The property tax is the one-trick revenue pony for Connecticut’s cities and towns. The burden of the real property tax is borne by all the people who own property subject to the tax, including homeowners, landlords, retailers, and manufacturers. The burden varies for these property owners depending on their income and a municipality’s mix of taxable and tax- exempt property. But here’s the rub for cities and larger towns, which are usually home to many tax-exempt organizations such as churches, hospitals, universities, charities, social service agencies, government offices, and other statutorily exempt organizations. As the demand for and cost of municipal services escalate, mayors and selectmen face some hard choices, including cutting services or increasing taxes.
For example, the latter—increasing taxes—means squeezing more revenue out of the existing tax base, which, in some cities, may be shrinking. One way to avoid tax increases is to charge fees to people and organizations that use a specific municipal service and use the fee revenue to cover the administrative expense of delivering that service. This is what Easton, Pennsylvania does; it charges construction code building fees, plumbing inspection fees, zoning hearing fees, and push-cart vendors’ license fees.
Does this sound good? Why shouldn’t people and businesses pay fees for services only they use? Many already do. After all, user fees are based on “the benefits principle,” the idea that the person who benefits pays. But this “principle runs head on into the ability to pay principle,” Institute on Taxation and Economic Policy director Matthew Gardner stated. Not all residents and businesses have the same ability to pay.
This is one of the things you have to watch for, Governing’s Katherine Barrett and Richard Greene explained, “…there are legal principles dictating that user fees be used for the services provided, not just dumped into the general fund.” Quoting the National Conference of State Legislatures, the authors stated, “If user charges exceed the cost of providing services, or if separate accounting is not used, governments are vulnerable to court rulings that such charges are taxes.” Another policy paradox.
