OLR Research Report

August 20, 2008




By: John Rappa, Principal Analyst

You asked for the legislative intent and history of the statute authorizing the seven-year property tax deferral for improving residential property in enterprise zones. You specifically wanted to know if (1) a state agency oversees how municipalities administer this statute, (2) municipalities must adhere to its income criterion, and (3) that criterion is consistent with those found in similar statutes.

Some of these questions require a formal legal opinion, which the Office of Legislative Research cannot give. Consequently, you should not regard this report as providing one.


Municipalities must phase in over seven years the assessed value of improvements made to residential property in the 17 enterprise zones. They must defer 100% of that value during the first two years after the improvements were completed and then reduce that percentage in each of the remaining years according to a statutory schedule.

But they must automatically end the deferrals if the income of the occupants of the improved property rises above 200% of the municipality's median family income. This requirement applies to newly constructed or rehabilitated rental units and rental units converted into condominiums.

The legislature adopted the deferral and the 200% threshold as part of the 1981 act that launched the Enterprise Zone Program. It subsequently amended the deferral without changing that threshold. The legislative record does not indicate why the legislature adopted or retained the threshold. It suggests only that legislators believed the deferral and the other enterprise zone incentives were needed to stimulate property improvements in the zones, which are generally economically distressed areas.

The statute's plain language and legislative history indicate that municipalities must provide the deferral as long as the occupants meet the income criterion. But the statute assigns no state agency to oversee how municipalities administer the deferral. Consequently, a property owner denied a deferral must appeal to Superior Court.

Other laws allow municipalities to exempt or abate property taxes on residential property. Most allow them to do so based on the occupants' income or the property's location. Municipalities may offer these incentives in enterprise zones on top of, but not in lieu of, the seven-year deferral.


PA 81-445

Analysis. This act established the enterprise zone program, which provides different financial incentives to people and businesses that construct or rehabilitate property in relatively small, economic depressed areas. The act limited the number zones to six and specified a process for local zone designation and state approval. The process is administered by the Department of Economic and Community Development (DECD).

The enterprise zone designation qualified property owners in the zones for loans and grants, business tax credits, sales tax exemptions, and seven-year property tax deferrals. The act required municipalities to defer 100% of the assessed value of any real property improvement for seven years and adopt implementing ordinances (CGS 32-71).

Under the act and the ordinance, property owners automatically qualified for the deferral for constructing or rehabilitating property in the zone. But those constructing or rehabilitating rental units or converting rental units into condominiums had to rent or sell the units to people whose incomes did not exceed 200% of the municipality's median family income. The deferral immediately ceased if the owners rented or sold these units to people whose incomes exceeded this threshold.

The deferral appeared to have superseded an earlier law providing state-reimbursed property tax exemptions for improving factories and other manufacturing facilities in targeted areas (PA 78-357, codified at CGS 12-81 (59)). Consequently, the act would have required municipalities to absorb the revenue loss from deferrals granted to manufacturers in the enterprise zones while being reimbursed for exemptions granted to manufacturers outside the zones. (A subsequent act fixed this problem by restricting the zone deferral to nonmanufacturing property.)

Legislative Intent. The legislature saw the seven-year property tax exemption as a key part of the enterprise zone program. During the Senate debate, Senator Post stated that this and the act's other incentives “will make it attractive, hopefully, for the private sector to come to the aid of our cities” (Senate Proceedings, May 27, 1981, p. 4798). Post specifically mentioned how “property taxes would be frozen for a period of time within the enterprise zone.”

During the House debate, Representative Meyer explained how the tax credits and exemptions advanced the enterprise zone program's goals. “And the whole idea of it is to target areas that currently produce virtually no tax revenue and try to build them up so that even though we are giving a great deal of tax credit, remember that these are in areas that are producing very little credit at the present time” (House Proceedings, Monday 1, 1981, p. 9209).

PA 82-435

Analysis. This act's comprehensive changes to the Enterprise Zone Program included reducing the value of the seven-year deferral and narrowing the types of property that qualified for it.

The initial enterprise zone law required municipalities to defer 100% of an improvement's assessed value for seven years. The 1982 act reduced the value of the deferral by 50% by phasing it out over that period. The act started the deferral at 100% of the improvement's assessed value in the first two years and then dropped it to 50% in the third year. It continued phasing out the deferral during the remaining four years by reducing it by 10% annually.

