although the data do not con-stitute a rand(on s;..impling of Hartford apartmentproperties, the Commission believes the data arerepresentative. This analysis generally indicatesthat prior to 1968, taxes as a percentage of grossrental collections were concentrated below 222.From 1968 on, the ratios were heavily concen-trated above 22',;. with shifts upward in 1969,1970, and 1971 to above 25(;; . Concurrent withthese upward shifts in property taxes as a per-cent of rent was a precipitous drop in housingsta
The coincidental rise in property taxes, as ashare of apartment rent collections, and the: dropin the number of apartments started in Hartfordis not conclusive evidence of a simple direct re-lationship. The availability of sites and mort-gage money and changes in zoning laws and blind-ing codes among other things influence decisionsto invest. The data do permit, however, the hy-pothesis that in Hartford, given present rentlevels and the deirr,..id and supply forces of realestate, real property taxes higher than 222 -25%of gross revenue collections are an inhibitor tonew investment in rental housing.
The hypothesis is consistent with one expert'sfindings of investor attitudes in Hartford. Smithasked 176 investors what they would do withmoney received if they were to liquidate theirreal estate investments in Hartford in the nearfuture: 34(7( indicated they would like to in-vest in real estate outside Hartford; only 9% in-dicated a willingness to reinvest in Hartford realestate; 10(.; did not respond; all others preferredan alternative to real estate investment."
A typical response of an investor unable to passon tax increase> to tenants is t ) try to reducemaintenance am repair costs. Deferred mainte-nance over time.:. variably results in a property'sphysical deterioration and market post,101). Stern-lieb found that landlords of tenement propertiesare not knowledgeal);e about what kinds of re-pairs and maintenance expenditures could liemade without experiencing increases in assess-ments." Smith discovered the same reactionamong investors in Ilartford.:"
Once the property tax rises above a certainlevel of gross revenue collections, it becomes amajor factor in contributing to urban blight andreal estate deterioration, Investors find them-selves at the mercy of interacting destructiveforces, such as the rising property tax, falling in-come, accumulated Maintenance and repair re-quirements, possible tenant abuses, and buildingcode violations. The forces interact to produce adestructive cycle which frequently results in prop-erty abandonment. Data are not available to in-dicate the magnitude of abandonments in Con-necticut, but it is known to be a rising problem.A 1972 survey by the New Haven RedevelopmentAgency discovered at least 300 abandoned prop-erties in New Haven.
It would not be fair to say that the real prop-erty tax is the cause of blight, slums, and decay.It is, however, reasonable to state that the insensi-tivity of the property tax to property revenuesgenerated is a major factor in starting a destruc-tive cycle which produces blight, slums, and aban-donments.
Relief from Property Tax Burdens and Attention to the SpecialCircumstances of Cities
The distress of the cities and their inability tocope with problems not of their own making havepersuaded the Commission to advocate a specialprogram of relief. Core cities cannot generaterevenues from property taxes sufficient to copewith their burdens without raising property taxesto an exorbitant level. The concern of the Com-mission is to ease the property tax burden on par-ticular taxpayers and to identify alternativesources of revenue for cities. The relief programfor cities has as its specific pu?..pose a reduction ofmill rates in cities, and not an increase in services.
33
The program consists of two parts: (1) an in-crease in block grants which are related to demo-graphic and economic conditions found primarilyin core cities; and (2) payments to cities withhigh concentrations of non-governmental tax-exempt property.
Block GrantsIn recognition of the special problems of cities,
the General Assembly enacted in 1969 a multi-faceted system of block grants, called "propertytax relief grants" in the 1972 appropriation act.
Every city and town in the State receives financialaid under this prugrain according to distributionformulas which favor localities with special proh-lenis and hurdens. The localities may use thismoney as they choose; it is, in effect, a Staterevenue sharing program.
Section 8-150a of the Connecticut General Stat-utes provides that each municipality he paid anunrestricted grant-in-aid in an amount whichdepends on its population, density, and number ofpublic housing rooms, Under Section 10-264;k ofthe General Statutes, a second block grant fundis distributed according to the number of familiesin the locality earning less than S-1,000 per year,and the number of children receiving Aid to De-iendent Children.
These grant pr()ganis have been funded at thefollowing levels:
The block grant distribution formula has sev-eral advantages. It is related to municipal costsand needs. It is based upon identifiable and ob-jective economic and demographic data. Thesedata are also easily accessible, thus entailing mini-mal administrative cost. The Commission rec-ommends that additional funds be appropriatedfor the block grant programs as part of a systemof aid to municipalities.
It is important to note that th distributionformulas are established by the statutes and ap-ly on a percentage basis no matter how much
money is appropriated. Because of their demo-graphic and economic conditions, the 5 majorcities of the State may be expected to receive halfof whatever amount is appropriated for these pro-grams. (See Table A-10 for the percentages re-ceived by these cities, and by other localitieswhich are due more than If7( of the funds undereither statute.) The Commission recommends thecontinuation of existing block grant programs ata funding level of an additional $5 million for eachprogram in FY 1974 and FY 1975, and an addi-tional $15 million each in FY 1976 and thereafter.
Tax Relief on the Basis of Non-GovernmentalTax-Exempt Property
The Commission proposes State payment tomunicipalities to provide revenue which would
34
otherwise he lost as a result of concentrations ofnon -g4ve m ent al to VeXerilpt l'operty. The Com-mission recommends the creation of a state fundof Sill million to be apportioned to municipalitiesas reimbursement for revenue foregone due tolarge concentrations of non-governmental tax-exempt property.
Generally streaking, the larger cities are i-
MILE A-10: Distributions to LocalitiesReeeiving More than l' of Either 8.159a or
10.266k Block Grant Funds (1972)1.1.159a
of Slate Total),10.266k)
of Stale 'rotal).
Ansonia 1.1 .7
Bridgeport 14.9 10.3
Bristol 1.7 1.2
Danbury 1.5 1.6
East I Iartford 0.5 1.3
Greenwich 1.2 .8
Groton .4 1.6
Ifamden 1.2 .9
Hartford 11.5 16.3
Manchester 1.3 1.1
Meriden 2.0 2.0
Milford 1.5 1.0
Middletown 1.0 1.2
New Britain 5.9 3.6
New Haven 10.7 12.8
New London 1.8 1.6
Norwalk 2.8 2.7
Norwich 1.3 1.8
Stamford 5.2 3.5
Stratford 1.8 .8
Waterbury 5.1 5.6West Hartford 1.7 .8
West Haven 2.8 1.7
iourrr : Calculated from data provided by Office of theState Controller, and State Department of Edu-cation.
pacted with heavier shares of tax-exempt proper-ty than the smaller cities and towns. Partial reim-bursement for tax-exempt property, while affect-ing a wide spectrum of Connecticut's cities andtowns, will benefit the larger cities most.
The reimbursement plan would operate as fol-lows:
1. The State is to set aside a sum of money tobe divided among- the State's qualifying cities andtowns. The Commission recommends that $1million be allocated for this purpose.
2. A city or town qualifies if its share of non-governmental tax-exempt property as a percentageof its total property assessments (gross grandlist) exceeds the average for all towns in theState, and if its weighted inni-governmental tax-exempt property assessments (see 3 below; total$30 million or more.
3. Each qualifying town's total of private tax-exempt property assessments (at full value) isweighted by a factor %vivid, is that town's netgrand list per square mile. This density factorindicates a general value of property in the townsand thus approximates the relative revenues fore-gone due to the presence of tax-exempt institu-tions.
1. The fund is distributed according to eachtown's weighted exempt assessments as a perci2ntof the total of every qualiflying town's exemptassessments.
An example may help to illustrate the workingsof the plan. Suppose that statewide, private tax-cxempt property came to in'; of all propertyassessments figured at 100'; of market value.Suppose further that Town X had an exemptpercentage of , 5 percentage points higherthan the State average, and that Town Y had anexempt percentage of 1.1',;. suppose further that(1) Town X has $200 million in exempt propertyand Town Y. has $100 million; (2) only Towns Xand Y. halve exempt percentages greater than thestatewide average; and (3) -Town X has a netgrand list per square mile of $1.5 million, whileTown Y's comparable figure is $1.2 million.
Town X's exempt assessments would he weight-ed by 1.5 and Town Y's exempt assessments wouldcarry the weight of 1.2. The reimbursement fundwould be allocated between the two towns accord-ing to the following:
Town X: 1.5 x $200 million $300 million(weighted at..sssments)
Town Y: 1.9 x $100 million $120 million( weighted assessments)
Total $120 million
Town X would receive $300 million
$420 minion 71.5% of thefund, while Town T would receive 28.5%.
35
At present the allocation of the fund would beto the following- towns:
Percentage Shares for Cities Qualifying forTax Belief Based on Non-Governmental Tax-
Exempt Property
IlartfordNev IlavenItridg.eport
30.56 '';15.05';
New I :ondon 6.0:3
\Vaterbury :1.39 c;
Norwich 0.5'1 '';New BritainFairfield 3.05 e;
Middletown 1.05'.;reen wih 2.79',;
100';,
SummaryThe Commission recommends that two pro-
grams contributing tax relief to the cities beeither expanded or established:
1. Continuance of Sections S -159a and 10-266k ofthe Connecticut General Statutes at a fundinglevel of an additional $5 million for each Sec-tion in f1"71 and FY '75,, and an additional$15 million each in '76 and thereafter. Thereason for the proposed increase in FY "70 isto help offset the effects of the Commission'srecommendation that State reimbursement fortaxes on inventories he repealed as of thatyear.
2. Creation of a State fund of $10 million to heapportioned to municipalities as reimburse-ment for revenue foregone due to large con-centrations of non-governmental tax-exemptproperty.
For an analysis of the impact of these recom-mendations on major Connecticut localitie'r4, seeTable A -9. This table shows the extent to whichthe aid to cities program would assist those muni-cipalities most affected by the proposed repeal ofpersonal property taxes and of the inventory taxreimbursement program. Immediately, the Com-mission expects that the aid to cities "Vogram willpermit a reduction in the mill rates. In the longterm the Commission believes its total programwill provide for a continued reduction in propertytaxes in these and other cities in the State.
ConclusionA summary of th impact of the Commission's proo-am related to the
property tax and local revenues may be fount. in Volume I, page 83.and Volume II. page (t.
36
FOOTNOTES TO PART A
1 Advisory Commission on Intergovernmental Relations(ACIR 1. .`'talc -Lnea/ Finoneus: Significant Features and
"I Legislation (19721. Table A, Table 12.
2 Forty percent projected for FY '7.1 from information inB. port of the ('OIllleCtiUt State IteVentle T ask Fen'''.1 1971 ) p. 2.1.
3 See Table A-2.
1 Congressional Research Servie, Prom rty Taxotion: ltsEff ects on. Land and Local (:oe romfnt Rcrunile,q(1971). p. 1.
5 ACIIt, State-Local Finances (1972). Table 12.
6 yip burden and incidence of taxes in Connecticut arefurther discussed in Vol. III, ('art B.
7 AC1R, State-Local Finances (1972). Table 71.
8 Connecticut Public Document 8, In formation Belot ireto the Assessment an,f Collection of Taxes (1971). PP.82-85.
9 Dick Netzer, Economics of the Property Tax (Washing-ton, D.C.: The Brookings Institution, 1906). pp. 40-11.If) T. It. Smith, "An Analysis of Sales Ratios with Com-ments on Property Tax Regressivity," The Asessor'sJournal ( April 2.1, 1972),
11 See Mason Gaffney, "The Property Tax Is a ProgressiveTax" Proceedings of th 0;4th Annual C nfeecnee on Tax-ation, National Tax As,.ociation (1971), See also Fortuneayazine ( May, 1972), p. 105.
12 AC1R, State-Local Finances, Table 32.
13 Ibid., Table 12.
14 Private apartment houses, with rent levels several timesthose of public housing projects, commonly pay propertytaxes equal to between 20 and 30( ; of their rental income.15 Extra-legal classification by differential assessments hasbeen a problem in Connecticut and other states, however.See, for instance, Francis J. Shannon, The Con flirt Be-tween Law and Administrative Practice in Valuation ofProperty far Taxation in Kentucky (Lexington: Univer-sity of Kentucky, 1957).
16 The Supreme Court has often upheld differential ratesof taxation if the classifications on which they are basedare "reasonable."17 As Netzer has pointed out, a full-rate tax on, say,demand deposits which bear no interest would be con-fiscatory. Dick Netzer, impact of the Property Tax: ItsEconomic. Implications for Urban Problems, p. 5, suppliedby the National Commission on Urban Problems to theJoint Economic Committee of the U.S. Congress (Wash-ington, D.C., 1968).
37
18 The most striking example of this practice is in CookCounty, Illinois. See Thomas G. Lyons. "The Cla,siticationIssue in Illinois." in Tax Institute of America, The Itrop-(1'01 Tax: Itrobleins and l'ototials 1191; 1. p. 210.
19 S.9. W. It. Snodgrass. "The Classification Issue inTennessee," in Tax Institute of America, note .1. p. 221.
211 S. E. Leland. "Some Observations Concerning the (lassi-fied Property Tax." lit Tax Policy League. Property Taxes(19101. p. 108.
21 'Phis may true in the prevafling. American situation,where land ownership is fragmented among many firmsand individuals. In the case of large-scale land dvfIIper:(e.g., a new-town developeri who themselves are respon-sible for population growth and for the character ofland sizes within the area. equity as well as proper eco-nomic incentives demand that the developer be abbe toretain much of the resulting appreciation.
22 Dick Netzer, Economies of the Prop, rty Tux, pp. 138-139.
23 James W. Wighttnah. The Impact of State owl Lordr'iliY rrag in the North
Federal Reserve Bank of Boston, Research Report No. 111(March, 1908) p. 11.
24 As defined in Sec. 16-1 of the Connecticut GeneralStatutes.
25 For a discussion of the impact of personal propertytaxation on business, See Volume III, ('art B of thisReport.
20 Maine, Maryland, Massachusetts, New Hampshire, NewJersey, and Vermont are the others.
27 Irving Howards. "Property-Tax Rate Limits: A Viewof Local Government," in Richard W. Lindholm (ed.),P"Ilertti Taxatiod, 'S,4 ( Madison, Wis.: University ofWisconsin Press, 1907), pp. 178 ff.
28 "Survey of Tax Exempt Property and Foregone LocalTax Revenue in Connecticut Municipalities," compiled bythe New Haven City Planning Department from the "1970Abstract of Real Estate Exempt from Taxation," Stateof Connecticut (1972).
29 T. R. Smith, Real Property Taxation and the UrbanCenter (Hartford, Conn.: John C. Lincoln Institute, 1972),p. 87.
30 George Sternlieb, The Tenement Landlord (New Bruns-wick, N.J.: Urban Study Center, Rutgers State University,1966), pp. 211-217.
31 Smith, Real Property Taxation, p. 85.
PART B
School Finance Reform
Introductionl'uldic elementary and secondary education is
the single largest government service supportedby the taxpayers of Connecticut. In 1970-71. our169 towns spent $758 million on their publicschools ($11.10 per pupil average for 065,000students) . Of the total amount spent, the largestportion was raised locally by the towns $.185
m'ilion or 61'; while $253 million (33'.;came from the State budget and $20 million
) was received from the Federal Govern-ment. Overall, the towns spent two-thirds of alllocal property tax revenues on education. TheState government spent approximately 31'; ofthe General Fund budget for education.
Local funds for education come from onesource: the local property tax. The towns ofConnecticut levy a property tax equal to an aver-age of just over $200 per year for every personin the State; this tax on residential and businessproperty is the primary means of supporting thepublic schools, and two-thirds of the $723 millionraised by the proprty tax in 1970 went toeducation.
In examining taxes. tlo'refore. the Commissionfound that, in large inirt. thin property tax is theschool tax. To consider the fundamental pob-lems and inequities of the property tax, it be-comes necessary to look at public school financeand the property tax as a single system. Theability of a town to raise funds for education, onthe one hand, determines its ability to spend oneducation: on the other hand, ability to raisefunds from the local property tax reflects com-munity wealth. Thus, community wealth is closelyrelated to educational expenditure through theproperty tax. It is this relationship, and itsImplications, that the Commission had to face asit addressed the issues of school finance reform.
Findings Lind ConclusionsThe Commission finds that, while the property
tax is an appropriate source of Mentte for publicelementary and secondary education, the currentsystem or financing public schools by local prop-erty taxos is harmful and inadequate in sixrespects:
1. The Public School Finance System isInequitable:
Persons of equal financial status with equalincomes and houses of equal value pay mark-
41
edly different property tax bills, varying by asuch :3$ 10(r and those who pay the most are
often those whose towns are aide to spend theleast on the public school system. Two familiesowning $30,00 homes may pay as much as $1200,or as little as $500. in local property tax: and thefamily paying several hundred dollars per yearis likely to receive nothing more (and perhapsless) for its money.2. The Public School Finai:.-e System is
Inherently Unequal:The current public school finance system severe-
ly impairs our public school system, preventingequal opportunity being achieved for the manytowns unalde to spend anywhere near as muchas some other towns in the State. For example,5 towns spend an average of over $1,200 per pupilon net current expenses alone while 5 towns atthe other end of the scale are able to spend lessthan $600 per pupil. Yet it is impossible for thelower expenditure towns to catch up to the higherexpenditure towns inasmuch as those same 5 lowexpenditure towns are already taxed at rates5'; higher than the same 5 high expendituretowns spending more than twice as much.
The Public School Finance S?/stem has an im-pact on Communities which affects the Qualityof Education.
The public school finance system distorts com-munity deYelopment patterns, sorting and segre-gating suburbanities, as well as inner-city resi-dents, by economic group. Such residentialpatterns limit the effectiveness of many or allpublic schools by taking away the opportunityof students from different socio-economic groupsto learn from their peers of other socio-economicbackgrounds. We are coining to a point wheremore affluent persons tend to live in towns popu-lated by equably affluent persons and no others,poor persons in towns with none but the poor,and middle-income persons with none but othermiddle-income persons. That means few studentsmix with persons of different background, andthe poverty of aspiration and experience createdin our schools is daiviaging to everyone, regard-less of race, income, or family background.. The Public School Finance System May Be
Unconstitutional:The public school finance system has been held
unconstitutional under pending decisions not as
yet reviewed by the U.S. Supreme Court: and itmay be found unconstitutional under decisionsto be made by the Supreme Court, and bind-ing on Connecticut, in the near future. Underdecisions made by State and Federal courts inTexas and California, school finance systemsclosely resembling. (.7onnecticut's wen.? held un-constitutional. Those courts found that childrenin some towns were denied equal protection ofthe law when local property tax financing madeit impossible for their schools to spend nearly asmuch as other school systems it tax rates equalto or even higher than the tax rates of thosetowns. And, even under existing Connecticutlaws, the existing finance system %villa preventsequal opportunity is contrary to State policy asexpressed in Section 101a, General Statutes,passed under State Constitutional authority,which states that "the educational interest of theState shall include . . . that each child shall have. . . equal opportunity to receive a suitable pro-gram of educational experience."5. Public School Finance Inequities Are Becom-
ig Greater:Because wealthier residents tend to move to
towns where property tax rates are lower whileless fortunate families cannot afford to follow,and business firms also tend to choose the townswith low tax rates, the low tax rate towns spendmore and more with little or no tax increasewhile other towns keep raising taxes just to keepeven. School expenditures in some towns keepgrowing by $50 and $100 per year while othertowns, many as low as $500 to $600 per pupil,struggle to increase by even $25 to $30. Andeconomic segregation is becoming markedly worseamong high, middle, and low income families.6. Due Public School Finance System Includes
No Effective Meehonism for Providing SpecialEducational Efforts to Aciere Equal Oppor-tunity for Many Children:
In towns with large numbers of children need-ing special programs because of mental oremotional handicaps, home environment, cp sim-ply individual difficulties as reflected in achieve-ment measures there is far too little outsideaid. Existing State programs do not automati-cally provide sufficient funds for many specialeducational needs. Many existing programs aresmall, variable, and limited to only sonic of thosechildren in need of special educational effort, Forthe town with a large number of children needing
42
special help, neither the current system nor asimple equalization scheme would provide thefunds for programs sorely needed it' equal edu-cational opportunity is to lie more than an emptyslogan.
Lest the above findings lead to the conclusionthat we have failed in our public school system.the Commission must emphasize that there ismuch that is right with our schools. The Com-mission sought to examine taxes and did notdealwith educational quality in depth: yet we knowthat Connecticut boasts sonic of the finest publicschool :systems in the nation. Even as we focuson inc duality due to the inability of some. schoolsystems to raise and spend on a level anywherenear the more fortunate districts, many extra-ordinay individuals and imaginative approachesbring high quality education even where expend.i-t)ires are low. (Am local school systems hold prom-,ise and opportunity. well as a solid record ofochiereent, which convince the Cmumission thatlocal operation and decisi(-uskig are importantaspects of our edurat ()nal sust em.
But this report is not intended to praise whatis right or satisfactory. The Commission wascharged with the responsibility of finding anddocumenting the problems of our .property taxand school finance system, then proposing neces-sary changes. In the following pages, the Com-mission reports its findings, and the facts uponwhich conclusions were based, turning then tothe question of what must be done. It is impor-tant to keep in mind the great deal which deservespraise without ignoring the call for help whichthe Commission has heard. There is a job to bedone, significant changes to be made, and theagenda for action is urgent if we are to preservethe benefits of the good already accomplished.
Weighing the serious problems inherent in thecurrent school finance system, and keeping inmind those qualities which we prize in our currentschool system, the Commission reviewed manyalternatives in seeking the best possible responseto Connecticut's particular needs, Although manystates appear to be leaning toward full stateassumption of educational costs, the Commissionput heavy emphasis on local responsibility anddiversity, and careful study indicated that alocal option system in Connecticut could servethat end even while solving the problems of theexisting school finance system.
For these reasons, therefore, the Commission
recommends a detailed program to install a newlocal option system of school finance by the prop-erty tax. The system proposed would permit alltowns to continue to choose their own propertytax rates and school expenditure level while atthe same time it would CO enable those townswith tax rates far above the State average to sub-stantially reduce property tax rates for schoolfinance and permit those towns now spendingmuch less than the State average to raise sub-statially more funds for education; and (2)achieve, in time, equal opportunity in all townsfor school financing: by making the relationshipbetween school tax rates and school funds substan-tially the same in all towns. This new system
would he phased in over, time by using increases inproperty tax revenues at current mill rates forequalization; that device insures that no town inthe State need increase school tax rates to ain-tam current spending levels with, in fact, amodest increase each year. Further, a bonus isgranted each town for certain groups of childrenwho need special educational attention in order I.,:assure that an automatic mechanism makes suffic-ient funds available to school districts with largernumbers of children who require costly extraservices. Finally, the Commission recommends.the use of $20 million per year from the. GeneralFund to assure that the goals of the new systemare substantially achieved within 10 years,
History of School Financing in ConnecticutThe early settlers of Connecticut towns indi-
cated a strong desire to establish schools thatwould enable the citizens to read and interpret.the Bible. A serious interest in education is evi-dent from the early records of these settlementsand codes of the colony, which mandated' theestablishment of schools for the citizens of thetowns.
The Connecticut Colony code adopted in 1650required that each town with 50 families estab-lish a school with one member of that towndesignated to instruct the students. New HavenColony enacted its code in 1655. Both codes werein effect for approximately 150 years. The mini-mum number of families in each town requiringa school was later reduced from 50 to 30.1
The Connecticut Colony code also authorizedeach town with 100 families to set up a ''grammarschool" in order to provide students with enougheducation to enter the university.2 Teachers forthese schools were paid through town taxes ortuition charges. Then in 1690 the General Assem-bly made grammar schools public institutions alAprovided that th,..), State pay one-half the teachers'salaries.'
In 1700 the State declared a local tax of 40shillings for each thousand pounds of propertythat was declared taxable.'
From the sale of the lands which are now townsin western Connecticut, the State in 1733 estab-lished a school fund, !probably the first permanentschool fund in America,' with the proceeds from
43
land sales going toward the schools. As new townscame into being and wanted to share in the funds,the money available from this source becameinadequate.
As a result of the Queen Anne's War and theFrench and Indian War, the tax for schools wasdecreased in 1.748 from 40 shillings to 10 shillings.The tax was raised back to 40 shillings in 1767.6
Additional funds became available when in 1795Connecticut sold the "Western Reserve," a portionof the western land then still owned by Connecti-cut under the charter given by Charles '11 in 1662.This fund had grown to more than $2,000,000 by1823, providing the main support for publicschools for over half a century and almost theentire support from 1821 to 1854.7
This period of early Connecticut experimentwith full State funding of education produced(according to Ames) "carelessness and indiffer-ence in all matters pertaining to education."'
Connecticut's standards of education at the endof the 1700's included the following:
1. All children should be given an opportunityto learn to read.
Schools should be maintained for six monthsin towns with 30 families.
3. Schools should be supported jointly by thetown and parents throngh local propertytaxes and by rate bills or tuition charges tothe parents.°
9.
The Constitution of 1818 ended any remainingcontrol of the church over schools and included theprovisions of Article 8 \\*Iliell are today the onlysections of the State Constitution relating toeducation.
I:: 1818 the schools were under the directionof "school societies." which were an outgrowth ofthe early ecclesiastical societies. The school so-ciety was 0 geographical area comprised of eithera town, several towns, or a part of it town. inthe latter part of the 18th century the scho61societies were given authority to divide intoschool districts which were declared in 1839 tolie "bodies corporate" with almost , completeauthority over the schools, including the right totax the property and polls within the district forthe support of the schools.
In 1851 the school tax was restored and eachtown required to raise a sum equal to one centon the dollar of its grand list, the amount- to bedistributed to the several school societies of thetown. (The proceeds of the fund were first dis-tributed on the basis of the number of childrenbetween four and sixteen years of age.)
In 1856 school societies were abolished and thetowns took over the management of the publicschools. The required tax that was to be leviedby each town on the grand list was graduallyincreased with changing educational requirementsuntil 1869 when the towns were required not tolevy a certain mill rate, but rather to levy a taxthat would provide the required revenue to main-tain thirty weeks of school.
Acts passed in 1865 and 1866 by the GeneralAssembly provided for the consolidation of schooldistricts and control of schools by the town undera board of educators or town school committee.
In 1871, for the first time, funds were takenfrom the State's General Fund and made availableto the schools. The first State grant \vas 50 centsper child, 4 to 6 years of age."
111 1897 income from the School Fund was paiddirectly into the State's General Fund and there-after the School Fund ceased to be a factor inschool finance.
Connecticut's first effort at equalization camein 1903, when the grant to the town was made onthe basis of ability and effort as indicated by
44
local property valuation and tax levies. Townshaving loss than $500.000 valuation and collectinga four mill school tax received a supplementaryState grant to insure $25 per pupil expenditurefor teachers' salaries. This plan was modified in1911, but in 1917 the mandatory local school taxwas abandoned and State nayinents wore made,strictly on the basis of student attendance.
From 1917 to 1917 the State grants were basedupon classifications designed to give more assis-tance to small towns. In 1917 a new system basedupop a per pupil sliding scale was establishedrequiring towns to,provide a minimum programin order to qualify. The sliding scale formula wasconstantly adjusted by the Legislature under asystem designed to pay higher amounts for thefirst 100 pupils and decreasing amounts there-after.
The minimum program was discontinued after1963, and towns were no longer required to spenda certain sum for each pupil in order to qualifyfor their full portion of state aid."
Our current financing system, discussed in moredetail below, derives approximately one-third ofthe cost of current education from the State,mainly in the form of flat per student grants,some in special educational grants, categoricalgrants, and as program for disadvantaged children(SA DC). The balance of the needed revenue israised by the local property tax.
While generally relying mainly on the propertytax levied at the local level to finance Publiceducation. Connecticut has at one time or anothertried some variant of many possible alternativescurrently being considered, including full. Statefunding and a limited equalization program withpayment from general funds supplementing theefforts of the towns, Whatever the problems andinequities of our present system our historydemonstrates flexibility and adaptability in meet-.ing the demands of changing ed..icational conceptsand needs. Our current systel.! is not the onlyway to finance education as our own Statehistory shows and our experience demon-strates the willingness of our State to change oursystem when and if the structure needs reform.Our tradition is concern for education, but we arenot bound by any single approach.
Constitutional Issues Recent Court Decisionsand the Connecticut Constitution
Connecticut has one of the oldest school sys-tems in the country, and a long history of pro-grams directed toward providing a free qualityeducation in the public schools. Although 'numer-ous types of finance programs have been tried,r'onnecticut now relies mainly on the propertytax levied by the towns to raise the bulk of therevenue needed to finance its public school sys-tem. All but one of the states use a similar,method of local property taxes as the main sourceof school support, with state ai.d programs ofvarious types added to local resources.
Cases have been filed in many State and Federalcourts raising the question of whether these exist-ing systems of financing public schools are legaland equitable. A discussion of the issues raisedin two of these cases provides a useful backgroundfor an examination of our own system of schoolfinance here in Connecticut.
