Time to explore a new property tax system for Connecticut

In an important step forward, CT Voices for Children, a Connecticut based non-profit research institute, recently proposed a plan to reform Connecticut’s outdated property tax system and replace it with one that will reduce the tax burden on middle-income and working families while ensuring all cities and towns have the resources they need to adequately fund Connecticut’s public schools.

Wait, What? readers will recall that Connecticut’s middle-income families pay about 10 percent of their income in state and local taxes, the poor about 12 percent and because the Connecticut tax structure coddles the rich, the state’s wealthiest residents only pay about 5.5 percent of their income in state and local taxes.

The new Connecticut Voices proposal would correct those inequities and provide real property tax relief for 2.7 million residents living in 117 of Connecticut’s 169 communities.  At the same time the program would require wealthier residents to start paying their fair share in state and local taxes.

The underlying problem is that Connecticut underfunds its schools by close to $2 billion a year leaving the state’s public schools without the resources they need to provide every child with their constitutionally guaranteed access to a quality education.

The existing system also unfairly burdens the vast majority of local taxpayers.

In an historic effort to address this problem, Connecticut Voices for Children’s proposal would reform Connecticut’s property tax system as follows;

Thriving communities are made possible by good schools, roads, and other public systems. To support these building blocks of local economies, Connecticut’s cities and towns need a stable revenue source that generates needed resources without placing an unfair load onto taxpayers.

Currently, the property tax does the opposite. Connecticut’s property tax system makes residents in poor communities pay more, stifles economic development, and exacerbates racial inequalities. At the same time, because local school funding is so dependent on local property taxes, disparities in property wealth lead to disparities in opportunities for children.

We explore a partial solution to this problem: a system in which communities that tax themselves equally for education receive equal per-pupil funding for education. Our model would cut taxes for 2.7 million residents in 117 cities and towns while maintaining local control and education funding levels.

The report is based on Vermont´s adjusted statewide property tax system, with the following key features:

Gives 2.7 million residents an average tax break of about $400 per person.

Fully funds the Payment in Lieu of Taxes (PILOT) program, alleviating inequities in communities where concentrations of government, university, and hospital property have eroded the tax base.

Reduces disparities in property tax rates and thus reduce incentives for business to relocate from communities with the highest property tax rates to nearby communities with lower ones.

Consistent with tradition of local control, communities willing to tax themselves more to spend more on education are allowed to do so.

Consistent with tradition of taxing property to fund education.

To read the full report and for more background go to: Equal Funding for Equal Effort: A Proposal to Reform Property Tax Funding for Local Education in Connecticut

Malloy’s austerity budget strategies are hurting Connecticut

  • Record cuts to Connecticut’s public schools and institutions of higher education.
  • Drastic and devastating cuts to vital human services
  • Continuation of corporate welfare programs and efforts to coddle the rich.

Governor Dannel Malloy, with the help of the Connecticut General Assembly, is destroying core government programs and undermining Connecticut’s economic path.

This legislative session, the Democrats in the Connecticut legislature will be faced with a choice – continue Malloy’s disastrous policies – or stand up to the bully and pass a fair and honest state budget.

In order to adopt a better budget solution legislators will need to identify new sources of revenue to pay for vital state services and programs.

To that end, Connecticut Voices for Children has released a major report – today – on Revenue Options to deal with Connecticut’s Fiscal Crisis

Providing a light for Connecticut legislators should they decided to do their job and resolve Connecticut’s massive budget crisis, Connecticut Voices for Children released a report today entitled, Revenue Options are Key to Tackling Budget Shortfalls and Supporting Thriving Communities

CT Voices writes;

In confronting budget deficits of more than $3 billion in the upcoming biennial budget, the commonsense choice for Connecticut should be a balanced approach that includes revenue, rather than a cuts-only approach that threatens an already fragile recovery. Last year, lawmakers chose an “austerity” approach, balancing the budget with $850 million in spending cuts. As a result, the Children’s Budget—a measure of the state’s investments in children and families—fell to a record low 29.5 percent of total General Fund spending.

While such cuts may offer a short-term solution, they do so at a significant cost to the long-term economic structure of the state. 

