Proposed FY 2025 Budget Book & Presentation
Budget Presentation
Mayor’s 2025 Budget Address
April 1, 2024
Good afternoon Council President Dominguez, members of the City Council, city staff and my fellow Whalers.
One of the principal goals of my administration from the outset was to restore fiscal stability to the city by growing our tax base and ending the cycle of increasing property taxes year after year. Quite frankly, a city with the assets that we have should not be one of the poorest cities in the state. Twenty-five percent of our residents should not be living in poverty and that poverty should not be generational. Fifty-six percent of our families live below the ALICE threshold, that is, they are asset limited, income constrained, but employed. These statistics are twice the State averages of 10% living in poverty and 28% ALICE households.
The property tax system in Connecticut perpetuates poverty and New London’s traditionally high property taxes has the greatest impact on the low and low to moderate income families in our city. The regressive property tax system is imposed upon us by the State and the inequities of the system are exasperated because the State also exempts numerous properties from paying their fair share of local property taxes. At last count, in New London, more than 40% of our tax base is exempt from paying taxes. The cost of services to all that exempt property does not simply go away. The burden of those costs is unfairly transferred onto the back of the rest of the taxpayers, including the 58% who live in ALICE households and the 25% of our city who live below the poverty threshold. This makes an inequitable system even more inequitable. The lowest income families in our city are also expected to support affluent institutions that enjoy a tax exemption under state law.
As a city, we cannot reform Connecticut’s property tax system, we can only continue to advocate our state legislature for change. In the meantime, it is our city government’s obligation to mitigate the damage that high property taxes inflict on the quality of life in our city. That is why my administration has fought every year to limit property tax increases. I am proud that, with the support of our City Council and the hard work of city staff, we have achieved a measure of success by holding our taxes stable during this administration and, for the past six years, seeing taxes decrease for most properties, but especially for our households.
Our success has resulted from our ability to attract investment. This is visible in the new development that you can see all around the city. Under this administration, rather than increasing the revenue that supports our budget by increasing property taxes, we have been successfully growing our tax base to cover the cost of the city’s increased expenses. Indeed, our success has continued even through the years of a global pandemic and three years of relatively high inflation.
Our strategy of attracting investment and supporting development in our city is working. Our tax base is growing. Indeed, our population has been growing at an incredible 1.7% per year since the 2020 census. This all represents a growing tax base that provides the opportunity to relieve the tax burden on our households.
This economic growth is also transforming our city. The proof that we’ve turned the corner is everywhere around us. The image of our urban center is changing from one of poverty, blight, high taxes and economic stagnation to one of entrepreneurial opportunity, creativity, revitalization and pride. New London is being recognized as the epicenter of economic activity for the region and the de facto capitol of the greater metropolitan area. This newfound recognition has brought unprecedented investment from the state and federal governments. Wall Street has taken notice and has twice raised our bond rating, lowering our borrowing costs and attesting to the financial stability of the city. Life has returned to our downtown streets as long-vacant buildings are being historically restored, new housing is in demand, and new restaurants and small businesses are moving into empty storefronts.
We have added well over 1,000 housing units across the economic spectrum, including subsidized, supportive, workforce and market rate. We have another 1200 units currently in the pipeline promising continued growth. We have been able to invest millions in our city infrastructure, replacing sidewalks, improving safety to our roads and intersections with bike paths, crosswalks and roundabouts, renovating our parks and sport fields and by this time next year we will fulfill the dream of having a first-class, indoor recreation center complete with gymnasium, competition pool, fitness facilities, meeting rooms and more. Millions of dollars are pouring into our harbor infrastructure to support the booming maritime industry with wind turbine assembly joining submarine manufacturing, commercial fishing and recreational boating. After nearly a decade of anticipation, the United States Coast Guard Museum has broken ground and soon will complement our already thriving arts and entertainment sector by adding Southeastern Connecticut’s newest national tourist attraction right here in New London.
We are also completing a $150 million school construction project that has transformed our middle school and high school, completing a decades long project that has modernized all our school facilities. With a $30 million dollar investment by the federal and state government, New London will be the first municipality in the State to completely replace all lead water lines in our city.
We have leveraged our historic American Rescue Plan Act revenues to continue to generate benefits for our city long after the final dollar is spent with investments like $1.5 million in tourism and arts, $1.5 million in affordable housing programs and first-time homeownership programs. The city has provided over a million dollars in grants for historic preservation that has generated millions of dollars more in new housing and commercial development, significantly growing the tax base. We have invested more than 25% of the our total ARPA dollars to support our human services partners to directly address health disparities, food insecurity, housing and numerous other community wellbeing needs.
We have moved beyond being perceived for decades as a city that could never quite achieve its potential. We have overcome the skepticism that has choked off our progress for far too long. Together, we have become a city that has dared to believe in its own success.