The act also restricted the deferral to nonmanufacturing property, because manufacturers already qualified for a five-year, 80% state-reimbursed exemption that was authorized under PA 78-357.

The act created a new enterprise zone benefit by allowing municipalities to exempt or abate property taxes on any property regardless of whether it had been improved. It is not clear if a municipality can extend these optional benefits to a property owner receiving the mandated seven-year deferral.

Lastly, the act addressed how municipalities must provide the deferral when it simultaneously implements a revaluation. During a revaluation, a municipality redetermines each property's fair market and assessed value, which reflect such factors as market demand and recent improvements. If it implements a revaluation when an owner completes the improvements, the municipality must determine the change in value due to the improvements and defer only that value over the next seven years. It must assess the change in value due to other factors at the full amount (i.e., 70% of fair market value).

Legislative Intent. During the Senate debate, Senator Wilber Smith stated that municipalities asked the legislature to reduce the value of the deferral. “So consequently, listening to municipalities we have also revised that section calling for 100% tax—property tax deferral for a seven-year period. We have created a section which would do it in stages, deferring the property taxes for the first two years 100%, decreasing at a 10% level until the seventh year” (Senate Proceedings, April 26, 1982, p. 2402).

PA 83-558

This act allowed municipalities to extend the optional property tax exemptions and abatements to real and personal property. PA 82-435 restricted them to real property. During the House debate, Representative Smoko explained that extending the optional exemptions to personal property would “make the enterprise zones more attractive for the location and expansion of business opportunities within those zones” (House Proceedings, June 2, 1983, p. 7703).

PA 94-241

This act allows municipalities to negotiate a different exemption schedule for improvements made to commercial or retail property costing over $80 million. The legislative record provides no information about why the legislature made this change.

PA 00-194

This act barred municipalities from taxing the improvements made to real property before they are completed. During the Senate debate, Senator Looney explained that the bill prevented the “anomaly” of municipalities taxing the improvements while they were being made and exempting them after they were made (Senate Proceedings, April 25, 2000 (no page reference). Representative McDonald made a similar point during the House debate (House Proceedings, May 2, 2000 (no page reference).


As Table 1 shows, several statutes authorize municipalities to provide property tax benefits for housing. Among these, CGS 12-65d is most similar to the enterprise zone benefit because it too authorizes municipalities to defer assessment increases in a designated “rehabilitation area.” But it differs from the enterprise zone statute because it allows municipalities to decide whether to offer the benefit and imposes no criteria for designating areas or determining a property owner's eligibility for the benefit.

Arguably, a municipality could designate a rehabilitation area that encompasses all or part of an enterprise zone. But doing so does not appear to relieve it from complying with CGS 32-71 because that statute mandates the enterprise zone benefit without exception. The benefit under CGS 12-65d would be in addition to that under CGS 32-71.

CGS 12-65 also restricts its exemption to a designated development area, which must be included in a municipal development plan. But, unlike the enterprise zone benefit, its exemption remains constant during the term the statute specifies.

Like the enterprise zone benefit, CGS 8-215's benefit is tied to income. It allows municipalities to abate or reduce the taxes on housing constructed or rehabilitated with government funds and occupied by low- and moderate-income people and families. Under most housing programs, a person or family meets this criterion if it earns no more than 80% of the area's median income. The statute imposes no time limit on the abatement.

The enterprise zone statute, on the other hand, requires municipalities to defer the increase in the assessment resulting from the improvement, sets the income limit at 200% of the municipality's median family income, and phases out the deferral over seven years.

The other benefits shown in Table 1 are time-limited tax exemptions that, unlike the enterprise zone exemption, remain constant throughout the exemption period. The statutes authorizing these optional exemptions do not restrict them to a specified income group.

Table 1: Housing Related Property Tax Incentives


Incentive Type

Income Requirement

Other Requirements


Deferral of improvement's assessed value according to statutory schedule

Rental or condominium occupants' income households cannot exceed 200% of municipality's median income during deferral period



Reduction in taxes owed

Housing must be for low- and moderate-income, as defined by the state or federal program that funded the improvement. Household usually meets this criterion if it earns no more than 80% of the median income for the area in which it resides



15- or 16-year exemption


Housing must be located in a locally designated area included in a development plan


Exemption; period depends on the value of the improvements




Deferral of improvement's assessed value according to statutory schedule


Deferrals limited to housing in locally designated rehabilitation areas