On the revenue side, there are opportunities to invest in Connecticut’s future by modernizing an outdated sales tax system, strengthening taxes on corporations, and reforming wealth and income taxes. This brief highlights revenue options discussed and/or recommended by the State Tax Panel– –a body of experts who met over the course of two years to evaluate Connecticut’s state and local taxes. While the Panel’s final recommendations were required to be revenue neutral, the policies themselves can be adapted to yield new revenue to support essential investments in our future.

 By combining increased revenue, new strategic investments, and smaller budget cuts, the Governor and the Legislature can both balance the budget and position the state for a more prosperous future. 

 

One of the key elements of the report is an effort to explore a variety of options to ensure that the state’s wealthiest residents start paying their fair share.

Looking to reform wealth and income taxes in Connecticut, CT Voices observes;

A recent report from the Center on Budget and Policy Priorities finds that Connecticut’s income distribution is the third most unequal state in the nation.7 The report cites upside down total state and local tax systems (which impose a higher effective rate on lower income taxpayers) and the growth in the share of investment income (from dividends, capital gains, and interest) to total income that goes primarily to high-income households, as contributing factors 

Indeed, Connecticut’s overall tax system (including income, property, and sales and excise taxes, minus federal deductions) allows the most powerful among us to pay a much lower percentage of their income in taxes. For example, a family making less than $25,000 a year pays an estimated 11 percent in state and local taxes while a family making over $1,331,000––the top 1 percent––pays 5.5 percent.8 If the top 5 percent of Connecticut households paid the same effective tax rate as the remaining 95 percent of households, the state could raise more than $2 billion in state revenue annually.  

Combined, the listed changes could raise more than $1 billion while also creating a fairer tax system and reducing wealth inequality: 

Increase Top Tax Rate for Top Two Tax Groups ($238 million):     A half percentage point increase on the top two personal income tax brackets would result in an estimated $283.1 million in new state revenue—more than 82 percent of which would fall on the top 1 percent of taxpayers. Over a third of this tax increase would be offset by larger federal income tax deductions typically available to high-income earners, meaning that of the $238 million in new revenue, the state would raise $150.4 million from taxpayers, while the other $87.6 million would be picked up by the federal government.   

Increase Capital Gains and Dividends Taxes for Top Three Tax Groups ($134.6 million):     Carried interest is the share of earnings that investment managers receive from a profitable return of their client’s investment. The federal government treats carried interest as investment income, or capital gains, rather than as wages or commissions. This preferential treatment results in a federal tax liability that is 50 percent less than it would be for ordinary income. This is known as the carried interest loophole. Despite bipartisan support, little hope exists that Congress will take action. By increasing the tax on capital gains and dividends at the state level, Connecticut could redress the large preferences these two types of income enjoy in the federal tax code and raise $134.6 million.

Taxing capital gains and dividends would represent a return to historical treatment of unearned income. When Connecticut’s income tax was enacted in 1991, taxes were also cut for higher-income earners by eliminating a 7 percent tax on capital gains and a 14 percent tax on dividends and interest. Thereafter, investment incomes were subjected to the state income tax at a much lower rate of 4.5 percent. While the top income tax rate has increased to 6.99 percent, it is still below pre-1991 levels for unearned income. Moreover, any increased taxes on unearned income, like any increase on earned income, would be offset in part by larger federal income tax deductions. 

Millionaires Thrive in Connecticut Thanks to Public Investments Anti-tax advocates have been inaccurately citing Internal Revenue Service (IRS) data in an effort to convince their audience that higher taxes have resulted in a “mass exodus” of residents seeking low tax states.9 They assert that the income of residents who moved out of the state is income lost to another state, therefore depleting Connecticut’s finances. It is a claim that former Tax Foundation economist Lyman Stone has written rests “on an egregiously wrong use of the data” by analysts who “have either failed to perform the most basic due diligence…or else actively mislead their readers.” In other words, the vast majority of people who leave a state hold jobs that will be filled by people joining the labor force from within the state or moving in, resulting in no “loss of income” at all.   