The Rodriguez Decision in TexasThe -U.S. Supreme Court will consider in the
coming term Demetrio P. Rodriguez et al. v.San Antonio Independent School District et a/.'2decided by a special three-judge panel of theUnited District Court for the Western Districtof Texas in December of 1971: It was held in thisDistrict Court decision that the current systemof financing public education in Texas discrimi-nates on the basis of wealth by permitting citizensof affluent districts to provide a higher qualityeducation for their children, while- paying lowertaxes. The court found that this discriminationwas a denial of equal protection of the laws underthe Fourteenth Amendment of the U.S. Constitu-tion by operation of the Texas constitution andthose sections of the Texas Education Code relat-ing to the financing of education.
Approximately 10% of the overall public schoolexpenditure in Texas is contributed by the Fed-eral government. The remaining revenue neededto operate the schools comes from two Statefunds, "The Available School Fund" ($296 millionallocated on a per student basis as determined byaverage daily attendance) and a minimum foun-dation program (in excess of one billion dollars,financed 80% from State revenues and the balanceapportioned to the individual school. districts).
45
The lOcal school districts rely upon local propertytaxes to .provide their share of the minimum foun-dation program, debt service for capital expendi-tures, and to finance all other expenditures abovethe State minimum.
The Texas Federal court found that under thissystem, in which education is a "function of theproperty tax," there were districts with propertyvalue per pupil in excess of $100,000 and poorerdistricts with less than $10,000 per pupil, repre-senting an equalized tax rate (tax per $100 ofproperty value) for the "rich" districts of 31cents and 70 cents for the "poor" districts. Futher-more, the low rates for the rich districts yielded$585 per pupil while the high rate for the poordistricts yielded only $60 per pupil. The richdistricts have the highest median family incomeand the lowest percentage of minority children,while the poor property districts are poor in in-come and predominantly minority in composition.
The court found that the classification systememployed in Texas involved a "fundamental inter-est" (education) and was based upon wealth, andfound no compelling state interest to justify suchclassification.
Having found that the current system of financ-ing discriminates on the basis of wealth by per-mitting citizens of affluent districts to provide ahigher quality of education while paying lowertaxes, the court left it to the defendants and thestate legislature to devise a new form of financingpublic education which does not make the qualityof public education a function of wealth otherthan the wealth of the state as a whole. Themandatory injunction was. stayed for two years.in order to provide an opportunity to comply withthe court's order. The court retained jurisdictionover the case.
The Serrano Decision In CaliforniaThe Rodriguez decision was handed down only
a few months after Serrano v. Priest," a 6-1decision of the California Supreme Court. In thiscase, too, there was a finding that the state (Cali-fornia). method of financing public school educa-tion was in violation of the equal protection clauseof the U.S. Constitution.
In examining the public school financing sys
tem of the state, the court noted that by far themajor source of revenue is the local property tax,The amount that can be raised is dependent uponthe tax base the assessed valuation of the prop-erty within a district. An example of the rangewithin the State in a given year was the assessedvaluation per unit of average daily attendance ofelementary school children ranging from a lowof $103 to a peak of $952,156, a ratio of 1. to10,000. This range of assessed valuation, togetherwith the willingness of particular school districtresidents to tax themselves, determined theamount available from locally raised funds, themain source of'revenue in that state. The inequity,however, again came in the fact that some dis-tricts taxed at far higher rates yet fell farbelow in funds available for education.
The State of California contributes aid to thedistricts in the form of "basic state aid", a flatgrant per pupil, plus "equalization aid" and "sup-plemental aid." The court found that althoughthe latter two programs "tempered the disparitywhich results from the vast variations in realproperty values, there remained wide differentialsin the revenue available to individual districts,and consequently in the level of education expen-diture!'"
The main thrust of the plaintiff's argument wasthat the California public school financing schemeviolates the equal protection clause of the 14thAmendment of the U.S. Constitution. In othercases, the U.S. Supreme Court has upheld legis-lative classification if a statute bears some ra-tional relationship to a conceivable state purpose,subject to two main exceptions to this generalrule:
"In cases involving 'suspect classifications' ortouching on 'fundamental interests' the court hasadopted an attitude of active and critical analysis,subjecting the classification to strict scrutiny."'5In these cases the State has the burden of show-ing not only that it. has a compelling interestwhich justifies the law, but that the distinctionsdrawn by the law are necessary to further its pur-pose.
The California court, after a lengthy analysis,found that the California school financing systemclassifies on the basis of wealth of a district andits residents (wealth being one of the suspectclassifications under a funding scheme mandatedin every detail by the California constitution andstatutes." The court found also that the Cali-
46
fornia fiscal system has a direct and significantimpact upon a fundamental interest, namely edu-
cation. Finally, in applying the strict scrutinystandard, the court found that. the financing sys-tem as presently constituted is not necessary tothe attainment of oily compelling state interest.
The court in reaching its decision stated, "Byour holding today we further the cherished ideaof American education that in a democraticsociety free public schools shall make available toall children equally the abundant gifts and learn-ing.""
Judicial Basis for School Finance ReformAn important point in both Serrano and Rodri-
guez is the characterization of education as afundamental state interest, The two courts re-gard the rule that wealth classifications are illegalas applicable only to fundamental state interests,and both opinions refer to the long history ofjudicial expression which has distinguished edu-.cation from other government services, This qual-ityrepeated court treatment of education as dif-ferent than other government servicesbeganwith Brown v. Board of Education (1954 ) 347U.S. 483. The Serrano and Rodriguez courts eachquoted a unanimous U.S. Supreme Court inBrown:
"Today, education is perhaps the most im-portant function of state and local govern-ments. ... In these clays, it is doubtful that anychild may reasonably be expected to succeed inlife if he is denied the opportunity of an edu-cation. Such an opportunity, where the statehas undertaken to provide it, is a right whichmust be made available to all on equal terms.""
This kind of treatment for public schools in thecourts led the Serrano panel to classify educationwith voting rights and criminal rights as funda-mental interests not to be subjected to wealth dis-crimination (except in the case of a compellingstate interest); the Rodriguez court also appliedthe description "fundamental state interest" in ashorter discussion. In both cases, education wassingled out from other government services whereno such court history has been established. Thisis the point which distinguishes cases involvingunequal schools from cases which Might complainabout unequal sewers, road paving, or local gov-ernment services which the courts have neverconsidered essential or fundamental interests ofthe state as in education,
Both Serrano and Rodriguez distinguishMctunis v. Shapiro, 293 F. Supp. 327, (aff'd, mem.
sub. nom. 39.1 U.S. 322), the only important pre-vious case in which the U.S. Supreme Court hasaddressed the issues of school finance. In Mchrni&the Supreme Court refused to hear a complaintconcerned with alleged school finance inequitywhich turned on issues of appropriate spendinglevels, But Rodriguez- articulated the differencein recent cases:
"[The] ..plaintiffs have not advocated thateducational expenditures be equal for eachchild. Rather they have recommended the ap-plication of the principle of 'fiscal neutrality.'Briefly summarized, this standard requires thatthe quality of public education may not be afunction of wealth, other than the wealth ofthe state as a whole."
In light of the new issues posed to the U.S. Su-preme Court by these decisions, it appears likelythat the nation's highest court will, at the veryleast, rule on the merits of this newly-raised legalproblem. In the event the decision is affirmed, itwould outlaw the existing school finance systemsin two major states, and most syA:ems in usethroughout the nation, nearly all of which aresimilar in concept and effect.
Other Developments in School FinanceReform.
The Serrano and Rodriguez cases have had atremendous impact throughout the country, Simi-lar suits are now pending in at least 37 states,including Connecticut. Three recent studies ofState taxation as it affects public school educationhave commented upon the courts' findings inSerrano and related cases in presenting proposalsfor reform.
The New Jersey Tak Policy Committee Report'srecommendations, while first developed prior to,and independent of, all recent judicial decisions,referred to Serrano in its report and concludedthat:
"Equality of educational opportt.',U:y understate and federal constitutions as pA:'::antly in-terpreted by the courts involves two, _leparateissues. (1) The equality of property tax burdento provide financial support for the state re-sponsibility in education now required by theweight of authority of those Courts which havepassed on the issue. (2) Such equality of edu-cational opportunity as may be implied in equalexpenditures per pupil. This has not yet beenrecognized by the courts as a statutory require-ment, so long as the funds provided by the statesupport a 'thorough and efficient' education, andthe constitutionality of permitting any expen-
47
ditures above that level in the discretion of thelocal school board has not yet been determined."(Page 39 of Report 3) .The New York State Commission on the Qual-
ity, Cost and Financing of Elementary and Sec-ondary Education, at a note in its report (page2.2), states that the Serrano decision "seemslikely to be of landmark significance" in the tenta-tive conclusion that "the states' system of publicschool finance denies children the equal protec-tion guaranteed under the Fourteenth Amend-ment, because it produces substantial disparitiesamong school districts in the amount of revenueavailable for education." While pointing out thatthe decision has no immediate legal impact out-side California, "if its analysis is substantiallycorrect, the public school finance systems in thegreat preponderance of states, including NewYork, are unconstitutional as well."
A .staff report to the California Senate, entitled"Final Report to the Senate Select Committee onSchool District Finance," devotes a chapter to theissues raised by the Serrano decision, the legalprinciples involved, and the alternative methodsof finance available to a state in responding toSerrano.
There has also been some critical comment on,the Serrano decision and some of its underlyingassumptions." The most obvious such assumptionis that there is a proven relationship betweenfinancial input and educational output, a subjectwe have treated below. Whatever the legal merits,however, the wrongs are evident and a tide ofreform has begun. Quite possibly the U. S. Su-preme Court will require changes by its decisionon Rodriguez (expected- in the spring of 1973).Whether or not that happens, however, the lowerCourt decisions have highlighted the need foraction.
Recommendations from the above studies andmost others to date have suggested reliance on areformed property tax for school finance, at leastin large part. in formulating such programs, thestudiesemphasize what Serrano does not require.First, the property tax is not abolished, nor is a"local" tax necessarily prohibit, uniformstate -wide property tax for scho anotherpurpose would be perfectly acceptaoie, or a localproperty tax could be approved if the tax systemwere restructured to give all localities equal fund-raising capability, rather than permitting currentvariation in result due to local wealth. Second,the court cases do not require equality of expen-
diture; the states must assure all communitiesequal fund-raising opportunity, but local choicein the context of equal ability to raise funds is notprohibited. Thirdly, the courts have not deter-mined that equal opportunity be achieved imme-diately, nor that absolute equality of spending op-portunity need ripply in every case: the Serranocourt recognized that the Constitutional standardmust be weighed against any ''compelling stateinterest" in view of the specific facts in any par-ticular state. Although the California court foundno state interest to justify the current inequalitiesin the California system, the California court didnot, and other courts are not likely to, deny thata state may tolerate inequality for a period if ithas installed a system bringing equality by stagesover some reasonable period of time, nor that astate may permit some variation in opportunityto spend on schools for the sake of a particularstate interest, such as desire to aid particularcategories' of children, (e.g.., handicapped, disad-vantaged or others) or fairness where cost ofliving or other factors differ across the state.
Legal Issues of Connecticut School FinanceBefore examining the issue of whether the
Connecticut school finance system is as inequitableas the systems held unconstitutional in Californiaand Texas, a short review of certain legal aspectsof the Connecticut educational structure is inorder. Connecticut has not only recognized ele-mentary and secondary education al..; an "essentialstate interest" by State Constitutional emphasis,but the Connecticut_ legislature has further inter-preted and applied this mandate by statute whichdecrees that every child should have an "equalopportunity to receive a suitable program of edu-cational experience."
The Connecticut Constitution provides in Ar-ticle 8, Section 1, treating matters that pertain toeducation, that:
"There shall always be free public elementaryand secondary schools in the State. The Gen-eral Assembly shall implement thisprinciple byappropriate legislation."
This Constitutional provision parallels otherState Constitutional wording that virtually allstates have kept in some similar form ever sincetheir first constitution. It is on this basis thatthe courts have recognized education as an "essen-tial state interest" (which is a key point in theanalysis that the present system of school finance
48
is unconstitutional). The provision provides theofficial basis for treatnmit of public education asa very special and unique concern.
A recent enactment in a long history of legis-lation adopted by the General Assembly on thesubject of education ties the above constitutionalprovisions to another constitutional principle in afurther enunciation of the educational interestsof the State. Article I, Section I, proclaims that,"All men when they form a social compact. areequal in right." Section 10-1a, General Statutesof Connecticut. 1958 Revision 0969 Public Act\o. (i90, Section I) provides in part that:
"The educational interests of the State shallinclude, but not be limited to, the concern ofthe State ( I) that each child shall have for theperiod prescribed in the General Statutes equalopportunity to receive a suitable program ofeducational experience (2) that each school dis-trict shall finance ata reasonable level an edu-cational program designed to achieve this end."
The Legislature, then, has decreed that: (I) Eachchild shall have an equal opportunity to receive asuitable program of educational experience, and(2) each school district shall finance and devisean educational program designed to achieve thisend. Put another way, the State has mandatedthat equal educational opportunity is to be pro-vided for each child of the State and that this isto be achieved through programs devised andfinanced by the separate school districts.
Whether a "suitable program" of school financ-ing can be provided is ill part determined by the"wealth" available to support and finance such aprogram. Under our present system of schoolfinancing, in which revenue is mainly raised by atax levied on the property base of the town, it isapparent that the greater the disparity betweenthe wealth of school districts the more difficult itwill be for some towns to meet the "equal oppo:.tunity" requirement for its children. Indeed, if acertain minimum level of expenditure is necessaryto provide a "suitable program of educational ex-perience," it may he impossible for some townsto carry out such a mandate under the presentsystem of financing schools, Detailed analysis ofwealth differentials among towns will follow laterin this part. The point to remember here is thatnational court decisions (when related to our ownState Constitutional mandate) al!*/ the Connecti-cut Constitution itself, as interpreted by legisla-tive statement, require equal opportunity through-out the State.
Public School Finance in Connecticut TodayFinancing of public school education in Con-
necticut is shared, albeit in highly unequal pro-portions, by the three levels of government: local,state, and federal. This combined effort resultedin a total expenditure of $757,987,172 during theschool year 1970-71 for our public elementary andsecondary school systems.
Total Net Current Expenses (Operating Ex-penses), which accounted for the greatest portionof the total, equalled $591,014,517. The remainingamount of $163,972,655 was used for the purposeof Debt Service (principal and interest on bondsand notes for school building construction),Equipment and Transportation. Net Current Ex-penditures are usually cited as the fairest basisfor comparing diStricts and as the hest financialmeasure of educational resources available.
Net Current Expenditures have grown rapidly,from approximately $183 million in 1960-61 to$591 million ten years later. In part, this 300(,;,increase Tx s due to a growing school enrollment(over 10',; ) but per pupil costs also rose from$381 to $89.1 in 10 years. The taxpayers andparents of Connecticut have sought better educa-tion, which is a universal trend in our time andin a society where increasing affluence permits usto invest more in education, and the funds havebeen raised for this purpose.
Table B-1 shows the contributions of Federal,State and local governments to Net Current Ex-pense.items over the past 30 years. An inspectionof the table indicates that local government hascontributed by far the greatest share of the dol-lars for education, \-ith State funds a somewhatdistant second. Only in recent years (after 1953)has the Federal sector begun to aid the publicschool system with money for speOal programs.Even in 1971, Federal funds accounted for only3.2';; of Net Current Expenses, and much of thatmoney was, as will he seen, earmar!ied for specialprograms and uses in response to particular na-tional problems and goals.
Chart B-1 presents the breakdown of totalexpenses (both operating expenditures and capi-tal and transportation costs) for the school year1970-71, by source.21
Loral FundsLocal governments in Connecticut rely almost
exclusively upon the property tax as the means
49
Cl ..tirr 15-1 : School ENpoillillire. by Sourer.1970-71
tiourre
Local
State
Federal
Total
TotalEx peri.es c/r. of 'Total
.$.185,37.1,011 64.0 r;;
252,970,802 33.4(j)
19,642,359 9.6c'c
$757,987,172 100.0(;;
of taxing its citizenry. This is because local gov-ernments are generally unable to impose othertaxes to generate meaningful sums of revenue. In1970, all but $5.1 million of the $728.2 million re-ceived from local taxes was derived from theproperty tax.22
Table B-2 depicts by major category the dollarexpenditure and revenue totals of Connecticutlocal governments for the years 1961, 1965, and1970, with percentage increases for those periods.In 1970 the property tax accounted for 65.4rc oftotal General Revenue. The balance was receivedby towns from miscellaneous charges and rev-enues of other government agencies. For the mimeyear total school expenditures accounted for46.6f,q, of total General Revenues.
Tab
le B
-1:
Sum
mar
y of
Net
Cur
rent
Exp
ense
s B
y L
evel
of
Gov
ernm
ent i
n C
onne
ctic
ut.
1943
44 T
hrou
gh 1
970-
71
Sch
ool
Yea
r
Pup
ils(R
esid
ent
AD
M)
Am
ount
Am
ount
l'er
Pup
ilP
erce
ntag
e D
istr
ibut
ion
Fed
eral
Fun
dsT
otal
Loca
lS
tate
Fun
dsF
eder
alF
unds
Tot
alln
pal
Fun
dsS
tate
Fun
dsF
eder
alF
unds
Inal
Fun
dsS
late
Fun
dsF
unds
Gen
eral
Aid
Spe
cial
1943
-44
252,
883'
31,2
94,3
05*f
$ 29
,821
,819
*f$
1,47
2,46
8f
0$1
23.7
5*t
$117
.93*
t$
5.82
1.0
95.3
5,4.
75,
0.0%
1945
-46
248,
135f
34,4
40,5
07`f
31,7
15,7
69*f
2,82
4,73
8f
013
9.20
"f12
7.82
*t11
.38f
091
.88.
20.
1)
1947
-48
252,
422f
47,9
22,3
09*f
37,7
38,8
33*f
10,2
53,4
76f
018
7.89
*1.
147.
75*f
40.1
4t0
78.6
21.
(1.0
1953
-54
340,
753
86,7
23,1
19*
70,9
79,1
28*
13,8
85,7
98$
541.
943
$ 1,
316,
250
254.
50*
208.
30*
42.3
4$
3.86
81.8
16.6
1.1
1955
-56
380,
019
109,
356,
344*
83,9
22,6
44*
43,5
31,1
3073
0,43
01,
172.
140
287.
31*
220.
49*
63.7
4:1
.08
76.7
22.2
1.1
1956
-57
400,
716
123,
853,
840*
97.2
13,3
02*
24,4
86,3
6082
1,01
21,
333,
136
309.
0824
2.60
*63
.16
:1.3
378
.520
.41.
1
1957
-58
422,
156
136,
055,
420
98,5
48,3
0835
,263
,506
1,14
9,76
11,
096,
865
:122
.29
2:1:
1.3
86.2
62.
61)
72.4
26.8
0.8
1958
-59
443,
436
151,
998,
768
112,
266,
967
36,9
36,7
641,
288.
938
1,50
6,09
934
2.77
253.
1786
.20
:1.4
073
.925
.11.
1)
1959
-60
461,
968
166,
544,
039
124,
966,
990
38,6
10,7
781,
526,
917
1,7:
19,3
54:1
61.1
627
0.51
86.8
83.
7775
.024
.01.
0
1960
-61
479,
773
182,
791,
999
138,
911,
931
40,0
47,2
321,
684,
434
2,14
8,40
2:1
81.0
028
9.54
86.9
84.
4876
.0',2
.81.
2
1961
-62
500,
918
201,
888,
449
144,
744.
624
52,8
19,7
272,
009,
452
2,31
4,64
640
3.04
288.
9610
9.46
4.62
71.7
27.2
1.1
1962
-63
523,
143
221,
667,
879
161,
512,
333
54,8
51,0
912.
657,
801
2,66
6,65
442
3.76
308.
7310
9.93
5.10
72.9
25.9
1,2
1963
-64
543,
650
244,
500,
938
178,
838,
252
60,1
83.6
992,
783,
605
2.69
5,38
244
9.74
128.
9611
5.82
4.96
73.1
25.8
1.1
1964
-65
564,
966
267,
931,
073
198,
664,
991
62.2
11,0
433.
280.
872
3,77
4,16
747
4.24
351.
6411
5.92
6.68
742
24.4
1.4
1965
-66
584,
263
300,
454,
257
205,
851,
734
75, :
171.
265
8,12
2,60
511
,105
,653
514.
2435
2.32
142.
9119
.01
68.5
27.8
2,7
1966
-67
600,
001
337,
767,
880
233.
318,
089
77,7
14,3
551(
1,41
8,27
616
,317
,160
562.
95:1
88.8
611
6.85
27.2
069
.126
.14.
8
1967
-68
619,
583
389,
219,
719
266,
946,
709
94,9
63,7
0012
,515
,998
14,7
93,3
1262
8.20
430.
8517
3.47
2:1.
8868
.627
.6:1
,8
1968
-69
637,
201
448,
299,
822
318,
195,
740
98,2
17,7
6916
,921
.945
14,9
64,3
6870
3.55
499.
3718
0.70
23.4
871
.025
.7:1
.3
1969
-70
657,
266
g17,
769,
892
350,
427,
655
127,
481,
598
20,7
57,7
2219
,102
.917
787.
7653
3.16
225.
5429
.06
67.7
28.6
3.7
1970
-71
664,
736
594,
014,
517
418,
006,
474
131,
608,
581
25,2
17,2
7519
,132
,187
893.
6162
8.83
235,
9228
.86
70.4
26.4
:1.2
* D
ata
prio
r to
195
7-58
incl
ude
inte
rest
on
scho
ol b
onds
.f D
ata
for
the
scho
ol y
ears
prio
r to
195
3-54
are
onl
y fo
r pu
pils
ent
itled
to th
e S
tate
's g
ener
al a
id g
rant
.S
ourc
e: C
onne
ctic
ut P
ublic
Exp
endi
ture
Cou
ncil,
Loc
al l'
nh li
e tic
boo
t Exp
endi
ture
fznd
S('a
te A
id in
0)n
m-c
lient
(Ja
n-ua
ry, 1
972)
, pp.
2-3
.
TABLE 8-2: Summary of Connertieut Local Government Expenditures and 114...elutes.1961 -71)
(In Mill' 0I9(1 1905 1961-65 197a 1965.70 1961.70
TOTAL GENERAL EXPENDITURES 8123.7 $566.8 33.8'; $ 9M.0 73.4 (..-; 132.0',:
TOTAL GENERAL REVENUE $452.9 $625.6 38.1'': $1,105.4 76.7':. 144.1 r,
Taxes 331.0 434.0 31.1 728.2 67.8 120.0From Other Agencies:
State and Other 66.3 99.8 50.5 .224.2 12.1.7 238.2Federal 9.8 27.0 175.5 41.0 51.9 318.4
Charges for Current Services& Miscellaneous 45.8 6.1.8 41.5 112.0 72.8 14.1.5
Sourer: Gorernmental Finaners. annual publication of U.S. Bureau of the Census.
Note: Individual items may not add to totals due to rounding.
Table B-3 presents school operating totals (NetCurrent Expenditures) for the 169 towns duringthe school year 1970-71, ordered from highest tolowest per pupil expenditure.
The average Net Current Expenditure perpupil for the 169 towns in Connecticut during theschool year 1970-71 was $893.61. However, a widedisparity exists between the towns at the top ofthe list compared to those at the bottom. Thetop five towns of Darien, Westport, New Canaan,Hartford, and Greenwich spent an average of$1,289.73 in Net Current Expense per pupil whichwas almost 21/4 times that spent by the five townsat the bottom end of the list. These five townsof North Stoning-ton, Ashford, Canterbury, Sterl-ing, and Griswold spent, on the average, $578.12in Net Current Expense per pupil, approximately65".; of the State average.
State GovernmentState aid in support of public school education
is governed by Title 10 of the Connecticut GeneralStatutes. Financial assistance to the 169 schooltowns is provided by the State grant system, un-der the supervision of the Department of Educa-tion. Allocation of funds to towns for educationis directed in three particular areas: General Aid,
51
Funds for New Schools and Transportation, andSpecial Aid.
General Aid (State Aid to Towns) is in theform of a flat grant distributed to the townsaccording to student enrollment (average dailymembership, or ADM) of the towns. In schoolyear 1970-71, this figure was $260 per student;it has been increased to $215 per student forschool year 1972-73. The flat grant representsmore than half of all State assistance, and it iswidely recognized today that a State fiat grantdoes not grapple effectively with the problems ofunequal expenditure.
Funds for new school construction and trans-portation is the second area in which the Stateassists in public schooT, financing. These grantsare made available ut4er several programs toassist school districts in new school buildingprojects and in meetig transportation expenses.half of school constmction costs and half oftransportation expenditures are paid by the Stateunder this large program. The purpose of thegrants, however, IS not equalization, nor is thatthe effect. These grants assist towns hit withsubstantial need for new school facilities due topopulation growth, as well as rural towns wheretransportation costs are high. In terms of equali-
TABLE B-3: Tom n. o Led tecording to Per Pupil 1....peo.e.(School Year 1970-71 )
NET CURRENT EX PENS ES NET CURRENT EX PE NSES 4.1 .1{1ZE N I EN 111.AS ES( Operating Expenses l ( Operating: Expensesi I operating 1.: x [lenses
Rank Town amount Rank Town :\ mount Rank ''own .1ni.,unt1 Darien $1.468.68 58 1101 hang S67.93 15 Covent ry2 West port 1.315.15 :59 East Granby 16 Somers 76,7.123 New Canaan 1,301.97 611 l Iti Omni* 17 St afford 763,771 Hartford 1.18.09 Middlefield* W indsor Locks 762.2::5 ( i ri.onw jell 1,176..17 62 (Well rook 8:6.41 19 1Voildstock6 Wilton 1.160.51 1;:i New Hart ford 854.92 i I I arw rit on 77,7,867 West Hartford I.1:19.89 6.1 1 ieep River 851.61; 21 1V inehoster 1.718 ( 'a naan I .133 . S5 65 M iddlel at ry " 851 22 'I'orrirlgt 4)19 Weston 1.123.05 Southbury' 85.55
Roxbury* 1,090.74 Wooilbury 8.50M I 27 Meriden 7.14.121,Vash i ngton * 1,4190,74 71 Hampton 81.1.21 t' 11 ion 71 1.52
I5 Eamon 1.070.7:1 12 1 ;last onbu ry 8.1:1.23 29 Cromwell 737.1216 Stamford 1067.18 7:t West I lave n 841.73 Burlington 36.(1117 East Hartford 1.050,26 74 Windsor. 839.53 :11 Salem ;.1.7218 Hamden 1013,28 75 Windham 8:19.52 32 Mont vi Ile 720.0319 North Haven 1,034.24 76 Suffield 8:16.74 Bristol 7:10.0(120 Redding 1,098.7'2 7 7 Simsbury 834.01 II 1 ierby 7°8.7621 Bloomfield 1,022.98 78 East Windsor 833.13 Preston 7°4.7922 Cornwall 1,020.97 79 Berlin 839,70 717.7223 New London 1,1)15.18 811 Andover 831.90 t o n 717.1521 Fai Timid 1,0(11.98 81 Waterford 831.11 :IS East !Liven 71:.122 :,' .Goshen* 999.91 82 Norfolk 831.30 :.;!+ Brooklyn 709.82
28 Rocky 11 ill 996.42 8:1 Groton 897,67 42 Pomfret 705,8829 Farmington 982,76 86 Chester 826.55 43 Itozrah 7,;1.6230 It idgelield 981.97 87 Plainville 826.29 14 Thompson 6911.2131 AVM] 975.92 88 East ford 824.13 45 Nougat tick 697.77:12 Stratford 970.28 89 Port land 822.82 .16 Eedyard 696.8033 Litchii eld 960.18 9O Ston in gton . 822.42 17 Clinton 4;95.:1934 Ken:. 951.76 91 Canton 890.54 8 1: illingworth 68.1.W35 Newington 949.12 92 (Guilford 820.51 ostn 68:1.69:16 Bethel 945.22 93 East Haddam 817.81 50 North Branford 68:1.5137 Essex 943.93 94 Brookfield 816,36 51 Franklin 670.973839
ColumbiaWethersfield
940.1111933.82
95196
BridgeportWallingford
814.23812.89
52 Sprag-ueSeymour
658.87657.77
40 North Canaan 932.61 97 New Mil ford 8(18.87 5.1 Shelton 654.294142
WoodbridgeNorwalk
930,05929.16
9899
BranfordChaplin
8107.2681)6.85
5556
EnfieldPlymouth
652,27651.39
4344
MansfleldLyme 19)22181.6865 11111
MonroeNew BritainN
ft05.52804.66
5758
LebanonOxford
648.50647.75
45 Sherman 918.92 102 Vernon 803.34 59 Beacon n Palls* 640.2346 11anbury 911.59 103 Madison 800.66 Prospect* 640.2347 Orange 908.29 104 East Lyme 797.29 61 Voluntown48 Salisbury 907.46 105 East Hampton 795.69 62 Wolcott 6:.;2.0749 Ellington 899.63 106 Bakhamsted 793.39 63 Plainfield 628.1850 Bolton 895.79 107 Granby 793.22 64 Lisbon 624.1751 Newtown 895.20 108 Hartland 792.85 65 North Stonington 623.1652 Old Saybrook 891.86 109 Will i ngton 789.45 66 Ashford 616.2353 Waterbury 887.14 110 Marlborough 778.56 67 Canterbury 557.7054 Manchester 873.23 111 Westbrook 777.85 68 Sterling 555.5055 Old Lyme 873.08 112 Norwich 776.17 69 Griswold 538.0256 Trumbull 872.27 11 :3 Colchester 775.9157 Middletown 868.75 114 Haddam 772.31 State-wide Average 893.61
Source: Local Public School Expennes and State Aid in Connecticut, Connecticut Public Expenditure Council, January,1972, pp. 30-31. *Regional school districts.
zation, there is no distinction made as to whethera school (,strict receiving this aid is a high-expenditure or low-expenditure town, and theState often pays the most to the highest-expendi-ture towns for expensive new schools.
