Municipal Loss Is State’s Gain
Gov. Dannel P. Malloy’s administration calls it an unintended consequence, but the loss of motor vehicle tax revenue for municipalities actually will bring in millions of dollars in revenue for the state.
That’s because under the proposed budget, the people who rent apartments rather than own a home will no longer receive a property tax credit to apply to their state tax liability. The governor’s proposed budget estimates the state will save around $21 million annually as a result of not having to pay out the property tax credit to apartment dwellers.
The elimination of the motor vehicle tax only applies to vehicles valued under $28,571 and will cost municipalities about $560 million a year in revenue.
Office of Policy and Management Secretary Ben Barnes said last week that the administration based the savings off figures from the Revenue Services Department, which told them around 180,000 people apply for property tax credits claiming only their cars. It then decreased the savings estimate from $35 million to $21 million.
“The amount of money we save is pretty inconsequential compared to the amount of money saved by taxpayers who pay car taxes,” Barnes said.
But New Haven Mayor John DeStefano, who could get behind changing the motor vehicle tax structure, said there are unintended consequences.
In New Haven, the loss of the motor vehicle tax is about $15 million. That means the burden of making it up will fall to both residential and commercial property tax owners. It could also encourage people to use cars rather than public transit, DeStefano said last week after a Capitol press conference.
On the other hand, it is a difficult tax to collect. DeStefano admitted that eliminating it would save some money, but coupled with all the other changes to municipal funding now is not the time.
“If we’re serious about this we ought to have a discussion about it,” said DeStefano, who also once panned former Gov. M. Jodi Rell’s proposal to eliminate the tax.
Unlike Malloy, Rell was going to compensate towns for the lost car tax by creating a new state grant.
“You know in retrospect, like Ted Kennedy with health care, it may have been a mistake,” DeStefano said. “I think there are reasons to eliminate the car tax.”
It’s not the first time DeStefano has conceded he may have been wrong on the car tax issue back in 2006.
But the other changes Malloy’s budget makes to municipal grants also need to be part of the discussion, DeStefano said.
“This whole budget makes the tax structure more regressive, shrinks the tax base of the job producing centers of the state, and makes their financial position more urgent,” DeStefano said.
Asked to set aside those other issues and to look just at the motor vehicle tax proposal, DeStefano said that in a “perfect world” he would “support a uniform statewide mill rate.”
Barnes said he felt that many local officials hadn’t thought the proposal through before criticizing it. He said they may be overestimating the impact car taxes have on their grand lists, given the poor collection rate of most automobile taxes and the high cost of collecting them.
He said he understood that the proposal would create challenges for municipal budgets, but said state government has had to overcome some challenges recently as well.
At a press conference last week , Malloy said he proposed the elimination of the tax to offer middle-class residents some relief.
“We had to hit upon a way to make sure that the middle-class got the relief that they needed and people who own very expensive cars continue to pay their fair share,” Malloy said. “We don’t move away from it overnight, but make sure we’re bringing to working families real relief.”
Municipal leaders argued last week that no such relief will be on its way because the burden will just shift to residential and commercial property tax owners.
A poll of 500 residents conducted by a conservative think-tank last week found that 52 percent of the public oppose the elimination of the motor vehicle tax if it means other taxes will increase. Thirty-four percent of those surveyed supported the idea and 14 percent were not sure.
Hugh McQuaid contributed to this report.