Indeed, a 2016 study found that millionaires were much less likely to move than the rest of the population and that there was only a very small influence of income tax rates on the probability of moving. This study, based on 13 years of IRS tax data from all millionaires in the U.S., found that millionaire mobility and the low levels of responsiveness of millionaires to taxes meant that top tax rates would only start to decrease revenue if they were significantly higher than the single digit rates of Connecticut. A half percent, one percent, or two percent increase in the top tax bracket would not have a negative impact on revenue due to migration.  

Join Regional Compact to Close Carried Interest Loophole ($535 million):  Another way in which states could act to close the carried interest loophole in light of inaction in Washington D.C. would be to form a regional compact. Already raised by the New York and New Jersey legislatures, the proposed legislation calls for Northeastern states to impose a tax rate on carried interest sufficient to capture each state’s share of the increased federal income tax liability that would be incurred if the loophole were closed at the federal level. Both states’ proposals call for a 19 percent “carried interest fairness fee” until the loophole is closed at the federal level. By definition, the compact would not go into effect until all states (New York, New Jersey, Massachusetts, and Connecticut) enacted the same provisions. It is estimated that Connecticut could raise $535 million by doing so.

And the Connecticut Voices report outlined a number of other steps that Governor Malloy and the Connecticut General Assembly could take to deal with Connecticut’s fiscal crisis.  The full report can be found at:  http://www.ctvoices.org/sites/default/files/Revenue%20Options%202017_0.pdf

Yes we are failing our children…especially here in Connecticut

When Connecticut Democratic Governor Dannel Malloy took to the podium in February 2015 to announce his proposed austerity budget for the State of Connecticut he announced a plan in which more than half (54%) of his proposed budget cuts came from children’s programs.

More than half of Malloy’s total cuts aimed at programs to support children when, “spending on the ‘Children’s Budget’ – state government spending that directly benefits young people – makes up only a third of the overall state budget.”  [CT Voices]

In response to the criticism leveled at Malloy, a recent CTNewJunkie headline explained, “Malloy Administration Pitches ‘Lean’ Government, Denies Being Heavy Handed.”

Lean government, not being heavy handed?

According to recent economic data, the nation’s wealth grew by 60 percent over the past six years.  That translates into about $30 trillion of additional wealth, with the overwhelming majority of that money going to the country’s super rich.

During the same period, the number of homeless children grew by 60 percent. “For Every Two Homeless Children in 2006, There Are Now Three.” During this past winter approximately 138,000 children were defined as homeless by the US Department of Housing.

Children now account for nearly 50 percent the country’s food stamp recipients.  More than 16 million children get about $5 a day to pay for their meals, but that was before Congress and the President cut $8.6 billion from the food stamp program over the next ten years.

In 2007 about 12 in every 100 kids were on food stamps. Today that number stands at 20 in every 100 children.

According to UNICEF, the UN’s agency for children, the United States has one of the highest  child poverty rates in the developed world.  The report explains, “[Children’s] material well-being is highest in the Netherlands and in the four Nordic countries and lowest in Latvia, Lithuania, Romania and the United States.”

And Here in Connecticut… 

About 113,000 Connecticut children live in the lowest levels of poverty, or about 14.5 percent of all the state’s children…nearly one in every six children.

Connecticut’s child poverty rate is up nearly 50 percent from 2000 when the number of Connecticut children living in poverty was just over 10 percent.  At the time, Connecticut became the first state in the nation to adopt an official policy stating its goal was to reduce poverty by fifty percent by 2010.  Connecticut failed.  Rather than reducing child poverty by 50 percent, the level of child poverty has increased by 50 percent since we entered the 21st Century.

Today the level of child poverty is more than 47% in Hartford; 40% in Waterbury; and over 32% in Bridgeport, New Britain and New Haven.

Using a more appropriate definition of poverty, living under 200% of the federal poverty level, the harsh reality is that almost 1 in 3 Connecticut children are growing up at unacceptable levels of poverty.

Yet in the face of the mounting levels of child poverty, Connecticut Democratic Governor Dannel Malloy proposed more cuts to a variety of vital programs including those that are aimed at helping the state’s poorest children.

And is budget slashing comes despite the fact that Connecticut’s wealthiest taxpayers pay a far lower percent of their income in state and local taxes than the middle class and the poor and the rich are charged a much lower income tax rate then their brethren pay in New York and New Jersey.  The problem is that Malloy refuses to raise the income tax rate on the wealthy because, as he said before, he doesn’t want to “punish success.”