Special Aid to Towns includes numerous cate-
52
gorical programs that are dependent upon par-ticular need; the variety of these range fromprograms for the disadvantaged and occupationaltraining programs to special training for thehandicapped and the gifted child as well. Re-quirements for eligibility vary among these pro-
grams, as does .financial assistance. About 10(;of the State aid total is accounted for by thesePrograms. Although many of these programsserve some disadvantaged individuals, this is nota large source of funds for the considerable extracosts of educating many disadvantaged individ-uals, and these programs do not permit muchequalization among the towns.
The breakdown of State aid figures"-' for publicschool financing for the 1970-71 school year were:
Operating Expenses:General aid $131,608,581 50.0';Special aid 95,717;)75
New Schools andTransportation: 96,144,9.16 38.0(;-
Total State Aidto Public Schools $252,;970,802 100.0' ;.
Overall, existing State aid to local school sys-tems is both substantial and well-designed forparticular purposes: general support, help forgrowing towns, and incentives for many desirablespecial programs. But these programs do notmeet the problems raised here. .Existing pro-grams should he continued or, at least, evaluatedon their own merits in light of their own purposes,apart and separate from the issues raised in thesepages.
Federal AidParticipation by the Federal government in the
financing of public schools is relatively minor.
In the 197 -71 school year, Federal funds, repre-snted only of total public school expensesfor t31e 169 towns. ( All of this aid is for operat-lin.; expense, and the totd represents 3.t; ofNet Current Expenses.) Although, on the aver-age, this figure is not very significant, it is worth-while to mention that, taken as a percent of totalexpenses, the range for the individual towns wasconsiderable. In ten towns no Federal participa-tion was evident, \011ie in the town of GrotonFederal assistance represented 21,.; of totalexpenses.
Federal aid to the towns in the form of grantsfur particular programs is similar to special aidprograms by the State. That is, these programsare designed for particular policy purposes otherthan equalization and they serve largely thosepurposes alone, with little or no equalization effect.These categorical grants, which number forty-five,also include aid for higher education:2'
At the present time there are additional fundsaccruing to the State and local governments fromrevenue-sharing proposals being studied by Con-gress. Sonic portion of whatever Connecticut re-ceives could be used to meet public school financ-ing. However, when compared to the totalexpenditure of $758 million in school year 1970-71,these receipts will not drastically affect thepresent financing picture. Even the very large..mounts being suggested for new proposals dur-ing the next Administration are not only unlikelyto materialize for at least sevall years, but it isvery unlikely that such amou-ots would bringequality or substantially alter current financepatterns unless carefully &signed to do so.
What's Wrong With Our System Now?This section highlights what is basically wrong
with Connecticut's system today: that the currentsystem is grossly unfair to our taxpayers andinherently unequal for our students. The funda-mental inequity of financing a State public schoolsystem by local property tax is that inequality ofproperty values by town forces many towns tosettle for low school expenditures, even while thetaxpayers of those same towns face some of thehighest tax rates in the State.
This problem can be seen by comparing twotypical towns in Connecticut. Town A spends
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$1,000 per student from local property taxrevenues and Town 13 spends $500 per student.Both towns also receive $300 per student of Statemid Federal aid, and both towns spend two-thirdsof their local property tax revenues on education.But Town A enjoying high expenditure forschools imposes an adjusted tax rate of only15 mills (on full current market value of all prop-erty) while Town B faces a tax rate of 30 mills,or twice as great, even to raise half as much foreducation. In short, many towns can tax far less,and spend much more; and those lens fortunate
towns can never catch up in school expenditurebecause taxes are already as high as homeownerscan tolerate.
The inequity of the system can be seen vividlywhen two taxpayers of equal income, living insimilar homes of equall value, are compared.family in Town A pays a property tax bill of $60oper year, or 15 mills on a $40,000 home, and th,_children attend excellent schools reflecting 0.-penditures of $1,300 per student. A familyequal means in Town B pays $1,200 per year :32property taxes, or twice as much, and yet theirchildren attend schools where only half as muchlocal money is available and, even with State aid,school expenditures are only $900 per student.
This dual inequity - a family can pay moreand get less for its children - is the fundamentalissue of shocl finan«,. It has been explainedabove that sut:h a system may be ruled illegalby the U.S. Supreme Court, and that such in-herent inequity violate-, the spirit of the Connecti-cut Constitution and the law's which the legisla-ture has passed under the State Constitution.Those are good reasons to act. It will be explained
below that - even while school expenditures arenot the only factor in quality education - suchlarge differentials as are found in Connecticutcannot help but deny many children an oppor-tunity equal to children in higher expenditureschools. That Is good reason to act. Also ad-dressed below is the effect of our current systemon community develiqunent, giving a financialincentive for the nest affluent to live in townspopulated only by other affluent persons andgiving all towns an incentive to keep out the poor.Those are also good reasons to act.
Before turning to other aspects of this prob-lem, it is important to survey the scope of Con-necticut's problem. The dramatic examples above,where one family paid twice as much in taxes yetsaw only half as much . becoming available fortheir children's education, is not rare. In somecases, the inequities are worse. Overall, significantinequities are apparent in comparing the largemajority of towns.
Table B-4 shows the 20 towns in Connecticutwhere school expenditures are highest and the
TABLE 11-1: School Expenditures
20 HighestExpenditure Net Current School Effective School
TOWNS Expendit ure (1970-1) Tax Rate (Mills)
and Effective School Tax Rate
20 LowestExpenditure Net Current School Effective School
Top 50 Towns Avg. 989 11.1 Last 50 Towns Avg. $732 19.0
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20 towns where expenditures are lowest. Nextto each town is the "true" tax rate, adjustedofficial figures Nellie]] reflect mill rates on fullcurrent market value of property and includingDuly that portion of the tax rate Nv hich can beat:ributed to school expenditures. As can beseen, the very top town spends almost three timesas much as the very bottom town ($1,169 vs. $538)and yet the tax rate is only slightly greater. Thetop 10 as a group spent $1210 with a tax rate of12.5 mills while the last 10 spent an average of5605, or exactly half as much, with a tax rateapproximately 501;- greater (17. mills). Thetop 20 and bottom 20 are equally far apart, as,Table B-5 shows all 20 at the top spend over$1000 and none of the last 20 spend over $700,yet the average school tax rate is 30':;. higher inthe last 20 towns.
Another perspective on these tax rate andexpenditure differences is the impossibility ofequal spending by the currently low-expendituretowns. For example, the last 20 towns, now spend-ing- an average of 5621 per student, would requirean increase of $.100 to draw near any of the top20 towns. TO raise another $00 per studentfrom local property taxes, these towns wouldhave to double their current school tax ratesan unrealistic alternative for most, since thiswould put any town with such a high rate at areal disadvantage in attracting business and in-
dustrial taxpayers. The choice of school expen-ditures. then, is now not. it choice at all -- sometowns simply cannot raise as much as others bythe property tax.
Table B-5 shows 100 selected towns orderedaccording to tax base per student. In this group.remarkable differences can be seen for well overhalf the towns in the State. The top 10 average51066 in expenditure with a tax rate of 9.1 millscompared to $683 per student with a tax rate of22.8 mills in the bottom 10 towns. The differentialof school expenditure is 5:383: or over 50'; more.with a tax rate les:i than half as great.
Taking the entire 100 towns shown in Table13-5, the differentials are still readily apparent.The top 50 towns spend $989 per student averagewhile the last 50 towns average 5732. Yet thetop SO enjoy a tax rate of 11.1 mills comparedto 19.0 mills in the last 50 towns. Again. theinequity is clear the top 50 towns spend $267per student more while enjoying a tax rate justover half as great as the last 50. Furthermore,the last 50 towns would have to increase theirtaxes almost 10 mills on the average to raiseenough local funds to match spending in the othertowns an unrealistic alternative, since thatwould mean a tax rate two-and-one-10f times thatof the top towns.
Measuring InequalityAs explained above, the basic problem in the
existing school finance system is that a given taxrate produces very unequal amounts of money ona per pupil basis in various towns. As shown byexamples some towns are able to spend two andalmost three times as much per student as othertowns even though the high expenditure townsenjoy tax rates one-half or even one-third as greatas in the lower expenditure towns.
One way to summarize this problem, and a goodstandard to use in measuring alternatives, is theuse of a "yield per mill per student" measure. Theessence of the disparity among towns in terms oftax rates and per pupil expenditures is simply thatsome towns have much more property value perstudent and thus greater tax revenues per studentat any given mill rate. This mathematical rela-tionship, while not the entire probleM, summar-
56
izes the basic flaw in the current system whichleads to the other, broader problems previouslyexplained in more detail.
The use of a "yield per mill per student" meas-ure simply involves the following. By taking thetotal amount of property value (current marketvalue of all property subject to the local propertytax) in a given town and dividing that total bythe number of students in the local school system,a measure called "property value per student" isderived. Property value per student, in turn, re-lates very simply to tax yield that is, every$1,000 of taxable property value per student pro-duces approximately $1 of school revenues perstudent for each mill of tax rate, meaning that$50,000 property value per student would provideapproximately $50 per student for each mill in thetax rate. It then becomes a simple matter to mul-
tii)ly yield per mill per student times mill rate todetermine how much money would be available ona per student basis. To tdie an example, a townwith $50,000 property value per student wouldenjoy approximately $50 yield for every mill ofthe tax rate and a tax rate of 10 mills would yield$500 per student, 15 mills would yield $750 and20 mills would yield- $1,000. When the yield perstudent per mill is, for example, twice as greatfrom one town to the other, the town with twicethe yield can spend twice as much per student atthe same tax rate, or spend the same amount perstudent at half the tax rate or settle on some com-bination between the two extremes.
Yield per mill per student, then, becomes a goodmeasure of the degree of inequality among towns.If the "richest" towns have a yield per mill perstudent of twice the "poorest'. towns, then thechoice is twice as much expenditure or half thetax rate. If the yield per mill per student rate isfour times as great in the top as opposed to thebottom towns, then the choice is between fourtimes the expenditure at the same tax rate, one-fourth as great a tax rate with equal expendituresor, perhaps, a combination of the two such astwice as much expenditure and one-half the taxrate both at the same time. Yield per mill perstudent represents the actual opportunity forschool expenditure which a town faces.
In Connecticut the yield per mill per studentvariation is from $112 for the average of the topten towns to $25 for the last ten average. (This isnot as great as it is in some states where variationmay be as much as 15 or 20 times, but the differ-ences found in Connecticut are enough tr. :meatesignificant inequities.)
To translate these average figures for Con-necticut into tax rates and expenditure totals, the$1.12 per mill yield in the State's "richest" 10towns means that a 10 mill tax rate would yield$1,120 per pupil the $25 per mill per stu-dent yield would mean that a 10 mill tax rateyields only $250 in the State's "poorest" 10 towns.In other words, the "poorest" towns might chooseto spend $500 per student from local funds andrequire a tax rate of 20 mills to do so while theState's "richest" towns might choose to spend$1,100 per student and enjoy a tax rate of about10 mills while spending that amount; the differ-ential is 20 mills against 10 mills in tax rate and$500 against $1,100 in school expenditure, ortwice as great a tax rate to spend less than one-half as much per student.
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When looking at 169 towns, this per mill perstudent yield figure becomes the best way to un-derstand how great the differentials are now andto evaluate differentials in the future, whetherunder the trend or under a new proposal. TableB-6 summarizes property value per student andyield per student as of 1971 for the entire Stateand for 100 towns divided into groups (first andlast 10, 20, and 50) to reveal the magnitude ofdifferentials.
'FABLE B-6: Variations of Town Tax Base(1971)
Towns Identified_By Rank_
Property Value_Per Student
Yield l'er MillPer Student
Top 10 $112,000 $112Top 25 96,000 96Top 50 84,000 84
What the above table reveals is simply the mag-nitude of discrepancy among the towns. The basicproblem is that the top 50 towns enjoy a per millper student yield averaging $84 while the last 50towns average $34, or less than half as much.This means the top one-third of all towns in theState could tax at the same rate as the bottomone-third and yet receive more than twice as muchper student from local property taxes to spend oneducation.
Table B-7 compares current inequalities withwhat will probably prevail in 1975, 1980, and 1985if current trends continue. (There is strong rea-son to believe that current trends will continue orperhaps worsen rather than moderate the in-equalities; all trend projections, however, aremade on the assumption that recent trends will
continue in about the same way as during thepast 10-15 years.) Whereas the range of yieldsis 110W 4-to-1. for the top 10 towns compared tothe last 10, the range in 1985 wou:d be 5-to-1:and the dollar gap will be worse, with each millraising over $200 in the top 10 towns and only$13 in the last 10. Similarly the gap for the top25 and last 25 \ vill increase from $96 as against$30 to $173 against $50. Even the top one-thirdof all towns against the bottom one-third (first
and last 50) will increase from $8.1 and $3,1 to.$150 an,:: $59. ('learly, the gap is increasing byany measure.
Chart 13-2 summarizes this same table ingraphic form the diverging lines demonstrategrowing inequality, as the lines for the top 10are compared to the last 10, and the top 50 com-pared to the last 50. Again, the visual presenta-tion simply hip.hlights how the inequality is grow-ing worse (WU time.
CRAM' B-2: Yield Per Mill Per Student Comparison
1971 1975 1980 1985
TREND UNDER CURRENT SYSTEM
Note: The above figures, as well as those shown laterin the text, are explained in more detail at the end of thisvolume. Briefly, the difficult task in comparing tax ratesis the variation among towns in assessment ratio (millrate applied to only some fraction of full value) and thediffering periods of time since general revaluation intowns (which, since property values generally rise, meanssome values are much understated when no recent re-
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valuation has updated values, thus distorting compari-sons). All data in this report is the product of computer-ized analysis of past trends and other studies which givesa consistent and fair comparison overall. But it must beemphasized that only the patterns should be recognizedas worthy of confidence and that individual town data maywell be affected by errors due' to special factors not re-flected in overall trends.
School Resources and Equal Educational Opportunity
An implicit assumption of this report is thatschool expenditures have some effect on schoolquality. Overall, the Commission has little doubtthat expenditures make a difference. We knowspending twice as much does not bring twice asgood an education, but logic and experience leadus to believe the large differential spendingtwice as much in some cases does have somesignificant benefit. This section analyzes some ofthe studies and experience collected on the ques-tion. As an introductory comment, however, theCommission emphasizes that the issue in Con-necticut is one of very large expenditure differ-entials from $200 to $500 per student, or more
and that cannot fail to make a difference inmost cases. Educational quality is not simply afunction of expenditure, but most educators wouldagree, for example, that an extra $200 can signi-ficantly enhance educational quality. An extra$200 per student, available in many cases, would
depending On what the individual school dis-trict felt most useful permit:
1. a reduction in class size by one-third ormore, from a relatively high average of 25, forexample, to a relatively low 17;
2. teacher aides in every classroom; or
3. the purchase of significantly more neededteaching materials, and substantial increases inspecial programs, activities, and services such asart and music instruction, library and media re-sources. guidance counseling, individual tutoring.and the like.
Court Attitudes on Expenditures andOpport unity
Defendants in court cases regarding schoolfinance have argued that redistributing resourcesfor schools is useless because there is no relation-ship between the amount of money spent in aschool and the amount children learn. Judgeshave dodged this argument so far. In Hobson v.Hansen, Judge J. Skelly Wright ruled that Wash-ington, D.C. school officials were inconsistentwhen, on the one hand, they claimed that puttingmore resources in poor schools would not helpand, on the other hand, they justified their annualbudget requests in terms of the efficacy of theirexpenditure.25 The California Supreme Court inSerrano v. Priest refused to consider the argu-
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ment that money makes no difference, because theissue had been conceded by the defendant's de-murrer.'" In can Dusartz v. Hatfield, the judgedecreed that the amount spent for schools ap-parently must have some importance, since other-wise wealthy districts would be irrational to spendmore money than poor districts, as they generallydo."
The Court rulings have been inconclusive be-cause the actual evidence on the effectiveness ofschool spending has been subject to continuingcontroversy. In fact, controversy has raged overthis issue since the publication of the ColemanReport in 1966.2s Several treatises have attempt-ed to analyze, synthesize, and summarize the con-troversy:"" new findings will no doubt continue topour in for some time. The following pages willbriefly describe the main issues in the contro-versy, and will then discuss what the empiricalstudies imply about school finance reforM.
Empirical Studies: Schools andAchievement
The Civil Rights Act of 1964 charged the Com-missioner of Education to conduct a survey "con-ceraing the lack of availability of equal educa-tional opportunities for individuals by reason ofrace, color, religion, or national origin . . . in theUnited States ..." The resulting report, of whichJames Coleman was the principal author, wasbased on a gigantic survey covering elementaryand secondary schools throughout the nation. Thelarge Equal Educational Opportunity Survey(EEOS) tried to find out whether the differencesin scholastic achievement were caused by differ-ences in the schools. It is worth presenting theirconclusion verbatim:
". . . one implication stands out above all: thatschools bring little influence to bear on a child'sachievement that is independent of his back-ground and general social context; and that thisvery lack of an independent effect means thatthe inequalities imposed on children by theirhouse, neighborhood, and peer environment arecarried along to become the inequalities withwhich they confront adult life at the end ofschool. For equality of educational opportunitythrough the schools must imply a strong effectof schools that is independent of the child'simmediate social environment, and that strongindependent effect is not present in Americanschools." ;0
The authors base this conclusion on their findingthat variation in school inputs (facilities, curric-ulum, and teachers) accounts for much less of thebetween-school variation in student achievementthan does variation in socio-economic background.The socio-economic composition and attitudes ofthe student body are also more important thanschool facilities, curriculum, or teacher quality.Given the relative unimportance of school inputsas a hole, the characteristics or teachers arefound to'be the most important.
If these findings and conclusions are valid, thenredistributing resources among schools would notbring about equal educational opportunity; thatwould lie much more important to bring studentsof diverse backgrounds together, Even then,schools could not fully compensate for differencesin the non-school environment.
However, the EEOS findings and conclusionshave been challenged. First, some other studieshave challenged the basic finding that school re-sources can have only a small effect on studentachievement, relative to the effect of socio-eco-nomic background. Second, some writers havequestioned whether scholastic achievement testsreally measure the most important output fromschools. Hanushek and Rain"' have pointed tospecific instances of likely bias in the EEOS dataclue to non response, unreliability of the cstion-naires, inaccuracy in coding, small samples forsonic regions, the use of data for whole schoolto measure the experience of individual studentsin it, the failure to account for any scale econ-omies in a linear regression model, and the ab-sence of any data on students' ability or achieve-ment before they entered school.
Even if defects in the data and differencesamong individual students can be disregarded,there is also evidence that the statistical proce-dure used by the EEOS tended to underestimatethe degree to which the amount of resources avail-able to children in school is correlated with theirsocio-economic background. Thus the EEOS data
themselves may support conclusions differentfrom those the authors drew.
In addition to its conclusion about the smalleffect of school resources relative to students' ownsocio-eccmomic background, the original EEOSreport also concluded that the average socio-eco-nomic level of other students was consistently as-sociated with any particular child's level ofachievement.
A recent study by 1'+'irder32 has carefully triedto separate out the effects of socio- economic back-ground, school resources, socio-economic composi-tion of the school, and the racial composition ofthe school. Winkler used data on individual chil-dren from a single school district in California,including data on'test scores from previous yearsto 'control for what the children knew when theycame to school. Winkler concludes that, to pro-vide equality of educational opportunity, "high!ndity teachers as measured by the determinantsof salary or prestige of undergraduate institutionshould he allocated equally among all tracks andraces." Furthermore, "schools should he inte-grated in terms of student socio-economic statusat all grade levels."
Furthermore, it is far from certain whetherscholastic achievement is the most important con-tribution of schools to a student's economic suc-cess when he leaves school. Weiss" found thatblacks obtain a smaller economic return from agiven amount of schooling, even when years of'schooling are adjusted for differential rates ofachievement in school. Berg" has questionedwhether academic credentials have any real reia-tionF.hip to productivity on the job. Dreeben35 hasdescribed some of the non-cognitive behavioraltraits that schools teach, and Gintis"n has demon-strated that the positive relationship between aperson's income and years of schooling may bequite independent of actual cognitive learning.Thus the studies of what determines scholasticachievement may not help to find how schoolingcan promote equal opportunity.
Impact of the Current SchoolFinance System on Community Development
Broader results of the current school financesystem can be seen in the area of community de-velopment, which leads back again to further ad-verse effects on the school system. The current
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school 'finance system shapes community develop-ment decisions in such a way as to (1) segregatefamilies by income range, (2) limit the effective-ness of our schools through the segregation by
income, and (3) create incentives for tax inequi-ties, economic segregation, and educational in-equality to become worse rather than better.
The current property tax system which cre-ates very substantial differentials among townsas to tax rate and school expenditure providesa substantial incentive for industrial and com-mercial developers or erprises to concentratein towns with low tax rates, enabling those townsto reduce their tax rates even further without re-ducing local government services or school bud-gets.. In addition, the combination of low taxrates and high school expenditures prevailing inthose same .towns provides a very significant in-centive in many cases the dominant factor inthe decision -- for affluent families to build orbuy housing in such towns. The incentives attractbusiness and private property owners, increasingland prices; businesses constructing large facili-ties can afford to pay and individuals building ex-pensive houses can afford to pay because thetax savings are so great but a person con-structing an average house ($20,000 to $25,000construction cost) cannot afford the higher landcost.
The net result of this process is that there is avery significant tendency for new business devel-opment in the State to be concentrated in townswhich already have low tax rates (and generallyhigh school expenditures). Likewise, the moreaffluent homeowners choose the same towns.These towns thus are able to continue reducingtheir tax rate. Less affluent families are excludedfrom these towns, settling instead in towns withhigh tax rates which become ever higher, as aresult.37
Overall, there is a very significant sorting ofsuburban residents by income level, related inlarge part to this effect of the existing local prop-erty tax system. Data on new housing value andfamily income make it very clear that there is avery significant and marked sorting or segrega-tion of families by income level a sorting andseparation of the more affluent from the less afflu-ent which affects suburbanities without regard torace every bit as much as it affects inner-cityminority groups. Towns which are primarilycomposed of the more affluent families are able tospend great amounts on education at low taxrates,_becoming ever more attractive for affluentfamilies and ever more able to spend more andmore, at the same time finding that few middle
61
or lower income persons can move in because ofthe high land cost. Towns with high tax ratesand low school expenditures find tlusA no higherincome persons choose to move into the tovn andvery little business chooses to locate in the town,meaning that tax rates remain relatively high andschool expenditures relatively low, and the cyclecontinues.
The net result of this system is not only markedsegregation by income level, and a worsening sit-uation, but the final results can be -seen in theschool system. The studies which have suggestedthat school expenditures are not the most impor-tant factor in education, such as the ColemanReport, found that exposure of children to otherchildren from other sor!io-economic or culturalbackgrounds was the key factor in their learningprocess."' The result of a sorting of families byincome level is that such peer group stimulationand learning is inhibited. Since most high incomefamilies are oriented toward education and pl'acea high premium on the value of education, theirchildren are especially stimulating for childrenwhose families have not had the experienceswhich cause them to put such a high emphasison educational attainment. But the children fromthese families where emphasis on education isStrong very often do not now, and will even lessin the future, attend school systems where theyare in contact with, and are a positive influenceupon, children from low income or even middleincome families where the attitudes toward educa-tion are different. Likewise, children from fami-lies of low or middle income, other ethnic groups,employment classifications, or whatever, also havepositive insights, values, attitudes, or other char-acteristics which would be stimulating and valu-able to children from higher income families. Yetthe children of the more affluent are equally de-nied the benefit of stimulation by these peers.Thus, the current system not only denies childrenequal educational expenditures, and equal educa-tional quality insofar as quality is correlated Withexpenditure, but the current school finance systemcreates a situation where children are denied stim-ulation and learning from children of differentbackgrounds. Thus, in two ways, we have createda school finance system which is not 'equal; wehave created a school system which is to somedegree, with respect to peer group stimulus, im-poverished for all students; and we have createda system with built-in incentives to make the sit-uation grow worse rather than better.
Mechanics of the Sorting of Suburbanites"he clearest way to understand exactly how the
above effects come about is to look at. two familiesabout to build housing in the suburbs. One familyintends to build a $50,060 house. In looking atsuburban towns, the family sees that Town Aimposes a tax rate of 15 mills and boasts per pupilschool expenditures over $1,000. Town B imposesa tax rate of 30 mills and spends only about $(i0(1for schools. In Town A the family would pay$750 per year in property tax and in Town B$1,500 per year; and \vhile the family pays lessfor taxes, the children can go to schools able tospend a great deal more per student. The family,of course, chooses Town A; they can save. $750a year in property taxes and, in virtually everycase, know that their children are likely to receivea better education.
Facing the above decision, most families wouldchoose Town A, The net result of the competitionfor housing or land in Town A is that land pricesincrease, from the average of perhaps $5,000 perlot to $10,000 or even $15,000 per lot. To getbetter schools and a lower tax bill, the familymust now spend an extra $5,000 or $10,000 for itsland (a premium resulting from the tax system).The affluent family pays the premium of $5,000or $10,000 (and additional annual tax paymentson higher. land value) because (1) the family canafford it and (2) the family will get back thatmoney over time by saving the $750 differenceper year in property taxes between Town A andTown B,
A second family considering a move to the sub-urbs would face a very different decision if itcould only afford a $30,000 house. That family,too, would save if it could move into Town A; itwould save the difference between $450 in taxesand $900 per year in property taxes (15 millstimes $30,000 in Town A vs. 30 mills- times$30,000 in Town B). Again, that family, too,would be happy to send the children to a betterschool system. However, for this family the prob-lem of spending an extra $5,000 or $10,000 on theland is very likely an insurmountable problem.This family, building a $30,000 house, would berequired to spend a great deal more than whatthey had budgeted to buy an appropriate amountof land in Town A. Most likely, the family is justmoving from a central city and has barely enoughfor the down payment on a house as it is, andcoming up with a larger down payment or spend-
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ing $.10,000 (land and house total) rather thanS30,000 is simply something which they cannotafford. At the same time. the tax saving is lessthan for a more affluent family ($75(1 vs. $50).So the less affluent family settles for higher taxrates and lower scbool expenditure rather thanpay the $5,000 or $10,000 land cost premium.
These results can be seen for individual fami-lies where paying a premium of $5,000 or $10,000per lot is easily undertaken by the more affluentfamily and not so easily undertaken, and mostlikely not able to be undertaken at all, by the lessaffluent family. '1'lle system works even moredramatically, and has fewer exceptions, when adeveloper is inserted into the middle of the p,!,c-ess. A developer uses a relatively firm rule ofthumb that land cost should not be more than15','4, or 20c; of market value of the residentialunit he intends to sell. That means that if landis costing $5,000 per lot, the developer will intendto build a residential unit to be sold for $25,000to $30,000. if land, however, is costing $10,000per lot, the developer would not build on such landunless he is building houses in the $50,000 to$00,000 range. And where land costs $15,000 perunit, the developer would be building $75,000 to$100,000 homes. This means that for the majorityof people who buy housing which has been builtby developers, there is almost no way around thesituation that low tax towns which are high landvalue towns have only very expensive housinf:,available. Low tax towns, enjoying high schoolexpenditures, are only available to those buying.$50,000, $75,000; or $100,000 houses. For the per-son moving to the suburbs who is only able toafford a $30,000 house, or something in thatrange, the choice is dictated to him a high taxtown with low school expenditures where lie doesnot have to pay as much for land and where adeveloper has decided that the land cost ;s propor-tionately sound for the housing he intends tobuild.
