Public Announcements

February 24, 2025

State Legislators and Elected Officials, 

As you are aware, for decades the car tax in Connecticut has been based on fair market value and recently with a mill rate cap of 32.46. With the passage of Public Act 22-118 and 2024 Special Session Public Act 24-1, municipalities throughout the state now assess motor vehicles based on Manufacturer Suggested Retail Price (MSRP). A standardized depreciation schedule is applied to the MSRP, based on the age of the vehicle, and the depreciated value is multiplied by the statewide assessment ratio of 70% to arrive at a taxable assessment.

As a result of this change, effective for the October 2024 Grand List, cities and towns in Connecticut are facing severe losses in motor vehicle assessments. The consensus across all 169 Connecticut municipalities is an average decrease of 12%-16%. In Manchester, for example, the change resulted in an assessment loss of $81 million, or a 16.4% decrease from the previous year. Likewise, Glastonbury experienced a net assessment loss of $41.2 million, or 9.6%, while West Hartford dropped $50 million, or 8.5%.

Public Act 24-46, which expands property tax exemptions for Veterans, further decreased municipal grand lists by millions of dollars. The sheer number of Veterans eligible under Public Act 24-46 grossly exceeds the estimated statewide impact indicated by the $4.9 million fiscal note attached to the bill. For example, Manchester saw a $5 million decrease in its grand list alone; Colchester dropped $275,000; Stratford lost $2.8 million, and Norwich will see a decrease of $140,000 due to the new exemption.

As a result, the FY26 budget development process for Connecticut municipalities will be incredibly challenging. A decrease in the Grand List requires a significant tax rate increase when funding current service level budgets. Taxpayers that live in municipalities with a motor vehicle mill rate cap will see substantial increases for Real Estate and Business Personal Property tax. Municipalities are faced with the option of significant tax increases or reducing essential services, employment levels, and maintenance of infrastructure.

Given the statewide impact of the new motor vehicle assessment formula, GFOA-CT is humbly suggesting the following potential legislative solutions to ensure that the fiscal impact that comes with the burden of funding government might be offset to Connecticut’s property taxpayers:

1. 1. 1. Allow municipalities to assess MVs at 85% of the depreciated MSRP value (instead of the current 70%).
         1. Real Estate and Personal Property would remain at 70%; but this change would significantly offset the negative impact of PA 22-118.

      2. Adjust the depreciation schedule. Currently, municipalities are required to follow a straight-line depreciation schedule, beginning with 85% of MSRP up to year one, then decreasing by five percentage points each year afterwards until year fifteen, when it bottoms out at 15% before becoming “not less than $500” in years twenty and beyond.
         1. A more elongated schedule would have less impact on assessment values. For example, the following schedule would gain 10% more value for every year up to 14 years:

         

      3. Resume reimbursing municipalities for the state-mandated 100% property tax exemption for machinery and equipment (MME).
         
         1. Since the 2011 assessment year, state law has exempted all MME from local property tax. Prior to 2011, new and newly acquired MME was exempt for the first five years after it was acquired and, from 2006 to 2010 assessment years, MME that was six years old or older was exempt under a five-year phase-in schedule (PA 06-83). The state does not currently reimburse municipalities for the MME exemption, although it does provide bond-funded municipal aid grants that are indirectly designed to mitigate a portion of the revenue loss from the exemption. Prior to FY 12, the state reimbursed municipalities for part or all of the revenue loss attributed to the MME exemption (along with a separate exemption for certain commercial vehicles) through a payment in lieu of taxes (PILOT) grant. Beginning in FY 12, the legislature eliminated the PILOTs and replaced them with manufacturing transition grants.
         2. If the State reimbursed towns for this tax loss at 100% like they did prior to FY12, it would more than make up for the assessment loss towns are seeing from the MV changes. If the reimbursement was a lower percentage amount than 100%, it would still provide critical relief.

      4. Work with the Connecticut Association of Assessment Officers (CAAO) to amend language in PA 24-46 to include an application & application deadline, direction on who is responsible for creating an application, address the home ownership percentage, life use, a 100% disability rating from the Veteran’s Administration, and a cap on the total exemption amount.

      5. Consider increasing the motor vehicle mill rate cap from 32.46, which would give municipalities the ability to apply a higher mill rate to the lower motor vehicle values. This would also reduce the State’s burden to reimburse municipalities under the MV Cap Grant since RE and PP mill rates will not have to increase by such a large amount to offset the MV value losses.