New Tax Cap Has Holes That Need To Be Watched & Closed

The “property tax cap” just passed by the New York State Legislature is a good and important step in the right direction that was much needed. However, there are many ways that local governments and school districts can skirt around the new annual tax cap. Taxpayers will need to vigilantly watch attempts to override the tax cap, and make sure that the new Mandate Relief Council actively works to further reduce unnecessary mandates that drive up local government costs and our taxes.

We all know what happens if you put a cap on a tooth-paste tube which is full of holes: The cap helps somewhat, but toothpaste still leaks or squirts onto the bathroom countertop.

The “property tax cap” just passed by the state Legislature is a good and important step in the right direction. The cap was much needed: New York taxpayers have the highest combined state and local tax burden in the nation. Majority Leader Dean Skelos and fellow Republican state senators worked hard to secure the tax cap’s passage.

However, the Democratic-controlled state Assembly saw to it that much of new law resembles a hole-y toothpaste tube.

Under the new law (bill S-5856-2011), annual property tax increases cannot exceed a cap of 2 percent or the rate of inflation (Consumer Price Index), whichever is lower.

However, there are many ways that local governments and school districts can skirt around the new annual tax cap.

First, slim “super majorities” can defeat the tax cap. School districts may exceed the 2 percent cap if they obtain a “super majority” of 60 percent of a public vote. Sixty percent of the vote is usually easily achievable by school districts, since the vote occurs in May, when much of the public is not paying attention, instead of on Election Day in November.

Other local government units may exceed the cap if 60 percent of the members of the unit’s governing body (such as a board of trustees) pass a resolution approving exceeding the cap. In other words, no public taxpayers vote is required for local governments to exceed the cap.

Second, there are significant “exceptions” and “adjustments” to the property tax cap, for funds needed to support: increases in government pension costs in excess of 2 percent; growth in a town or school district; court judgments arising from tort actions exceeding 5 percent of the prior year’s tax levy; and voter-approved capital expenditures.

Since pensions are one of the largest expenditures of schools and local governments, these exceptions could seriously reduce the effectiveness of the tax cap. The various exceptions to the cap are likely to make the “real” tax cap closer to 3 to 4 percent per year.

Third, tax increases not imposed in one year can be added to the increase in the following year. If a local government or school district is under the cap limit one year, up to 1.5 percent of the previous year’s potential tax increase can be carried over to the next year. In other words, taxpayers could see a 3.5 percent property tax increase the next year, even without super majority approval or the use of any “exceptions” to the cap.

Fourth, the tax cap “sunsets” at the end of 2016 unless rent regulation laws are extended.

Some aspects of the new law are more favorable to taxpayers. For instance, if a school budget is defeated after two presentations to voters (or after one defeat where the school district decides not to resubmit a budget to the voters), then the school district is required to adopt a budget with a tax levy less than or equal to that of the prior year.

Also on the bright side, the new tax cap law includes some mandate relief, expected to save local governments $127 million dollars, which will hopefully help local governments limit tax increases. The new law also establishes a Mandate Relief Council to identify and repeal additional burdensome government mandates.

But, the state Legislature also potentially increased local property tax burdens, by simultaneously passing a bill (S4067A-2011) which allows defined local governments (including school districts) to issue bonds for teacher and other municipal employee pension costs, without first obtaining a vote of the people in the district.

In other words, our (and our children’s) taxes can be raised for years into the future to pay for bonds used to finance current generous government pensions – and taxpayers will not even have an opportunity to vote on these costly bond issues. Moreover, local governments are essentially allowed to “double dip” to cover pension costs – first through the tax cap exception, and a second time by issuing bonds that will burden taxpayers in future years.

According to the 2010 Census data, in Great Neck Village, median (before tax) household income was $78,660, and median selected owner housing costs (including mortgage) were $3,764 per month (or $45,168 annually). When one figures in federal and state income taxes, it’s clear that many people in our community are seriously squeezed financially.

While it appears that the new tax cap law will provide some much-needed relief to New Yorkers, our overburdened taxpayers need a stronger, solid tax cap which cannot be easily circumvented. Meanwhile, we’ll need to vigilantly watch local government and school district attempts to override the tax cap. And we’ll need to make sure that the new Mandate Relief Council actively works to further reduce unnecessary mandates that drive up local government costs and our taxes.

(Author’s Note:  The article was first published in the Great Neck News, New Hyde Park Courier and Williston Times on June 30, 2011.)

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