One of the most difficult puzzles facing state legislators for more than 30 years has been trying to eliminate Connecticut’s unpopular car tax.
That streak continued Wednesday when the tax-writing finance committee was unable to terminate the tax as the committee’s annual deadline expired at 5 p.m. That means the idea is essentially dead until after the November elections and the new legislature convenes in 2025.
The biggest stumbling block is legislators have not found an easy way to replace nearly $1 billion that is currently generated by the car tax every year. Mayors and first selectmen rely on that money to balance their budgets, and two key lobbying groups, the Connecticut Conference of Municipalities and the Council of Small Towns, both opposed eliminating the car tax that helped defeat the bill.
“There were just too many ‘no’ votes,” said House Republican leader Vincent Candelora, explaining the defeat. “I think the issue is much more complicated than some people will give it credit. It’s just a very difficult proposal to get over the finish line because of that. It’s not just as simple as eliminating it because when you eliminate the car tax, it shifts the taxes to something else. That’s always been the biggest problem. Somebody is going to get stuck paying that tax.”
The latest proposal called for phasing out the car tax over five years, but that would be done by gradually increasing the assessment on real estate. Some lawmakers balked at the idea of shifting the burden to homeowners.
One of the bill’s chief proponents, Senate President Pro Tem Martin Looney of New Haven, told the Courant that lawmakers are not giving up on the idea.
“We are going to keep working on that and advancing it every year,” Looney said in an interview. “We’re going to keep pushing that and come back with some version of it next year. We also have to merge it into a broader view of the overall property tax structure. That’s because we can’t just eliminate the car tax unless we have some other structure in place to replace that revenue.”
Real estate is generally assessed at 70% of the fair market value, and that would be increased to 90% to collect more money under the bill. Lawmakers will work on a solution, Looney said, by combining it with an exemption on owner-occupied real estate as they craft the new bill next year.
Based on assessments, tax rates, and property values, Looney said that a home worth $2.8 million in Greenwich and $850,000 in upscale neighborhoods in New Haven would both pay about $22,000 per year in property taxes. Lawmakers need to look at the totality of the property tax system, he said, and not only the car tax.
The driving force behind the recent effort has been Sen. MD Rahman, a freshman Democrat from Manchester who proposed the measure to help senior citizens, young students, and businesses. He tells the story of immigrating to the United States 25 years ago from Bangladesh with only $200 and a backpack. While earning $7.50 per hour at the time, Rahman said it was difficult to pay the car tax.
History
Ending the car tax has been a political football for more than 30 years. Multiple governors have offered plans on how to cut the taxes while making sure towns are fully reimbursed. Each time, however, opposition by legislators and local officials has torpedoed the plan.
That trend continued this year in February when a special, 22-member taskforce ended its final meeting without agreeing on how to eliminate the tax despite holding seven meetings as they studied the issue.
In the early 1990s, then-Gov. Lowell P. Weicker Jr. called for phasing out personal property taxes over 10 years. After Weicker’s plan failed, then-state Sen. James Maloney of Danbury successfully pushed a proposal to eliminate the tax in future years. But before that plan took effect, Weicker’s successor, Republican John G. Rowland, persuaded the legislature to repeal the law after deriding the plan as “Maloney baloney.”
Republican Gov. M. Jodi Rell then proposed a complete elimination in 2006 and 2007, while Democratic Gov. Dannel P. Malloy proposed a partial elimination in 2013 that would have applied only to cars with a market value of less than $28,500. As a result, high-end cars like Rolls-Royces, Bentleys and Ferraris would still have been taxed. But neither plan was adopted.
Pension fund
In addition, the committee voted unanimously for a bill to seek bids for a private firm to independently review the performance of the $55 billion state pension fund every year.
The push for an independent review came after a study last year by Yale University revealed that Connecticut had the second worst pension performance in the nation over a five-year period. From 2017 through 2022, the pension fund increased by 5.8%, but that was less than half of the level of the best-performing state: Washington.
Based on the size of the fund, the underperformance meant that Connecticut’s pension fund could have been $7 billion to $12 billion higher, particularly if more money had been invested in U.S. stocks during the bull run as Wall Street continued to break records.
“That hurts,” Sen. John Fonfara, who co-chairs the committee, said of the shortfall.
A Hartford Democrat, Fonfara said flatly that he had failed to ask enough questions through the years about the under-performance of the funds. Both Republicans and Democrats agreed on a bipartisan basis that there was relatively little oversight of the funds for more than a decade.
Lawmakers moved the measure to the consent calendar for non-controversial bills.
“I think this is an excellent bill,” said Rep. Holly Cheeseman, the committee’s ranking House Republican.
The stock market is still strong at the moment, and Connecticut has been performing better under the new treasurer, Erick Russell.
“My office has prioritized both transparency and timely reporting, including monthly investment reports, the agency’s annual reports, and independent analysis produced by our professional investment consultant, Meketa Investment Group, maintains no affiliations with any investments or investment management firms engaged by the funds,” said Russell. “Meketa presents its regular independent reviews during meetings of the IAC, all of which are public.”
The independent review is expected to cost $200,000 to $500,000 and would be based on the bids.
Christopher Keating can be reached at ckeating@courant.com