As a result of this sys..em, therefore, high in-come families tend to choose towns with low taxrates and high school expenditure, and such townsare open only to those families. For rapidly grow-ing towns with high tax rates an? low school ex-penditures, only middle income families (rela-tivelylow income suburbanites) move in, causingthe tax rates to stay high or even rise in manycases. And in the central cities, the very poorestremain and the already high tax rates continueto go up.
livArieted ZoningA great deal Inu., been written about restricted
zoning and virtually all analysts agree that thelinkages, between property value created by a fam-ily and demands on the town (most importantly,the school system) are a significant cause of ex-clusionary zoning. That is, a town which is con-i.erned about. its own financial situation (its taxrate) has a strong incentive to 'keep out familieswho require educational expenditures but whosehome value is relatively low, Suburban townswith low tax rates or, in fact, most suburban
have 4 financial incentive not to permitland which might be used for high value singlefamily houses to he zoned for public housing(where virtually no tax revenues are collected),or even for low cost private enterprise housingwhere the tax revenues expected from the lowvalue housing fall far short of what is necessaryto educate the children who will live in thesehouses. Towns may be unwilling to accept lowerpriced townhouses. public housing of any sort, oreven standard small housing oi»platively smallplots of land. The link here is between housingvalue and educational cost. That is, a town facesthe dilemma that children added to the educa-tional system will require school expendituresequal to other children in the system. But if thepersons moving in are going to pay much less inproperty taxes than persons already there, thetown is really forced to take on a share of theircost to be spread among all the existing propertyowners.
Bin:his?, LocationMuch. the same kind of thinking which goes on
for individual .f.amilies or developers can be seenin a business decision. When a new businessmoves into Connecticut or moves its site withinthe state, property taxes can become an importantconsideration in which to locate a large factory.(There are, of course, many other significant con-siderations but, when all are equal or nearly equal,the ones outlined here become exceedingly im-portant.)
To use an example of a bu,siness about to builda $1,000,000 plant, it can easily be calculatedwhat property tax payments are going to be re-quired in the various towns, In Town A, with aproperty tax rate of 15 mills, the tax on that$1,000,000 building wo.,:ld be $15,000 per year;in Town B, a tax rate of 35 mills, the prop-
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erty tax la would he $35,000 per year. Thus. thebusiness can choose one town and pay $20.000less in property taxes than in another town. Ifthis figure is capitalized into current value (atten times annual amount, the conventional ap-proach) , the savings are equivalent to $200,000in current dollars. Obviously, the savings of$200,000 (the current value of property tax sav-ings) would be enough to cause the business tolocate in the lower tax town than in the highertax town unless there were a very significant fac-tor at work in the higher tax town labor sup-ply, market, utilities, or the like. Within a par-ticular state or metropolitan area, there are sel-dom such differences. As a result. businesses veryclearly concentrate in the towns with the lowertax rate. The net result of this, analogous to thesituation for individuals, is that lane; prices havegone up for industrial or commercial land in thelower tax towns; but the savings are great enoughthat the wise decision is still to locate in the lowertax towns even while payi2ig somewhat more byway of a land premium at the outset.
The location of business'in this manner, a con-centration which parallels the concentration ofmore affluent individuals, reinforces the processwhich has been outlined above. That is, concen-tration of business and affluent persons meansthat a town has a very high tax base: a relativelylow tax rate will yield a great deal of income forthe town. Business, of course, is especially desir-able because that does not necessarily mean chil-dren or demands upon the school system. Thus,the incentives which cause businesses to choosesome towns over others, paralleling the incentiveswhich caused wealthier residents to seek out thosesame towns, reinforce, perpetuate, and srljficant-ly worsen. the differentials among the towns.
it might be noted here also that concentrationof high income persons and businesses in the sametowns creates a line of other effects which furtherreinforce this situation. For example, shoppingcenters are very much desired by towns becausethis adds a great deal to the tax base without, ofcourse, adding any more children. Shopping cen-ter developers, however, are most interested inlocating where high income persons and employ-ment.centers are located. Thus, a town which hasa large number of high income persons and a largenumber of office buildings, manufacturing plants,and the like is the town Which will be most attrac-tive to shopping center developers. A similarprocess can be seen for location of other shopping
facilities as well as many kinds of office buildings.A small difference in tax rates at the outsetcreates a flow of persons and their residences, a
flow of businesses and a dynamic interactionamong them which creates a situation becomingworse each year.
Alternate Approaches to EquityIn School Finance
The following pages will analyze, in a generalway, the problem of financing public schools ade-quately, equitably, and with minimum demandfor new State revenues. The main alternativesunder consideration in other states will be de-scribed and cimpaed to the present system ofschool finance in Connecticut.
In simplest terms, the main problem attackedby the courts in Se Pm° v. Prics1 and subsequentdecisions is that school districts with relativelylarge amounts of property value per pupil canobtain relatively high levels of school expend-iture per pupil without having to impose highproperty tax rates. Conversely, dillricts withmeager amounts of taxable property pLr pupilmust impose high tax rates to obtain merely ade-quate amounts of educational revenues per pupil.This inequitable result is inherent in any syStemof school finance that relies on revenues raised bylocal districts unless the State it= .erveneS tosupplement the revenues from districts with rela-tively little tax base per pupil.
In considering how best to subsidize low-Wealthdistricts, the State must also hear other objec-tives in mind. First, no school district should bepermitted to provide less than an adequate levelof support for its public schools. Second, the localtax rates required to support high-quality publicschools must not become prohibitive. Third, theState Legislature will want to accomplish all ofthis at the least possible cost in terms of newState tax revenues required. In short, the prob-lem is to neutralize the differences in per-pupilwealth among districts, to avoid excessively highlocal tax rates or excessively low levels of expendi-ture, and to minimize the need for new Statetaxes.
The present system of State aid to publicschools in Connecticut is no longer satisfactorybecause it does nothing to offset inequalities indistrict wealth per pupil. A report by the FederalReserve Bank of Boston on school finance in the6 New England states found that there was a
64
complete lack of any correlation between localproperty value per pupil in Connecticut schooldistricts and the amount of State aid per pupilreceived by the districts.." As explained above.the largest portion of State aid in Connecticutis distributed in flat grants per pupil to all dis-tricts, with small districts getting a little extra,but with no adjustment at all for the size of a dis-trict's tax base per pupil ; nor does other Stateaid for school construction and transportation. orfor special educational needs.. have any equaliza-tion effect. Connecticut. as a result. ranks lastamong all 50 states in terms of net equalizationeffect c-if state aid.
,,lIowever, Connecticut is relatively fortunate,because the variation in wealth among its localdistricts is relatively small smaller than in anyother New England state.'" Consequently thevariation in expenditure per pupil between dis-tricts is not as extreme as might be expected,even though State aid now does nothing to reducedisparities in local, revenue-raising capacities. Toremedy the inequity arising from these dispari-ties will he considerably less expensive in on-necticut than in most other states.
Numerous alternative plans have been proposedin other states to neutralize the differences inwealth per pupil between school districts. Oneieea which the Commission did not consider indetail is an educational voucher system. This pro-posal has been publicized a great deal recently,and it may have merit, but the Commission didnot deal with voucher alternatives because (1)voucher systems imply very fundamental changesin the school system, going beyond finance, andthe Commission did not feel it appropriate to pur-sue such broad issues deserving of lengthy, ex-pert study; and (2) a voucher alternative can bedesigned and implemented in any system withoutany necessary results for financial equity, mean-ing that a voucher system would not cure ourproblems in itself and yet could as easily be un-dertaken after changes as now.
Confining the study to alternative methods ofdealing with the fingne issues, the Commissionfound it convenient to classify proposals into twomain, types: (1) "Full State Funding-- or Stateassumption of full responsibility for financingpublic schools and (2) local option plans, includ-ing "power - equalization" and many variants.
Full State FundingFull State Funding is the simplest plan, It al-
ready exists in Hawaii. has been advwated bythe prestigious Advisory Commission on Inter-governmental Relations." and has been seriouslyproposed by the Fleishmann Commission forNew York State:' 2 The President's Commissionon School Finance (Schools, People owl Money,1972) has also favored this approach, as havemajor .eports in various states, including NewJersey, and many prominent individuals. Inessence, full State assumption would eliminateall local taxes for schools. They would be re-placed by State revenues, possibly including astate-wide property tax. The money collectedby the State would be returned to local schoolauthorities in proportion to the number of stu-dents. More money may be allocated to somecategories of students than to others, but theanu allocated for any student never dependson the revenue-raising capacity of the school dis-tict in which a student lives.
The main drawback to full State assumption isthat districts which now spend large amounts perpupil would, at some point, not he able to continuespending more than other districts. It has beensaid that this might induce more affluent resi-dents of these districts to seek private educationon a much larger scale than now. To permit veryhigh expenditures, the State would have to pro-vide high levels of expenditure for all studentsthroughout the State, which would cost moremoney than the Legislature or the taxpayers maywant to provide. Of course,. it is always possiblefor the State to set a certain uniform level of ex-penditure per pupil, but also to guarantee thatany district presently spending more may con-tinue to do so, with the excess either raised fromlocal taxes or paid by the State. If this weredone on a permanent basis, however, it would vio-late the goal of equal spending opportunity andequal tax burden. Temporary relief (in the formof implementation by phases) would only post-pone the problem so that a high-expenditure town
65
need not cut, expenditures. but inequality couldnot remain indefinitely.
Oilier discussions of Full Stale Funding- haveexplored many aspects of that approach. and theCommission fee.'s it, unnece.4sary to repeat thoseviews. If Full State Funding- were desired, itcould meet the problems raised here and there isno doubt a proposal could be formulated. And, ifwe do not act. that may %yell be the only alterna-tive left to us. But the Commission believes thatlocal school initiative, imagination and responsibility are characteristic of our town heritage inConnecticut and that diversity of schools inspending.. to some degree, as well as in program
is valued by our citizens, For these reasons.Full State Funding is not recommended on thegrounds that the Commission believes there is amore creative solution that will solve our prob.leers and preserve these other virtues of the cur-rent system as well.
Local Option PlansThe main alternative plan to Full State Fund-
ing would make it unnecessary to choose betweenforcing high-spending districts to keep expendi-tures down or supporting a uniformly high levelof expenditure in all districts. Local option planswould allow every district to choose its own de-sired level of expenditure per pupil, but wouldhave the State redistribute money in such a waythat the local tax rate required to obtain anyChosen level of expenditure per pupil would be thesame in all districts, regardless of a district'sactual tax base.
For example, a tax rate of 10 mills on truevalue could permit any district to spend $600 perpupil, and every additional mill could result in anadditional $60 per pupil. The State would sub-sidize any district whose own tax base yieldedless than $60 per pupil from each mill of tax, anddistricts where the tax base would yield morethan $60 per mill would pay the excess back to acommon fund. If the ratio of total property valueto total pupils in the State were $60,000 per pu-pil, then guaranteeing every district $60 per millof tax would roughly equate the total cost of sub-sidizing low-wealth districts to the total excessrevenues raised in high-wealth districts. Theplan would be approximately self-supportingwould require no new State revenues. More pre-cisely, whether the cost to the State is positiveor negative rather than zero would depend onwhether poor districts tend to choose higher or
lower levels of taxing and spending- than wealthydistricts.
In summary. cmnpliance will) the principles ofSe/Title() V. Pif si Means that the State must linda way to neutralize differences in taxpaying-ability between local school districts. Now theState faces a conflict between the need to keepits own taxes down and the need to Protect: ,pending districts against drastic spending cutsor tax increases. Immediate Full State Fundingwould make it prohibitively expensive to protectthe high-spending districts, although It phasedPlan could be devised to lower the co.,,t but stillleaving certain problems. as noted. A local option
Plan could he less expensive if implemented overa reasonable period of time. Thus. like manypoblems with several I lb Ve.";. UM dilemma requires a more complex solution. Although sim-plicity is preferable to complexity, a more com-plicated formula may justify itself by reducingthe amount of new State (or Federal) money thatwill inevitably he required to bring about equityin school nlianCe. The task. having tentativAychosen local option. is to introduce it as fairly andequitably. with as little disruption and disturb-ance as possible. at moderate cost, and yet stillnot lose sight of the critical need for action tosolve our problems.
The New School Finance Program: An EqualEducational Opportunity S'ystem
The following- pages describe and detail the ob-jectives. operation and results of a new schoolfinance system for Connecticut. Having conclud-ed that a new school finance system is necessaryto insure equal educational opportunity. the Com-mission recommends a public school finance sys-tem Ihich will:
1. Enable every town. every voter and everyparent to choose a school expenditure totalequal to school expenditures in other towns atthe same tax rate: "ev.al revenue result forequal tax effort";
2. Provide fairly and adequately for specialeducation needs. so that equal opportunity be-comes a meaningful phrase for those who needextra help because of physical, mental or socio-economic handicaps; and
:3. Operate automatically to insure that, inthe long run, the new system will reverse in-centives for economic segregation of the popu-lation and enable all parents to choose qualityeducation for their children, yet neither bring"lowest common denominator" equalization norrob local parents of their voice in local schoolsystems..
supervisors whose role is outlined in Part C of thisvolume. The task of SEEOF would he to instil utt.a program, based on equivalent current marketvalues of all property in the State. which wouldeventually permit all school systems to raise ap-Iwoximately the same amount of mone per stu-dent for each mill of the tax rate i.e.. educa-Gonal spending would be uniformly proportionalto tax rate throughout the state. In 1)ractice,this system would work :is follows:
A. Each town would separate school expendi-tures from other local government fundsand calculate school tax rates separatelyfrom the general government tax rate;only the school portion would be affiectedby the new system.
P. SEEOF would determine, based on prop-erty value per student across the State,what the average yield per student per millwould lie if a uniform property tax forschool finance were to be imposed acrossthe State of Connecticut.
C. This average yield would lie translated intoa schedule correlating mill rates with yieldper student, like the following:
The Equal Educational Opportunity SystemMill Rate Yield per Student'- -_
System requires th(1 establishment of a State 8 480Equal Educational Opportunity Fund ("SEEOF") 10 600which would have the authority and the mandate 15 900to administer the program described below. 18 1080SEEOF would cooperate with the new assessment 20 1200
66
I). Based on this schedule. S.:01? wouldwork to a situation where every town inthe State. in the long rim. would be guiu--anteed no less than the above yield perstudent correlated with each nulll rate andwhere each town in the State would beaide to spend no more than the aboveamount as determined by its tax rate.
E. Each town would continue to set its OW11school tax rate and administer all fundsraised by the property tax (whether local-ly or through SEEDF) just as is done now.
F. Equal availability of funds would resultthroughout the State. at equal tax rates.with the exception of students in need ofcostly special educational services: eachstuderi', in this category would entitle atown to 251; more than the State averageyield per mill.
The key element in this proposal is the estab-lishment of automatic mechanisms by whichschool expenditure opportunities can be equalizedover time. The system explained below is a meth-od which could begin the move toward equaliza-tion without new expenditures from the StateGeneral Fund or heavy burdens (higher taxes orreduction in school expenditures) in any town.Furthermore. the system is flexible withoutextra State government expenditures, substantialequalization would be achieved in approximately15 years, while alternative levels of outside fund-ing would Permit the State to reach substantiallyequal spending opportunity in 5-10 years.
Before turning to the basic proposal and thealternative, the Commission emphasizes here thatthis proposal will not equalize educational spend-ing. It provides equal opportunity for educationalexpenditures, but each town determines its owntax rate and spending level. What this proposaldoes is to eliminate the current anomaly of townsforced to tax at very high rates and yet spend atrelatively low levels (or able to spend more andtax less) in favor of a system where every townhas an equal opportunity to choose to spend moreor less on education because each town will haveavailable the same amount per student at a chosentax rate as any other town at that same tax rate.
The mechanism outlined hero would apply onlyto local property taxes for school finance. Localrevenues for non-educational purposes would beunaffected., and there would be no changes in anyexisting programs of State aid to local school dis-
67
trits. Towns would continue to tax and spendfor general government services as under the cur-rent system. and all State and Federal aid pro-grams for schools and other purposes would becontinued on the same Lasis as now. To separateschool and general government funds. municipali-ties would calculate their property tax rates sep-arately for school expenditures and for generalgovernment purposes for exan)phe. a rate of35 mills (adjusted to reflect true rate on full ma-ket value) might equal 25 mills for schools andlo mills for other government services. The tax-payer would still receive a tax bill reflecting bothrates, but the town would actually deal with the=two separately.
Implementing the SystemIn order to move toward the above system with-
out raising tax rates or reducing expenditures intowns with above average yieldsor suddenlyincreasing expenditures by large amounts intowns now able to spend very little on education
the following procedure would lie used to in-troduce the new system over a period of yearssufficient to permit all towns to adjust. to the newsituation:
1. During the year in which this program isinstituted, all Ideal government tax rates andreceipts used for education would be defined forpurposes of calculation as "Base Year TaxRate" and "Base Year Yield." Each town wouldbe assigned, according to the actual circum-stances in its town during the Base Year, avase Year Tax Rate (i.e. the school tax rateprevailing in the year in which the programgoes into effect) and a Base Year Yield whichis equal to the school expenditures per studentreceived from that tax rate.
For example, Town A might currently betaxing at 25 mills and 80(j, of the revenuesmight go to schools; the Base Year (school)Tax Rate is 20 mills. If Town A spent a totalof $800 per student from the property tax rev-enues only, Base Year Yield would be $800.That is, its Base Year Tax Rate is 20 mills andits Base Year Yield is $800. Its Base YearYield per mill per student would be $10 permill per student (simply dividing total yield of$800 by mill rate). Town 13, going through thesame procedure, might determine that its BaseYear Tax Rate was 15 mills, its Base YearYield per student $900 and its Base Year YieTal
per mill per student $60. Each town in theState would calculate its Base Year Yield inthis manner.
2. Every town in the State would be gua-anteed no less than Base Year Yield. That is, ifa town now receives $800 with a 10 mill rate,it would be permitted to keep that amount: or,alternatively, it might bC thought of as a guar-antee that the town is permitted to keep $80per mill, meaning that it is permitted to keep$800 at the current 10 mill rate or it mightkeep $880 at an 11 mill rate, $960 at a 12 millrate, and so on.
3. All increases in the yield per mill, or theyield at any given tax rate, would he paid overto SEEOF in the years subsequent to the BaseYear. For example, a town now receiving $50per mill per student would, as outlined above,be permitted to keep $50 per mill per studentno matter what its tax rate was: however, if inthe second year or the third year, or any otheryear after the Base Year, tax yield increasedabove that prevailing in the Base Year to, say,$60 per mill per stfldent, the increase (from $50to $60, an increase of $10) would be paid intoSEEOF. In fact, the yield per mill per studentis increasing in most towns almost every year,and these increasing amounts would be paidto SEEOF as the increase occurred. SEEOFwould be collecting, for redistribution, the bene-fits of all increases in property values in theState as reflected in the yield at whatever taxrates the individual towns chose. This wouldamount in Connecticut, at the current time, toapproximately $10 million per year.
4. Using the funds received from the in-crease over Base Year Yield in each town,SEEOF would return those funds to the indi-vidual towns. There would be two payments:A. All towns in the State would be paid a
portion of the total increase in yield, in-creasing at a rate of $1 per mill per studenteach year after the first year ("SharedYield Increase"), and any town experienc-ing a decline in yield would be brought upto Base Yield per mill plus $1 growth eachyear.
B. Those towns below the State average yieldafter adding together Base Year Yield andShared Yield Increase would be paid a frac-tion of the shortfall, that fraction increasingeach year as SEEOF reventms permit.
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Eventually, all towns initially below the Stateaverage would be reimbursed the full amount bywhich Base Year Yield idus Shared Yield Increasefall short of the State average schedule, and BaseYear Yield of all towns whose Base Year Yield isabove the State average would have grown moreslowly than the State average long enough for theState average to catch up to their total yield. Oncethe State average yield had caught up to the moreslowly growing yield in the highest town, theeffective final result can be summarized in threesteps:
A. SEEOF would establish a State averageschedule which reflects the actual yield permill per student averaged across the State(much higher than the current amounts,due to growth over the 10-20 years re-quired), perhaps as follows:
This schedule would continue to 1e, revisedeach year, reflecting the yield increase astotal property value continues to rise. Thetable might also be adjusted as outsiderevenues are paid into SEEOF and permitit to pay out more than property taxes actu-ally collect at each mill rate; that is, thetable might actua!ly be 21:;-, 3(;;', 10q Ormore above actual yield, with the excessmet by General Fund (State) payments toSEEOF, if made available.
B. All towns whcise yield is above the schedulewould be paying into SEEOF a net sumequal to the amount by which actual localyield exceeds this State average schedule.
C, All towns whose yield is below the schedulewould be receiving from SEEOF a net sumequal to the amount by which actual localyield falls short of the state average.
In the long run, what this system means is thatevery town enjoys an equal opportunity for schoolexpenditures. Equal tax rates mean equal expen-ditures, but those who are willing to tax morewill enjoy more funds to spend on education,
5. Because this system does not automati-cally provide any special funds for towns withlarge numbers of disadvantaged students eventhough it is known by everyone that such stu-dents require extra educational expenditures,the calculations outlined above would have onefurther procedure. Each student in a disad-vantaged category would permit the town abonus of 25'. more school funds than the townwould he entitled to were that student not ina disadvantaged category. In operation, thisbonus would be granted by simply adding 25r,of the number of disadvantaged students to thetotal number of students used in calculatingpayments to and from SEEOF.
For example, if a town with 1000 studentshad 200 disadvantaged students, it would hepermitted to spend an amount equal to whatit would have spent if it had a total of 1,050students, reflecting the 25q extra (50 stu-dents) for disadvantaged students. The valueof the bonus would vary, of course, as Stateaverage grew and it would vary according tothe tax rate chosen by the town. The basic ideais simply that an extra 25r.; is permitted thistown to reflect the extra costs of the disadvan-taged students.
The definition of disadvantaged studentsis left for future determination but, in general,the Commission recommends that disadvan-taged students be defined as (1) some or all ofthose who are now included in the special edu-cational programs (blind, handicapped, emo-tionally disturbed, etc.), (2) those who receivespecial State Aid for Disadvantaged Children(SADO) based upon family income levels and(3) those children who demonstrate that specialefforts are required by virtue of their perform-ance on standardized tests. These groups ofchildren number pe:haps 10c;' to 1V.:,= of allthe children in the State and each town Avouldreceive a bonus for some children falling intothese categories. Those towns which have thelargest number of such disadvantaged studentswould, of course, receive the largest payments.The key point is to recognize that, for manychildren, equal educational opportunity doesnot mean equal expenditure but extra expendi-ture; this establishes an automatic mechanismto permit each town to achieve that rf:,:sultequal educational opportunity for all.
6. In order tu assure that equalization is
69
achieved within a reasonable period of time,the Commission recommends that a goal of sub-stantial equality of school finance capabilitywithin 10 years be established at the time thenew system is adopted. and that a commitmenthe made to provide sufficient funds as neededto achieve this goal. Substantial equality shouldbe deinied as the point at which 90'; of thetowns in the State are assured an effective yieldper mill per pupil within 10'.; of the Stateaverage yield. According to the hest availabledata, the Commission estimates that this goalcan be achieved by making available to SEEOFeach year $20 million from the General Fund.Therefore, the Commission further recommendsthat an automatic annual appropriation in theamount of $20 million be made to SEEOF,beginning at the time the new system is adopted.
Funding Level AlternativesOne of the most important and attractive char-
acteristics of the proposal i-ilvanced here is thefact that it can begin movement toward equalspending opportunity for schools without requir-ing any new funds from State or Federal govern-ment. This section introduces three alternativeswhich the Commission presents to illustrate therange of options from which a specific programfor Connecticut could be chosen. Although theCommission recommends the use of outside funds
grants to SEEOF from the Suite General Fundor any available Federal funds the followingthree alternatives are shown to demonstrate thatthe program could be begun with any amount of,or no, outside funds:
1. Alternative 1 assumes no outside fundsavailable to SEEOF. Payments to towns fromSEEOF come only from the growth in propertytax yield paid into SEEOF, as explained above.Although this would begin the needed movetoward equalization, it would not meet theCommission recommendation of substantialequality (as previously defined) within 10 yearswithout additional funds at some point.
2. Alternative 2 assumes $20 million of out-side funding available to SEEOF from the firstyear of implementation onward. This alterna-tive is recommended by the Commission becauseit should enable the goal of substantial equalityto be met in 10 years, and has the further ad-vantage of bringing substantial progress aboutas quickly as desirable in the early years.
3. Alternative 3 assumes $50 million of out-side funds available to SEEOF for the first andeach succeeding year. This would bring rapidprogress and achieve substantial equalizationfaster than the lower-cost alternatives.
The objective of any form of this proposal fora new school finance program is simply to bringabout substantial equality of yield within a reason-able period of time. The following explanationsof each of the three alternatives show the vary-ing lengths of time that would be required toachieve substantial equality, or complete equality,under different funding levels. As emphasizedabove, the first alternative (no outside funding)has the virtue of enabling the equalization process'to begin without any additional State expendi-tures, although this alternative must be con-sidered a "second-best" position if it is at allpossible to put in outside funds.
1. Alternative 1: No Outside Funding. Ifno outside funds were available to SEEOF,equalization could be begun immediately, andsignificant progress would he seen in approxi-mately 8 years. Substantial equality of yield,might he achieved in approximately 12 to 15years, while complete equality could not heachieved for at least 20 years, or more. Table13-8 summarizes the effects of this alternativeby showing how yield would increase in the topand bottom 10, 20, and 50 towns in the State asgroups over 14 years. This shows the degree(if equality which would have been reached inany given year and the overall speed of equali-zation.
TABLE B-8: Alternative 1 Effective YieldPer Mill Per Pupil by Year of Program
:Vote: "Effective Yield Per Mill Per Pupil" refers tothe amount that the town would receive for each studentfor every mill of the local school tax rate. As notedearlier, it is the variation in this figure today that resultsin high tax rates bringing some towns less school funds,and the narrowing of the differences in this figure whichwould signal equal opportunity to finance education."El;octive Yield" here includes all payments to and fromSEEOF, resulting in the actual yield number which atown would multiply by its school tax rate to determine
70
Cle amount available for each student. For this and latertables, the calculation of effective yield and other meas-ures were based on an illustrative assumption that the newsystem was adopted for 1972 - Year 0 of the programis equal to the current system as it operated in 1971, andother years are for the new system.
Table B-9 shows annual income and ex-penditures of SEEOF for Alternative 1: asshown, the fund may he in a slightly negativeor slightly positive position in any one year butthe overall objective is to keep the cumulativeposition of the fund at balance.
2. Alternative 2: 20 million. Outside Fund-ing. The Commission recommends that $20million per year be made available to SEEOFin order to achieve the goal of substantial equal-ization more rapidly. Assuming $20 millionper year, beginning in the first year of theprogram, available to SEEOF, Table B-10 com-pares the top and bottom 10, 20, and 50 towns.Alternative 2 would bring significant progresswithin the first 5 years or so, and substantialequalization should be achieved in 10 years.Complete equality of yield could require asmuch as 20 years or more.
TABLE B-10: Alternative 2 Effective YieldPer Mill Per Pupil by Year of Program
Table B-11 shows the balance sheet for thisalternative assuming the revenues from in-crease in property tax yield and, in addition,the $20 million paid to SEEOF each year fromother sources: again, the goal is to keop thecumulative position of the fund at or nearbalance.
3. Alternative 8: 50 Million Annual OutsideFunds. One last possibility is a ,payment of $50million per. year into SEEOF from outsiderevenues beginning in the first year. The pur-pose of this alternative is simply to show themagnitude of difference that. outside funds canmake in speeding up equalization. If, for ex-ample, there were to be court decisions requir-ing equality and a major Federal program ofaid to the States for schools, this alternativeshows how the mechanism outlined here coulduse the large amounts of money that might beavailable from the Federal government to bringabout equalization relatively quickly. TableB-12 shows that progress toward equality wouldbe achieved in 5 years. Substantial equalityshould be achieved in approximately 8 year3under this alternative.
TABLE B-12: Alternative 3 Effective YieldPer Mill Per Pupil by Year of Program
The task of weighing the above alternatives isno simple matter. The Commission stronglyrecommends that some level of outside funding,preferably an increasing amount (and ideallyenough to take the burden off property tax in-creases), be devoted to the equal opportunityfund. However, the critical matter is that progressbegin immediately toward equalization - beforethe inequities worsen, and before the cost of cor-recting them becomes any greater.
Chart 13-3 compares the new system Alterna-tive 2 as recommended) against trend yield forthe top and bottom 10 and 50 towns. The pointof Chart B-3 is, of course, that the lines whichshow the pattern of growth in yield continue todiverge under the current system while the newsystem, would begin to bring these trend linestogether.
Effects on Individual TownsThe following tables show the impact of the
new system on specific towns. The Commissionhas reazonable confidence in the summary data(inequities of towns by groups, overall SEEOFrevenues, etc,) but it must be emphasized that the2oilowing data is largely illustrative. Individualtowns are show.-).. because we are ultimately con-cerned about them individually and not as groups.But it must be clear to anyone that town growth
CHART 13-3: Yield Per Mill Per Student ComparisonUnder Current and Recommended Systems
.00Nt, ,00.
