November 14, 2016

Can higher PILOT payments save Hartford?

HBJ PHOTO | Matt Pilon
HBJ PHOTO | Matt Pilon
Hartford Mayor Luke Bronin says full PILOT payments from the state would be “a significant first step” in putting the city's finances on a sustainable path.

A long-standing state program that reimburses cities and towns for tax-exempt properties could help solve the Capital City's fiscal crisis if lawmakers would fund it to statutory levels, according to Hartford Mayor Luke Bronin.

In a recent interview with the Hartford Business Journal, Bronin said he plans to push the legislature in the upcoming session to fully fund the payment in lieu of taxes (PILOT) program, which would add approximately $50 million to Hartford's budget, helping to close projected deficits of $30 million and $50 million in 2018 and 2019, respectively.

"I think there's no question we'll be advocating for a full funding of PILOT," Bronin said.

Municipal officials have long griped about underfunded PILOT payouts, which are meant to partially reimburse cities and towns for tax-exempt properties such as hospitals, colleges and state-owned buildings.

But calls for higher reimbursements have largely been ignored in recent years, particularly as state legislators face their own budget pressures. Fully funding the PILOT program could cost the state an additional $100 million annually, on top of the $181.7 million paid out across the state this year, according to the Office of Policy and Management (OPM) and the Office of Fiscal Analysis (OFA).

A proposal to increase PILOT payments would be part of a larger legislative package — and not the only answer — to help put Hartford on a sustainable fiscal path, Bronin said.

"It's essential that we get a solution at the state level this year," said Bronin, an attorney and former chief legal adviser to Gov. Dannel P. Malloy. "This is a fiscal crisis that's been building for years, it's structural and it's rooted in the fact that the city doesn't have enough taxable property."

Generating more property tax revenue, the main source of funds for Connecticut's local governments, is difficult for Hartford because over half of the city's grand list is tax exempt. Hartford plays host to many tax-exempt properties including state and federal buildings along with hospitals, colleges and other nonprofits. At the same time, Hartford has highest commercial mill rate (74.29) in the state — limiting its ability to raise taxes — while its debt service and other costs continue to rise.

"We need revenue that comes from outside of the city," Bronin said.

MetroHartford Alliance CEO Oz Griebel said Bronin has "brought candor and integrity to the discussion" about the city's future.

"An appropriate sense of urgency is important," Griebel said.

PILOT payments lower

PILOT is a major piece of non-education state aid to cities and towns that has faced funding pressures of late.

Last summer, the legislature cut statewide fiscal year 2017 PILOT funding by more than $18 million, or 9 percent.

Hartford received its annual state and hospital PILOT payments in September, which amounted to $36.3 million. That was down from $37.3 million in fiscal 2016. The amount fluctuates annually, depending on property revaluations or legislative decisions. Hartford's annual average payment was approximately $38.6 million between 2011 and 2015, according to OPM and OFA data.

If lawmakers fully funded the PILOT program, Hartford would have received $87.7 million in fiscal 2015, according to OFA. Instead, the city received less than half that amount, or $40.2 million. Meantime, if Hartford's untaxed properties were on the tax rolls, they would have generated nearly $138 million in tax revenues that year, OFA calculated.

Under state law, municipalities are supposed to receive 77 percent of lost property tax value for hospital and private college properties and 44 percent for state-owned property.

For example, if a hospital in Hartford is assessed at $10 million, it would owe $742,900 in property taxes, if it weren't exempt. The PILOT program says the state should owe the city $572,033 for that property.

But OPM is permitted to pay a lower amount when its state appropriation is insufficient to fully fund the program. In some recent years, cities and towns have received between 45 and 55 percent of the statutory amount owed.

In should be noted, however, that lawmakers did increase Hartford's overall state aid this year — from $253.5 million to $276.6 million — by adjusting other grant programs.

A broader strategy

Bronin's PILOT push could be part of a broader proposal, formed in collaboration with other municipal leaders and organizations, to be put before the legislature.

He's hoping the consistent message he has spread this year about Hartford's fiscal troubles will have a bigger impact on lawmakers this coming session.

The city has received several debt-rating downgrades this year and failed to achieve budgeted labor savings thus far, prompting speculation about a potential bankruptcy filing — a prospect Bronin has been reluctant to discuss.

"The state has an interest, a critical interest, in helping its Capital City become healthy," Bronin said. "And I don't think bankruptcy is an option … that the state should be quick to welcome or embrace."

So at least for now, Bronin is focused on what he can get from the legislature, which convenes in January. While he was firm about his advocacy for PILOT reform, Bronin didn't share his full strategy for the session, which he said is still being formed.

Other local officials in Connecticut are also hopeful about the potential for Bronin to help spur lawmakers to action, said Kevin Maloney, director of member relations and communications at the Connecticut Conference of Municipalities (CCM), which has called for local-option taxes and steering more PILOT funds to urban centers that have a high percentage of exempt property.

"The cities, such as Hartford, have reached a breaking point and we hope that the urgency that is readily apparent now will serve as sufficient motivation," Maloney said. "We would argue that the state can't afford not to do it."

A CCM committee of municipal officials and others convened in August and plans to issue recommendations by year's end for what it hopes the legislature will do in the coming session regarding the state's property tax system.

State Rep. Matt Ritter, (D-Hartford) who is set to become House Majority Leader, said he expects a different approach in 2017, after a Bronin-backed bill died in committee this year due to a lack of support by city councilors. That bill, SB 464, called for a surcharge on major nonprofit and corporate property owners, and a financial oversight commission that would give the city greater leverage in union negotiations.

While nothing is finalized, Ritter said he expects a broader approach this year, rather than just a Hartford-centric proposal. And it will likely need some bipartisan support, especially given that the Senate is now equally divided between Democrats and Republicans.

"I think to the extent that we go up there and say it's about Hartford and Hartford alone, we lose alliances," Ritter said. "It's going to be part of a state-budget reform conversation."

Even with alliances, Ritter acknowledges the effort won't be an easy lift.

But he agrees with Maloney that while Hartford is currently in the worst financial shape in the state, other communities could be one bad year, or decision, away from heading down a similar path.

Correction: This story originally gave an incorrect new legislative title for Rep. Matt Ritter, D-Hartford. He will be House Majority Leader.

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