🔒Bordonaro: Capping commercial property tax rate would help Hartford, but policy likely a non-starter

A bill introduced late in the legislative session that would create incentives for redevelopment of underutilized properties and offer companies a tax credit for moving to distressed municipalities’ downtowns could help cities like Hartford recover from the pandemic, which had a devastating impact on the office market as companies and their employees embraced remote work.

That not only drove up office vacancy rates but sucked life out of downtowns, with fewer people walking the streets on a daily basis.

But is the proposal good policy overall? As is the case with most economic development proposals, it’s complicated.

Senate Bill 1240 was introduced by state Sen. John Fonfara (D-Hartford), co-chair of the powerful Finance, Revenue & Bonding Committee, who is also running for mayor in the city of Hartford.

He’s looking to replace current Democratic Mayor Luke Bronin, who isn’t seeking reelection but is backing Fonfara’s proposal.

As my colleague Michael Puffer reported, the bill, which received a public hearing on April 10, would:

• Cap at 31.25 mills local property taxes on commercial and industrial properties. Cities and towns would be reimbursed for lost tax revenue by the state.
• Offer a state tax credit to companies that sign office leases within the downtowns of distressed municipalities with at least 80,000 residents. The tax credit would be equivalent to a 10% discount on lease payments, in addition to covering 10% of the fit-out costs for the new space (furniture, fixtures and equipment, telecommunications upgrades, etc.). To qualify, companies would need to sign a minimum three-year lease for 10,000 square feet or more.
• Offer a 25% state tax credit for conversion of underused commercial and office spaces into apartments, or a mix of apartments and commercial space.

The bill, which also introduces a new municipal revenue sharing program, faces opposition from the Lamont administration. The governor’s budget director, Jeffrey Beckham, argued it would offload local property tax burdens onto state taxpayers, diverting money from the General Fund.

Reimbursing municipalities for the 31.25 mill rate cap, for example, would cost the state at least $227 million annually, Beckham said. He also opposed the new tax credits for office leases and property conversions, arguing they duplicate existing programs.

Here are some thoughts about each component of the bill:

Mill rate cap

Capping the mill rate on commercial and industrial properties would be a boon to Hartford and other major cities, which often have higher mill rates than smaller, suburban towns.

Hartford’s 68.95 mill rate, for example, is nearly double neighboring Glastonbury’s 31.01 mill rate and significantly higher than West Hartford’s 40.68 mill rate.

Policymakers, business leaders and others for years have complained that Hartford’s high commercial property taxes have stifled investment in the city and depressed commercial property values.

Need proof? The city of Hartford, with a population of more than 120,000 residents, reported a 2022 grand list of $4.9 billion.

By comparison, West Hartford — one of the region’s wealthier communities with half the population of Hartford — saw its grand list top $7 billion last year.

Cities like Hartford are at a competitive disadvantage because they host significant amounts of tax-exempt property — government buildings, college campuses and hospitals — as well as some of the state’s poorest residents most in need of social services. That restricts grand-list growth.

However, the mill rate cap isn’t likely to pass muster in the legislature. It’s essentially a form of regionalization because it shifts the tax burden away from local property owners to state taxpayers. That will draw resistance from towns with mill rates below the proposed cap.

Also, mill rates are based on how much tax revenue a city or town needs to balance their budget. Capping the commercial mill rate could reward communities that lack fiscal discipline or resist economic development efforts to grow their tax base.

At the very least, any commercial mill rate cap would likely need to be raised much higher.

And what happens when the state faces a future budget deficit and decides it needs to lower its reimbursements to local communities? It would create fiscal instability for many cities and towns.

Office lease incentive

A number of Hartford landlords have called for state incentives to encourage companies to expand or relocate to downtown, given more than 30% of center-city office space is currently available for lease.

However, it’s legitimate to ask if this would be the best use of taxpayer dollars. Should we provide incentives to a company that moves from Glastonbury or Farmington to Hartford? That’s the classic game of government choosing winners and losers — something the private sector often laments.

Plus, incentives typically aren’t a driving factor in company relocation decisions.

Downtown Hartford’s best shot at filling empty office space is creating a dynamic restaurant, retail, entertainment, arts and culture scene.

While most employers need less office space coming out of the pandemic, they increasingly want to be located in vibrant environments that will draw workers back to the office. Hartford, with its small and walkable downtown, has the infrastructure to be an attractive employment center, but it needs to fill empty storefronts with attractive tenants.

Significant efforts have been underway.

The city set aside about $6.7 million in federal COVID-relief money for its Hart Lift program, which offers landlords matching grants of up to $150,000 to outfit spaces for new, ground-floor retail and restaurant ventures.

The money has been fully allocated and is expected to yield dozens of new businesses, many of them downtown. It would be wise to see what impact that program has before another new incentive is brought to the table.

Property conversion tax credit

Congress for several years has debated the Revitalizing Downtowns Act, which would help cities find new uses for unused office space.

It proposes a tax credit equal to 20% of the qualified expenses for converting obsolete office buildings into residential, institutional, hotel or mixed-use properties. Unfortunately, it hasn’t gained much traction, but Fonfara’s proposal seems to emulate it.

And it may be the best and most practical part of his overall bill.

Converting underutilized office space into residential apartments has been a winning strategy in Hartford. Much of it has been spurred by the quasi-public Capital Region Development Authority, which provides low-interest loans to apartment developers to help fill financing gaps.

CRDA has helped finance nearly 3,000 new apartments downtown over the past decade, but it’s mainly focused on less expensive Class B or C buildings. Adding a 25% state tax credit could help convert some empty Class A office space — a much pricier proposition — in downtown Hartford into new uses.

However, more clarity is needed in how the tax credit program would fit into the state’s broader affordable housing efforts.

Gov. Lamont’s two-year, $50.5 billion proposed budget nearly doubles the state’s investment in affordable housing development to $600 million.

We don’t need a smorgasbord of housing development programs — just effective ones that offer taxpayers the best return on their investment.