Wednesday, May 25, 2011

NY State Property Tax Cap Deal.

A property tax cap deal has apparently been made.  From the NY Times:
 The agreement, which would take effect next year, would limit the annual increase in the overall amount of property taxes collected by a local government or a school district. Property tax increases for individual homeowners could vary as properties are reassessed. 
“This issue is probably the most powerful and pervasive issue across this state,” the governor said at an appearance with legislative leaders on Tuesday. “People in New York City don’t feel it, but I can’t tell you how many times somebody has come up to me and said, ‘You have to do something about property taxes; I just can’t afford to stay in my home anymore.’ ”

Forty-three other states have some limits on property taxes. But New York is unusual because property taxes are the main source of support for schools outside of New York City. In the city, the schools are primarily financed by a municipal income tax.

At a talk I went to with The Fiscal Policy Institute's Frank Mauro he pointed out that the property tax cap is attractive politically because the Governor can be seen as taking on the issue of property tax relief without actually doing anything (i.e. spending money).  Here is an except from Mauro's testimony before the state Assembly:

Despite the “tax reform” roots of the current property tax debate, tax reform options are currently receiving insufficient attention as many of the state’s business elites promote the inherently flawed idea of a “one size fits all” cap that by its very nature implies that the current distribution of resources among the state’s school districts is just fine and that they should all move in lockstep from where they are now.

But the tax cap solution is even worse than that since the proposed caps do not include any
requirement that the state uphold its end of the bargain for financing a reasonable portion of the
costs of education or of basic municipal services. And the 2005 cap on the counties’ Medicaid
costs misses the major mismatch – that some counties have much greater than average numbers
of needy families relative to their property tax bases. Taxable property values are not by some
magic distributed among school districts in the same proportions as students or student needs;
nor are taxable property values distributed among cities, towns and villages in the same
proportions as are their responsibilities for providing basic municipal services.

This means that without sufficient state aid distributed on a basis that takes service
responsibilities and ability to pay into consideration, the pressure on the property tax is going to
be much greater, on average, in some communities than in others. The reason that I say “on
average” is that even if New York State were to deal effectively with the fiscal disparities that
exist among its local governments (and it certainly should do so), there will still be hundreds of
thousands of households who, through no fault of their own, are facing property tax bills that
represent inordinate portions of their incomes. This includes, for example, workers who have lost their jobs as well as long time residents whose homes have increased in value much more than their incomes. For these households, the only affordable and effective solution is a circuit
breaker that targets relief to those who are most overburdened by property taxes.

The 2007 statewide solution to the Campaign for Fiscal Equity litigation provides an example of
an effective strategy for addressing fiscal disparities among local jurisdictions but it also
demonstrates why an individually targeted circuit breaker is an essential element of an effective
overall strategy. The plan that the Governor and the Legislature agreed on in 2007 was based on
two essential premises: First, that all children in the state are entitled to a sound basic education
whether they live in a school district with $150,000 of taxable full value per pupil or in a school
district with $1.6 million of taxable full value per pupil. And second, that the tax effort that can
be expected from low income New Yorkers is much less than the effort that can be expected
from high income New Yorkers. We need a school finance system that is fair to the state’s tax
paying households and that is fair to the state’s school pupils. The 2007 school finance reform
plan recognizes that some communities can contribute much more on average to the cost of a
sound basic education than can others but even among communities with very high incomes on
average (and among communities with appropriately low full value tax rates) there are
households whose property tax bills represent unacceptably large percentages of their income.
These are the people who are being forced out of their homes by property taxes; and the only
affordable and effective way to assist them is through a targeted circuit breaker. A “one size fits
all” cap on the growth of school district tax levies will not address their situation but it will have
very negative consequences for the concomitant need to reduce fiscal disparities among school
districts while ensuring that all the state’s school children have access to a sound basic
The property tax problem has been caused because local taxes are as far downhill as taxes can flow.  Federal and state tax and spending cuts have meant the burden has been shifted to localities.  In New York state in particular this has lead to a deep division in the quality of education across the state.  Rich municipalities have good schools because they can afford them and poor school districts do what they can.  Of course, a Mauro suggests a 2% property tax cap is going to put even the better schools in jeopardy.  Compoundingly

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