(VoN dos*
Last 50 Towns
a/MI. WOODMOIso 011.1110
LOA. 10 TWOS
1971 1975 1980
TREND UNDER CURRENT SYSTEMYield
$100
$ 50$ .10$ 3(1$ 20$ 10
-4
1985
=loom ammo P.m& Mamas W. OEM. =NNWTop 10 Twons .1.S. WO
..*****°#.°.T OP 50 Towns
"Owns
Last 10 Ton:,
I
19718 10 12
EFFECTIVE YIELD UNDER NEW SYSTEM(Alternative 2, Commission Recommerdation)
72
14
patterns and local education decisions can changeany trend overnight so the following data isillustrative of how towns could fare under currenttrends, and how they will generally fare underthe new program. For any single town, or manytowns, there are undoubtedly errors, but the over-all significance seems clear.
In each of the next three tables, past trendshave been projected for each town separately toestimate what future property value and schooltax yield might be, while school expenditures wereprojected according to past trends with someanticipated changes. In all cases, it has beenassumed, for simplicity, that the new system' isimplemented during 1972.
Table B-1,1 shows effective yield per mill' perstudent for each town by year from 1971. to 1986,assuming the new system (Alternative 2, theCommission recommendation) to have gone intoeffect in 1972. As explained earlier, the use of ayield per mill per pupil figure provides a fairbasis to compare towns if one town has ahigher yield, it can tax less or spend more perstudent, while converging yield totals mean townshave an equal opportunity. As shown by TableB-1.1, the substantial differentials of 1.971 wouldbegin to close soon after implementation of thenew system began, and most towns would he closeto the State average within 10 years, and all buta few in 15 years.
TABLE B-14: Effective Yield Per Mill Per Student By Year By Town(New Systeni, Conimission Recommendation of Alternative 2)
State Average 62.5 C4,4 66. 68.5 70.7 72.9 75.3 77.7 80.3 82.9 85,7 88.1; 91.6 94.7 98.9 101.
Table B-15 shows equalization progress foreach town by presenting (1) its 1971 yield permill per pupil and (2) what yield might be undercurrent trends in 1975, 1980 and 1985 against (3)its total effective yield per mill per pupil in 1975,
1980 and 1985 under the Commission recom-mendation of $20 million per year_in aid forSEEOF. This is, in effect, a summary of justhow much equalization can change inequality,illustrated on a town-by-town basis.
TABLE B-15: Effective Yield Per Mill Per Student Comparison(Recent Trend Projections vs. New System)
Table B-16 is an illustrative example on a town-by-town basis, of what equalization could bringabout for tax rates and school expenditures. (Thistable deals only with local and SEEOF propertytax revenue and does not include the $300-$400additional State and Federal aid expected to con-
78
tinue or increase in the future.) Table B-16 showscurrent (1:70-71) local school funds and effectivemill rates for school support on current full mar-ket value, followed by comparable figures of whateach might be in 1985 under the alternative rec-ommended by the Commission. This table shows
that all towns will .)e able to tax at lower rates orspend more by 1985 - a not surmising conclusion,but still informative when the significant amountof change is examined. More important. mrhaPs.
TABLE B-16: Illustrative School
the table shows that, whereas ly,th availableschool funds no..v vary by as much as 11)0'; andschool tax rates by a mul.iple of 5. the new systemcould bring both much more closely together by1985.
Lebanon 570 15.2 1652 17,5 North St oningt on 508 31.8 1618 17.7
Bolton 790 21.2 1772 18.9
As one example of how the new system mightwork, the next-to-last town of Sterling in TableB-16 now has $437 per student available from localfunds, and the 1971 school tax rate is 20.5 mills.The 1985 totals could show an increase in schoolfunds to $1,580 (near the likely State average for1985) while the tax Date could fall to 17.0 mills -both at the same time. Or, of course, the townmight choose a lesser rate of increase in schoolexpenditures, which would permit an even greaterdecreaxe in school tax rate.
Using this example to interpret the compari-sons, a careful examination will show just howmuch increase in school funds a town couldchoose (depending entirely upon its own deci-sions) and, in many eases, tax reductions evenwith substantive increases in school funds.
80
The next result of the new system will be, then,both (1). more available funds and lower schooltax rates for some towns, or more funds at similartax rates for others (or less increase and moretax reductions for any that chose that alterna-tive), and (2) a likely narrowing of currentdifferences in spending and tax rates (becausegaps are now created by the system of localwealth variation and the effects of this will beneutralized). Overall, the new system means moreequity and more opportunity for most towns andtheir students - the basic objective of the newsystem.
Impact on Central CitiesOne point which has not been developed at any
length thus far is the special problem of the cen-
tral city We have in the State of Connecticutseveral cities where tax rates are very high andeducational expenditures are also relatively high
in contrast to the normal pattern in the Statewhere high expenditures usually accompany lowtax rates, or vice versa. This situation does notwean, however, that central cities do not navesignificant tax and expenditure problems. Almosteveryone is aware of the financial plight of thecities: budgets are tight and yet taxes increaseevery year, leading to a cycle of higher taxesdriving out middle-income and business taxpayersand leaving fewer and fewer to carry the burdenof city services.
The central city tax crisis is a problem whichthe Commission has veognized and with whichfew would disagree, taut this is not a problem ofthe educational system. Central city tax rates arehigh and they are very high, 2 to 3 times othertowns in the State not because of school ex-penditures, but because central cities must spendvery large amounts on services other than educa-tion. Further aid to cities is necessary to enablethem to reduce their taxes to a level competitivewith other towns in the State. But the need is foraid based on extra general government needs; aschool finame program should not be the primarymethod of solving this problem.
In spite of this, however, the ideas advancedby the Commission are not without significancefor the cities. The proposal suggested in thesepages can be of substantial aid to some Of ourcentral cities and in the long run may he of con-siderable significance to all of them. Specifically,this program-could operate to aid our central citiesin three respects: serving as insurance againstfalling property value per student, establishingthe principle of special aid for special educationalneeds, and removin incentive for exclusionaryzoning.
Wh:.e it is not anticipated that great gains willcome to our central cities in the immediate futurefrom implementation of the Commission's pro-gram, a careful examination of the trend, in someof our central cities would suggest that the newprogram of sharing increases in tax base through-out the State may Le of benefit to central citiesin the long run. In some cases, it looks fairly clearthat significant benefits will accrue eventually.In other cases, the new system may be thought ofas an insurance poli,cy: that if property valuesper student stop rising, or rise more slowly than
81
the average, a city is assured of a growthrate equal to the State average. The central city,in effect, need never fear felling below the Stateaverage as it might if some recent or projectedtrends were to prevail.
The principle of reimbursing school districtsfur special costs of special educational needs isalso important for our central cities. The bonusof for students who need special educationalservices some of these students being found inall income groups and all towns, others beingconcentrated in certain areas. in many cases cen-tral cities is an important yinciple for thecentral city school systems themselves and forbroader trends in the State. This ptinciple per-mits, the. central city to expect its tax revenues toproduce an extra amount for these students withspecial needs, and thtrI guarantee the extra fundswhich it is believed are necessary for aPiel:tiveeducation among some of our inner-city students.In addition, the principle of giving extra fundsfoe any students in need of extra attention in anytown in the State helps provide a bit more incen-tive for suburban schools to be (men to new resi-dents with children needing special educationalhelp which would be paid for by the bonus.
The last benefit of this program to towns is theeffect on current practices like exclusionary zon-ing. While the new finance system forces no oneto move, it removes current incentives for a townto exclude those whoSe home value is such thattaxes paid do not equal the cost of education forchildren living in those homes. Thus, ti) the ex-tent existing financial incentives may now causesuburban towns to keep out lower-income personsfrom central cities,. the voluntary changes insuburbs induced by the new program may be verybeneficial to the cities.
Overall, the impact of this new program oncities might be termed mildly favorable not aidof the magnitude needed, but useful help relatedto the substance of the school problem. No citytaxpayer should oppose this program, for it isbc1')elicial to him as well as all, others, but thisnecessary reform. should not obscure the impor-tant special property tax needs of the cities.
Timetable for ImplementationIn designing this new mechanism, the Commis-
sion has assumed, and will encourage, movementtoward operation as quickly as possible. Each yearthat goes by means more children suffering the
inequality, taxpayers carrying a heavy tax burdenlonger. and a more costly bill and or a longerperiod to correct the problem.
At the same time, however, this mechanism andthe means by which it can be implemented havebeen designed to come into operation over severalyears for good reason. In adt:ition to the prohibi-tive cost of immediate equality or the unhappyalternative of suddenly cutting expenditures insG..-e. towns an overly-rapid changeover couldbe harmful to many. Most important, it is be-lieved that low-expenditure school districts shouldbe given aid to f.!;itch Op at a moderate pace inorder to plan c;,....refully how to spend the extrafunds (or whether to take a tax cut, which will
un(lonhtedlY lie desirable in some towns). Highexpenditure towns should he given time to slowtheir rate of expenditure increase to make largetax increases unnecessary if that alternative isdesired. And property owners in towns whereschool spending and or tax 17Itt:S are changingdue to the program should not he subjected to thewindfall losses and gains in property value thatoverly-rapid equalization might produce.
Moderate speed, then, is the suggestion, but animmediate beginning is critical. For the costs ofdelay aro conside...nble, and is action does notcome, it may be chat. the worsening, situation willlead us to :,,tulden awl drastic action as the priceof delay now.
Implementation of the INCNv Svstem
This section is devoted to a series of questionsthat the legislative and the executive branches ofour State government will need to address beforepassing upon the Commission recommendations.These considerations include the administrationof SEEOF, the mechanics of SEEOF operation,and a variety of miscellaneous questions, com-ments, and unresolved issues to be answered ornoted as deserving further analysis.
Administration of the Egtud OpportunityFund
The Commission makes no recommendation asto the personnel to staff SEEOF, the selection ofits leadership, or the structure of the group.Rather, the Commission will simply defity. themandate and review the tasks of SEEOF, thendraw some evident conclusions about how it mightbe established.
1. The job of SEEOF is simply to establishbase data on tax rates and school finance rzeeiptsin cooperation with the towns and the State assess-ment analysts, then collect and disburse funds inaccordance with the Act which incorporates mech-anisms detailed in this Report. The job of SEEOFis, therefore, primarily. a technical one themechanisms are automatic because each town isentitled to certain funds and no applications areto be made, weighed, or politically influenced.
2. The SEEOF mandate is to distribute asmuch as it can each year by stepping up thereimbursement schedule annually to use up all
income, but never to go into defa'it. SEEOF woulddetermine State average yield each year and thendistribute a uniform fraction of the shortfall totowns failing to achieve that yield ; these figuresand the fraction would be increased as quickly as
_nossilile and eventually reach full reimbursementto the State average .(or, if outside funds wereavailable, to a schedule in excess of the Stateav rage) .
As the above description implies, SF,E0i.'should not be a political body. It may he thatexperts of education and educational financeshould be included in SEEOF to assure co-ordina-tion the Commission favors top-quality leader-ship, perhaps linked to existing state school offi-cials, in order to provide SEEOF with the ca-pacity to continuously monitor the progress andneeds of the equalization program. But the funda-mental task of SEEOF is the administration of atechnical and automatic mechanism, and it is akey. element of the Comn4ission recommendationthat SEEOF be set up and governed by suchautomatic, rather than political ad hoe, equaliza-tion mechanisms.
82
How SEEOF Would OperateThe following steps describe the task and actualoperation of SEEOF. Irpart, this is a restate-ment of points explained earlier, but it is also anadministrative description of tasks, procedures,and concepts.
1. In the first year, SEEOF and assessment
officers analyze effective tax rates and the schoolsystem portion, of total property tax collections todetermine Base Year Tax Rate and Base YearTax Yield.
2. Each year, SF:FOP informs each town whatthe State average yield is expected to he and whatportion of any shortfall in local yield vs. Stateaverage SEEOF will reimburse. SEEM'. will de.termine those numbers by analysis of assessmentdata and expenditures, tax rates, and student en-rollmert in each town SEEOF setting figuresthat will balance its own income ;ay; expenditure.
3. Each town will calculate (a) its Base YearYield per mill per student, increased by $1 eachyear, and (b) if that total fails below that Stateaverage figure published I y SEEOF, add to thatyield a fraction, as announced by SEEOF, of thedifferential. From all of this, the town budgetplanner can derive a figure that tells how muchproperty tax revenue local funds plus SEEOFreimbursements it can expect on a per stuF,entper mill basis.
1. School officials will then translate this yieldper mill per student figure into a schedule of millrates and expenditures e.g., the net yield permill per student might he $65, which tells thetown selectmen or the town meeting that the towncan expect the following schc,,t1 property taxfunds according to the mill rate chosen:
C, mills equal to $390 per student7 mills equal to $455 per student8 mills eqUal to $520 per student
to $585 ppr studentto $650 per studentto $780 per studentto 5910 per studentto 51.040 per studentto $1.170 per studentto $1,300 per student
Fractional mill rates or rates not shown rap :le
calculated at the ratio of 1 mill equal to $65. F...,anthis, the town seeking, fo,i7 e:.:ampie. $900 per.student can see it needs a null rate of just under14 mills.
Wheo each town has set its mill rate andtax collections begin, the town, will turi, over toSEEM.' all amounts in excess of Base Year Yieldper mill, and SEEOF will return (a) the growthfactor payment equal to $1 per mill per studentin Year One, $2 in Year Two, etc. (increase $1
each year): and (b) stipulated fraction ofshortfall for those towns where Base Year Yieldplus the growth factor still fall below State aver-age. Both payments are calculated on a per millper student basis, then multiplied by the mill ratein effect and by the number of students.
6. Each year, SEEOF will make these pay-ments and then revise its State average schedule ,and fraction of reimbursement so as to keep itscumulative income and expenditures in balAnce.The essence of its job is gathering and analyzingdata on actual property tax collections by townand then predicting the inflow and outflow of thefund at various possible estimates of the averageand fractions for reimbursement.
APPENDIX A
Other Issues and the Agenda For Futni-t- StudyRealistically, the Commission could not hope to
tie down every detai a.i of an innovative system ofreform. It is hoped that enough information ispresented in this Report to stimulate discussionof the proposal and to promote understanding ofthe problem and the suggested solution.
Realizing that certain questions deserve furtheranalysis, the Commission recommends thatfurther study continue after implementation ofthe new school finance system has begun. Suchstudy should be undertaken by a special bodycharged with the task of revhnving the efficiencyand effectiveness of school programs, expendi-tures, and State aid. There should be both sub-stantive review, in effect, of specific elements andquality of our educational efforts both at the Stateand local levels.
Some of the matters with which further studymight be concerned are, among others:
1. Slate Categorical Aid Programs: Whethernew categorical grants to localities areneeded to give school districts more incen-tive to undertake needed programs or toencourage any particular innovations whichwould enhance the efficiency and/or effec-tiveness of individual school districts.
2. Cost Differentials: No allowance has beenmade for the differentials in cost among
to rns or sections of the State. is generalit be argued that differences in the needfor capital expenditures, varied debt serviceloads. transportation requirements. or sim-ply cost of living differentials as reflectedin teachers' salaries and the like all point tonecessary modifications in the simple equali-zation formula. Since all towns are rela-tively better off than others in some of these,and wore off in others, no adjustmentis probably a better answer thou complexequalization efforts in light of the compara-tively small net effects. Overall, it is be-lieved that this will not become too severea problem, but further study is appropriateonce substantial equity has been achievedand differentials of a smaller magnitude,like cost, become more important.
3, School Rends: It is not anticipated that theSEEOF mechanism would affect local schoolbonds. In Connecticut, the bonds are backedby the full faith and credit of the town, andfunds would he available as needed throughlocal taxes to pay debt service much as inthe current system. However, further studymay he appropriate on the questions ofchanges in the State role relative to schoolconstruction costs.
Note on Data Analysis and ProjectionsThe basic problem with any current data on
property taxes, and even more so on future pro-,jctions, is one of uncertainty. Although it iscritical for the purposes of an equalization study,or a court case like the Serrano case, it is almostimpossible to produce completely accurate datawhich would compare tax burdens in differingtowns. Projections, on the other hand, can onlyhave a moderate degree of accuracy becausefuture tax rates and future revenues associatedwith any tax rate are significantly affected bylocal political decisions and a variety of economiccurrents and cross-currents which no short-term
84
study can begin to take into account. Finally, alldata of whatever sort suffer from the problemsof dealing with a variety of numbers from 169different jurisdictions collection of data oftenlags behind by a year or two or more, varieddefinitions make comparison of even relativelystraightforward numbers rather difficult, and justgathering and analyzing massive amounts of datacan be an overwhelming job.
For these reasons, it should he emphasized moststrongly that the data produced here, althoughbased on real numbers, are only estimates of taxburdens now and future trends or altered trends
O
in Jhe individual towns. On the other hand it canbe emphasizod that the agg7egate picture is rea-sonably accurate. Although the tax rate for onetown rim:7, in fact, be somewhat more or k?ssthan what is snown in these pages, there is likelyto be a compensati change in some other town.The importance of the current data is simplyshowing relative differences among the towns,differences which have been shown for a fewtowns at a time by other .studies and which arevery apparent from the pattern which exists to-day, 11 0 matter how analyzed. Data on the future,again, can ;'e relied upon relatively well in thioggregate, althoug... many factors will.ci:ange anyprediction of the current time.
Outlined below are some major assumptionsand methods by which data were generated forthis report, This is not a complete or exhaustivelestudy, but the methods by which conclusions werereached will show there is enough data to formu-late a plan for SEEOF, leaving the projections tobe revised within the framework of experience.
A. Current Duta,1. School expenditures, both past and present,
are taken from the Connecticut Public Expendi-ture Council reports which show total expendi-tures and net current expenditures, each ofthese broken down by source of funds (Federal,State or local).
2. Current tax rates are calculated by adjust-ing official mill rates for (a) assessment percent-age variation, bringing all fractional assessmentsup to 10044 ; and (b) increasing value since latestrevaluation. Most tax rates shown refer to thatportion attributed to schools of the total currentmill rate adjusted to equal mills on current fullmarket value of taxable property.
3. Current property values per student, as wellas projections for the future, were calculated byanalyzing the growth over past years accordingto (a) that portion which was reflected on ayearly basis by means of addition (of new con-struction) to the grand list and (b) that incre-ment of value in existing property which is onlyreflected at the time of each valuation.
B. Projections.1. In general, projections assume growth of
property values at past rates. The division of pastgrowth in property values explained above per-
85
mitted the closest possible fit of actual valuationto reported value in 1'6;71. and subsequent yearswere. predicted on growth trends previous to1971. This projection and analysis refer toproperty value per student in all cases, therebyrecognizing that the largest increment of pro1i-crty value is associated with population growthand is correlated with number of students.
2. Property value predictions for the future,by following the trends of the past 10 to 15 years,implicitly aSSUme that increases in value (bothappreciation q existing property and new growthand new wealth on a per capita basis.) would beabout the salw: as during the past 10 to 15 years.The basic assumption was :111 inflation rate equalU.; the 100's (approximately 3f,; ) and a rate ofbuilding value infintion slightly in excess of thatcomsumer price inflation figure.
C. Equol Opportunity Fund Data.1. The objective of the data explained above
was to predict what yield per mill per studentwould be in the towns during the next 15 yearsin order to show what demands would be madeupon the equal opportunity fund Under the pro-gram outlined in the text. The operating principleof SEEOF, as explained, would be that all income(as nearly as possible) would be paid out to thetowns each. year certainly that the cumulativebalance would not grow significantly above zero.Data shown in the text to demonstrate effectiveper mill per pupil yield, therefore, assume thatSEEOF is reimbursing towns as much as SEEOFrevenues would allow.
2. In order to predict exactly how much wouldflow into ,,SEEOF, it is necessary to know (a)what SEEOF would receive from, or what SEEOFwould pay to, each town on each mill of the schoolrate for each student; (b) how many studentswould be in each town; and (c) what the mill ratewould be. The calculation of the first item, differ-ential between what the town pays to SEEOFand receives from SEEOF, is derived from pre-dictions and the plan as outlined in the text.Recent trends of school enrollment growth appearto be satisfactory on that item so a simple trendhas been used (although more sophisticated meansmight be devised for even better predictions.)Predicting mill rates (in effect, school expendi-tures) is a much more hazardous undertaking inthat this reflects changing political decisions inthe towns which will interact with the level ofSEEOF activity. Thus, a fairly safe assumption
(in terms of SEEOF needs and revenues) wasmade, that growth of school expenditures (andthus mill rates) would inoceed at a relativelyhigh rate in the low expenditure towns and at areduced rate in the high expenditure towns. If,as is .very likely, aggregate school .expendituresincrease more quickly, noire money will comeinto SEEOF from the high tax-base towns andmere money will he paid out to the low tax-basetowns: if the high tax-base towns increase theirexpenditures faster, that would increase SEEOF'sability to reimburse the lower tax-rate-base towns
86
in that the revenue of SEEOF would be growingfaster than its projected payments.
3. Special need categories for the bonus asoutlined in the text have been left for definitionat a later date, so estimates were used by town.These estimates assumed approximately 3O ofthe students in the two largest cities would beentitled to the bonus, and declining percentageswere used to a minimum of 5(:'.-; these estimateswere based upon current (lath used by the Statein calculating SADC grants (existing aid pro-gram for disadvantaged students).
APPENDIX
Dissent of Philip 1 L. Drake
With respect to Part B of Volume II of theCommission's Itepoil., I find myself tillable toagree with the majority of my colleagues. I donot share the concern that the present methodof financing school expenditures in ConnecticutNvill be found to he unconstitutional and. there-fore, I do not join in their recommendations toadopt it method of school financing in Connect-icut as set forth in Part B.
I believe the proposal for equalization as con-,tained in Part B is far superior to full statefunding. If the present method of financing edu-cation were to be declared unconstitutional, I
would support the method proposed in Part Basan alternative to full state funding.
While the proponents of full state funding andequalization maintain the existing system doesnot provide an equal opportunity. I am of thebelief that. the alternatives would he disastrousfor the citizens of the State ctf Ctnnecticut, as itjA*0111(1 (a) increase the cost of'education treen-dously, (b) legislate a practical ceiling on thespending for education %vhich would in manyareas be equivalent to legislating mediocrity ineducation. and (c) result in a gradual erosion oflocal autrmomv which school boards of educationand our communities now. have. While the pro-ponents talk of providing equal edit-ittional op-portunity, they are in effect saying that equaldollars are going to produce equal education, aproposition which I cannot accept.
APPENDIX C'
Objection fLo Sections in Vol. II, Part B. Titled "School Resourcesand Equal Educational Opportunity" and "Impact of the Current
School Finance System on Community Development"We support the "equal educational opportunity
system" recommendation of the Commission forpersuasive reasons which were considered and dis-cussed by the Conuni.,7sion, among these being.:
The differences in resources available to thevarious towns in Connecticut to support publiceducation can lead to unequal educational op-portunities.
Awareness of court attacks in the area ofschool financing and concern that if progress isnot made to correct the problem of resources,and if present court decisions are upheld, sud-denly imposed judicial mandates might disruptour educational system.
Certain school systems have additional spe-cial needs which they cannot completely financeon a local basis.
A "local option plan" is far more desirablethan full state funding with its implications ofprobable drastically increased costs to the tax-payers and the Noss of the rights of the citizens
88
of each town of a clearer voice in determiningtheir educational needs.The sections of the Report titled "School Re-
sources and Equal Education Opportunity." and"Impact of the Current School Finance System."however. are devoted to a great extent to a 1111111-ber of other issues and problems which were notdefined or ,discussed by the Commission. Consul-tants were heavily relied on to draft these sec-tions, which have been accepted by a majority ofthe Commission. While these issues and problemsdeserve the concern and attention of all citizens,their inclusion in this part of the Report 5:an hemisinterpreted as indicating that the Commissioncarefully considered them in its deliberations.This was not done.
We feel that those reasons which were carefullyconsidered by the Commission in themselves sup-port its conclusions and recommendations andtherefore object to the inclusion of the Sections"School Resources and Equal Educational Oppor-tunities" and "Impact of the Current School Fi-nance System" in their present form.
GERALD J. MCCANN
CARL G. WARD
H FIN IES TO I' ART It
11, ., ,. ,..r. N. .111.. St ae... Iii ' c.o, .925 i
r 174
,4 Pe r,loot;11' A 1:11.1.0.. 1.1a1 I
I ,too ir'
I I i,(11 I i.1 ;,-1 r rr rrr/ 'ti' r .1 rd I CO?,t ;1. ,.1 II 1.1 fir: !II 1/qh 1.111t1,I'l
V.,11,11(fitiirl 4.1.1411..11, I ill', i.tabli.ir. 117.11.
12 ; Seipp. 2go (1V. le 'Fox. 19711.
-il. ::r.1 r.g I. 047 I'. 1211 11:71e.
? 110 1'111 7S7 I'. 2.1 1211 119711 it 1219.
Pod', at 1217.
Ii; /bed. at 1251.
17 /bi./. at 12411,
Ii //cow,. v. i?IIIIP'1/ o 1.'.j,,,', ti',, 117 1..S. 011 at 193.
ins I cief:1:17 I. Sum,. ;:Si' W. lb Tex. 1971e at 2g 1.
2te See, for example, Worth Rater/Ian, ;MCI Peter Pro)vn,-Sono. Re1leeti.1n- ref) Prit rPlti Ili 1. PornLate. Vol. 19. Issue 4, ( May. 11(721. A note entitled "AStatistical .'\ti;.Ivi if the School Finance Decisions: 0',Winning Rattles :Ind Losing \*ars" Chorgin,Peter Ehrcedierix, and Peter I Ir. will appear uiFall 7972 iSSI/I. Of the Falr Law .1.mroml. This articletreats the premises' e.oncerning individual )vcalth. districtproperty values, and local educational expenditures uponwhich the ,` tiO Pm and R.Origent: line of cases are ltsed.There is particular emphasis on Ginnecticut which thealit hors find to be "perha;., the archtype of a pre-Serranosystem of educational fmance."
21 Loral Se134)1 NKCR nil Sla IC lid in CON ?WO!.rut. pp, 30-31.
23 Loral Public School Expenses State Aid in Con-nect Wnt, Con nr cfr WO Pohl lc Expenditure. Coonril, pp. 30-31.
Ft
89
r,' I:I't .,* r' rr ro I.. c*,, Irt ...rc:rtrr 1 hrfrri t.1 merit a, I fa1;II.Y. I
\ ii. 2e:ei 1'. Stepp lit D.(' 1:0(171,
'firm, .1 , 4. c 1. /1,1, 0.4 1'. .2.1 7
'ir.
5 Cal. .ird I.
I oc. I 11,=' 1.' . Sum). s7Il iIiiiii 19711.
2s Jam. - S. Coleman. l',,..1 Campbell, Carol Ilobson,.11,4:111der Mood. Frederick, Weinfeld,
it 1/w...re i ork. trod 11/1/,..rt It PI If If
1..5. (1011.1. rdliViRt 194;4; 1.
I . l)111... "r !bd.,Frederick \h.-teller nod Moynihan
(Ii' Volol1111'11 1:1111.111111Ild till", tot II i Nev'fork Rand.,o, Iloo-e. P472). Harvey crech t
11,m. 1.11,,,. 1, Iteport I. ll. Cr.-di/veerscommi4-11,11 on School Fioalice, RANI, C,erporat ( De-cember. 1971 ).
:to Coleman t I'
/(1 Ern. /I:mu:1o+ arid John hain. "(1,1 the Vane of Equal.its ,,f 1.:4111,;11j,01;11 ipportunity as a Guide to Public
NI II,t1111,* and MI) \'1101:111. 1111-145.
121),w:1111 Winkler. "Ellurational Achievement and Schoo!Veer I :roup 'Weerking Pieper No. 2. Depart-ment of Economics. Uni ersity of California it ill.rkeluy,AllfZUSt, 12).
itall(1311 Weis:, "The EtTect of Education l'pon theEarnings of li'hit''' iit,il rilaeks." /6 enl w r.l 1-..comonws
.crao...tm.., (May, 197(1),
111var Berg, Ea IWO tilt,? .10), Vic ; reit rolinPy 1 NI1v ) Irk : Columbia l'ftii,ersity I'ress,
197, ,
35 Lohert Dreelien, (1,1 ll'hot Is Leo rnol in School (Read-Nlass.: Addison-Werdey, /9481.
:to; Gintis, "Education. Technology. and the Char-acteristics of W.irker Productivity," American Economic1'. row, 111: 26(1-279 I May, 1971).
17 See above. p. 54.
3g For a documented 510 iv of this. see Volume II, Part A.
