Op-Ed: Tax Reality Check

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If current real estate trends hold, the property tax rate in New Canaan is set to grow by at least 10% in the next real estate revaluation. Think of real estate values and property tax rates as being two ends of a see-saw. If the real estate values that make up New Canaan’s Grand List – our near completely dependent source of spending on schools, parks, infrastructure, etc., through property taxation – decline, our property tax rate (mill rate) will need to offset this decline by an equivalent amount even if our budget (spending) is flat. 

Unfortunately, there is a reckoning in the form of our real estate values/Grand List. An analysis of all property transfers from the beginning of April, 2019 to December, 2019, listed in the NewCanaanite (a representative sample of 239 transactions) shows our Grand List down 10% currently versus the 2018 revaluation (after a 7% decrease in that reval), all else being equal. Keeping the see-saw visual in mind, if we had another revaluation this year our property tax rates would likely increase by ~10% even with a flat town budget (spending). The distribution of the tax burden would be even more regressive than the last revaluation, meaning the tax burden would shift even more to the property owners of mid and lower-priced homes, as these homes have not experienced the magnitude of declines of higher priced homes. Since our revaluation only occurs once every five years, our day of reckoning can be delayed but not eliminated, and we should take proactive steps this budget cycle to address it, as discussed below. 

Most New Canaan residents have lost hundreds of thousands or millions of dollars on their homes in the last 10-15 years. We have one of the worst performing real estate markets in Connecticut over the last 10 years at -21% in this timeframe, making us one of the worst performing markets in the United States. There should have at least been property tax relief in this context, but our local tax burden inexorably rises year over year. 

Though a fiscally irresponsible State and the SALT deduction cap are the largest factors weighing on our real estate values, we can make significant improvements in mitigating the burden to taxpayers locally through greater efficiency in spending. To paraphrase one local expert who is very close to the town’s financials, Bill Parrett, the Chair of New Canaan’s Audit Committee, we could cut our budget by 5% and have little impact on our service quality. Is there merit to this view? Well, New Canaan has the second highest spending/taxation per resident and the highest level of debt per resident in a spendthrift State. Our spending/taxation per resident is around 8% higher than Darien. The desire we all have to maintain excellence in our schools, a beautiful downtown and open spaces, and a safe environment, should not be confused with inefficiency in spending and other steps to improve the fiscal picture.

There are a few measures we should take now: 

  1. The Town Council should immediately engage an outside consulting firm whose core competence is implementing spending efficiency/reduction action steps.
  2. There should be a policy in place to mitigate the impact of downside volatility in our Grand List on future tax rate increases. For example, if based on an adequate sample size the Grand List experiences a decline that crosses a threshold in the interim years between revaluations, there should be automatic budgetary spending triggers that require a town referendum or supermajority vote of the Town Council and Board of Finance to override. Entire states (e.g., Massachusetts which has Propositon 2 1/2, a volatility cap on property tax increases) understand the damage of property tax volatility.
  3. It has taken our town bodies much too long to address core issues like senior housing, affordable day care, cell phone coverage, and more frequent train service that affect real estate values and quality of life.  Reluctance to confront minority positions on some of these issues results in continuous delays in needed action. Reluctance to adopt majority positions like fiscal conservatism and spending efficiencies contributes to higher tax burdens and declining property values.

There has been recent news about a number of Board of Finance representatives being “disappointed” that the budget guidance they gave to the Board of Education—a 1.5% increase year over year excluding volatile changes in health care costs —was not met, as the BOE’s proposed budget is up 4.3% excluding these health care cost changes. BOF guidance for other town departments is a much leaner decrease of 2%. There will be more debate on what expenses are recurring but the intent of the BOF needs to be followed or amplified: bend the curve on expense growth. 

In the BOE’s 2020 Projected Budget there is $4.9 million in taxpayer cash in their internal fund, well in excess of what is needed to meet reserve requirements of $1.5 million for their self-insured health plan. This is efficiency? Combine our local spending inefficiencies with an uncompetitive policy mix in CT to attract productive businesses and residents, worsening commute times to NYC, the SALT cap, structural changes in the financial industry, and you have close to a perfect storm.

There is also hope in doing the best with what is under our control. New Canaan can come out of this with all the great features of our town but at a lower cost, helping to retain more current residents. We have a number of excellent representatives that can be leaders in addressing these issues. Your feedback is important. Representatives can be reached at bofdistribution@newcanaanct.gov, bosdistribution@newcanaanct.gov, tcdistribution@newcanaanct.gov, and ncpsboemembers@ncps-k12.org.

