Some towns have seen large drops in their grand lists caused in part by changes made in recent years to the state law that determines how local officials figure the value of cars for property tax purposes.
Middletown, for example, saw its grand list shrink “for the first time in recent memory,” because of the car tax valuation changes, its mayor told residents earlier this year. The town is now planning to raise its tax rate.
The loss in the value of the grand list is a fraction of the actual revenue losses towns would see in their budgets, but some local officials still say it’s been a hard hit. State lawmakers and some municipal experts say it’s far more complicated than the car tax changes and that the adjustment to the valuation system will ultimately be good for towns.
State lawmakers in June met in a special session to make technical changes to the state’s system of valuing vehicles for personal property tax purposes. The law originally passed in 2022, but legislators said they needed to make “fixes” to the statute before it went into effect in October 2024.
The 2022 measure, included in the budget bill, mandated that towns use what’s called the manufacturer’s suggested retail price, or MSRP, instead of a system from the National Automobile Dealers Association’s guide to assess the value of cars, so that towns would have a more uniform system.
The change aimed to slightly lower motor vehicle taxes for consumers and to use a new system that’s more predictable and less susceptible to market shifts. It also introduced a 20-year schedule of depreciation as a car ages, so that owners pay a smaller percentage of the suggested retail price as vehicles get older.
The list began with an 80% valuation for vehicles that are up to a year old, meaning that it drops to 80% of its original value in that year.
The 2024 bill adjusted that schedule so that the list began with an 85% valuation for vehicles that are up to a year old, lessening the impact on municipal budgets, which draw revenue from car taxes.
“[Gov. Ned Lamont] wanted to lower our taxes for people, and part of the idea was to go to the MSRP to make this more predictable, both for the taxpayer and for the towns,” said Planning and Development Committee co-chair Rep. Eleni Kavros DeGraw, D-Avon.
But after the law went into effect in July, some towns complained that their budgets had taken too much of a loss. In response, House Speaker Matt Ritter, D-Hartford, said the legislature decided to change the law again.
In February, lawmakers passed an emergency-certified bill that allowed towns to opt to set the depreciation schedule beginning at 90% of the original value, rather than 85%. Several towns have since decided to use the provision and change their schedules.
Danbury initially stood to lose millions of dollars in its budget, Mayor Roberto Alves said. When the council last week adopted the change, that narrowed to a few hundred thousand dollars.
“What works for one municipality may not work for others. For Danbury, it was nice to have this option,” Alves said. “I’m just happy that the folks in Hartford listened to us.”
Still, organizations that advocate for municipalities said they’re hearing reports that some may see large budget changes. The average grand list loss was at about 14% before the February law passed, said Randy Collins, an associate director at the Connecticut Conference of Municipalities.
“It was really a difficult number for some towns,” Collins said.
Middletown Mayor Ben Florsheim in January issued a message to residents about the proposed 2025-26 budget that includes an increased mill rate.
“This year, a new change in state law created for Middletown an unprecedented challenge: our grand list shrank,” Florsheim’s message to residents said. “For the first time in recent memory, the total value of taxable property in our city declined — not because homes lost value, or because businesses closed down, but because of a state-mandated change to how we tax cars.”
He said that means property owners will have to shoulder the cost of the change. Middletown adopted the depreciation schedule that began at 90%, which helped, but the town will still need an increased mill rate, he said.
“By forcing towns to undervalue cars, they’ve guaranteed your property taxes must rise to fill the gap,” Florsheim wrote to residents.
Florsheim said in an interview that while he agreed that something needed to be changed about the motor vehicle tax to make it more equitable, this wasn’t the solution.
“I think it was sort of an outgrowth of the general urgency in the legislature to feel like they had done something about this issue and did it in a way that kind of torpedoed grand lists for almost all of their constituent towns,” Florsheim said.
Planning and Development Committee ranking member Sen. Jeff Gordon, R-Woodstock, said he hasn’t been supportive of the change from the beginning. He worried that it would put too much burden on towns, he said.
“We were hearing from municipalities about concerns, and now that these changes are in effect, I’m continuing to hear from my 13 towns in my district about concerns about these changes,” Gordon said. “So for me, I didn’t think the changes were going to work out well. I wasn’t certain why the legislature wanted to make more changes.”
Collins and Betsy Gara, executive director of the Connecticut Council of Small Towns, said part of the sudden shift came about because cars were valued much higher during the COVID-19 pandemic when supply chain issues caused the cost of new and used vehicles to spike.
“Values for motor vehicles, including used motor vehicles, went up significantly,” Gara said. “And as a result, when they moved from the NADA values to the MSRP, it ended up dropping a town’s grand list pretty significantly, particularly if they had just undergone revaluation.”
Gara said she’s hopeful that towns will adjust to the change.
“Hopefully, over time, the changes will even out. But for this year, in particular, towns took a big hit,” she said.
Collins said in the long run, the change will likely make it easier for towns to plan their budgets because it’s a more predictable system.
“Anytime you implement a significant change in how something’s done, there’s going to be wrinkles to it,” he said. “So we’re hoping that after a year, when things settle out, it’ll be a better system.”
Florsheim pushed back against this idea, and pointed out that while towns may adjust to the change, their grand lists will still be smaller.
“When does it actually start breaking even in such a way that is beneficial for taxpayers?” he said. “And I think this sort of herky-jerky back and forth ‘We’re going to do it this way, we’re going to do it that way,’ it’s caused an incredible amount of uncertainty at the local level.”
Jennifer Lineaweaver, president of the Connecticut Association of Assessing Officers, said the change has “excellent benefits,” including shielding the grand list properties from market swings such as the one that occurred during COVID. It also makes it more efficient for assessors to figure out the value of vehicles, she said.
“Not dealing with pricing all of those MVS in the fall, allows assessors more time to discover, list and value previously untaxed property,” Lineaweaver said in an email.
She added that part of the drops in town revenue also resulted from a new veteran tax exemption on real estate. She said passing the exemptions has had more influence on town revenues than some might expect.
Rather than the legislature further adjusting the car tax process, “they could stop passing unfunded state mandates and stop passing new exemptions,” she said.
The tax changes are part of a larger conversation about equity in Connecticut’s car tax system. The car tax is based on mill rates, which vary from town to town. This means that people can pay different amounts in taxes for the same car depending on where they live.
Republican Gov. Jodi Rell proposed plans to at least partially do away with the tax in 2006 and 2007. Gov. Dannel P. Malloy, a Democrat, proposed a car tax repeal in 2013. Both proposals failed.
Abolishing the car tax has also been a special interest of Planning and Development Committee co-chair Sen. MD Rahman, D-Manchester, since he first took office in 2023.
Rahman was among the 24 lawmakers who signed onto the Senate’s 2024 amendment to offer towns the option to phase out the car tax over a five-year period.
The amendment surprised members of the House, who had negotiated and struck a deal to change the car tax over the course of two years. That deal didn’t include a phase-out, and some members worried that could put too much burden on property owners, who would likely bear the brunt of significant changes to municipal revenue sources.
This session, Rahman is working on a bill separate from the changes to the valuation system that would phase out the car tax. He’s trying to find a way to replace the revenue, he said.
“That’s a really regressive, complicated, unfair tax,” Rahman said. “Because two different Jeeps cost two different taxes.”