🔒Land value taxation won’t spur new development

Hartford city councilors last week released a trial balloon on a new policy proposal that would increase taxes on owners of vacant downtown land, in an effort to spur development.

The proposal, according to the Hartford Courant, would allow the city to tap the state's little-known “land value taxation” pilot program, which was created in 2009 and refined in 2013. The program has never been used, but it allows the state Office of Policy and Management to grant three Connecticut municipalities the authority to levy higher taxes on owners of vacant or undeveloped parcels. The city would consider using it in a small section of downtown.

We have concerns about the policy, which has an overall goal of growing the grand list by promoting private-sector development. While we support measures that would encourage conversion of parking lots and other underutilized land downtown into residential, retail or office development, using a stick rather than carrot approach won't make up for the various economic conditions that exist in Hartford that discourage new development.

Ground-up development in the Capital City is nearly impossible without tax abatements and/or other government incentives because of Hartford's significant construction costs, limited tenant demand — particularly for office and retail space — and high property taxes. Ask any broker or developer that does business in the city and they will tell you rents that landlords can charge tenants (office, retail or residential) in Hartford don't support the costs of new construction, which can range upwards of $300 per square foot.

That is why the the Capital Region Development Authority has had to subsidize all the city's major apartment conversions in recent years, to help close funding gaps created by the gulf between what it costs to build new structures and what developers can profitability sell them for on the market.

Simply assessing higher taxes on property owners of parking lots or other vacant land won't change those economic dynamics. In fact, it will likely make it even more difficult for businesses to operate in Hartford and potentially lower land values — certainly not a way to grow the grand list. (It could also lead to higher parking rates as landowners pass on the added costs to their customers).

Land value taxation, which has gotten little use in the United States outside Pennsylvania, may help the city raise some extra tax revenues in the short term, but it certainly won't create a strong enough stick to all of the sudden encourage new development. There would need to be a much more comprehensive policy that promises tax abatements and other incentives to make projects economically feasible.

Hartford does use tax abatements to incentivize commercial development — particularly residential — but such deals are done on a case-by-case basis and aren't guaranteed.

Hartford's bifurcated tax system, in which commercial property is assessed at double the rate of one- to three-family homes, has already stunted private commercial investment in Hartford. It's hard to imagine how creating another, even higher tax bracket for certain landowners would make things better.

If the city truly wants to grow its grand list and encourage private-sector development, it must get its fiscal house in order, work to lower the mill rate and adopt a coherent economic development strategy that takes into account the true economic dynamics of the city.