Shifting property tax burdens provide businesses, commercial landlords some relief, leave homeowners to pay more
East Hartford Mayor Michael Walsh heard many concerns from businesses and residents during his town’s state-mandated property tax revaluation in 2021.
East Hartford’s residential properties increased in value far more than commercial and industrial buildings.
As a result, the town’s $136.1 million tax levy — which funds a majority of East Hartford’s $211.1 million budget — shifted proportionately away from commercial and industrial owners to residential property holders, who already comprise a greater percentage of the grand list.
It meant owners of an East Hartford house valued at $198,000 would see a $416 increase in taxes during fiscal 2023. Conversely, one car dealership saw its property tax bill drop $104,000 this year, Walsh noted in a recent interview.
Businesses, Walsh said, aren’t calling anymore to complain about their property tax bills.
“I received none from businesses and received quite a few from angered people saying spending was out of control and, even though I dropped the mill rate, I should drop it more,” Walsh said.
Municipalities are required by state law to perform property revaluations at least once every five years, and do so on a staggered schedule.
Across Connecticut, 37 municipalities performed tax revals in 2021, and another 39 in 2022. Many, if not all, saw residential values increase far more than commercial and industrial properties, due to the state’s red-hot residential housing market in recent years and the pandemic’s negative impacts on office and other commercial buildings.
That’s forcing residential homeowners, in many cases, to shoulder a greater tax burden. It’s also providing some relief to businesses, which have long complained about Connecticut’s high property taxes — the primary revenue source for municipal budgets.
Property taxes make up 43.2% of the total tax burden for Connecticut residents, according to a December 2022 report published by the Property Tax Working Group, which has been pushing for property tax reforms.
The situation has put pressure on local municipal leaders stuck between two constituent groups.
On one hand, lower commercial property taxes could stimulate economic development opportunities. On the other, upset homeowners have more power at the ballot box.
Mayors and town managers are weighing their options: apply the new values in the next fiscal year, which could lead to hefty property tax hikes for some homeowners; phase in the new values over a series of years to lessen some of the initial sticker shock; or petition the General Assembly to delay revaluation.
At least three communities — Wethersfield, Middletown and Stamford — are currently seeking state approval to delay their revaluations by one year to October 2024.
The city of Hartford’s 2021 revaluation saw the overall value of single-family homes soar 30%, while the value of most large office buildings, hotels and some restaurant-dependent retail properties declined.
Hartford homeowners are seeing higher property tax bills, but the overall increase in the city’s grand list allowed Mayor Luke Bronin last year to lower the property tax rate by 7.2%, from 74.29 mills to 68.95 mills, the largest tax reduction in decades.
That was cheered by the city’s business community, which has long shouldered one of the highest property tax rates in Connecticut.
(A mill represents $1 in taxes for every $1,000 in assessed property value.)
Waterbury recently opted for a phase-in approach, meant to blunt the impact of shifting values that otherwise would have increased the average single-family homeowner’s tax bill by about $750 for the fiscal year beginning July 1.
Waterbury’s 2022 reval saw home values rise by 75% or more, while commercial properties rose an average of 40%. Due to the phase-in, the average single-family homeowner’s tax bill will rise by just about $250 for the coming fiscal year, under Mayor Neil O’Leary’s proposed budget.
Under that scenario, the tax rate will slide from 60.21 mills now to 55.5 mills in the coming fiscal year. If Waterbury had ripped off the Band-Aid, the city would have been able to reduce its mill rate to 40.
O’Leary said an “all-at-once” application of new property values would have increased taxes on his 2,489-square-foot, cape-style house by about $1,600.
“I’d be happy to pay that to see the mill rate down to 40, but most people in the city aren’t able to keep that pace,” O’Leary said.
Economic development opportunities
In East Hartford, Walsh said he decided to institute the new property values without delay, which allowed the town last year to lower its mill rate from 49.35 to 41. He said the new state cap on motor vehicle taxes and a $200 increase in the town’s senior citizen tax credit helped blunt some of the shifting tax burden on homeowners.
“We felt pretty good we could roll it out in one swoop and make it fair and equitable, while at the same time enjoying a much lower mill rate to make the town more business friendly,” Walsh said.
East Hartford’s mill rate reduction last year came amid a renaissance in development interest in the blue-collar town on the eastern bank of the Connecticut River.
Developers hope to break ground this fall on a 300-plus unit apartment development off Silver Lane. Massachusetts-based National Development earlier this year began construction on 2.5 million square feet of logistics space at Rentschler Field.
Other developers are looking to add hundreds of additional apartments, along with new retail and office space on sites near the Connecticut River.
“The reduction in the mill rate certainly wasn’t the only reason those things happened, but it certainly made the discussions (with developers and investors) a little bit easier,” Walsh said.
The shift in property values reflects growing housing demand and declining interest in commercial space, both spurred by the pandemic, said Chris DiPentima, president and CEO of the Connecticut Business & Industry Association.
“Residential properties in suburban areas inflated in price because people were trying to get out of the bigger cities,” DiPentima said of the pandemic’s impact. “Fortunately, some of that migration was from New York to Connecticut suburbs, which gave the state economy much-needed population growth that has been otherwise stagnant since 2008.”
Unfortunately, businesses aren’t flocking to Connecticut in similar proportion, DiPentima said, and a post-COVID shift to hybrid work has depressed demand for commercial office space.
Michael Goman, co-founder and principal of East Hartford-based real estate consulting firm Goman+York Property Advisors, warned some communities could face a “tsunami” of shrinking commercial property values due to shifts in post-pandemic work and shopping habits, especially for towns with big malls.
Urban areas that have seen an exodus of office workers due to remote and hybrid work trends are most at risk, he said.
Conversely, some suburban retail outlets could see higher values as people spend more time at, and shop closer to home.
“We are seeing that in suburban retail properties with good anchors,” Goman said. “Now they are seeing traffic they didn’t see before.”
New Britain prioritizes growth
New Britain also conducted its reevaluation in 2022, which caused single- to four-family residential properties, including condos, to climb in value by 53.6%, according to City Assessor Michael Konik.
Commercial values rose 30.3%, while industrial property values climbed 26.2%, he said.
Under Mayor Erin Stewart’s proposed fiscal year 2024 budget, the city’s tax rate will tumble from 49.5 mills to 38.28 mills. Even so, faster-rising residential values will cause taxes on an average single-family home to climb by $764, Konik said.
Stewart said she’s focused on economic development to help grow the grand list and relieve individual tax burdens. The city has hired Goman+York to ensure it’s offering the right mix of incentives to spur new development.
Stewart said New Britain saw a similar shift in property values in 2007, as residential values soared ahead of the subprime mortgage crisis and Great Recession.
“This is a shift we have seen before,” Stewart said. “It is a shift that is tough for many to accept right now because of the sticker shock, but I think in the long run, we will be a better community for it, a community poised for a better quality of life.”