Connecticut’s elected officials can and must face the reality that we are failing our children.  They can start by requiring the state’s wealthiest residents to pay their fair share in taxes – thereby eliminating the need for cuts to children’s programs.  See – Democrats – Time to stop coddling the rich.

And as for Malloy, one wonders if his only defense is the fact that he is not alone in his disdain for truly putting children first on the political agenda…

What is perhaps the most telling point of all is that there are two nations in the World who have refused to ratify the UN Convention on the Rights of the Child — South Sudan and the United States. 

[Numbers about child poverty at the federal level come from A Nation’s Shame: Trillions in New Wealth, Millions of Children in Poverty.]

Democrats – Time to stop coddling the rich

As a result of Governor Dannel Malloy’s failure to get Connecticut’s fiscal house in order, his proposed state budget includes disastrous cuts to vital state services and programs while continuing the policy of coddling the rich and unfairly burdening the middle class. While Malloy’s state budget proposal includes tens of millions more for wasteful and destructive programs like the Common Core, the Common Core SBAC testing and charter schools, Malloy put forward a budget that reduces funding for education and cuts deeply into programs that directly benefit Connecticut’s children. According to CT Voices for Children, a Connecticut based research organization, more than half of Malloy’s budget cuts (54%) are aimed at Connecticut’s children.  Add in the cuts for those with developmental disabilities, mental health challenges and the other budget cuts aimed at the state’s other vulnerable citizens and the legislature is forced to deal with a budget that Malloy and his administration should be ashamed of. At the same time, Malloy’s plan demands that the Democrats in the Connecticut General Assembly continue to undermine the state’s middle class and the economic well-being of their own constituents in order to “protect” Connecticut’s wealthiest residents. The data highlighting Connecticut’s regressive tax system is clear, concise and extremely disturbing. After federal income tax deductions, Connecticut’s wealthiest taxpayers pay an average of 5.5 percent for their income in state and local taxes, compared to 10.5 percent for middle-class families and more than 11.0 percent for the state’s poor. Rather than a progressive tax system, or even a flat tax system, Connecticut has developed a state and local tax system that allows the rich to skate free, while leaving the burden of balancing state and local budgets onto those who make far less. Keith Phaneuf reported the situation accurately when he wrote in today’s CT Mirror,

“Just before the income tax’s enactment (1991), the state taxed capital gains at 7 percent, and dividends and major interest income at rates as high as 14 percent. Those rates went away when the income tax was enacted. Earnings from these sources instead were subject to the top income tax rate, which stood in 1991 at 4.5 percent. The top rate has risen just three times in the 24 years since then – to 5 percent in 2003, 6.5 percent in 2009 and 6.7 percent in 2011 – and still remains below the old capital gains and dividends rates.”

The harsh reality is that Connecticut’s state and local tax system is designed to punish middle and lower income families. But Democratic legislators could push back against Malloy’s unfair budget policies. Connecticut’s top “marginal income tax rate” is 6.7 percent, a rate that is much lower than that in New York (8.82%) or New Jersey (8.97%).  Increasing the marginal income tax rate on Connecticut’s wealthiest taxpayers (those making more than $1 million) to bring it in line with New York State would bring in over $400 million a year. Eliminating a number of the useless sales tax exemptions that lobbyists have pushed through for their clients would raise another $400 million a year and ending some of the corporate welfare (tax expenditures) that Malloy has been doling out would mean that Connecticut could have a balanced budget that doesn’t destroy vital state services. The solution to Connecticut’s budget crisis is actually not hard to identify, but it does require conviction and honesty on the part of Connecticut’s elected officials…and that apparently is exactly what they are lacking. The next six weeks will determine what side of the battle the members of the Connecticut General Assembly will take.  The choice is simple.  Continue to follow Governor Malloy’s disastrous policies or actually come down on the side of their constituents and make the rich pay their fair share.

Connecticut “schools of choice” are a vehicle for discrimination

Fellow commentator and public school Advocate Wendy Lecker’s latest column in the Stamford Advocate examines CT Voices for Children’s new research report which is entitled, ”Choice Watch: Diversity and Access in Connecticut’s School Choice Programs.”  The study found that charter schools and other “choice schools” systematically prevent equal access to some of the state’s neediest students.

