People dislike taxes. Ridgefield derives about 85% of its revenue from property taxes. Schools are expensive. About two-thirds of the 1999-2000 Ridgefield town budget of $65 million is being spent on schools. Commercial property is subject to property tax, but does not send children to school. Hence many believe that commercial development is a good way to reduce taxes. This sounds reasonable, but is it true?

I have looked at the experience of the 23 towns and cities of Fairfield County, Connecticut, ranging from struggling Bridgeport to prosperous Greenwich. The range of commercial development extends from Weston, which has scarcely any commercial property at all, to Stamford, with its international corporate presence. The data show that commercial development has little effect on tax rates, and a negative effect on property values.

Mill Rate

The mill rate is the amount of tax due for each $1000 of assessed valuation. It is the most closely watched number in town. The data I use are equalized mill rates, which allow a fair comparison between towns. The details are given in the Appendix. I plot equalized mill rate against the value of business property as a percentage of all assessed property. This is a good measure of the intensity of commercial development. The two-letter town codes are listed in the Appendix. The point representing Ridgefield (RF) is circled. Except for Bridgeport (upper right corner) all the towns fall in a band, with Ridgefield near the middle. If anything, there is a slight trend toward higher mill rates as the percentage of business property increases.

 

School Spending

Education is important in Connecticut, which ranks near the top of the 50 states in all measures of educational achievement. Moreover, Ridgefield ranks near the top of Connecticut’s 169 towns, a position we wish to retain. We have seen that towns with little commercial development have relatively low mill rates. Do towns with low commercial development keep their tax rates low by skimping on schools? The answer is no: In Fairfield County there no correlation between intensity of commercial development and educational expenditures per pupil.

Impact of Commercial Development on Residential Property Values

We have seen that, on average, increasing intensity of commercial development does not lead to a lower mill rate. What effect does commercial development have on property values? In the next figure, I plot the median price of a home sold in 1997-98 against the intensity of commercial development. In the 13 towns where the intensity of commercial development is the same as, or less than, Ridgefield, home prices vary widely. In the 10 towns with more intense commercial development, 9 have lower median home sales prices. These data must be sobering to those who advocate commercial development as a way of increasing the desirability of a town.

Case Study: Ridgefield vs. Redding

In evaluating the effect of commercial property on town finances, it is very instructive to compare Ridgefield and Redding. The two towns, situated side by side across Route 7, have almost identical socioeconomic profiles. Yet, over the last three decades, the course of development in the two towns has been very different.

A large part of the land area of Redding is owned by Bridgeport Hydraulic Company to protect its watershed, and is taxed at a very low rate. In years past, Redding has further increased its fraction of open space by buying tracts of land for preservation purposes. Commercial development has been discouraged. As a result, the population and population density of Ridgefield is about two and half times greater than that of Redding. The assessed value of Redding’s commercial property, which includes the Bridgeport Hydraulic land, is about one-seventh Ridgefield's. According to the conventional wisdom that commercial development eases tax rates, Redding taxpayers should be groaning under an intolerably higher burden.

In reality, Redding's equalized mill rate, 15.3, is about 11% higher than Ridgefield's, 13.7. This is largely because Redding spends 10% more on its schools, on a per pupil basis, than Ridgefield does. Thus, compared to Ridgefield, Redding has paid little or no tax penalty for preserving itself as a small town with very little congestion and a great deal of recreational and open space.

Implications for Ridgefield

Ridgefield today is under tremendous development pressure. The recent purchase of the Bennetts Pond property by a New Jersey developer heralds the commercial development of one square mile of the town. The most powerful argument in favor of large-scale commercial development is that it reduces the tax burden on homeowners. This claim has been repeated so many times that everyone assumes it is true, and many towns have welcomed commercial development, promising to decrease the burden on their taxpayers. Unfortunately, those promises have not been kept. Examination of the evidence shows that towns that have welcomed commercial development have tax rates just as high as those towns that have spurned it. Moreover it appears that home prices are generally lower in towns with a high intensity of commercial development. Now Ridgefield must decide whether further commercial development is worth the increase in traffic and congestion, and the decrease in recreational and open space resources, and maybe even property values, that will result.

Appendix: Sources of Data

All data used in this study come from the latest data release (June 1999) of the Connecticut Policy and Economic Council (CPEC). The CPEC is a non-profit, non-partisan research organization that compiles fiscal data on all 169 Connecticut towns.

Because each town assesses property differently, the mill rate cannot be compared among towns. Therefore, the State of Connecticut Office of Policy and Management computes the ratio of the sale prices of properties to their assessed valuations, for each town. These ratios are used to compute equalized mill rates, which can be compared among towns. In 1997-98 Ridgefield’s mill rate was 20.91 and its equalized mill rate was 13.75.

The Grand List is the total assessed valuation of property in town. The commercial Grand List is the value of commercial, industrial and utility property, including real estate and equipment. The percentage of business property is found from the ratio of the two.

Town codes: BE=Bethel, BP=Bridgeport, BF=Brookfield, DB=Danbury, DR=Darien, EA=Easton, FF=Fairfield, GW=Greenwich, MR=Monroe, NC=New Canaan, NF=New Fairfield, NT=Newtown, NW=Norwalk, RD=Redding, RF=Ridgefield, SL=Shelton, SM=Sherman, SF=Stamford, SR=Stratford, TB=Trumbull, WT=Weston, WP=Westport, WL=Wilton.