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Column: Greenwich Is an Exception to the Tax Troubles in Hartford

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By Allan Murphy
Sentinel Business Columnist

Connecticut’s budget for the year starting July 1, 2016 provides for revenues of $19.3 billion. Personal income taxes are the biggest part (49 percent). For years, Connecticut didn’t have an income tax, which made our state a destination for businesses and individuals. In 1991, we relinquished this advantage by instituting an income tax at the initial rate of 4.5 percent. Predictably, the rate increased over the years to 5 percent in 2003, 6.5 percent in 2009, and to the current 6.7 percent in 2011. The Tax Foundation has calculated that Connecticut has the highest per capita taxes among the 50 states.   We can’t be proud of that.

Recently, the state’s predictions of tax revenue have been revised downwards because taxpayers’ income is deteriorating. On Monday, Connecticut’s Office of Policy and Management predicted a shortfall of $634 million, or 6 percent, in personal income tax revenues for fiscal 2016, which ends next week. This deterioration in revenue will reduce the balance in the Budget Reserve Fund or rainy day fund from $406 million to $90 million. This is below safe levels.

The fiscal 2016 shortfall is an alarming signal for fiscal 2017. Personal income tax revenues were budgeted at $10.4 billion for fiscal 2017. Before the year has commenced, the deteriorating situation has compelled the government to revise the tax estimate to $9.5 billion. 

Connecticut has one particularly dysfunctional tax.  We are one of only 15 states with an estate tax. Although the Federal tax commences at estates of $5.45 million, Connecticut’s commences at $2 million. Connecticut’s estate tax rates commence at 7.2 percent and rise to 12 percent. For a $10 million estate, the tax is $736,800. This tax is a strong incentive for wealthy Connecticut residents to move away. States such as Florida, South Carolina, Texas, Arizona and even California have no estate tax. Basically, if you’re a Connecticut senior with a net worth of $10 million, your Florida house is free, paid for with the avoided tax upon moving. This is certainly a contributor to Connecticut’s net out-migration. While the estate tax certainly drives away many prosperous residents, it isn’t a significant revenue source for the state. Connecticut estate tax collections are budgeted at only $175 million in fiscal 2017, or 1 percent of total tax revenue.    

Our local tax system is based on property tax. Under law, taxable property in Greenwich is revalued every five years. Our revaluation was completed in 2015. The Grand List of all taxable property in our town amounted to $32.3 billion as of October 1, 2015.  By law, assessed values in Connecticut are 70 percent of fair market value. So the market value of Greenwich’s properties is not $32.3 billion but $46.2 billion. Nearly all of this is real estate. Our 20,022 residences comprise 80 percent of the List value, while 961 commercial properties such as office buildings and retail space make up another 14 percent. Apartments, motor vehicles, and business property make up the rest. 

Typically, the sum of property values changes very little from year to year. For example, from 2013 to 2014, the total values increased only 0.4 percent. These small annual changes usually arise from new home construction, renovations and expansions. The comprehensive revaluation in 2015 indicated that the value of the town’s Grand List increased 4 percent. This doesn’t mean your average property increased 4 percent in value last year. Instead, it means that a representative property increased 4 percent since the previous revaluation, which was five years ago in 2010. The average changes varied by neighborhood, with Riverside increasing 13 percent and the neighborhood north of the Merritt decreasing by 8 percent. 

Last month, the Board of Estimate and Taxation set the tax rate for the fiscal year 2017, which starts July 1, 2016. The tax rate or mill rate is 11.202, which means the annual property tax is 1.1202 percent of assessed value. A property with a market value of $1,000,000 and a tax assessment of $700,000 would have a tax bill of 1.1202 percent of the assessed value, or $7,481. For the four tax years preceding this one, the mill rate increased 2.75 percent annually. For fiscal 2017, the rate of 11.202 is 0.6 percent less than the prior year. However, since the revaluation produced a Grand List increase of 4 percent, the net amount of taxes levied will increase 3.4 percent. Greenwich is fortunate to have the lowest mill rate in the state. Darien’s mill rate is 15.77, New Canaan’s is 16.312, and Bridgeport’s is 54.37.

Greenwich’s advantageous low tax rate has two causes: municipal spending is careful and conservative, and properties in our beautiful town are valuable. 

Bill Drake has served on the Board of Estimate and Taxation since January 2014.

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