Municipalities balk at revenue loss from proposed car tax relief

When Gov. Dannel P. Malloy on Wednesday proposed the elimination of the car tax that towns collect each year on vehicles valued at less than $28,500, he said it would provide tax relief for the "middle class, working class and the working poor" in addition to businesses.

But that's not true, according to municipal officials in the region.

That's because while car owners likely will rejoice over the prospect of not having to shell out several hundred dollars a year in taxes, municipal leaders said their communities stand to lose a large amount of badly needed revenue. To make it up, they said, they would have to raise property taxes.

In Stonington, where someone with a car valued at $28,000 would save $318 a year in taxes, Director of Finance Maryanna Stevens said the town would lose $1,991,000 of the $2,065,000 it collects in car taxes. That would result in a tax increase of two-thirds of a mill.

"This is astonishing," Stonington First Selectman Ed Haberek said. "This is really handcuffing our ability to raise revenue."

If the state does not make up the shortfall in some other way, Haberek said, the town would be forced to raise the property tax rate on homes and businesses as a way to make up the loss.

"I don't see how this can fly. From what I've seen, there's no money to make it up," he said.

In North Stonington, which would lose several hundred thousand dollars, First Selectman Nicholas Mullane agreed.

"It pretty much would be a disaster for the town," he said. "You can't just take something away from the towns and say, 'That's a good thing.' How do we recover that unless there's some other type of tax relief. If we want to continue to provide the same level of services, we have to make it up, and there goes property taxes."

Groton Town Manager Mark Oefinger said he failed to see the logic in the governor's plan because the loss of revenue would force an increase in property taxes. Although he did not have an estimate of lost revenue, Oefinger said the town has $192 million in vehicle assessments.

In Preston, where motor vehicle values totaled $36 million in the 2011 grand list, First Selectman Robert Congdon also said eliminating most of the town's car tax revenue would cause a direct increase in real estate property taxes.

The situation could be even worse in Norwich, where the city would lose most of its motor vehicle tax revenue, finance department officials said.

Comptroller Joseph Ruffo estimated the city would lose about $5 million, dropping from the current $5.2 million to $274,000. To make that up would require a 2.2 mill tax increase, based on the current tax rate. Ruffo said that would mean an 8 percent tax increase on real estate and personal property, hitting the city's businesses and homeowners.

"We're trying to create some economic development, and we suddenly have an 8 percent increase in any person that's left with real estate and personal property taxes," Ruffo said.

City Manager Alan Bergren said there could be an additional unintended consequence for new car dealerships throughout the region, because Malloy's measure could discourage people from buying new cars that cost more than $28,500.

"It's kind of an incentive for you not to buy a new car," he said.

In his budget address Wednesday, Malloy said municipalities could implement the proposal on July 1, but would be required to do so on July 1, 2014.

During questioning by reporters Wednesday, Benjamin Barnes, the governor's budget chief, said the state did not plan to reimburse the towns and cities for the lost revenue but expected they could make it up through other types of tax revenue, such as real estate.

Malloy's plan, which is part of his budget bill that now must be reviewed and approved by the General Assembly, would cover both private and commercial vehicles.

It applies to the first $20,000 assessment of a vehicle, or 70 percent of the market value. Owners of more expensive vehicles would not pay taxes on the first $20,000 of the assessment.

Malloy said the proposal would lower costs to municipalities, which would no longer be responsible for collecting the tax.

"The families and the businesses of Connecticut have enough on their shoulders," Malloy said. "This budget asks no more of them. In fact, I'm proposing we give them some much-deserved help. … These changes won't solve all of a working family's problems. But, as we continue the hard work of reforming our state finances and of growing jobs, they can still mean something to families working hard to make ends meet. Let's make it happen."

State Rep. Diana Urban, D-North Stonington, said the legislature has tried to get rid of the car tax for years because vehicle owners do not like it and feel it is inequitable. Owners of the same car pay a different amount depending on where they live.

But Urban said she does not see where towns would be able to make up the lost revenue from Malloy's plan.

"I don't see where he's making this up. My suspicion is that he's not," said Urban who is a member of the legislature's Appropriations Committee, which will not review the budget bill.

Day staff writer Johanna Somers also contributed to this report.

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