As Wendy Lecker reports,

Of special concern, the report found that Connecticut charter schools are “hypersegregated” — at least 90 percent minority. Furthermore, the authors revealed that charters grossly underserve English Language Learners (`ELL”) and students with disabilities.

Connecticut Voices noted that charters have a financial incentive to exclude ELL students. Unlike the cost of special education services, which is borne by the district where a charter school student lives, charter schools must pay for ELL programs and services. If, however, a charter has fewer than 20 ELL students, it is not required to provide an ELL program.

Connecticut’s rating system, which judges and sanctions schools based on standardized tests scores, provides more reasons to exclude. ELL students and students with disabilities tend to score lower on standardized tests, therefore charter schools look higher performing when they do not have either subgroup.

A traditional public school would never be able to get away with excluding any child in their district. Such a move would be illegal. However, the state enables the charter schools’ exclusionary behavior. Charters are not required to have specific diversity targets in enrollment. Moreover, while in theory a charter can be revoked if a charter school does not serve enough ELL or students with disabilities, no charter school has ever suffered that fate. With an Education Commissioner who is a founder of one of the worst offending charter chains, charters are safe to continue their exclusionary practices.

The fact that these publically funded “choice schools” have become a vehicle to further segregate our society undermines the very essence of our public education system.

As Wendy Lecker explains,

The idea of equity for all was the driving force behind the civil rights movement. Martin Luther King Jr. declared that “I am never what I ought to be until you are what you ought to be.

“Lyndon Johnson’s motto was “doing the greatest good for the greatest number.”

The principles of communal good underpinned Connecticut’s commitment to school integration. Connecticut’s Supreme Court deemed that having children of different backgrounds learn together is vital “to gain the understanding and mutual respect necessary for the cohesion of our society.” The late U.S. Supreme Court Justice Thurgood Marshall maintained: “Unless our children learn together, there is little hope that our people will learn to live together.”

Armed with the evidence provided by the new CT Voices for Children Report, Wendy Lecker concludes,

As voters, we have a choice. We can recommit ourselves to school integration, realizing that instilling in our children a sense of community is the key to our cohesion as a democratic state. Or, we can allow politicians to school our children in avoidance, and risk becoming like the fractious and unstable nations we see in the world around us.

Be sure to read Wendy Lecker entire column which can be found at: http://www.stamfordadvocate.com/news/article/Lecker-Some-needy-students-frozen-out-of-5413855.php

You can read and download the CT Voices for Children report at: http://www.ctvoices.org/publications/choice-watch-diversity-and-access-connecticuts-school-choice-programs.

Major new study finds Connecticut Charter Schools discriminate

Connecticut Voices for Children, the New-Haven based, nationally recognized policy research organization has issued a major new report entitled, “Choice Watch: Diversity and Access in Connecticut’s School Choice Programs.”

The CT Voices report is the most extensive, independent study that has been conducted about the performance of charter schools, magnet schools and other school choices options in Connecticut.

While the entire report is a “MUST READ” for those following the “school choice” debate, it is an especially important addition to the debate for those concerned about the Malloy administration’s commitment to expanding the number of charter schools in Connecticut and their on-going privatization efforts to turn public schools over to private charter school operators.

Among the key findings from the CT Voices study is that Connecticut’s Charter Schools are more segregated, systematically discriminate against Latinos and English Language Learners and fail to recruit, retain and serve their fair share of students who require special education services.

As the CT Voices study concludes,

Charter schools are typically hypersegregated by race/ethnicity and, in Connecticut’s four largest cities, actually offer students, on average, a learning environment that is more or equally segregated by race and ethnicity than local public schools.

Although Charter Schools serve just over 1% of the public school students in Connecticut, these privately run, publically funded schools have been receiving additional funds at a far greater rate than traditional public schools.

Governor Malloy and his administration are engaged in an unprecedented effort to increase the number of charter schools operating in the state.

