As Mayor Toni Harp and the Board of Alders consider how to fund New Haven before a June budget deadline, city officials have raised questions about the source of the city’s fiscal difficulties.

To Harp, the state — and, in particular, the way it has distributed funding to municipalities — is the culprit responsible for the potential 11-percent property tax hike that could face the Elm City in the coming fiscal year.

Because of a state law that makes nonprofit organizations, as well as universities and hospitals, exempt from property taxes, New Haven loses out on revenue from a large portion of New Haven property, including Yale’s campus — 54 percent to be exact. And according to mayoral spokesman Laurence Grotheer said it is impossible to operate City Hall with money levied from only 46 percent of Elm City properties.

In the 1970s, to combat this problem, the Connecticut state government introduced Payments in Lieu of Taxes, or PILOT. These payments essentially serve as a reimbursement for all of the tax-exempt properties and properties owned by the state government in Connecticut municipalities. In fact, Connecticut law states that the PILOT program is supposed to reimburse 77 percent of each city’s lost property revenue; however, the program is historically underfunded and has suffered in times of fiscal stress.

In the mayor’s proposed budget for the 2019 fiscal year, PILOT funding will decrease by about $5 million from its 2017 levels, despite the continuing expansion of tax-exempt properties in New Haven.

“Mayor Harp has publicly questioned the fairness of Connecticut’s tax laws — wherein the only allowable local tax is levied on property, a great deal of property is deemed exempt and then the state underfunds its PILOT program, meant to keep local governments whole after those exemptions,” Grotheer said.

In an interview with the New Haven Register in early March, Harp said the problem “almost feels like a civil rights issue,” saying the state should abide by the law, and that in failing to do so, it creates “an unequal setting for all people who live here.”

Although Harp said three weeks ago that the city is looking into suing the state — in order to challenge the way Connecticut allocates funding — Grotheer said there is no lawsuit as of now, though he added that he “does not know the future.”

The criticism of the state stems largely from the difficulties New Haven is facing as it prepares its budget for fiscal 2019. Because of decreases in funding from the state, as well as revenue generated from building permit fees, the city will be roughly $17 million short in revenue for the upcoming fiscal year. To balance the budget, Harp proposed an 11-percent tax hike, concessions from city employees and a withdrawal from the city’s rainy-day fund. In contrast, Hartford, a city on the verge of bankruptcy, is set to receive a roughly $40-million bailout from the state, leaving many New Haven officials scratching their heads at the funding discrepancies.

New Haven Economic Development Administrator Matthew Nemerson SOM ’81 said Hartford has a lower property tax rate than New Haven — but still receives a larger amount of aid. He said New Haven is not suffering from bankruptcy problems like Hartford because the Elm City has been more successful in balancing its budget. But as a result, City Hall is facing larger cuts from the state, which Nemerson fears could detract from New Haven’s economic growth.

“It really doesn’t concern me what happens in Hartford,” Nemerson said. “It does concern me if we don’t have the $50 or $80 million that Hartford has to support its lower tax rate and budget. I think we should have it for our growth.”

At the moment, the University and Yale New Haven Hospital voluntarily pay fees in lieu of taxes, attempting to offset the property they occupy. In fiscal 2018, besides the $4.5 million Yale paid on its non–tax-exempt property, Yale provided $6.7 million to the city as well as $2 million for fire services. Yale New Haven Hospital also made a $2.7-million voluntary payment, associated with the construction of the Smilow Cancer Hospital.

Although Harp said in her budget announcement that she would ask for more money from these institutions, she also noted that she does not consider them at fault when it comes to PILOT.

Ashna Gupta | ashna.gupta@yale.edu