All this recent success has strengthened our ability to withstand the headwinds of future economic adversity. Case in point, as we prepared the city’s budget for the next fiscal year beginning on July 1, 2024, we encounter a new challenge to the progress we have made to stabilize taxes for our families. This latest challenge stems from the State mandated, 5-year property revaluation that was conducted in 2023. Like the property tax system, this is also a process that the city does not control. The valuation of city property is conducted by a third party and the process is governed by state law. The consequence of the 2023 revaluation process has been to realign the burden of funding our local government by significantly increasing the percentage that is paid by the residential housing sector. The value of the city’s grand list, that is the average assessed value of all real estate, personal property and motor vehicles in the city, increased on average by a remarkable 34%. The value of the city’s residential properties increased on average by an astounding 60%. The disparity between the 34% average increase in the total grand list, including a 60% increase in the residential properties, has created a dramatic shift in the property tax burden onto residential property owners. The disparate rise in the market value of residential properties has triggered the first increase in property taxes for most homeowners and landlords in six years.
This increase in property taxes on our housing is frustrating because it is being driven by market factors and a property revaluation process that we cannot control. The increase in taxes on residential properties is offsetting the loss in revenue from the corresponding decrease in property taxes on our business, commercial and industrial properties. The proposed budget lowers the mil rate from 37.2 to 27.5 to mitigate to the greatest extent possible the impact on those households affected by the disproportionate increase in assessed values on homes and apartments. The new mil rate to support the proposed budget, though 10 points lower than the current mil rate, results in an average tax increase on residential properties of approximately $750.00. This is offsetting a 6% average decrease in taxes on commercial properties, representing over $1 million in lost tax revenue at the new mil rate. For example, the taxes on 50 Pequot Avenue, Electric Boat’s office complex, will decrease by over $145,000. Taxes paid by the New London Shopping Center decrease by $80,000 and the New London Mall by $112,000.
The more we lowered the mil rate to offset the effect of the disproportioned increase in residential values, the greater the loss in tax revenue from the commercial sector. This is truly a no-win situation. One positive consequence is a savings on motor vehicle taxes resulting from the difference between the previous 32.46 mils to 27.5 mils providing a tax savings of 18% or approximately $99 on a vehicle valued at $20,000.
Spending in the proposed budget is essentially status quo. The amount of revenue raised from property taxes to support the FY25 budget has increased by less than 2%. Similarly, the proposed budget includes a less than 2% increase in local taxpayer support for the school system, resulting in a 5% increase to the school portion of the proposed budget. Forty-five percent of the total general government budget goes to fund our schools.
Developing a budget with a minimal increase in property tax revenue was difficult to achieve in this inflationary era and considering that employee wages, the lion’s share of the budget, are increasing by 3%. There is minimal new spending in the proposed budget. The only major new spending we are seeking is authorization to restore the deputy chief’s position in the police department that is long overdue, but we are largely covering that cost increase with cuts elsewhere.
In fashioning the proposed budget, we have worked to limit the property tax impact on our families, both homeowners and tenants, but because of the property revaluation process, we could not avoid a tax increase on the residential properties, we could only minimize that increase to the least amount possible.
While the property revaluation process has magnified the inequities of the property tax system, my administration remains steadfast in our support for our families and we are more committed than ever to building a city where everyone has a fair shot at wellbeing.
We will continue our work to increase home ownership opportunities, to limit rent increases and avoid evictions and foreclosures. It would be counterproductive to impose a crushing property tax on the very families we are trying to lift up. Therefore, I will resist any changes to this proposed budget that would result in an increase to the proposed mil rate and I ask the City Council to work with me to continue to find strategies to lower the property tax burden on our families.
This is a frustrating situation. The shift in the property tax burden to residential properties created by the recent property revaluation process has exasperated the systemic inequity of the property tax system in our city. If last year’s property revaluation process had not resulted in a dramatic shift in the tax burden onto our families, our successful strategies for economic growth to increase the tax base would have continued to ease the tax burden on our families and provide opportunities for greater growth in both our city and school budgets without increasing property taxes.
I am presenting you with a proposed budget with the barest minimum increase in taxpayer support, less than 2% on both the education and the city sides of the budget. Since this increase in property tax revenue does not cover increased cost of the government, including the average 3% general wage increase and the inflation driven increases to all other expenses, the growth in our revenues from sources other than the property tax base are allowing us to lower the mil rate and mitigate, to the greatest extent possible, the impact of the tax burden shift on our households.
I look forward to collaborating with the City Council as we fashion a budget that will continue to support our families and continue to spur economic expansion during the next fiscal year. I thank you all for your cooperation as New London continues on a path to growth and prosperity.
Mayor Michael Passero
City of New London