The following was written by Finance Director Jeff Smith to explain the finance problems of New London. I agree with the piece and wish that the Mayor could have allowed this discussion. His choice to blame others is tired politics as usual. We are ready to move forward togethe,but you need to treat the disease not the symptom. This is lengthy, but worthy of three minutes if you want to understand that we need a far greater shift than has been discussed previously. By Jeff Will Smith The people of New London have every right to be upset with property taxes, and diminishing public services , but they are mad at the wrong people and for the wrong reasons. There is nothing fundamentally wrong with the government in New London; in fact the City has been pretty well managed over the years compared with a number of cities in Connecticut. No one has gone to jail for stealing from the public purse and if mistakes were made they were more ones of poor judgment than criminal intent. All that’s missing in New London is money. So what’s wrong? Why can’t New London turn that corner and return to its glory days of yore. The light at the end of the tunnel seems so close but we never seem to get there. What’s wrong is the world changed and Connecticut did not. Our institutional arrangement on how we fund local government stayed exactly the same as it was two hundred years ago, while the way we work and play and live our lives changed fundamentally. There was a time and it was not all that long ago when people lived close to where they worked. When I was a boy growing up in West Haven, my father walked home for lunch every day from Armstrong Rubber Co. The property taxes we paid went directly to pay for the local services we consumed. The sidewalks we walked on to work and to school were the same ones we paid for. The roads we drove on to the local stores were also paid for by our local property taxes and the taxes from local business. The police and firefighters were our friends and neighbors and their salaries were paid for with our local taxes. That has all changed. There are very few people who do not commute to work, often to cities many miles from where they live. Since the end of World War Two we have spent millions and millions of dollars on highways to ease this transition. What changed was the people who paid for local services moved away, but they kept their jobs in New London, and other cities large and small. They didn’t stop using local services they just stop paying for them. The loss of this taxpayer base was exacerbated by a further change in the way we make our living. Higher education, medical care and finance became big business while factory Jobs disappeared. The problem is hospitals and colleges might consume local services, but they are not required to pay for them. Financial services can generate more income in a year working out of a single room than a factory covering several square blocks, but they don’t pay as much in local taxes as a factory. New London, not unlike other New England Cities is an employment center. During the day the population of New London nearly doubles to over 50,000 people, and these people require services. They need the roads cleared of snow in the winter and fixed in the summer. They need ambulances and policemen and firemen. They need all the things the residents do, and maybe even a little bit more since they are on the move. What’s worse, New London is also responsible for providing police, fire and ambulance services for a section of one of the most heavily traveled interstate highways in the country. And where you have more people you also have more costs. Roads wear out faster, police are busier, and more buildings mean more fires, especially in an old city like New London. Cities also provide low cost housing, mass transit, and social support agencies. Hospital and Universities are usually located in downtowns or close to central business districts because that’s where the people are, and that is where all the roads lead to. What’s wrong with this picture is twofold: First; Many of our most prosperous and important institutions have been exempted from paying property taxes by the state legislature based on the theory that they are not profit making entities, but rather institutions that provide a public good or service for all the citizens of the state and therefore should be encouraged. While this is all well and good , and makes a great deal of sense for the state as a whole, those institutions still require a significant level of expensive municipal services, and the cost for those services are not being shared equally across all of the consumers. In a word, local taxpayers are providing public services to the sons and daughters of the well-to-do at Connecticut College, the Coast Guard Academy, and the patients at Lawrence Memorial Hospital and to all the employees at these institutions, for free. This issue is more acute because we live in Connecticut. Outside of Connecticut this is not a problem or at least as severe a problem because, property taxes are levied on much larger political sub-divisions. For example, Rome N.Y. , and North Port Fla. Both have a similar population as New London but each covers a land area of approximately 75 square miles as compared to New London’s 6 or 7. You can’t easily work in Rome and live in a less expensive suburb and skip out on supporting hospitals, colleges, libraries, mass transit facilities, and other non-taxable entities that provide services for the entire region. To be fair, the state government recognizes the problem and has attempted to address it through the use of payments in lieu of taxes (PILOT Payments) for state property, hospitals and universities. The problem is that PILOT payments are a very blunt instrument and local government has little or no control over how much they will receive or whether the payment has any relationship to costs incurred. For example, prisons generate large PILOT payments but are not very expensive to host. Moreover, in order to pass a state budget everyone needs to get a slice of the pie, so Greenwich gets its state grants right along with New London. How do we change this calculus, because the current method of sharing common costs is clearly not working for the citizens of New London, and as our ability to pay for these services diminishes at the local level it will begin to effect the institutions themselves, and their ability to continue to provide a high level of service to the citizens of Connecticut, and beyond. The most obvious answer is to revoke local municipal charters and go back to county government. Not only would the costs of government go down significantly, but the equitable sharing of common costs would become far fairer. The only problem with this solution is that it will never happen, or when it does it will only happen after the complete disintegration of any meaningful government in NL and other small cities in CT. There are other solutions which are far less dramatic. When I was the Deputy Commissioner of Finance in White Plains N. Y. the city received 1 cent of the sales tax collected by the state. Other suggestions are to emulate other states and localities and ask the state legislature to pass legislation allowing local municipalities to authorize a local option sales or income tax. I can hear the screaming now, but remember countries and regions that are unwilling to change their institutions to accommodate changes going on around them eventually fail. People with an average family income of $30,000 - $50,000 per year cannot continue to provide services to families with average incomes of $80,000+ per year for ever. Herb Stein who was Ronald Regan’s head of the Council of Economic Advisors once said” if something can’t last forever it won’t” New London cannot pay for the service requirements of 50,000 people on the backs of 27,000 middle and low income taxpayers forever.
Posted on: Wed, 29 Jan 2014 11:54:52 +0000
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