You asked if the law allows municipalities to enact stricter standards for economic development tax incentives or loans than the statutes prescribe. You were specifically interested in whether a municipality could consider a developer's track record with regard to community and worker environmental standards when offering incentives or selecting developers for an economic development project. The Office of Legislative Research is not authorized to issue legal opinions and this report should not be considered one.

SUMMARY

A municipality's ability to adopt standards for economic development programs depends on whether the statutes grant them that authority. Connecticut courts have long held that municipalities have no powers other than those expressly or impliedly granted by the legislature and that their taxing powers can be exercised only in strict conformity with authorizing statutes.

The statutes provides three mechanisms municipalities can use to carry out economic development: property tax incentives, state-funded programs, and locally funded programs. For purposes of this analysis, we excluded state-funded economic development mechanisms, such as the Enterprise Zone and Manufacturing Assistance Act programs, since these are administered at the state level. With few exceptions, statutes

governing the various economic development programs that allow municipalities to acquire or convey property or lend money to developers are silent on whether municipalities can adopt their own standards.

MUNICIPAL AUTHORITY

A municipality's ability to adopt standards for economic development programs depends on state law. Connecticut courts have long held that a municipality has “only the powers which are expressly conferred upon it by the general statutes or by some special act of the General Assembly and those which are fairly to be implied as necessary to carry into effect” (Old Colony Gardens, Inc. v. Stamford, 147 Conn. 60 (1959)).

With regard to municipal taxing power, the Connecticut Supreme Court ruled in 1976:

A municipality, as a creation of the state, has no power of its own nor does it have any powers of taxation except those expressly granted to it by the legislature. For these reasons, a municipality's powers of taxation can be lawfully exercised only in strict conformity to the terms in which they were given and statutes conferring authority to tax must be strictly observed. Joseph W. Pepin et al. v. City of Danbury et al. (171 Conn. 74).

ECONOMIC DEVELOPMENT INCENTIVES

State law establishes a number of incentives municipalities can use to carry out economic development projects. These include tax breaks, loans, and other forms of technical assistance.

Mandated State Reimbursed Tax Exemptions

State law requires towns to exempt taxes on certain real and personal property. It does not explicitly or impliedly authorize them to impose their own standards for applying the exemptions. Since the exemptions require towns to forgo property tax revenue, the state reimburses them for some of the revenue loss.

All towns must exempt businesses from paying property taxes on new or newly acquired manufacturing machinery and equipment for five years (CGS § 12-81 (72)). State designated targeted investment communities must abate real and personal property taxes for manufacturers, financial service firms, and other specified businesses that build, expand, or rehabilitate a facility and install new or newly acquired machinery and equipment in it (CGS § 12-81 (59) and (60)).

Optional Tax Incentives

State law allows towns the option of offering tax incentives for a wide range of economic development purposes. Table 1 describes the various property tax benefits that municipalities may choose to adopt. There are three kinds of optional tax benefits:  exemptions, abatements, and fixed assessments. Exemptions reduce some or all of the taxable value of property; abatements cancel some or all of the tax due; and fixed assessments freeze the taxable value of a property for a set period, thus deferring some or all future tax increases.

With one exception, the statutes are silent as to whether a municipality can impose stricter standards for applying the incentives. Municipalities cannot impose these standards without express authority to do so.

Most of the tax breaks require the municipality's legislative body, town meeting, or board of selectmen to decide whether to grant the incentive. Only the statute allowing an optional 7-year abatement of taxes or interest on delinquent taxes on contaminated property specifically allows the abatement to be contingent upon any other conditions deemed appropriate by the legislative body (CGS § 12-81r). Whether this could include a developer's track record with regard to community and worker environmental standards is open to legal interpretation.

Table 1: Optional Municipal Property Tax Exemptions, Abatements, and Fixed Assessments

Table 1: -Continued-

Economic Development Loans

Municipalities can perform other economic development activities, such as acquiring and conveying property and making loans for economic development projects under several different statutes.

Under the Connecticut City and Town Development Act, municipalities may acquire, improve, and convey tracts of land to private developers and lend money to these developers if they cannot obtain financing from banks or other traditional lenders. The loans must be authorized by a resolution of the municipality's legislative body and be subject to any rules and regulations the resolution establishes (CGS § 7-480–503). The statute requires that a “sponsor” or developer be approved by the municipality as financially qualified to own, construct, acquire, rehabilitate, operate, manage, or maintain development property.

It appears that a municipality may impose standards if the authorizing resolution specifies them. While the statute does not prescribe any other specific requirements for eligible developers, the municipality may not exercise any of its powers under the act unless the authorizing resolution includes certain standards for implementation. Among these standards is a determination that (1) the acquisition or disposition of the development property advances the public interest, general health, safety, welfare, development, growth, and prosperity of the municipality and (2) due consideration is given to the environmental and economic impact of such acquisition and disposition (CGS § 7-485(a)). These general guidelines might permit a town to consider a developer's community and worker environmental track record.

The other municipal development statutes do not appear to allow for additional standards. The Municipal Development Projects statutes allow municipalities to do similar things as the aforementioned program, but limits the authorization to lend money to approximately 25 state-designated distressed municipalities. It requires that municipalities lend money to businesses and industries in a manner approved by the economic and community development commissioner, but does not prescribe any specific standards for them (CGS § 8-193).

The Urban Homesteading and the Rehabilitation of Abandoned Industrial and Commercial Buildings statutes allow municipalities to acquire and convey separate parcels to private developers and lend money for developing this property if their legislative bodies approve (CGS §§ 8-169o—8-169w and CGS §§ 8-290—8-296, respectively). Both statutes require that the municipalities select developers with the necessary financial and technical resources to rehabilitate, own, and manage the property. Under the Urban Homesteading program, municipalities must also follow a set of statutorily prescribed priorities in selecting the person or firm to rehabilitate, construct, or manage the property (CGS § 8-169t). Community and worker environmental standards are not included in this list.

RP: ts