39 Steven J. Exislina hisporities in Po bile SchoolFin(' nef PrOrt)SIIII; (CI?' Re Research Report No.111 to the Fotieral Reserve Rank of Roston ( February.1973), p. 41.
11) Ibid.. p. 17.
41 Advisory Commission on Intergovernmental 'Relations,Who Should Pay for Public Schools? (Washirgrton, D.C.,1971).
42 Report of the New York State Commission on theQuality, Cost, and Financing of Elementary and Secondary&location (1972).
PART C
Assessment Reform
Introduction: (;eneral Ilropert% TaxThe general property tax is blip( PSC(1 1)y law at
a uniform rate within each town in the state itConnecticut upon all property except that whichis ;:pecitically exempt by stat ute. In Con llertic lit .
as in most states, the gneral property tax pr41-vides a larger amount and a larger proportion lifthe total State and local revenues than any othersingle tax. Approximately lf, of all taxes cId-lected in Connecticut during the year 1971 wasderived from the property tax, wink over 70'of local government revenue came from the prop-erty tax.
Dependability of the general property tax liesin the stability it provides local governments forrevenues. Balancing of municipal budgets wouldhe immensely more difficult were the property taxnot available to bridge the gap between revenuesfrom other sources and the total revenues re-quired. The property tax has provided a solid,consistent base for revenue °ter relatively longperiods of time; and adjustments in the tax rateshave accommodated changes in expenditures.
The Commission believes that the general prop-erty tax should not assume a position of lesserimportance in local taxation. Since the propertytax is and will continue to be the single most im-portant revenue source for Connecticut's Stateand local governments, the Commission has de-voted considerable attention to remedying theevident deficiencies in the system of assessmentof property for tax purposes.
In the coming years, formulas for equalizationof school taxes among towns, State grants basedon town grand lists, and sound local fiscal policywill require a uniform and equalized assessmentprogram. The ideal assessment system will in-sure (1) that all taxable property is located andsubject to tax, (2) that different classes of prop-erty have different assessments and hence beartax burdens that are uniform, or if provided bylaw are different only to the extent the law pro-vides, (3) that individual properties of a giventype are treated uniformly.
The grand list should be revised continuouslynot only by new additions but with market valuestudies (sales ratios) so that the current valuesare recorded for all property owners. It is par-ticulaiy important to know market values in to-day's highly mobile world where new highways
93
Ard .shopping center:: can 11F:1M:0 it UpwardONO s on property values and also w here urbanblight, racial unrest. and general decay can causerapid downward movement. With modern compu-ter techniques the grand list can he continuallyupdated and published once a year. At I II ,
valuation, the assessment recorded is. in fact themarket value namely the price which a sellershould receive in an arm's length transaction.
The effect of annual revaluation is to showclearly the actual incremental gain or loss ingrand list values. This infomation can be Iwo-ieeted in planning; future programs. With respectto property owners. it assures an equal assess-ment for the some property values. It puts anend to the constant complaint that new construc-tion is assessed more heavily than older homes.for example. It allows land values to be accurate-ly reflected in the tax grand lists.
The fact that a new assessment is created everyyear does not mean taxes will go up. The townagency responsible for the Ii :dg,et controls tnetax level. For example. with no change in budgetthe mill rate in must towns will decrease annually.reflecting a constantly lower percentage of prop-erty tax compared to assessment or market value.The towns can thus lower their mill rates eachyear or if budgets require, maintain the mill ratewhile getting a higher and higher yield from theproperty tax 'because of escalation of marketvalues.
The assessing system which exists today is thebiggest cause of the charge of inequity so fre-quently attributed to the property tax. At present.Connecticut has widely varying assessments dueto careless procedures, extended time for thephysical revaluations, and the valuation complex-ities of many properties. The State badly needsuniform procedures, improved data processing,and more professional assessors, The Commis-sion estimates that the towns are losing approxi-mately 10% of their annual revenues because offaulty valuations and failure to record certaincategories of property. Unfortunately, Connect-icut lags behind many other states in adoptingmodern assessment reforms.
The following pages detail the Commission'sprogram for assessment reform. A summary of,the findings and recommendations is given below.
Commission Findings
Commission FindingsThis ('om m iss 1.0 has found mon!' defiieaei,
in the present assessing practices as detailed irr.this Report. A list of major findings is 118 tallow's:
J. Th assessment percente4le of value is notequal between classes of property.The assessed value of undeveloped bind isfl russlY below the percentage of value forother real estate.
.1. Many assessors hare not been properlytrained to Car!' out the duties of their office.
4. Some revaluation companies are not usingqualified personnel or ideal procedures, re-sulting in poor revaluations,
5. There is substantial loss in tax revenues from.owners of unregiste red. reh idles avoiding a tax..
6. Much s:ecial equipment is underassessed.7. Public utilities require special attention for
assessment values.8. There is a need for statewide sales studies to
determine proper assessments.9. Local assessors need State assistance in the
valnation of special properties.10. There is a need for revising some existing
Ions and enforcing other laws to insureequalized assessment values.
11. Charges for building permits are insufficientand many contractors fail to disclose the truevalue of their construction.
Commission Recommendations
I. Enact a State Uniform Assessment Law.4. Organization: Create a State Board of As-
sessment Supervision with. responsibility forall property assessment functions through-out the State, including supervision of alllocal property assessments.
B. Board Responsibilities: Establish and ad-minister policies designed to insure accurateand equitable assessments of propertythroughout the State, including specifically(but not limited to) the following:
1. Establish a uniform assessment daleand a uniform fiscal year
and 'Recommendations
94
EN (fhb's), a uniform parent assessment
P,'NfilbliSh a system of certification oflocol assessors
Reiew the assessments of all major?n me re io I and industrial properties
Nstahlish a system of ,:uperrision ofTeraina, loin Pupil pa Id IF'S
6. Establish uniform operatin a proceduresfor ossessment ord revaluationOf pmperty
8. Establish a system of assessment sales-ratio studies
9. Prepare an (Issessinent of tax-exemptproperty
10. Require all towns to assess by personalinspection one-fifth of the property each1, ear and the entire town in a fire-yeaperiod.
II. Public ;to! 490 (Preservation of Farms,Forests. and Open Space)
Tighter definition of forest landsTighten definition of open spare
III. Public Act 15,2A. Change the minimum. conveyance tax to
5 f,'; , thereby 2roviding some recaptureof tax benefits derived
Tighten the definition of holding periodfor purposes of computing the eonreg-ance tax
IV. Reassess all aide 'eloped land not underPA 490 (Preservation of Farms, Forests,and Open. Space) to reflect present 'marketvalves in. accordance with existing statutes.
V. Establish a uniform minimum buildingpermit fee cf $5 per thousand dollars ofconstruction, and develop a uniform 'mini-mum schedule of costs and fees for localinspectors.
VI. Require towns to convert to 100% valuationswith an annual computer revaluation ofthe grand list and to adopt a uniform as-sessment date and fiscal year within 2 years.
Assessment Reform: Cost /Benefit Summar%
The estimated animal cost of administration ofthis forogralti iS $5 million. This would includethe entire staff, office housing costs, and copu-ter costs, This can be entirely borne by the Stateor It portion Can be IWIlratell to the timlis. Vorinstance, computer time allocated to It particulartown can be paid by that town, and State assist-ance to the local assessor in the valuation of spe-cial properties can be levied to the town,
In the Commission's opinion, there will he lit-tle increased cost to the towns for having an an-nual reassessment program because the moneythey are now spending once every 10 years in alump sum will be spread out evenly over the 5-year period.
Assessed value of dwelling himses only, on thegrand list of 1970 in the entire State is $7,556.-696,866.1 There are 691,597 dwelling units whichindicates an average assessment per unit of$10,879. After allowing for a 10'; tolerance be-tween actual sales and assessed valuation, a studyof all the sales in 6 of the towns surroundingHartford has revealed that 18'; of the total num-ber of properties sold are assessed under 10%of the average assessment percentage in the year1971, and only fi!': were assessed above 10,4 ofthe average assessment. This same study revealsthat as the sale price increases over the $40,000price range, the assessment value gets progres-sively lower than the average percentage for thetown as a whole.
From this data it is estimated that with uni-form assessments there will be an increase of10ci- in the value of dwelling units in the Stateor a total increased assessed value of $750 mil-lion. The remaining $250 million will be derivedfrom underassessment of all other properties.While specific data has not been developed inthese other areas, the Commission believes thatsubstantial underassessment is prevalent in someclasses of property.
Overassessment of residential property wassmall in dollar amount according to the sales re-search, but a spot check across the State of ob-solete industrial plants which have sold duringthe past 10 years reveals that some reductions inassessed values are warranted and would begranted in a uniform assessment program. Theoverassessments resulting in grand list reduc-
95
tions are netted in the figures presented in Table
Connecticut had 2,1:17.663 acres of undeeloPedland having an assessed value of $1.07)1.16-1,9::)9in the year 1974),:2 As it matter of policy, asses-sors historically have disregarded the law in tirevaluation of undeveloped land. A detailed discus-sion Of land value will he found elsewhere in thisreport,` but it must be considered in this chap-ter because it involves a substantial estimate ofrevenues being lost by underassessment.
T.t1111.E C11: Estimaledl New Revenne,4'nouns After .t.sepisment Reform
Est. Est.I:10111(.0 f, ('less blerf11,4:ed .1Ssrs. RI 'Tour
l'ndeveloped land $1,000 .000 ,000 $50,00(1,000Motor vehiclesexcluding autonv)Iiiles 50,000,000 '',500,001/Real Estateu nderassessed 1,000,000,000 50,000,000Conveyance taxP.A. 152 1,1)(1).000Assessment on taxexempt property, occu-pied by non-exeptpa rtes 10,0110.000 500,000Building permit fees 2,500,000
TOTALESTIMATED INCOME $106,500,000Real estateoverassessed 100,000,000 5,000,0(10Net Estimated Income 1.101,500,000
The present law pertaining to land values is nodifferent than for any other class of property ex-cePt for lands which qualify under Public Act490. One town studied in detail revealed thatassessments on undeveloped lots were one-thirdlower than on improved properties and raw acre-age assessments were only one-fifth those of im-proved properties.
The Commission concluded that about half theundeveloped land in the State has been or can bequalified under Public Act 490. The remaininghalf, when properly assessed under present law,will have an assessed value in excess of $1 billionover the present assessed value.
St Mle p1(.1(1 \NnerS avoid taXatilin oo,eingthem from town to town, utilizing. the flifteentassessment dates to avoid declarations to localgovernments. In addition, WI regIStertqf vi iiil'la':and tilldCraStie:,,Sed special egtiilonient re:4llt infurther loss of revenue. This loss in revenue isimpossible to estimate with any degree of acu-racy, but the Commission feels that more than$541 million of property in this category is pres-ently Ilia !leitig carried on the town grand hats.
Pulilic Act 152. conveyance tax on propertiesassessed oder Public Act 4911, is too recent toorot'oco income figures for this Report. Estimat-ed income in this category is based upon the newformula hying ..ecommended by this Commission.
Equiv. of
For many yew's there has been a conflict he-tw.een asse.ssos and 'milers of taxe\emilf prop-ertie:4 over portions 41,1x-exemptl'llllle(l ,1111 used by port - exempt patit'S. In lilt'"Pilii(111 of the Commission, if the laN\ is clarifiedto permit assessments on such portion 'if Ph 'Per-tie:4 !HOW enjoying (.X(91114. status, but 44.CW/it'll 1,Ynon-exempt parties, or where at competitive phitit-maliing husiness is being conducted hy the t;tx-eNempt Mviter, 1vo)Liiti stIlistantial re-enue derived.
Table shows eslimated giminis iont lossesfrotri the sources stated above. Revenues arebased upon the present State average mill rate of50 and levels of assessnient now prevailing.
Assessments in Connecticut
An equitable assessment system is one in whichall property that is subject to taxation in tacton the assessment rolls, and each property on theassessment rolls in a single taxing jurisdictiona town has an assessment that is approxi-mately the same ratio of true, or market value,unless otherwise provided by law. Perfect uni-formity in the ratio of assessed to market valueis unattainable, since the market value of eachand every property cannot he known preciselyexcept at the moment when a property is trans-ferred by sale. Howecer, wide variations in as-sessment ratios can and should be avoided be-tween different types of property as well as with-in a given class of property.
Just how uniform are assessments in Connect-icut? It is not easy to answer this question withconfidence, for unlike the great majority of Am-erican states, Connecticut's State governmentdoes not conduct a systematic program of studiesof assessment performance. The conclusions be-low are based on limited statistical evidence andthe general beliefs of experts in the field.
Uniformity Among Types of Real PropertyEvery five years, the U.S. Census Bureau con-
ducts a Census of Governments. One element ofthat census is a comparison of sales prices of realproperties with their assessed value. The lastcompleted Census of Governments, that for 1967,made this comparison for a six-months period in
96
1966. Table C-2 presents the results, by type ofreal property, for the 7.1 ut towns forwhich data are available.
The first column in Table ('-2 presents the de-clared assessment ratios. It is evident that inmost cases, the declared ratio was well above theactual average assessment ratio in 19611, This isnot, by itself, a matter for concern: the real issueis whether there are wide variations within atown in the assessment ratios for different typesof property. Table C-2 shows that such wide var-iations are indeed common.
The extent of variation is summarized in 'fableC-3, in which the assessment ratios for otherclasses of property are compared with those forsingle-family houses. Since a very large propor-tion of all real property in most Connecticuttowns is composed of single-family houses, theratios for single-family houses and for all classescombined are quite similar. As Table C-3 shows,the ratios for single-family and multi-familyhouses are similar in half the 44 towns for whichdata exist, but in 15 towns the multi-family ratiois more than higher or lower than that forsingle-family houses. However, the disparitiesare much more widespread, and more serious, forthe remaining types of property. Substantial ,.el-ative underassessment of vacant lots is the rulerather than the exception: the ratios for vacantlots are similar to those for single-family housesin only 12 of the 63 cases and are more than 20!
lower 111 41 towlis, 17 of them having ratiusvacant lots that are less than half th0se fur sin-glc-family hollAes. Similarly, farms and acreagehave relatively 1(114.- ratiOs, with of the :10 cases
20,, or more hemv the single-family
ratios for those tot ns. 15 411. them having ratiosthat art.. less than hall those i,r singlr-tamily
Also, in linIst cases runitnercial and in-dustrial property is favored, rontrar) tl, the I,rar-tice urban art,IIS in other states. Milos'.
'11111.1': C-2: A% erage Ratio of Arip,m.se1 Value to Sale,. Price by l'ropert l I :latp.i lira, ion.
Selected Connecticut To% IL, 1966 (In Percentage.)
Declared All Single
.--....._
Malt i-
IS
FilrIII & i :11 llllll ler- 111111114.
..11:11..11. H VI'll
Varall"Irowip. 11110111- 4 ,ILi,...0. Family Fi 'Iv IAII .%erragt vial trial
Note: AU numbers are expressed in terms of percent. They represent the assessed value as divided byan indicator of present market value.
Source: These data are from unpublished field tabulations used in the preparation of Vol. II of the 1967 Census of Govern-ments. For that Census, field investigators examined bona fide sales of properties sold during a six-months periodin 1966 and compared the sales prices with the assessed values; the ratios shown here are the results of those com-parisons. It should he noted that the Census procedures excluded from consideration high-value properties, ofwhich sales are infrequent. Thus, the ratios for commercial and industrial properties refer to relatively smallbusiness properties only; the ratios for multi-family exclude new high-rise apartment buildings and the ratios forfarms and acreage exclude some transactions involving large, expensive tracts.
98
TWIT 1:.3: 1,P..tnent-Sale'. Niiriation,11, Real Properi% I :Ia.,:
nitriloetion of .1111111`11 jeld 11%. 9(1(1
M tat i-rami ly
11,11ailla
Number of towns for which assessment-s:lies ratio data availalde .1.1
Average a-:sessmenti ratio fur Class oWil
c( d1111111 heading compared to averageratio for single-family houses in thattown:
1Iigher by 20.4;', 4
higher by 10. -19.9',.;Within 10'.",
Lower by 00) - 19.9,;LowerA by 20.0 - 49.0 f;
Less than half ratio forsingle-family houses
Sonic: Calculated from Table C-2.
ever, the degree of relative underassessment isless extreme than that for undeveloped land.
liniformily within ClassesThe only hard evidence concerning uniformity
within classes is that provided by the Census ofGovernments for single-family houses. The Cen-sus Bureau calculates a measure called the "coef-ficient of dispersion" of assessed value-salesprieeratios for single-family houses sold during thetest period. That measure is the average devia-tion from the median assessment ratio, dividedby the median, expressed in percent. In otherwords, as an approximation, if the coefficient ofdispersion is 20r;- it means that most owners ofsingle-family houses in a town can expect to havean assessment ratio that is within 20,; , plus. orminus, of the median ratio for the town.
A coefficient of dispersion that is below 20(;is generally considered evidence of acceptableassessment quality when using a lower percent-age. (It should be noted, however, that the ac-ceptable range of error with regard to the ad-ministrarion of sales and income taxes is muchlower.) Measured by this standard, the qualityof assessment of single-family houses is reason-
9
99
Vacant
#;:t
27
'11111. 11.' 1'11111'1 1[11
turrage
Fil
.)
1
1:1
17 15
1 'ut 00000 terrill1
9
ally high in Connecticut to ,wo:, Os perhapsshould be expected since, Its Soction 11 of this lte-port (On School Finance Reform) shows, thereis a high and increasing degree of economichomogeneity within Conned lent 1AINV 11S. In anyevent, in 190l, 51 of the 59 toW1IS for whip theCensus Bureau made calculations had coefficientsof dispersion of less than 20'; , 39 of them 15'; ;nearly all of the larger towns were in the lattercategory.
The Census also indicates that the quality ofassessment of single-family houses is relativelygood in another respect : the lack of any system-atic disc-imination in assessment ratios by valueof house. Since sales of high-priced houses aremuch less frequent than those of lower-pricedhouses, assessors have less evidence with whichto work in the former case and might he exi,ectedto err on the side of caution, to minimize Possiblelitigation, and underassess expensive houses rela-tively. This does not appear to be the case in 5°of the 59 towns studied by the 1967 Census: inonly 7 towns was there systematic discriminationin favor of high-priced houses. However, morerecent sale ratio studies reveal a greater numberof the higher priced homes are now underassessed.
1
The 4enses sample (foes net iticlude -ales ofnewly constructed houses,. some feel that assessors tend to assess ric e. ii.iii-cs at higher thanaverage rati,,s, fait there is Iii statistical videnco.
on tin.; scoire, For utile?' of real 111' .p
erty, there is also no evidence Tie witliin-ciassvariate ois in assessment ratios. 014'1'4' arc rea-sons to believe that the vtiriatiens are eonspler-ztble, Commercial and industrial realty is hetere-geneeus in nature and ditlicult to assess at hest.ATany todiding.., are highly specialized in nat (ireand seldom if ever soh{ in the open market, Moregenerally, assessors must rely 'on different kindstf evidenve f(w different properties: sales
for tle ise rCrellt IY Sold, 1'ollS1.111c't ion CI ISIS forthose recently built, capitalized net income forproperties that are rented tilt'' \\ andestimates of depreciated replacement costs forothers.'' Combining this evidence to producereasonably uniform assessments for highly variedproperties requires training and experience thatmany local assessors do net possess. Moreover.there is some indication that the revaluation com-panies on which many towns rely use less thanideal methods.' As for undeveloped land, thevery low ratios that ;ire prevalent I see TattleC.-2I suggest that assessors in general decline torecognize the current state of land values as amatter of hteal taolicy, which in turn suggestthat wide variation:; assessmentratios are common.
There are other reasons for suspecting a highdegree of non-uniformity for real property otherthan single-family houses: the infrequency ofcomprehensive revaluations; the absence of pro-cedures for automatically updating assessmentsbetween the dates of comprehensive revaluations:and the frequent lack of machinery for takinginto account new constructiton and major renova-tions during those long interim periods, Sincedifferent properties do not increase evenly invalue during periods Of general price inflation(this is less true for single-family houses), thesedeficiencies in assessment practices must resultin substantial non-uniformity.
Personal PropertyThere are also reasons for suspecting much
non-uniformity in the assessment of personalproperty. For one thing, since tangible personalproperty is valued annually, while real property isonly infrequently valued, to the extent that asses-
100
or. di + ;1 good ill }' lfll pers ()Mil P pe r1 y I loo. result%%In he higher asNerent The- f..1 personalprop,. rt y :IS a Chl.Ns t11:111 for i'vai 11'1114.11y
'hiring pt'lloik of rising price., 111;111
11,,"VVVVI', it I alIllot fe statedgvacrally do a gold joIl aluirig pursoak, pc,,perty. Because. personal property cover,\vide range of (objects alai vehicles, it is cl,tisideredthe finest dill cult type of property to evalUatt.. To ;Iconsiderable extent, ecrsonal propert, OLT
1:4...+1'.SoN de nothave the training requireol t , value so, \ ariedrange it of they 11:0
1.1';:noilrces too evaluate liuuh -value 1.\ iilt/Irt. of :dil'VerY Year. 1*.O1' 111:111:' tykes of per-
:401W iifilOerty, }Milli the OnlyherallS.e there is TIO Seroli(Hi;loot rear.
I
Di.parii. of alaes M.1'44'4611 Heal Elate.il000r Vehicle.. and Per.onal Popert
AssessmentPere, nt
100%
90%
sOr'r
70%
60%
50%
40%
30%
20%
CD
1
Pt rsonal Propert) & Motor hides
CO1CD.
Revaluation Year
es%eD ti
ket for equipment of that type. There is such anorganized market for automobiles and general-purpose trucks: most towns do use the manual of
;i111.1n1,1.114., 111,1 I,. 10.\t It 11 inio, Uhl fPlInity. IC., I, III( ;it
ilf I lie., .4 111.1.0. 11'111rh' 111 1111111 }r
,..11111,11,..rit, ;11111 "1111'
owl. \,1,1,1,-. 10..,1.1,11,
regard to \ cho II. that needlit he riis.ristered \\Ali the State Veld,'hip:dime/it, hut the !ai rtkg1.-11.;111-oi 1- to,ithe tirlifurnt .\ nyhighly no)hiie 1111,11(.1.ty i i diftjuultlo( aeors 111 ;1011;111.v discover. :ind this (hill-culty I.5 (.111111)111Indefl tile 1;1(.1 that Is have
dale:, 1111111 ()1II/1,4' I :' it tal\e,no gre,it ingenUity 40* utiterliriSe myttet tittintria.,:t , tut Int\ inuthile :1er.,,11;t1 iliutitortytitver pro,o.it in ;t t1,\111 tin It ;1,:..osN11ient
Sitecial ll'rtoiterl% of()f ail type,:
1.131 and of public wildly,: IN
far the ithr:St Itlthrlllt t./ a,:,e57.. It 1,.4 ;01 IlIghlYthat !II) Market I(11. it I an he said to
exist; in view of the utility's legal ohligationprovide prescribed services, the company cannotreadily sell or abarolon idual pieces of prop-erty., \ylifuli has should Inive t major hearing(in the valuation of that property: vind the valnoit each parcel depends heavily tin the rest l)t the
company'smalie anytelephime
imtistrmint. it is iilt tivalid statement about the vaillt. a itext.hangt, or all electric sob-station
standing alone. Because Of thi.s, Ill the great ma-joity Of the If; states in which :utility property
1,, ;,
g 11 et I11nel1t ;igen, asst....mg.11 pal t In stairs,
111,1 e assiissiHent ;it a:I, in I:2 there .sa di \. 111. \ .t. rt.!, -1:114' 1"1;1'
.114.1.4' ar" \
flit, "11.1. 7\.".\1
In \dill II 11,1`1, $i"..1......111111! '1"111.
In Ow -.1 -11.111 10.
11;it Ir LII.,\\ till' [Hilt 11114', l'ilder 11 }Heil tilt,;att. :014.?1, \ \ the 410 me it .01111:11l
a -11.ni. and then \ t'';Itt 1..t,ti 1.1 t ilr
\\ lilt II t lir c.olip,ift thiv1.4 II, (.X pi lilt \ 111111\1,111;i: too, it
lit ii it\ PrItporty. , unit ruletilt lie;t\ ito u anitah/e11 net ,tite atIto! inrunit. "I. the I utniitan tinul tit' the tirtrl.et
the outstanding -t"1 L< and ,,t' theruttyiltany, and intltioncrul hy eNlitIrtto- tit* di'prociatell lepl;t('onleilt It 1, ;ts.rrt.e
tliat 1111 typlrai pro) \ 111.4 a fir hotter;tiiiirtAirwition tit' nntrliot ;tine fuir utility itritipprt in the a).fgregatt, than IlHes the Connecticut
th, h
fill' uniutriti tro;ttniotit utt' a nullity'sprt)perty. lif 11. hwatimn in a state, andit C:111 ph 'Vide Inure 11111r,,1illity aS rionparl'd tfl/11111-Utility 111'1,14'1y, In the (*on:1,11,1a syAtein,\\ ro.inires t11;111 \' t,1
hits awl pieces of pi. ipertv \\ Anise t. is
4. t }lad tit any case,substatiti;i1 under- of ove-a,ssstnent of utility
comii:ired tti 111.1/pety In a giventl/ the rill(' rather than the ex-
ception,
Valuation Procedures
In order to provide the framework for muchof the following discussion, it nriy he helpful toexplain here the different types ttf valuation cu-rently in effect in Connecticut.
Three basic methods of valuation have beenused and tested in Connecticut courts. These arecalled the market data approach, cost approach,and income approach. When appraising proper-ty. me or all of these can be used, dependingupon the type of property being appraised. Some-times it is desirable to use all three approaches
101
but to give greater weight to one. In the finalanalysis. a fair market value can lie defined asthe price an infiirmed owner is willing to acceptfrom a prudent and informed buyer with( ut anyoutside pressures.
The Market Data ApproachThe market data approach is applicable when
there are ample sales of one type of property inthis category would come unimproved land, sin-gle family dwellings, multi-family dwellings, etc.
;r1+1,1'11;it i.- 11,.14,-1 met %,:dii.00.r or,ip1.11) .
inal The 11.10 III 11Y1 .%
illy I1111'',111+U 11'1 11 111' the (.:11,11:ilw:tti,in rat,. .\111'1111' Ilj II -- th;in I r:Lpit;t11/.:01,,i) rat,.1.1,111,1 make :t sn1,--tantal \;1111/'
I tig.redietit: (if an ill. Iippr-:Lc1i iIi Itha.1111h1,10 artnal :11111 "I' 11'1111'III11"
',Jowl', and actual ,II' perfio ammo Ikpi.l.;11I.:illit1diZAt 14.11
1.1114. inliV("' ;1 111111111
rot urn equit, III ill'111.1% (11'11114'i:11 Ha,
tit..
Slate tssisialice To Local lissesss7Any refiirrn in tax adininistrat iu11 with! I the
State iit Cloinecticilt 1,110 cloinv :16)01.1f1:44.1. II". ;old hION els it 1.:ffurts t,i inilHive thequality of priipert.. tax assessment ma -1 Yerlyeti-trate town linitting these tY;(1 giicverinnentIlilll a "01_,,,rdinat,id. f«peratiun. Iii assist in developing cl«ser rela-tionships. there should he established ;it the State14,i.el proper administrative niachilico. ainil stand-a I'lliZel NI ited res.
State Board of ..14.....moetti Supers i.iopoPresently. the burden of valuing real estate an:l
Ilers"nal ProPertY in the State of Connecticut liesentirely with the local assessor I. i,:trd of as-sessors. General supervision is given by the StateTax Department, but there is no authority for
162
enforcement fill the administrative process. TheCommission believes that a division of the StateTax Department should he established with fulllegal authority to direct and supervise the localassessment function. This division would he calledthe Slate Board ilf As:.4esnient Snpervisinn. Thedivision m..(a11(1 be comp(ised if a Directiir iif Loral.V-Asessntents, resp( fir the entire State pro-gram, and six Assessment Supervisors. Eachwould lie a qualined valuation expert hired under
s"vice 'flue would each heresponsible for specific. sectiiins of the Statedivided as follows: Hartford Comity. New HavenCounty, Fairfield County, Litchfield County, tVind-ham and Tolland, and New 1,(Indlin and MiddlesexCounties. These supervisors would be responsiblefor all of the programs required by statewideunicorn assessments.
Argument for !Rgional I)itrielsthe experience in taller states. bet-
ter ;Lsse.,sment., reeiu 11) liY?) 1l e 11111111Wr1)1 3SsYSsItie7it thStrict:4 IS 10(111(3,11.
The NI*. 11171) edition of is de-voted entirely to the subject "Metter :1ssessinentfor Fetter Cities.- It points out the trend intuany ate.,, tilVard r(111:()Ii41:114'11rill:4. ing that in :11
ass,essinat districts are standard." The articlesummarized the advantages of consolidation Os
ft lilt lows:
t. Niaking the numl,er of assessment districtssmall enough permits effectivc '.`:rate super-vision.
