Published February 28. 2010 4:00AM Updated February 28. 2010 4:31AM
New London has come too far to abandon a proposal that would allow it to experiment with a different property tax system, one that would reward property improvements, not penalize them, and motivate commercial property owners to renovate their buildings, not mothball them waiting to cash in on revitalization.
The approach is land value taxation (LVT), which shifts a greater percentage of the tax burden to the land itself. It rewards economic activity, in the form of revitalized buildings and development of empty lots, rather than punish it.
A group of local citizens, with backing from the City Council, lobbied the legislature to change state laws to allow LVT as an alternative to the traditional property tax system, in which every renovation or new construction means a higher tax bill. The result was a state law giving New London alone the opportunity to try LVT on a pilot basis.
But now this promising innovative approach may pass New London by without being given a chance. By the razor-thin margin of 4-3 the Land Value Tax Pilot Committee, created to come up with a plan to undertake LVT, has instead concluded that it "is not a model of taxation that can benefit the city of New London."
The committee began with a fundamentally flawed premise that LVT, if undertaken, should apply on a citywide basis, rejecting the option of implementation in a specific location. Yet pilot programs, by their very definition, are limited. By trying LVT in one location the city can asses the effectiveness. This information would then help the city determine whether to expand, modify or abandon the new approach. That is what pilot programs are all about.
This citywide approach drove the conclusion that LVT was not good for New London. LVT would penalize some businesses, such as car dealerships, because they must leave much of their land undeveloped for car inventories, the majority found. So too with shopping centers and their expansive parking lots, concluded the committee.
This is not reason for a blanket rejection of LVT. In a minority report, three committee members urge the council to proceed with a pilot program in the City Center District (CCD), or downtown, with a modest 10 percent shift in assessment to land holdings. The CCD does not have the car dealerships or expansive parking lots raised by the majority members as points of concern.
Why not take this opportunity to place downtown New London in a unique position in Connecticut, able to tell prospective developers that improvements they make to downtown New London properties will not entail the tax penalties seen in other communities. The city could also combine LVT with existing tax abatement programs to drive revitalization.
The committee majority also questioned the wisdom of implementing LVT in the current financial climate, when any economic development is difficult and credit tight. But shouldn't the city position itself now, to take best advantage of the eventual recovery to come?
It is interesting to note that Norwich Mayor Peter Nystrom, during an online chat on theday.com last week, had this to say about LVT: "Should New London fail to capitalize on this opportunity, I will seek to have Norwich designated for a pilot."
Why would New London once again choose to pass on an opportunity? Perhaps because vested interests fear change.
The council, by a 4-2 vote, has asked the state legislature to extend by another six months the time the city has to design a pilot LVT program. We urge the legislature to so act. In the meantime, the council should instruct the LVT committee to recommend a true pilot program in a specific location.