File No. 656

Senate, April 17, 2008

The Committee on Finance, Revenue and Bonding reported through SEN. DAILY of the 33rd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING A HOMESTEAD EXEMPTION.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective October 1, 2008, and applicable to assessment years commencing on or after October 1, 2008) Each municipality that is a targeted investment community, as defined in section 32-222 of the general statutes, or a municipality in which property designated as manufacturing plants under section 32-75c of the general statutes are located, may exempt from property tax an amount up to one hundred thousand dollars of the assessed value of any single parcel of owner-occupied residential real property containing not more than four dwelling units, provided such property is the permanent place of abode of such owner.

The following fiscal impact statement and bill analysis are prepared for the benefit of members of the General Assembly, solely for the purpose of information, summarization, and explanation, and do not represent the intent of the General Assembly or either chamber thereof for any purpose:

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact:

Explanation

State & Municipal Impact

The bill is permissive. It provides 18 municipalities with the option of electing to have a homestead exemption. Municipalities choosing this option will experience a significant shift in property tax burden because the amount of tax paid on most owner-occupied residential parcels would decrease while the tax on commercial, industrial, apartment, motor vehicle, and business personal property would increase.

The tax shift will occur because the homestead exemption will remove a significant portion of a town's grand list attributable to residential parcels. After the exemption is applied, the grand list will consist predominately of non-residential real properties, motor vehicles, and business personal property. Because the grand list will be significantly smaller, a town will have to increase its mill rate to support its budget.

The table below summarizes the projected impact of a homestead exemption assuming that the first $100,000 of assessed value is exempted and using 2007 data for select towns.

In the event that any of the eligible municipalities choose to provide a homestead exemption, and a significant shift in the property tax burden to commercial real property occurs, a significant increase in such municipality's payments-in-lieu of taxes (PILOT) for State Owned Property and Private College and Hospital Property will result. There is no state impact because the grant is limited to the level of appropriation. However, unless the PILOT grants are fully funded¹, all grants to other municipalities are correspondingly decreased on a pro rata basis. Additionally, if a municipality enacts the homestead exemption, and a significant shift in the property tax burden to business personal property and motor vehicles results, an increase to such municipality's Manufacturing Machinery and Equipment and Commercial Motor Vehicles PILOT grant will occur. This will result in additional costs to the Office of Policy and Management for this grant which is not contained in sHB 5021, the budget bill, as favorably reported by the Appropriations Committee.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.



OLR Bill Analysis

sSB 701

AN ACT CONCERNING A HOMESTEAD EXEMPTION.

SUMMARY:

This bill allows 18 municipalities to exempt from property taxes up to $100,000 of the assessed value of any residential real property that is (1) a single parcel, (2) owner-occupied, (3) contains no more than four dwelling units, and (4) the owner's permanent residence.

The 18 municipalities are the targeted investment communities and the town that has a manufacturing plant that qualifies for enterprise zone benefits. The towns are: Bloomfield, Bridgeport, Bristol, East Hartford, Groton, Hamden, Hartford, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Southington, Stamford, Waterbury, and Windham.

EFFECTIVE DATE: October 1, 2008 and applicable to assessment years starting on or after that date.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute

¹ Historically, appropriations have been insufficient to fully fund the State Owned PILOT and Private College and Hospital PILOT grants. The budget bill, sHB 5021, as favorably reported by the Appropriations Committee does not contain sufficient appropriations to fund either PILOT grant, resulting in pro rata reductions to the grants.