I t VIi111111:0 oVViappillg as sys;:rnv lit dis-t Het ,4 and the wasteful duplication of workthey entail.
Such reduction makes even the smallest con-solidated assessment districts large enoughto afford an adequately paid full-time quali-fied assessor and trained staff.
These recommendatitins of experts in the fieldwarrant serious consideration and may be anultimate goat to strive for in Connecticut. TheCommission does not recommend at the presenttime any such drastic changes in assessing dis-tricts. However, it is recommended that townswhich are too small to carry the financial burdenof a full-time assessor should combine with othersmall towns to hire a qualified assessor to coverthe work load in the combined towns. distributingthe cost over each of the towns in which he works.
Loral Board of Tax ReviewThe Present system of property tax appeals is
through a local hoard of tax review. Connecticut'sboards of tax review are official municipal agenciescreated to serve as an assessment review hoard.They are the first level of appeal from actions ofthe assessors, and their function is at an inter-mediary level between the assessors and thecourts. Those serving on these boards areelected, and the vast majority have had no ex-perience in the appraisal or assessment fields.The Commission recommends that at least twomembers of any board be qualified in a field alliedto property valuations, such as real estate ap-praisers.
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State Board of 1ealThen, is 0 wed for a hotly of professional valu-
ation exi,erts to review a.-sessments hefore o twilirlC1)111MisS114)11 is proposing a
state Hoard of .1ppeal romosed of a chairman,ho is the State regional supervisor and three
professional members selected from outside theregion in which the appeal property is located.
pror.,5si(41:11 nionilHrs, \would he ap-pointed by the Director of !Awn) Assessments11(1111 a list of qintlitied valuation professionals..taxpayer may make an appeal to the State 1%oardor Appeal at no cost to himself, and it will not benecessary for either the taxpayer or the assessorto )resent ed 1)y counsel. Assessors wouldhave the right II, ;1,1.4) the reauctien a valtutfirm by t he LHC:11 hoard of Tax Review under this)rt )gram.
Director of Local %,,..e,.!..mntThe Director of Local Assessment would he
required to promulgate rules and regulations toI. Mandate uniform guidelines for assessing
administration, including, granting of ex-emptions and special assessments.
2. Prepare. issue and periodically reviseguides for local assessors in the farm ofcost nuuluais, handbooks of rules and reg-ulations, appraisal manuals, special man-uals and studies, news and reference bulle-tins. and digests of property tax laws suitably annotated."
3. Require each tax jurisdiction to maintaintax maps in accordance with standardsspecified by the State. Here again, uniformstandards would be established and fol-lowed throughout the State. All parcelswould be identified through a standardizedparcel numbering system which would berelated to the assessors' map hooks.In cooperation with local assessment tuis-(fictions, devise, prescribe, and require theuse Of all forms deemed necessary for effec-tive administration of the property tax.It is intended that these forms shall beuniform throughout the State.
5. Establish standards for revaluations andrevaluation firms. Maintain a list of certi-fied revaluation companies and approvecontracts between local jurisdictions andthose revaluation companies.
Dove Imn, maintain, and enforre a uniformsystem statem..ide preparation If
ment rolls, tax rolls, and tax bills.7. Establish unit prices for lands, ,.alued un-
der Public Act 19n P.113 Session "AnAct roiicernitig the Taxation and Preser-vati( (rf 1'.;11111. Forest, and ()pen SpaceLand"),
H. PrI IV i Ile technical assistance Lo assessors\VIldtl requested, for ass.:sijig specializedproperties.Administer the sales ratio studies andpro%.ide 1.4 )WnS with assessment PerCent-w.re.s fr( ail sales ratio stiolie.s arid appraisals.
111. Establish a system of statewide current
.
\ :dilations through annual computer up-lati ?OZ.
I Vaitle Iler:,t111111 property Ofpal li(' utilities.
12. Nlaintain listing id' ;ipproved professionalvaluat 'out e pelts for Board (4 .Apiwal.
1114Merpi of the State Boa141 of tssessment,Illll'i'%'i sii
The Slate Hoard of Assessment Supervisionshall have compulsory power over the local assess-ing function. including the right to mandate pro-cedures, conduct an audit for compliance at locallevels, and act for the local assessors on specialtypes of property.
Uniform Assessment Dates - Ut 'Horn] Fiscal fear
Uniform Assessment DatesLack of uniformity of assessmat dales and
fiscal years creates special problems of administra-tion. The need for statewide uniformity becomes'particularly urgent when payments are made to orby towns based on their ;,ssessen valuation as ofa specific time,
Different assessment dates also create a majorproblem of where personal property and moreparticularly motor vehicles are to be taxed. Someproperty avoids being taxed because of differentassessment dates by being moved from place toplace, thereby taking advantage of the differentdates for recording property.
By special act, the following towns have assess-ment dates other than October 1: Glastonburyand South Windsor have January 1. Waterbury
CertificationConnecticut assessors are presently either
elected by the people or appointed sly the legisla-tive body. Elected assessor -.9'P for a specifiedperiod of time and need not met. .1% minimumrequirements of training to serve on a hoard.Appointed assessors, on the other hand, usuallyhave had some training, but experience and train-ing are not mandatory. The lack of technicallytrained personnel has resulted in many gross in-
May I. Hartford and New Canaan July 1, An-sonia. East Lyme. Groton, New Britain, NewLondon, Norwalk, Plainfield, Stamford, Stoning-ton. Waterford. West Haven, and WethersfieldSeptember I. and killingworth December 3 1. TheCommission recommends that these towns convertto October 1.
Uniform Fiscal YearProvision n». uniform fiscal years fur all towns
throughout the State would facilitate administra-tion of the property tax. In devebping a programof uniformity throughout the State it. is necessaryfor all towns to adopt the same fiscal year. TheCommission recommends that the towns he on thesame fiscal calendar as the State, that is, that allfiscal years should begin on July 1.
of Assessors
109
equities in property values, and in some instances,complete omission of taxable property.
The Connecticut Association of Assessing Of-ficers and the International Association of Assess-ing Officers have developed their own programsof certification known as "Certified ConnecticutAssessor" or "Certified Assessment Evaluator."These designations are attained after considerabletraining and years of experience, plus a passing
ghide %vritton oxami nations. As of tl,'s %vriting%there are 1.1 u-s in Connecticut holding boththe CCA and CAI.: designations and 5 assessors%vim have received the CCA designation only. Thecombined distribution Of these assessors covers 17municipalities or about 1(1,; of the State's 169towns,
Connecticut has the oldest continuous school forassessors in the United States, completing. its 27thyear in 1972. This school is run once a year for.1 days and is sponsored jointly by the State TaxDepartment. Institute of Public Service, Univer-sity of Connecticut. Connecticut Association ofAssessing (Hikers. and the International Associa-tion of Assessing Officers. it takes a minimum of,1 years to complete all the courses provided in thisschoolthe fourth year being an advanced coursewhich changes yearly in order to expose the moreexperienced assessors to new areas in which to
advance their knowledge, Currently assessorsattend the school on a voluntary basis, and Statelaw provides that the towns must pay the tuition.
The Commission recommends that all assessorsand valuation personnel be required to attend thisschool for as many years as it is necessary toobtain a Pasring grade in each phase of the school'sprogram, or its equivalent. This training or itsequivalent would constitute the minimum require-ments for being certified to assume assessmentresponsibilities. Certification would be made bythe State Supervisory Hoard after an oral and/orwritten examination at the State level. All towns%you'd be required to have their assessor meet thecertification requirements within 5 years from the(hate of enactment of this legislation. The StateBoard would also establish .junior grades forassessment personnel; these employees would beretniired to achieve an intermediate level ofcertification.
State Supervision of Revaluation CompaniesAt the present time, most of the towns in the
State employ appraisal companies to conduct theirgeneral revaluations. These companies can besmall or large, competent or incompetent. local orout of State, There is no statewide requirementas to the qualifications of the personnel employedto do valuation work which, in ninny instances,becomes quite technical. Hence, the towns andcities must take their chances when accepting thebid of a revaluation company. Usually, the lowestbid is accepted for the purpose of economy; tin -fortunately, sometimes the results are less thandesirable.
Some reassessments in Connecticut have beenmade by people who are totally untrained to dothe job for which they were hired. These peopleinclude high school students, college students, andteachers working on their summer vacations,Often these individuals have no training in meas-uring and properly describing a building, yet theyserve as field appraisers, Revaluation companyemployees often place final values on residentialproperties without a thorough study of the mostrecent market sales. Income producing buildingsare frequently valued by a cost approach'° becauseit is less time consuming. Where the incomeapproach is used, there is little effort to ascertainactual income and expense data which would lead
105
to a realistic estimate of market value. All theseconditions have resulted in poor quality apprais-ing and inequities in assessed value,
It is recommended that all revaluation companiesbe approve& by the State Board of AssessmentSupervision with respect to their ability to prop-erly complete the job for which they wish to bid.Every employee of a revaluation company shouldbe required to comply with minimum trainingrequirements for the job in which he or she hasbeen hired,
This program would allow towns and cities togo to the lowest bidder with reasonable assur-ance the revaluation is being done by competentpersonnel.
It is also recommended that the State provideassistance in the preparation and approval ofall contracts between revaluation companies andtowns.
RevaluationsPresent law requires every town to conduct a
general revaluation of all taxable property withina 10 year period. In the past, this has permittedsome towns to go 19 years without a generalrevaluation by using the first year of the first 10year period and the last year of the second 10 year
period. Although this loophole can be accom-plished only once, it has been taken advantage ofb,. several municipalities. The intent of the lawwas that no more than 10 years should pass be-tween each revaluation. and most towns haveabided by this intent.
Values in Connecticut have reflected an averageincrease of between 4 to 8!; per year over thepast 10 years. and in sonic cases double thesefigures during the same period. Assessed valuechanges are clearly necessary in periods of lessthan 1 years. The previous legislative RevenueTask Force recommended that no more than 4years elapsed time be allowed before a generalrevaluation was undertaken, This Commissiontends to concur with these findings; however, a5-yea time period would tend to coincide withproposals suggested elsewhere in this report; and,therefore believes a 5-year general revaluationtime period would be more realistic.
This Commission makes a distinction betweenrevaluation and a general revaluation, Revalua-tion. mail be considered a changing of values only..while a. general revaluation is characterized bya physieul inspection of each property. At thepresent time, it does not appear prudent to relyupon value changes only; and, at least for theimmediate future, there is still a need fa. periodicpersonal inspection of property.
The ideal method of personal inspection wouldbe to split the town into sections with one sectionbeing inspected each year so that 'at the end of a
specified time period, every property would havebeen considered, Unfortunately. under our present;system, there is insufficient time for an assessorto do this work and fulfill his regular duties.Towns are now paying vast sums of money forgeneral revaluations once every 10 years. It seemsreasonable that this same money could be moreefficiently used by one of two methods: first, hirefull time personnel for the purpose of yearly re-v aluation. or, secondly, hire a revaluation C111 todo the work under the same method, The methodof general revaluation recommended is as follows:Every town will be divided into 5 sections withone section having a thorough personal inspectioneach year, and in no case shall the assessor failto inspect any property less frequently than every
years. The information compiled in this revolvinggeneral revaluation can be merged with the com-puter market data for the whole town in determin-ing annual valuations. As computer capabilitiesare developed, the need for general revaluationsactivities may be reduced,
In most towns, personal property is declared bythe property owners. This method o'nation Of value results in gross inequities in valueof like properties. General revaluation includesthe personal inspection of the book of businessownership, and where books are not kept, thereare other yardsticl.:-.; available to ascertain values.Under the revolving method of general revalua-tion, it is recommended all personal property ac-counts be checked not less frequently. than every3 years.
Computer. Assisted RevaluationThe cost of town government has increased
dramatically during the period since 1945. Thisdevelopment has placed mounting pressure uponthe real property tax and' the administrators ofthe tax. Although costs of administration haverisen proportionately with all other living ex-penses, many of our real property tax administra-tors have been told to maintain the same stafflevel which existed 10 to 20 years ago." One im-mediate result has been that the quality of assess1ments has fallen. The cost of comprehensive re-valuations has risen significantly, and in caseswhere communities utilize outside companies formass *revaluation, these revaluations have beenpushed further into the future than warranted bysocio-economic conditions.
106
Our urban centers have been focal points ofcivil unrest and social re-adjustment, thus causingmajor disruptions in preexisting value profilesfor the community. Suburban development haschanged not only the balance of political power;it has also realigned traditional concepts of landuse. Inflation has made speculation in land, andreal property in general, an aspiration of every-one who can afford to participate. All of thesefactors reflect. the increased tempo of Amer-ican life. As our life-style becomes more dynamic,these changes are reflected in price structure ofour land resources. Failure of our real propertytax assessment procedures to keep pace with thesedynamic changes leads to serious inequities in thetax itself.
One approach to overcoming this problem wouldbe to expand our staff requirements and spenda great deal more money on improving the loco-Meal quality of those employed in the field, Itmust he realized that a certain amount of thissolution must be adopted regardless of the ulti-mate principal approach selected. A second majoravenue available to governmental bodies is to takemaximum advantage of automated systems andcomputerized techniques.
During the last decade, major advancementshave been made toward computerization of thevaluation and property tax functions of munici-palities. The most notable and widespread ad-vancement has heen in the tax billing process.Today, the majority of the town,; and cities in theState of Connecticut are using some form ofcomputer assistance in preparing their tax bills.Throughout the country, and in some cities withinConnecticut, computers are presently being usedto calculate sales ratio analysis as a tool for usein improving assessment administration.
Computerized Assessment SystemsMany property tax jurisdictions have realized
the potential use of the computer in developingcurrent assessments and, ultimately, a completeassessment system which would prepare assess-ments, analyze assessment ratios, and computetax bills. Effective systems have been dev,lopedfor municipalities in Pennsylvania, California,Oregon, Washington, and Texas. Progress towarda statewide program in computerized. valuationand assessment is being made in Alabama, Ari-zona, \Vest Virginia, and New York. Some pre-.liminary work toward computerized assessmentsin Connecticut has been completed by the Hart-ford assessor's office and by the John C. LincolnInstitute. Many of these existivg computer 7)ro,grams would be available for use in the State ofConnecticut, thereby providing for significantsavings in the area of system development.
It should be understood that no computerizedsystem is going to replace those areas in propertytax valuation work which call for skilled judgmentof the trained professional appraiser. The com-puter can, however, perform many of the manualcalculations which presently consume much of theappaise's time. There are many aspects ofcalculating replacement cost, capitalizing income,and summarizing sales data which lend themselvesto computerization.
107
Application of Statistical TechnignesGoing beyond the mechanization of these rote
calculations, there are some new techniques whichcould, if properly applied, greatly assist the ap-praiser in his valuation duties. One of the mostrecent developments in assessment administrationhas been the application of statistical techniques,resting primarily on multiple regression analysis.While this form of statistical inference has beenwidely used in other areas of scientific analysisfor sonic time, it is only lately that assessmentadministrators have seen the benefits it offers fortheir type of work.
Multiple regression analysis offers great poten-tial for use in areas where there are large 1111111-hers of specific types of properties which wouldrequire numerous man-hours to effectively ap-praise and assess. Through computer analysis,one is able to relate the values of sold parcels toall of the many factors which might have beenconsidered by the buyer when the property waspurchased. For example, sale price is said todepend upon house size, lot size, quality of con,-struction, interior features, location, and manyother items. Through statistical analyst.;, over100 features of a property sale can be analyzed,and the appraiser can he told specifically whichitems were taken into consideration when theproperty was purchased.
This type of statistical analysis enables theassessor to make much better use of availablemarket data in determining value. Unfortunately,without the help of computers, many assessorscannot devote the time 'necessary to properlyapply the market approach to value and are thusforced to rely almost completely upon the replace-ment cost, or summation, method, This methodis not the most desirable even from an appraisalpoint of view, and it has also been shown that notonly does it lead to unfair assessment practices,but it promotes deterioration of older neighbor-hoods and especially rental properties accentu-ating urban blight. Regression can be integratedinto the cost approach; thus materially enhancingperformance of the replacement cost technique.
Multiple regression analysis can also go a longway toward generally improving the quality ofnew assessments. In a recent feasibility studyconducted by the International Association ofAssessing Officers to determine the benefits to begained thrOugh the use of multiple regression,a mean based coefficient of dispersion was calcu-
1
latcd to be S' Assessment professionals con-sider a coefficient of 5;i or less to be the best thatqualified appraisers can hope to achieve whenmass valuing property, while values of 6r,'? andup to 10;'? are considered acceptable when valuingproperty at 100; of fair market value,
In a test of the performance of revaluationcompanies in the State of Massachusetts, con-ducted by Commission consultant T. B. Smith,coefficients of dispersion were estimated for townsrecently revalued, each by a different revaluationcompany, The company which performed the bestwas able to achieve a coefficient of dispersion ofonly 8r? ; the other 5 companies ranged as highas 14J., with an average of Thus one mayconclude the performance of some multiple regres-sion equations measures up quite well when com-pared with the recent performances of some massappraisal companies. This Commission feels acoefficient of dispersion Nithin 10% using 100%valuation is acceptable.
Use of Computers in ValuationMultiple regression analysis is just part of a
computer assisted valuation system. The basicarithmetic of the income valuation premise caneasily be programmed so that new informationon rental data and capitalization rates may be fedinto the computer annually. This would providethe assessor a sound basis for valuation of incomeproducing property.
Computer programs which calculate replace-ment cost are already in widespread use through-out the United States. Therefore, with the in-clusion of multiple regression analysis of salesdata, all three of the standard valuation tech-niques may be employed in a computerized valua-tion system. The type of system which could beconstructed utilizing the three .techniques de-.scribed above could feasibly lead to annual assess-ment of 80 to 85% of all property 'in the Stateof Connecticut. The question remains, how wouldthe remaining 15 to 20% be handled?
A major valuation problem existing today ishow to appraise properties which do not normallysell on the open market. This problem will remainwith us so long as we make use of a real propertytax based upon ad valorem values. Hopefully,however, if much of the mundane calculationsinvolved in the valuation of less complex proper-ties can be shifted to computerized operations,
108
our appraisers will be al.)le to devote more timeto these complex valuation problems, thus leadingto more equitable assessments for all concerned.Still, it would probably be too much to expect fulland complete annual valuations of these difficultproperties. It would, however, be reasonable toexpect a detailed general revaluation of suchprone ies at a 5 year interval. During the inter-ceding years, these properties, primarily comer-cial and indiwtrial, could be ralued for annualassessment purposes through the Ilse of an econo-metric updating computer model. Value projec-tion models could be constructed for commercialand industrial properties which would relate cur-rent market value to available oconomic data; forexample, published statistics on wholesale and re-tail prices, income levels, and population densities.
Implications for Annual AssessmentBy constructing a truly comprehensive valua-
tion system, annual assessment of all real propertyin Connecticut is feasible. Implementation of acomputerized annual assessment system wouldrequire an intensive effort by both the State andlocal levels of government within Connecticut. Itwould depend on sincere dedication by all partiesconcerned toward achieving annual assessmentand the equitably administered property taxwhich would follow. This would appear the onlyway truly equalized values could be economicallyrealized for use of assessment data in aid to localeducation. Implications of this premise underlieboth the recent California and Texas court casesOn the financing of local education"-
While there would be immediate gains andbenefits derived from a commitment to develop'a fully computerized assessment system through-out the State of Connecticut, it would be unreal-istic to expect that the system could become fullyoperational on a statewide basis in less than 5years. Immediate problems would be manpowerstaffing and training. While the total manpowerrequirements would not be exceedingly large, thetype of personnel required is specialized and wouldprobably have to be recruited from outside theState or else retrained from a related occupation.With the cutback in defense oriented industrythroughout the United States, and specifically inConnecticut, there would appear to be a potentiallygood supply of labor available from this source.Possibly some of Connecticut's large technologi-
cally intensive industries could be induced to assistin the development of a statewide computerizedassessment system.
Standardized DataThere also exists the problem of uniform record-
ing of data throughout the State of Connecticut.A computer assisted valuation system would re-quire all records and data reporting forms to be
Full ValueThe concept of fractional assessment i.e.,
assessing property at less than full market valuehas evolved from two directions. During the
1930's, as a result of the major economic depres-sion which prevailed at the time, it was commonfor properties to sell for only a fraction of theirassessed value. There were actual instances wherethe tax bill was more than the current value ofthe property. These conditions were considereddeplorable and intolerable ; and, thus, many townsthroughout the United States adopted a policy ofhedging against further declines in market valueby establishing assessments at some fraction offull market value. In some instances, this wasdone by custom ; in other cases there were actualstatutory changes. Assessors found this approachquite attractive and ultimately began to championthe concept of fractional assessment.
The principal requisite for an equitable prop-erty tax is often considered uniformity of assess-ment. There is little concern as to whether theassessments are at full cash value or some fraction thereof. Unfortunately, when one is dealingwith fractional assessments, a 10c, increase in anassessment founded upon a 40% fractional assess-ment base is much less noticeable to the propertyowner than a 10% change founded upon a fullmarket assessment. In other words, it becomesmuch easier for the assessor to conceal his mis-takes when dealing with fractional values.
It is the feeling of this Commission that theentire structure of government state and local
has reached a very crucial point. The Stateneeds greater participation by all taxpayersthroughout the State in fiscal matters. If tax-payers are to participate in financial decisionsregarding real property taxation, they must first
standardized in order to take maximum advantageof computer efficiencies. Recent data would haveto be reported on all properties, thus probablyrequiring comprehensive revaluations for thosetowns which have outdated assessments or wherethe data provided by the last revaluation was in-sufficient. The task of planning and implementingthe computer assisted assessments would be aresponsibility of the State Board of AssessmentSupervision.
Assessment
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be able to understand the basis of their propertytax assessments. An. immediate step in this direc-tion would be to establish assessments based upon100% of market value with relative reduction inmill rate. These values should be published annu-ally in a widely circulated journal or publicationread by the majority of the residents within thetown. Published full value assessments wouldenable local residents to participate more activelyin the real property tax assessment process. More-over, it would establish a meaningful basis ofcomparing effective property tax values andburdens between towns. This would be a furtherstep in the establishment of equalized values foruse in distribution of funds from various Stateprograms.
Annual assessments on a 100% uniform basiswould have many specific advantages. First, allproperty owners would receive an annual notice ofassessment. This would prevent a new buildingfrom having an assessment relatively greater thanthat of an older building valued during a baserevaluation year; when the market value for thetwo properties was similar. Second, towns wouldgain a larger base grand list annually, whichwould tend to stabilize tax rates. Publication ofthe annual grand list would provide the publicwith a true picture of government spending com-pared to town wealth. With this information thepublic could vote for luxury amenities such asswimming pools and recreational structures basedupon the realistic appraisal of the wealth of thecommunity. At present these items are voted onwith little knowledge of the ability of a town toafford them. In addition, full knowledge of atown's wealth can provide the data for planningand zoning agencies to plan the direction of growthdesired.
Equalization of Assessments
Equalization of real property tax assessmentsis a problem between towns, The problem of lackof uniform assessments within a municipality hasKeen discussed previously.'" The problem of notknowing the effective assessment level when coin-paring assessment throughout the State is adifferent issue. In the past. while statewide knowl-edge of effective assessment levels would havebeen a helpful tool in property tax administration.such information was not essential for programsinvolving inter-governmental relations. Recentcourt cases, however, have made it abundantlyclear that there will have to be more State partici-pation in functions previously financed by localproperty taxation."
It is time for Connecticut to prepare the machin-ery for greater State responsibility in equalizingeducational opportunity throughout the State.With the ultimate development of computer as-sisted annual assessments, the job of equalizationshould' be reduced. Nevertheless, even in thosestates where close to annual revaluation exists,there are still problems when it comes to distribu-tion of school aid on the basis of assessed valua-tion. In California, the State Board of Equali-zation is continually fighting localized undervalu-ation as a means of acquiring more school aid.The desire to undervalue in relation to othertowns results from the State's allocating revenueto the local communities on the basis of assessedvalue per capita, with those towns having a lowervaluation per person getting a larger share of theassistance.
Suggested Equalization ReformsThe Advisory Commission on Intergovernmen-
tal Relations has set down a broad list of sug-gested property tax reforms. Those relating tothe equalization of real property assessments areas follows:
1. A single, well-integrated administrativeagency responsible for the State's entireshare of assessment administration, pro-vided adequately with professional person-nel, appraisal and research facilities, andfinancial 'resources.
2. The regular conduct of scientific assessmentratio studies that disclose the levels ofassessment of the major classes of property,and the regular. publication of assessmentratios for the major classes of both Stateassessed and locally assessed property.
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2. Adequate :ulthoity in accordance with themethod established by law for the Stateagency to equalize the levels of assessmentof State assessed and locally assessed proo-city on the basis of the findings disclosed inthe studies.
1. To provide the taxpayer with an effectiveremedy for inequality, creation of an inde-pendent and professionally qualified StateBoard of Tax Appeals, or tax court. withauthority for the aggrieved taxpayers tointroduce as evi lence the assessment ratiosdetermined by the State agency through itsstudies.''
Establishing an Assessment RatioAttempts to comply with items 1, 3, and 4 are
covered elsewhere in this Report; however, itemnumber 2 does merit some discussion. There aretwo basic systems whereby one might establishassessment ratio. A third approach is sometimesused which combines features of these two basicsystems. The least expensive and most eaten -.sively used approach is the comparison of actualmarket sales with assessments. This technique isextremely effective and accurate for the majorityof real property which would be comprised of resi-dential parcels, for these are the parcels which sellmost frequently. There is some frequency of salesof smaller commercial and light industrial estab-lishments, thus making sales .ratios an effectiveequalization tool in those 'categories. It would bethe responsibility of the State Board of Assess-ment Supervision to see that the sales truly rep-resent a cross section of all properties. If all typesof land use were not adequately represented, itwould be necessary to supplement sales data withindividual appraisals of randomly selected parcelsnot otherwise represented. Sample appraisals rep-resent the second basic system of establishingassessment ratios.
If one were to rely entirely on a system ofavailable sales, there would exist the problem ofincomplete representation. However, relying en-tirely upon sample appraisals will materially in-crease the cost of administration. Thus it is rec-ommended that the State of Connecticut adopt aprogram which combines both techniques.
Other GuidelinesThe Advisory Commission on Intergovernmen-
tal Relations has suggested other guidelines whichshould be f011owed when establishing an assess-
meat ratio program. They have emplia; :ccl thatthe program should be under the direction of aprofessionally competent statistician. They havealso suggested that parties to sales should besent questionnaires concerning terms of sales, re-lirbility of sales prices as evidence of marketvalue, and exact nature of transferred properties(to determine if personal property was includedin the transfer)."
Compilation of Data
In order to facilitate the completion of salesratio studies, the State supervisors would developa form to be filled out at the local level. Townclerks would complete a portion of this form whena deed is recorded. Data would include location,grantor, grantee, volume and page, recording date,instrument date, type of deed, revenue stamps,and sales price taken from affidavit. This form
would be forwarded to the assessor's office forcompletion of information which would includeland use classification. land details. building de-tails, aml assessment. The completed sale reportforms would periodically he sent to the State com-puter processing center for analysis.
Before computer analysis was used to calculateassessment ratios, appraisal data would he sub-mitted to the computer data center and the com-bination of sales and appraised values would beused to compile effective levels of assessment.These ratios would be snbmitted to the Directorof Lora? Assessment, whose function it would beto determine the percentage of adjustment, if any,required for all 169 municipalities to compile theirassessments for each, year at 100%. These (lathcould then be used by the appropriate State agen-cy responsible for allocating State aid to localcommunities.
Tax-Exempt PropertyIn recent years, there has been little effort on
the part of towns to maintain current values oftax-exempt real estate. When towns were per-mitted to include tax-exempt real estate for de-termining their bonding capacity, they did a rea-sonable job of valuing such property; however,since the legislature has changed the accountingmethod for purposes of local bonding, there hasbeen no concerted effort to assess these properties.
In 1969 the total assessed valtie of tax-exemptproperty in Connecticut was $3,533,240,747.17The quadrennial report reveals a steady percent-age increase from 1937 through 1961 except for1957. After 1961, there was a sharp drop in thepercentage of increase despite the fact that therewas substantial new construction of exempt realestate during the 1960's. This downward trend isnot caused by reducing value,' but rather by thelack of updating assessments ontax-exemptproperty.
The following data is taken from the latestavailable publication and shows the changes invalue from 1965 to 1969. State-owned propertyincreased $81 million, city-owned $116 million,and privately-owned tax-exempt property $221million.
There- is no specific measure to use for ascer-taining what the increased value of tax-exemptproperty would be if properly valued in relation
111
to taxable property. As assessed in 1969, tax-exempt property represented 16.0% of the totalcombined values of exempt and taxable property.All available evidence indicates this percentagewould be much higher if all property were valuedat. the same level. It should be noted that 7 townshave over $100 million of exempt properties; thesesame towns account for more than one-third thetotal of all exempt property in the State. Someyears ago an effort was made to inventory andvalue all State-owned property, but this programwas never completed.