However, the new CT Voices report re-confirms that when it comes to equity and fairness, the rush to divert public resources away from public schools and to charter schools is taking Connecticut in exactly the wrong direction when it comes to reducing racial isolation and providing quality services to students with special needs and those who require additional English language programs.

For example, according to the new report,

In 2011-12, a majority of magnet schools and technical schools were “integrated,” as measured by the standard set forth in the 2008 settlement agreement of the landmark Sheff v. O’Neill school desegregation case: a school with a student body composed of between 25% and 75% minority students…In contrast, only 18% of charter schools met the Sheff standard. The majority of charter schools were instead “hypersegregated,” with a student body composed of more than 90% minority students…”

The failure of charter schools to provide equal opportunity to students is even starker when it comes to their unwillingness to serve bi-lingual students, students who need additional English language services or students with special education needs.

When it comes to educating English Language Learners, the new study finds that 76% of all charter schools have substantially lower enrollment of ELL students then the community they are supposed to be serving.

The failure of charter schools to serve students with special education needs is equally troubling.  Although state law requires that Charter Schools “attract, enroll, and retain” children with disabilities, the report found that many charter schools are simply failing to fulfill this legal requirement.

The new report from Connecticut Voices for Children also sheds a powerful light on Connecticut’s magnet schools and the state’s technical high school system.

You can find the full CT Voices report here: http://www.ctvoices.org/sites/default/files/edu14choicewatchfull.pdf

You can also find a New Haven Independent news article about the report here: http://www.newhavenindependent.org/index.php/archives/entry/ct_voices_for_children_report/

And a CT News Junkie report about the report here: http://www.ctnewsjunkie.com/archives/entry/report_claims_choice_schools_are_hyper-segregated/

Connecticut’s Governor and elected officials play: “It’s Alright, Ma (I’m Only Bleeding)”

During the last gubernatorial campaign, each side claimed that they had a deeper commitment to fiscal responsibility and government transparency. 

Now more than two and a half years later we are further away from both concepts than most people could have possibly conceived of.

In an announcement that will come as no surprise to Wait, What? readers, a report by the Fiscal Policy Center, which is part of Connecticut Voices for Children has determined that we should consider changing our state song from Yankee Doodle Dandy to Bob Dylan’s famous ballad, “It’s Alright, Ma (I’m Only Bleeding).”

The non-partisan Fiscal Policy Center concludes;

“By relying on borrowing and one-time fixes, we’re undermining the long-term stability of the budget and gambling with these investments in our children’s future.”

The reported on the state budget that was proposed by Governor Malloy and approved by the Connecticut General Assembly “warns that the ‘quick-fix’ budget solutions adopted in the budget will deepen the state’s long-term budget deficit and could ultimately endanger funding for child and family services.”

The report goes on to explain that the new budget uses borrowing, one-time revenues, and fund transfers to close budget deficits and cover operating expenses and reports that, “ By relying on these measures, rather than recurring revenues to close the state’s budget gap…state policymakers have opened up a larger revenue hole in future budget years.”

Key problems about Connecticut’s state budget that highlighted in the new report include:

  • The new state budget “relies on almost $600 million in borrowing, over $400 million in temporary fund transfers, and $500 million in one-time revenues to pay for operating expenses.  Because these funding sources will dry up at the end of the two-year budget, there is currently a projected state deficit of $712 million in Fiscal Year 2016 and comparable holes in 2017 to 2018.” 
  • “Reliance on debt and one-time revenues will further increase budget risks for the state if economic growth does not return quickly.  The state’s budget projections assume that robust economic growth will result in increased state tax revenues.  With a nearly empty Rainy Day reserve fund, if this growth does not emerge, Connecticut would have little choice but to turn immediately to deep cuts, steep tax increases, and more borrowing.” 
  • “The state government has transformed over $1 billion in debt it owed itself and its employees into debt it now owes to bondholders, resulting in less flexibility and control of the repayment of that debt.  While the state budget plan pays down funds owed to the state employee and teacher pension systems, it does so by borrowing money from private bondholders.  In addition, the state has borrowed money from the private market to meet stricter accounting requirements under the rules of Generally Accepted Accounting Principles (GAAP).”

You can find the full report, entitled “A Gambler’s Budget: the Fiscal Year 2014-15 State Budget,” at www.ctvoices.org.