James Basch and Stephanie Radman

12 thoughts on “Op-Ed: Tax Reality Check

  1. Well done James & Stephanie! We need to STOP spending money. Let’s start by not spending $1 mm to change school times. I know everyone loves the new library plans but I think this needs to be funded more through additional private donations. $10 mm over three years is still $3.3 million a year and we are basing the towns’ benefit on a consultant who estimates a $6 mm annual benefit. Consultants are RARELY right. And while the plans are cool, people will not chose New Canaan because of a cool library. We need to CUT spending and try to keep our taxes from continually increasing.

  2. We have heard that in the last local election, the majority of New Canaan residents voted to ‘stay the course’ with the same officials and policies that we have had in the past. Well, we are staying the course, and as James and Stephanie have pointed out, we are still heading for the iceberg while rearranging the deck chairs. Government spending resembles a balloon. Each year it grows a bit. Sometimes, because we want more from our government than we had before. Sometimes because the population increases and we have to spend more to provide the same services to more people. But even if we freeze what we want, inflation still ads some additional costs/air. If you squeeze a balloon on one side (and decrease the value of our property) the balloon does not shrink, it just expands on the other side (by increasing the mill rate). The only ways to keep our total tax bill down, especially given that we have a declining value of our property and a severe reliance on only personal property to boot, is to reduce our spending. This is not, and never has been the aim of the status quo. One day we may really be ready for a change of direction.

  3. This is the best thing to come out of New Canaan yet – thank you for writing this. I agree we need to confront the reality that is, versus living in the nostalgia of what used to be. We need to do things differently if we want to be great for the next 100 years.

  4. We have been wasteful as a town and allowing our BOE to continue to blow thru budget guidance every year, is a real affront to our taxpayers, many of whom have lost 100’s of thousand on their home values that they won’t get on a sale no matter how great our schools are! Time to trim from our largest line item-BOE!

  5. What about looking into selling the Irwin Park property? That was a very frivolous purchase (when New Canaan real estate values were at an all-time high!), and has never made much sense!

    • Thank you, Susan. As I recall, there was concern that the property would be developed with many houses and the solution was to “preserve” it by spending taxpayers money. Not a good idea and we paid about $20 million plus debt, much lost tax revenue and cost of care. (several of our fifty six or so surplus buildings are there) If we tried to sell it now we would get a fraction of what we paid for it. I have heard suggestions that we put the CCRC there. Meanwhile Waveny Park, our crown jewel, needs millions of dollars of improvements and maintenance, money that we struggle to find. It is this kind of poor decision-making that continues to bedevil New Canaan. The essay by James and Stephanie to which these comments are linked is a sober and serious analysis of where we are and suggests a path for improvement. Business as usual is not a wise course at this time.

  6. When I moved here 12 years ago, there were 3 criteria: good schools, ~60 minute commute on MTA and low mill rate. NC met all 3 criteria in 2007 with the mill rate being higher than only Greenwich. In 2020, the good schools are still there, the commute has gone to almost 80 minutes and the mill rate has increased by about 30% and is no longer the 2nd lowest mill rate in Fairfield. Additionally, SALT has been abolished. NC can only control the schools and the mill rate, not the MTA and SALT. Once my 3rd kid is done with school, I’m selling (most likely at a loss), because I’d rather stem the bleeding than wait and hope. There are a lot more interesting towns in CO with my name on it.

  7. In response to the mark crash in 2008-9 the town decided not to raise the
    Mill rate — what should the town do in response to our real estate market crash?
    last week a property valued at $5.9 mil in 2018 sold for $2.4mil
    14,000 sq ft home on 7.25 AC 19 rooms ,8 bedrooms,11 bathrooms once
    Valued at $11 million
    We’re to cut — we don’t have to cut teacher — we have to cut administrative cost
    The former director of finance for the BOE was making $1,000 a day plus expenses
    They have built what we called at GE back in the day a KINGDOM

  8. The problem with New Canaan these days is not what you refer to as over spending…..It is the fact that New Canaan doesn’t see the handwriting on the wall. No one wants big houses on large lots of lands. People don’t want to live on two or four acre lots. You need to look at zoning and start allowing what the market wants to be built.

    The houses are coming down because – it doesn’t matter what you make – people don’t want to pay for the upkeep, the yard work and they want to be closer to their community. This is what is happening now and this is the future.

    Develop more neighborhoods and develop some PUDs and you will see that your revenues will go up.

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