All tax-exempt property should be assessed inthe same manner as non-exempt property, withthe single exception of streets, roads, highways,or other public ways. Although these assess-ments are not needed specifically for tax purposes,they are essential for the investigation of a variLety of public policy issues ranging from the im-`pact of tax-exempt property on the towns of theState to questions of land use for public purposes.The exception for streets and roads is necessarybecause there would be severe technical problemsin assigning values.
Further, the Commission believes, this assess-ment will disclose some misuse of tax - exemptproperty in that the property is being used oroccupied for non-exempt purposes: Returning thisportion of the property to the town rolls mayladdan additional $10 million of grand list value."
Preservation of Farms, Forests, and Open Space(Public Act 490)
Historically, the value of undeveloped land inConnecticut has been at a level well below fairmarket value, and in most cases no greater thanits value for agricultural use. Before 1960,. thepractice of 'valuing undeveloped land below marketvalue served a useful purpose because there wasample land available on the market. However,soon thereafter, raw land became a scarce re-source and assessors began to increase assessedvalues in some instances. It became apparent thatif legislation were not enacted much of our farmlands would disappear because of the inability offarmers to pay a property tax based upon fairmarket value. This condition would also apply toowners of forest lands.
In 1963, the Legislature passed into law PublicAct 490, now Section 12-107a and related sectionswhich provide a vehicle for local towns to desig-nate use valuation for those lands which shouldremain open as forests and farms.
A detailed explanation of the intent of this Act-is necessary to understand the impact which lowerassessments would have on local grand lists. Sec-tion 12-107a of the General Statutes states "It ishereby declared (a) that it is in the public interestto encourage the preservation of farm land, forestland via open space land in order to maintain a
ailable source of food and farm productsclose to the metropolitan areas of the state, toconserve the state's natural resources and to pro-vide for the welfare and happiness of the inhabi-tants of the state."
Land qualifying under the farm category hasbeen made abundantly clear by the various courtsin Connecticut. However, there has been no clearpicture of the intent of this law with respect toforest land and open space land.
The intent of the law was to preserve, throughuse value assessments, forests which have beenor will be properly forested. Many lands nowclassified as forest land are not being forested andin fact are overgrown brush lands. The definitionof forested lands is those which have been clearedof dense brush so that healthy trees will have anopportunity to grow into sturdy timber. To someextent this has not been followed in the classify-ing of forest lands.
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It is the recommendation of this Commissionthat the State Forester develop regulations forthe classification of forest land and that all exist-ing certificates be reviewed to meet the new crite-ia of forest lands.
The open space section of the Act was intendedto preserve all mountain ridges, stream beds, bogsand all lands deemed by local planning officials tohe in the best interest of the public, to be pre-served as open land, and if sufficient public fundswere available, these same lands would be pur-chased by public agencies to insure their perma-nent open nature.
At least two towns in Connecticut have de-clared all undeveloped land in the town as openspace. This action by the local planning agency isnot following the intent of the law and is in factdetrimental to the best interests of the public,because it prevents land from being properly de-veloped and relieves the individual property ownerfrom a tax burden which is justifiably his.
No current inventory is available as to the. num-ber of acres of land which are presently classifiedas farm, forest, or open space. However, in 1963when this bill was enacted into law, it was esti-mated that approximately one half the undevel-oped land in the State would properly qualify foruse tax value, and there is no evidence that thisestimate should be changed.
Public Act 1.52: Conveyance TaxThe 1972 LegiSlature .enacted into law Public
Act 152, which was a conveyance tax upon prop-erties, classified as open space. This tax is basedupon a percentage of the sale price beginning withthe date of ownership. If property is sold in thefirst year of ownership, the conveyance tax is10% of the sale price, 9% the second year, 8%the third year, and down to no tax at all after tenYears.
The conveyance tax was intended to be a pen-alty for selling land having special assessmentbenefits because the primary interest of PublicAct 490 was the preservation of undevelopedland.
It is recommended that this law be amendedto have the year of classification rather than the
year of title ownership used in determining. theholding period for purposes of assessing the con-veyance tax. It is also recommended that the con-veyance tax be held at 5%, thereby providing adegree of recapture of tax benefits realized. Prop-erty owners should have the right to withdraw
their application within 12 month:, from the dateof this amendment. Any owner who withdraws:La application after the 12 month period would besubject to the same conveyance tax schedule asthough in continuous application.
Undeveloped Land AssessmentsThe change in undeveloped land assessments
during the past 20 years has been studied. In1952 the average assessed value in the entire Statewas $8 per acre; there has been a steady increasein the unit price over the entire 20 year periodsince then with no indicated change in the patterndue to the passage of Public Act 490 in 1963.For instance, values more than doubled from 1952to 1962, rising from $81) to $181 per acre. From1962 to 1971 the unit price again more than dou-bled, from $181 to $480 per acre. The latter 9year period included 8 years of special land assess-ments under Public Act 490.
These value changes do not reveal the wholepicture of land values in the State because mostassessors are still using values substantially belowmarket values for undeveloped acreage. In 1971.approximately 2,100,000 acres of taxable un-developed land in Connecticut had an averageassessment per acre of less than $500 fora total.assessed value of approximately $1 billion. Allthese figures would be more than. doubled if therewere proper assessments on these lands. Basedupon. a State average mill rate of 50, a total inexcess of $50 million can be realized from assess-ments on land at proper values.
All lands not qualifying urder the open space
legislation should be rained on the basis of fairnote/ct. obre. It has been thi:!, practice of assess-ors to value all undeveloped land at or slightlyabove agricultural value. Present law requires theassessor to value all undeveloped land not classi-fied under Public Act 490 at the same percen-tage of value as other taxable property. Salesstudies in 6 towns reveal this law is not being fol-lowed. and the assessed value of undeveloped landis about one-third the percentage of value of otherreal estate.
Some examples of land disparity include onetown with acreage 100ci) value at $250 per acreand sales of the same land at $800 per acre. An-othe town had industrial zoned land valued at$1,200 per acre and the sale price at $6.000 peracre. A review of the assessment and sales ofacreage in most towns would show similar rela-tions of the assessed value to the sale price.
This Commission recommends an immediaterevaluation of all land in the State to bring theirvalues in line with other real estate as requiredby present law..lt is not believed this action wouldconflict with the intent of Public Act 490, be-cause it would cover only half the acreage in theState, with the other half under the protection ofPublic Act 490.
Building Permit FeesEach town is presently permitted to use its own
schedule of fees for the issuance of building per-mits. There is no uniformity in the amountcharged per $1000 of construction costs. In manyinstances, there is no fee charged at all. In addi-tion, many towns permit builders and/or ownersto submit cost estimates well below the actualcost. This practice obviously leads to unequal pay-ment of fees for similar cost buildings.
The Commission recommends a minimum feeof $5.00 per $1000 of construction, payable at the
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time of issuance of the building permit. Itfurther recommends that the State Building In-spector develop a fee schedule for various typesand classes of buildings, which schedule will beused by the local inspector in charging fees. TheCommission further recommends that penalties bedeveloped for gross understatement of cost by thecontractor. The Commission believes that rev-enues to local government will be increased by$2.5 million with the application of the minimumfee schedule.
Program Implementation Dates1,05ras will he to
1110(;.'t valuation with an annual computer revalua-tion of the grand list and to adopt the uniformassessment date and fiscal year. Towns will hegiven lire years to comply with other provisionsof the statewide uniform assessment act, as ad-ministered by the State Hoard of Assessment Su-
114
p(srvision including personal inspection of allproiwrties ithin the ':)-year period. Any tovnhaving completed a ,c,.(neral revaluation Nvit li in tlicpast 5 years need not tile per:tun:it illspee-tioll 011 rotation S,k'Stelll Until tilt! siNtil ,votirafter the effective date of their previous generalrevaluation,
FOOTNOTES TO PANT C
I See ('onnectieUt hddie 1nicumont \n. 8, InformationlevIrt f ::...44%.munt tin,/ ('o1/4 el ion of nix, .4 1 1974))
2 Ibid.
S". below, PP, 1 13 ffo
4 See below, pp. 101 fT.
5 See below, p. 105.
6 See below, p. 104.
7 Much of this information is derived from Advisory Com-mission on Intergovernmental Relations, Stotc-i ornl i-0.14.17 res : Sir/M6(.4LO Fen fufT.S 41/id S 0(0 )S, Uri LegiSIF41(101/
ShingtO D.C.: Government Printing Office, 1972).
8 Pages 35-36.
9 The State of Massachusetts has been confronted by thenecessity for similar procedural guidelines. Commissionconsultant T, R. Smith of the International Tax Programof the Harvard Law School is presently assisting in thedevelopment of manuals for use by Massachusettsassessors.
115
10 For discussion of marl:et data, cost. and income ap-proachs to valuation, see ;Above, p, 101,
11 For a detailed discussion of this, See Part D of thisN'oluote.
I..' See I'art 13 of this Volume, pp. 15- IS.
Sel above, p. 96.
14 For a detailed discussion of thi see Part 13 of tllisVolume.
15 Advisory Commission on Intergovernmental Relations,Tho' ii'ote of thy Status. in St 4.444blf tri nr,4 floc 1.4.4,14crt I/ Tax
IN1'asitington, 1),(', Government Printing Office, 1963).Pp. 178-179.
16 Md., p. 50. See also above, p. 107.
17 Connecticut Public Document No. 52, /era! k: :tette Ea--4.114'44.d from l'er.ro iun (1970),
ISSN, Table C-1 above, p. 95,
PART I)
Municipal Fiscal Procedures
IntroductionThe State of Connecticut is being called upon
more and more to share in the payment of costsincurred by lo,tal governments. This is in partthe result of towns and cities being faced withrising costs and providing more services while atthe same time being limited to the property taxfor their source of revenue. There is understand-ably a limit to which municipalities are willingto increase property taxes when the principalburden of such taxes falls on the home proper-ties of their constituents.
The State has responded to this demand withsubstantially increased payments to local govern-ments. During the period from 1961 through1965, payments by the State to municipalities in-creased by approximately ; from 1965through 1970 by 124%. The Federal governmenthas also recognized the problem of local govern-ments and additional funds will soon be forthcom-ing to towns and cities under Federal revenue-shar-
The
1.
ing plans. More money than ever is being receivedand expended at the local level.
Under these circumstances, it is not sufficientfor the State alone to put its affairs in good fi-nancial order, It is imperative that local govern-ments adhere to proper fiscal procedures whichinclude appropriate review and constraints, Thewide differences in the structures of municipali-ties in Connecticut make the adoption of soundfiscal procedures all the more important, but atthe same time, all the more difficult.
The Commission has looked upon local govern-ments as being the preferred level for decisionson spending and taxing. Individual participationis far more meaningful at this level. It is withthe purpose of preserving the viability of localgovernments and at the same time holding themresponsible and accountable for their actions thatthe Commission recommends that the GeneralAssembly adopt a Uniform Municipal Finance Actwith provisions as set forth below.
RecommendationsCommission recommends:
Approval at referendum would be requiredbefore an annual municipal budget result-ing in. an. increase in the tax levy of morethan 3% would become effective.
2. A special tax would be required to belevied by a town prior to taking any actionwhich would cause a deficit in the budgetfor the current year.
3. The budget of a board of education wouldbe required to be approved and adminis-tered in the same manner as the budgetof other municipal departnients.
4. Municipalities would be required to use adetailed uniform system of accounting tobe promulgated by the State.
5. Each proposed municipal capital improve-ment would be 'required to be 'reviewed bya Capital Improvement Review Board tobe established by each municipality toevaluate objectively each improvementfrom the standpoint of need, alternatives,adequacy, and cost.
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6. Local governments would be required to' develop personnel standards and encour-aged to employ qualified persons in finan-cial and administrative positions.
7. A properly staffed municipal finance divi-sion would be established in the office ofthe State Tax Commissioner to assist townson fiscal matters and to supervise and cm-force compliance 'with all regulations andlaws relating to municipal finances.
8. The affirmative vote of the municipal leg-islative body approving all collective bar-gaining contracts would be required beforethe contract, is binding upon the munici-palities.
9. The maximum debt limit allowed munici-palities would be changed in structure andlowered.
10. Municipal finance offices would be requiredto follow standards for investment of mu-nicipal funds to be established by theState.
Discussion of Uniform 3Iunicipal Finance Act
A brief explanation of the reasons for each ofthe ;Wove provisions of the Uniform :\lunicipalFinance Act follows
The Commission proposes that'adoption of theannual budget by the legislative burly' not becomeeffective until n'oved at referendum in theevent that the proposed new budget would resultin an increase in the tax levy of more than 3c,following adoption of the Commission reonnmen-dations made in Part C. Vol. II. Some municipalcharters contain provisions whereby a specifiedpercentage or number of voters may petition toforce a referendum on the budget. The GeneralStatutes provide a similar mechanism for forc-ing a referendum in towns operating under thetown meeting form of government. Similarly. theGeneral Statutes provide a method by which theresidents of a regional school district may forcea referendum on the budget of the regional schooldistrict. Usually, however, the difficulty of obtain-ing a sufficient number of signatures makes theright to petition for a referendum illusory. Inmany towns and cities there is no such right at all.
The Commission has noted the rapid increasein the amount of property taxes paid by mostConnecticut residents. At the level of municipalgovernment, the taxpayer should, in most in-stances, he permitted to determine the nature andextent of municipal services inasmuch as he isthe one who will be paying for them. Submissionof the budget to referendum will result in a closerstudy of each budget item during the budget-making process because the department headsand municipal officials will normally seek to pre-pare a budget which either will not have to facethe hazards of referendum or which can be welldefended in the event of a referendum. The re-quirement for a referendum is geared to a per-centage increase in the amount of taxes to belevied in the municipality, not to the size of thebudget itself. In other words, the budget mightbe increased by more than 3% but no referendumwould be required if sources other than taxationwere available to defray the increase. Suchsources Might include receipts from user charg-ers, benefit assessments, revenue-sharing pay-ments, and other Federal or State grants.
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The possibility of ;t r eferendum on the budget%vill require careful timing. of the budget-makingprocem. The Cumnik:4ion has recommended thatall towns adopt the uniform fiscal year. Munici-palities should be required to prepare and voteMI the proposed budget in accordance with a uni-form schedule. The Commission recommendsthat the General Assembly establish a date inearly April for final aetion on the budget by thelegislative body. If the budget as adopted willrequire an increase in property taxes by inrethan :1(; , a notice of referendum on the budgetshould be published within three chlys after thevote of the legislative body and the referendumshould be held within a resonable time after suchpublication. If the referendum rejects the budget,the legislative ')oily should be given a reasonableperiod to prepare and vote on a revised budgetand if the revised budget still requires an in-crease in property taxes of more than 3"...;. an-other referendum should be scheduled. If nobudget has been approved prior to the commence-ment of the new fiscal year on July 1, the taxcollector should be authorized to send out taxbills for the July 1 installment on the basis of a
increase in the tax levied for the previousyear, using the new grand list. When the budgetis finally. approved and the amount of tax fixed,the tax collector ca'l make the necessary adjust-ment in the bills for subsequent installments oftaxes after .July 1 or in the case of towns utilizinga single billing, a special bill must be provided.
Special Tax Levy .
Once the budget for the current year has beenestablished, the Commission recommends that nocontracts be entered into by any municipalitycalling for the expo of local funds not pro-vided for in such budget, and no supplementalappropriation for any project or purpose otherthan a project to be financed from the sale ofbonds be approved if such contract or supple-mental appropriation would cause a deficit in thebudget for the current year, unless a special taxis immediately levied to provide the necessaryfunds. Similarly, if one or more items of expect-ed revenue fails to materialize during the budgetyear and such failure will result in a deficit, aspecial tax to provide the necessary funds shallbe levied. Such taX may be either (1) added tothe tax for the current year and collected as part
thereof or (2) added to the tax to he levied forthe next fiscal year. In both cases such additionaltax shall be considered an increase in the tax levyfor the next fiscal year for the purpose of deter-mining the necessity for subjecting the budget forthat year to referend WM There are presentlyrestrictions On spending in excess of appropria-tions., It is expect6d, however, that municipalofficials \vill exercise even greater restraint. inproposing additional prt,.(rrams or committing themunicipality to increased expenditures during afiscal year if they arc required then and thereto levy a special tax for such programs.
Board of Education Budget ApprovalIn most towns the education budget is larger
than the budgets for all other municipal depart-ments combined. It therefore is important.thatprudent financial control exercised over non-school spending should likewise be epplied to edu-cation expenditures.
Under existing law, the boards of educationhave extensive responsibility and discretion indetermining the size of the education budget andre-allocating funds from one budget item to an-oth er.2
The Commission's recommendations to subjecteducation expenditures and collective bargainingagreements to the control of the municipality'snormal budget making process will affect thetraditional powers of boards of education inConnecticut.
The Connecticut Constitution guarantees freepublic schools in this State." The General Assem-bly has delegated the responsibility of maintain-ing and managing public schools directly toboards of education.' School boards are legallyagents of the State, but their actions can have im-portant fiscal consequences for municipalities, forall local fUnds to support the public schools de-rive from municipal tax levies.
Generally, a municipal budget makes a singleappropriation to the board of education, ratherthan itemized qppropriations for specific pur-poses. The board determines how it will allocateits funds among various expenditure items, andhas the power to transfer surplus funds fromone expenditure item to another. 'leacher sal-aries, which often comprise 80(;/i of the educationbudget, are determined by collective bargainingagreements negotiated by the board of educationwhich bind the municipality unless the legislative
121
body acts to reject the agreement \vithin 30 days.5Under Ares it case law a municipality probablycannot refuse to appropriate sufficient .funds topermit the board of education to carry outthe board's statutory duties to manage and main-tain the public school system in the municipality.
'Thus, under present practice, boards of educa-tion have substantial power to determine theamount of local tax revenue which has to beraised for education expenditures. They alsohave almost complete discretion to determine howmuch will lie allocated to each expenditure item.This power is unique, in contrast. with all othermunicipal departments mid agencies, but boardsof education are unique because under the lawthey are agents of the State more than they areagents of their municipalities.
The Commission's recommendations will makeboards of education more susceptible to controlby their municipalities in regard to fiscal matters.Under the Commission's recommendations, theresponsibility for managing and maintaining pub-lic schools will still be exercised by the boards ofeducation, but the legislative bodies of municipal-ities will have greater responsibilities for deter-mining the amount of funds which will be avail-able to the boards to carry out their school poli-cies and duties.
Uniform System of AccountsThe nature and quality of municipal account-
ing practices vary widely throughout the State.While the financial records and reports of somemunicipalities are maintained and prepared inaccordance with generally accepted accountingprinciples, there is considerable deviation fromsuch principles in many places. Municipalitiespresently submit a variety of reports to the Mu-nicipal Division of the State Tax Department,together with answers to a financial question-naire, but there is no state-wide coordination ofmunicipal accounting procedures. The presentsystem s'.ffers from lack of uniformity and stan-dards of review, inadequate staffing of the Munici-pal Division, and unavailability of information orassistance for municipal financial officers. Becauseof the lack of uniformity in accounting practices,it is difficult if not impossible to make many usefulstatistical comparisons among municipalities.
The problem could.be remedied in large part byconsistent administration of a uniform system, of
accounts, similar to that promulgated by thePublic Utilities Commission for utility companies,whereby items of income and expense would behandled in identical fashion by all municipalities.To implement such a system, the Municipal Fi-nance Division, which the Commission recom-mends in Section 7 below be established in theOffice of the State Treasurer, should be author-ized and directed to promulgate a uniform systemof accounts to control all municipal financial andaccounting procedures and to enforce said system.
Capital Improvement Review BoardsThere are existing built-in fiscal checks and
balances among town agencies such as the boardof selectmen or council, board of finance, boardof education, building committee and planningcommission with respect to building proposals.These in most instances are sufficient to providean objective evaluation of proposed capital im-provements. Yet each of the above agencies iseither substantially involved in numerous townmatters or is concerned only with particular mat-ters not related to the financial practicality of aparticular capital improvement proposal. For thisreason there is need for a competent board withineach municipality whose sole function will be toreview the fiscal impact of each proposed capitalimprovement.
Such a board would be expected to determineand to report (1) the extent to which the pro-posed improvement is needed; (2) what alterna-tives to proceeding with the proposed improve-ment exist; (3) the soundness of the proposal interms of the need to be fulfilled; and (4) thelikely consequences of the cost of the proposedimprovement on the town's financial position andmill rate.
The report of the review board to the legisla-tive body, which would be advisory only, wouldbe disseminated to the residents of the town bynews media and copies of the report would beavailable at the town hall. Such an evaluationof each proposed municipal improvement by theCapital'Improvement. Review Board should assurean objective appraisal of each proposal prior tofinal action being taken to proceed.
Financial and Administrative PersonnelIn addition to uniform administrative practices
in municipal finance, the Commission believes thatconsideration should be given to the development
122
of uniform personnel standards in municipal fi-nance departments. The standards could vary inrelation to the size of the municipal budget orpopulation. The larger municipalities would berequired to conform to higher standards thanwould smaller municipalities. Hiring a bettertrained finance director and a larger staff for thefinance department will be more expensive thancontinuing to shortchange this area, but theCommission believes that the expected improve-ments in performance will offset the increasedcost.
Minimum standards for chief administrativeofficers of cities and towns should also be .con-sidered, but the Commission is limiting its recom-mendation to municipal finance departments atthis time.
The Commission recognizes that personnelstandards are more easily discussed than im-plemented. Academic credentials do not in them-selves insure high performances in an individual,nor does a large number of employees in thefinance department mean that the department willfunction well. Eut certain minimum standards instaffing and qualifications should be developed.The Commission recommends that these standardsbe developed by the Division of Municipal Financeto be created at the State level.
Municipal Finance Division at State LevelFor too long towns have been left on their own
to cope with increasingly complex finance. prob-lems. They have been forced to seek advice fromwhatever source was available, banks, bond coun-sel, and the like. The Municipal Division of theState Tax Department has been understaffed andunable to render the assistance needed.
It is imperative that a competent, well-staffedmunicipal finance division be established to per-form the many needed functions now not beingdone. These include:
1. Promulgation of regulations providing fora uniform system of accounts to be maintainedby all municipalities;
2. Close supervision of municipal accountsand enforcement of regulations pertaining tosame;
3. Providing prompt and competent adviceto municipalities on financial and proceduralproblems;
4. Establishing standards for investment of
town funds and providing advisory assistancein investing such funds;
5. Periodic inspection and review of financeoperations in each municipality and submissionof reports thereon;
6. Development of municipal financial pro-cedures to include maximum use of data proc-essing to increase efficiency;
7. Recommendations to governor and Gen-eral Assembly for legislation needed to improvemunicipal finances.
8. Development of standards and qualifica-tions for municipal finance personnel.Accordingly, the Commission recommends that
a Municipal Finance Division be established inthe Office of the State Treasurer to carry out theabove duties.
Collective Bargaining AgreementsThe salaries of teachers and municipal em-
ployees comprise a substantial portion of a munici-pality's budget, and an increasing amount of suchsalaries is established through collective bargain-ing agreements. Since such agreements can havea significant effect on the size of a municipality'sbudget, the Commission recommends that no col-lective bargaining agreement be binding on amunicipality until it has been affirmatively ap-proved by the municipality's legislative body.
Collective bargaining was recognized by statutein Connecticut in 1965.6 Subsequent amendmentshave provided that a collective bargaining agree-ment shall be binding on the municipality if thelegislative body fails to reject the agreement with-in a certain number of days.' These provisionsshort-circuit the normal budget process whichpermits scrutiny of proposed appropriations bythe board of finance or similar agency in mostmunicipalities.' They may also circumvent otherstatutory provisions which prohibit the executionof contracts when funds have not been appro-priated to pay the municipality's obligations undersuch contracts,' particularly where collective bar-gaining agreements become effective before theannual budget has been adopted. All other con-tractual obligations of a municipality require thelegislative body to appropriate funds or to actaffirmatively to approve the contract before thecontract is binding. The Commission's recom-mendation will ensure that proper consideration isgiven to the cost of such agreements to the mu-
123
nicipality and will provide for uniform treatmentof all contractual obligations of the municipality.
Maximum Debt LimitA municipality is permitted by the General
Statutes (Section 7-374) to issue bonds for varioustypes of capital projects up to the following multi-ples of receipts from taxation for the most recentfiscal year: urban renewal projects-31A, times ;sewers-33/1, times; school building projects-41/2times ; all other borrowing:21/1. times. In noevent may the total indebtedness exceed 7 timessuch tax receipts. In calculating outstanding in-debtedness, the municipality may subtract thevalue of assets in its sinking funds, and excludecertain utility borrowing and indebtedness issuedin anticipation of taxes, public improvement as-sessments, and proceeds from any State or Federalgrant for which a written commitment or contracthas issued. While indebtedness includes indebted-ness of municipal entities coterminus with andwithin the town, such as fire districts or separatetaxing districts, it does not include the debt ofmunicipal entities of which the town is a con-stituent part, such as regional school districts orcertain public service districts.
The tax receipts formula outlined above is awk-ward to use and does not truly relate the financialcondition of a municipality to its needs or abilityto pay. Furthermore, most municipalities are sofar below the permissible debt limit that it doesnot serve as a realistic curb on municipalborrowing.
The Commission therefore recommends that thedebt limit statute be changed so as to establisha limitation for all municipal bonded indebtednessat an amount not to exceed five times the mostrecent year's total tax levy or three percent ofthe full value of the taxable property in the town,whichever is greater. School district. borrowingand other borrowing by multi-town agencies whichpledge the credit of constituent municipalitiesshould be included in determining bonded indebt-edness. The exclusions would remain as theypresently are. Total permissible debt would thenvary as a function of the inherent .wealth of amunicipality or its recent history of taxing.
In order to accommodate municipalities whichare at or near the maximum permissible limits,and to provide flexibility in situations whereemergency or critical need dictates additionalborrowing, the Commission recommends that a
municipality wishing to issue debt in excess ofthe above limits could do so upon approval by atwo-thirds majority of the votes cast at areferendum.
Standards of Investment for Town FundsThe Commission has recommended that all
municipalities adopt the uniform fiscal year (July1 to June 30) not later than June 30, 1974. Mu-nicipalities on the uniform fiscal year have theadvantage of receiving a large part of the year'stax levy during the first month of the fiscal year.These tax receipts may be invested for a tempo-rary period until expended. The same is true to alesser degree on subsequent tax payment install-ment dates.
The ability to invest such tax receipts is alasset of local government which is largely un-available to municipalities not on the uniformfiscal year. Further, municipalities not on theuniform fiscal year must usually borrow moneyin anticipation of tax receipts and the interest
expense on such borrowing is an additional drainon the municipal budget. Once all municipalitiesare on the uniform fiscal year, the only tax antici-pation borrowing permitted will be short -term.borrowings in anticipation of the receipt from theproceeds of the special tax levied during thecourse of a fiscal year. No other borrowing inanticipation of taxes should be needed or per-mitted.
Having all towns on the uniform fiscal year in-creases the need for prudent investment of townfunds. Uniform standards should be adopledwhich will limit the amount of funds which themunicipalities keep in non-interest bearing ac-counts and professional advice should be availableto municipal treasurers in maximizing the returnsobtained on municipal funds, including taxreceipts, revenue-sharing payments and State andFederal grants. The division of municipal financeto be established at the State level should be avail-able to provide assistance to municipalities seek-ing investment advice and to promulgate stand-ards to be followed by municipalities in this area.
Conclusion
The specter of ever increasing taxes demandsprompt action in curbing excessive governmentalspending at all levels. The enactment of the Uni-form Municipal Finance Act recommended by theCommission should help control spending on the
124
municipal level. It should result in increasedefficiency at reduced' costs. It should restoregreater financial control to those upon i,vhom thetax burden falls. .
FOOTNOTES
1 Conn. Gen. Stat. Secs. 4-100, 7-348, 7-349.
2 Conn. Gen. Stat., Secs. 10-220, 10-222 and 10-4a.
3 Connecticut Constitution of 1965, ArticleOne.
4 Conn. Gen. Stat., Sec. 10-220.
Eight, Section
5 See generally Pope and Vause, "Metamorphosis in Pub-lic School Management," 2 Conn. L. Rev. 285 (Winter,1969-70).
TO PART D
125
6 See now Conn. Gen. Stat. Secs. 7-4(37 to 77 and Secs. 10-153b to 153f.
7 Conn. Gen. Stat. Sec. 7-474 and Sec. 10-153d. In townswith town meetings the legislative body does not have thispower with regard to agreements concerning non-schoolpersonnel. Also, certain types of collective bargainingagreements are binding without any legislative approvalunder Conn. Gen. Stat. Sec. 7-474d.
8 Conn. Gen. Stat. Sec. 7-344 and Sec. 10-222.
9 Conn. Gen. Stat. Sec. 7-348 and Sec. 10-220.
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