Hamden Chronicle

Guest Column: Make tax relief priority No. 1

By Mark Sanders
Hamden Alliance for Responsible Taxation

If you’re like most ordinary homeowners, you recently experienced the largest property tax increase in the history of Hamden! Increases of 25% and more were commonplace for Fiscal Year 2006. So, if there were ever a year when tax relief should be priority No. 1, 2007 should be it, right?

What then are we to make of the Mayor’s proposal of a budget that grows at more than twice the rate of inflation, and offers no generalized tax relief for Hamden homeowners? It now appears that our only recourse for creative solutions to our fiscal crisis is the Legislative Council. So as the Council deliberates the FY 2007 Budget this Spring, I suggest that they focus on two areas that can produce more than 4.5 mils ($19 million) of tax relief for ordinary Hamden homeowners in FY 2007, without cutting a single Town program or service.

1. Scale Back the Proposed Pension Fund Contribution.

The Mayor’s Budget proposes to contribute $12 million to the municipal employees’ pension fund this year. This recommendation is driven by a fundamental misconception that the Pension Fund is severely under-funded. The truth of the matter is that the Fund needs NO further augmentation.

Don’t believe me? Then. consider these numbers: (a) annual benefit payments to retirees total $15 million; (b) the Fund has a principal balance of $82 million, currently earning investment income of $7.5 million annually; and© current employees contribute about $1.5 million to the Fund annually.

So if you asked the “man on the street” what the Town should contribute toward its pension responsibilities, he’d logically say, ”$6 million”, i.e. the difference between $15 million (annual benefits due) and $9 million (annual fund income plus employee contributions). And he’d be right.

Yet many folks believe that simply paying our pension obligations as they come due is not enough. There is a widespread belief that we also need to be increasing the Fund. Why?

I suspect it stems from our actuaries’ recommendation that we build the Fund up to $278 million. I contend, however, that the actuaries are giving us an unnecessarily inflated recommendation based upon a flawed model that assumes the Town’s pension obligations must be funded in the same way as those of a private company.

Most private companies are required to build up pension trust funds capable of paying all benefits contractually due over the life expectancy of their current and retired employees. The reason is that if a private company goes out of business, absent a fully-endowed pension fund, vested pension beneficiaries could be left high and dry.

By contrast, a municipality, such as the Town of Hamden, will never go out of business. The Town can and will always honor its annual pension benefit responsibilities because it has the power to tax. Therefore, there is no need for a fund to be built up to assure the employees that their pensions will be provided when they retire.

The absurdity of continuing to build the Fund becomes even more graphic when you consider that Hamden is getting out of the pension “business�?. As the Mayor recently stated: “we can begin to transition some of our newly-hired employees to Connecticut’s Municipal Employee Retirement System. This assures that, over time, Hamden’s unsustainable pension plan will simply go away.�?

So if Hamden’s pension plan is fading away, why engage in an aggressive building up of the Fund? Ever consider what will happen to a $278 million Fund when our defined-benefit responsibilities cease? I can tell you — taxpayers at that time will reap a $278 million windfall…at our expense!

Is this fair? Or wise? Will history judge us well if in needlessly sacrificing for future generations we deprive ourselves of the ability to leave them with anything but an empty shell of a town?

The pension contribution this year should not exceed $6.0 million.

2. Provide Relief from the 2005 Revaluation.

The primary engine for the historically high tax increases of FY 2006 was the disastrous real property Revaluation of October 2005.

The Revaluation dramatically shifted the Town’s tax burden from commercial property owners and high-end homeowners onto the backs of ordinary homeowners. As a result, the commercial and high-end owners got a tax CUT last year while the rest of us saw astronomical INCREASES!

The Legislative Council had a golden opportunity in the Fall of 2006 to address the ill effects of the Revaluation by enacting a “phase-in” of the assessment changes over a five-year period. Such action would have resulted in over $20 million in tax relief for ordinary homeowners over the five-year period. However, under pressure from the Mayor’s Office, the Council declined to provide this relief upon the mistaken belief that it was “too late”.

As Hamden “sat on its hands” in 2006, North Haven, was busy enacting a “phase-in” through a landslide peoples’ referendum. And this year, the legislative bodies of New Haven and Orange are also providing their homeowners with this significant and common sense form of tax relief.

There is still good news for Hamden, though. We now know from action taken in the Connecticut General Assembly that it is not “too late” for a “phase-in”. The Legislative Council can enact one retroactively, at least as late as June of this year. The resulting tax cuts for homeowners could show up as credits on our FY 2007 tax bills.

The legal window is still wide open for a “phase-in”. Should the Legislative Council have the wisdom to crawl through that window, Hamden homeowners will receive nearly $13 million in aggregate property tax savings on their FY 2007 tax bills. We can only pray that the Council is listening.

Mark Sanders is an attorney, and member of the Steering Committee of the Hamden Alliance for Responsible Taxation (HART) www.hamdenalliance.org

Copyright © 2007 Hamden Chronicle, reprinted with permission. Originally published on 10 May 2007.

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