Connecticut’s cities won a legislative victory with passage of a bill that boosts funding under a payment in lieu of taxes program for local governments most in need.
The law, which takes effect in fiscal 2022, establishes a tiered method for determining the annual PILOT grant from the state for tax-exempt property. The new fiscal year will start July 1. Gov. Ned Lamont has signed the bill.
New Haven Mayor Justin Elicker called the legislation “a historical step.” His 130,000-population city, which faces a $66 million budget deficit, stands to receive nearly $50 million extra, or $91.3 million, under the new formula. That equals roughly 15% of his administration’s best-case scenario budget, which the Board of Alders is considering.
About 60% of New Haven’s property is tax-exempt because of the vast presence of Yale University, Yale-New Haven Hospital and many state and city holdings.
“The tiered PILOT proposal emphasizes equity and the importance of funding for towns that are in need,” Elicker said. “Historically the PILOT formula has not been need-based. It has been focused simply on the amount of non-taxable property that a town has.”
Connecticut defines a PILOT, a program it began about 40 years ago, as a payment from the state to a local government. Moody’s Investors Service on Wednesday called the new bill a credit positive for most local Connecticut governments.
The bill received widespread bipartisan support from throughout the state. House of Representatives and Senate votes were 125-24 and 28-7, respectively.
Previous PILOT allocations meant that “Greenwich used to get the same percentage reimbursement for its PILOT-eligible property as did New Haven or Hamden or West Haven or Hartford, and that was not equitable,” said the bill’s main sponsor, Senate President Pro Tempore Martin Looney, D-New Haven.
State lawmakers must still fund the program as part of the biennial budget negotiations in Hartford.
“I am the first to admit that the state legislative process is an enigma to me, and I never know exactly what’s going to happen up there,” said Elicker, elected in November 2019.
Elicker on March 1 presented two budget options, calling one “crisis,” the other “forward together.” His crisis budget assumed no additional PILOT funding from the state and called for a 6.2% tax rate hike and service cuts to close the gap, which Moody’s attributes primarily to rising fixed costs.
Looney, while acknowledging uncertainty about state funding levels — some estimates have pegged the cost at up to $145 million annually — was confident given the broad support in both houses. He described the measure as “catching up on the problems that we’ve had over the years with underfunding PILOT.”
Cities in Connecticut and elsewhere have been struggling the past year amid the COVID-19 pandemic.
Capital city Hartford, according to Moody’s, is in store for a 42% boost, bringing its figure to $52.2 million or just under 10% of its operating budget. About half of Hartford's land is tax-exempt. Moody’s said the new law will benefit other stressed cities including Bridgeport, Hamden and New Britain. The latter two are home to Quinnipiac and Central Connecticut State universities, respectively.
“While Connecticut does not have tax caps, these cities face a practical hurdle in raising taxes and, in turn, revenue because of elevated poverty levels and already high taxes,” Moody’s said.
The amount under state statute will continue to depend on the type of tax-exempt property. For example, said Moody’s, universities and hospitals are capped at 77% of lost revenue and prisons are reimbursed for 100% of lost revenue. The total grant amount varies annually based on the estimated value of the properties.
But, Moody’s added, the new method will consider a local government's full value or equalized net grand list per capita such that poorer local governments with a full value per capita less than $100,000 such as New Haven, which are considered “tier one,” will receive a PILOT grant equal to at least 50% of the maximum amount under the statute.
In addition, second-tier municipalities, with a full value per capita of between $100,000 and $200,000, will receive a PILOT equal to at least 40% of the maximum amount while the wealthiest municipalities, in the third tier, will receive an amount equal to at least 30% of the maximum.
