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:
- The Town Council should immediately engage an outside consulting firm whose core competence is implementing spending efficiency/reduction action steps.
- 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.
- 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 firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, and email@example.com.
James Basch and Stephanie Radman