Paterson’s tax cap proposal criticized

Some say it’s a gimmick. Others say it’s a solution. But most agree that Gov. David Paterson’s pro

Categories: Schenectady County

Some say it’s a gimmick.

Others say it’s a solution.

But most agree that Gov. David Paterson’s proposed property tax cap would do little to mitigate the state’s looming fiscal crisis.

“It’s just a gimmick,” said Frank Mauro, executive director of the Fiscal Policy Institute, based in Latham. “It doesn’t make costs any less.”

“The only relationship between a property tax cap and the state budget problem is that if the cap is in effect, the state is going to have to be more mindful of not spending all of its money at once, based on promises of school aid it cannot keep,” said E.J. McMahon, director of the Empire Center for New York State Policy.

McMahon said a property tax cap would not have an effect on the state’s current budget problems but it would help prevent future problems by forcing legislators to spend more wisely. “It won’t do anything in the present,” he said.

Progressive groups and teacher’s unions argue that a property tax cap would hurt the state’s schools, while conservatives say it will be a useful tool for reining in state spending.

Earlier this month Paterson announced that the state’s projected deficit for next year had risen from $5 billion to $6.4 billion, the result of falling revenues and rising government expenses, and that this year’s budget is running a $630 million deficit. He has asked the Legislature to approve $600 million in cuts to state programs, imposed a hiring freeze and called for a property tax cap, which would limit the growth of local school taxes to 4 percent a year, or 20 percent above inflation, unless local voters decide otherwise.

Mauro said that property tax caps create a need for more state school aid; when state aid grows adequately, he said, property tax growth tends to be low, but when state aid growth weakens, property taxes tend to rise significantly. “If you have a cap, you’re going to need more state aid,” he said. “When you have very large increases in state aid, you have low increases in local contributions. A property tax cap doesn’t make the cost of delivering services any less. It just diminishes the resources available.”

But the Empire Center believes the state needs a property tax cap.

tax burden

“New Yorkers pay some of the highest real property taxes in the country,” the group said in a statement. “And the burden just keeps growing.”

The paper points out that the state’s School Tax Relief (STAR) program has provided little relief to property owners since becoming fully effective in 2001-02 because school property tax levies outside New York City have increased by an average of 6 percent a year. The STAR program has failed, the Empire Center says, because lawmakers erased a provision that would have tied the exemption to an annual limit on increases in school property tax levies; as a result, school districts were able to raise their spending and taxes even faster during the years when STAR savings were being phased in on tax bills.

“It was a form of fiscal novocaine,” McMahon said of STAR. “Like all painkillers, it wore off over time. Once the painkiller wore off, everyone was complaining again.”

“A property tax cap is a good thing because it gets to the heart of the issue financially,” McMahon said. “It puts a moderate limit on the overall growth of the tax levy.”

New York’s property tax cap would be modeled on a similar property tax cap, enacted in Massachusetts in 1980, that capped property tax revenue growth at no more than 2.5 percent a year and 2.5 percent of a community’s assessed property value.

In a recent policy paper, the Washington-based Center on Budget and Policy Priorities outlines why a property tax cap wouldn’t work in New York.

Massachusetts model

It notes that the Massachusetts cap is a cap on all municipal spending, while the cap proposed for New York would only apply to school property taxes. In Massachusetts, an infusion of state aid, and cuts to non-school funding, have buffered schools from the effect of the tax cap, the paper says. “Since 1985, per-pupil spending in Massachusetts has grown faster than per- pupil spending in New York,” the paper notes. “That did not occur because of [the tax cap]; it occurred in spite of it.”

In Massachusetts, middle-class districts have suffered more as a result of the tax cap than poor or wealthy districts because wealthy districts are more likely to enact overrides and poor districts receive more state aid, Mauro said. Massachusetts, he said, also has fewer challenges than New York. “They have a more homogenous population than we do,” he said. “They have less children in poverty, but they target their aid better.”

In Massachusetts, he said, high poverty districts spend more per pupil than high poverty districts in New York. But approximately 44 percent of the students in New York are eligible for free or reduced-price lunch, an indication of a district’s poverty level; in Massachusetts, 28 percent are eligible.

new york facts

The New York State Commission on Property Tax Relief released a fact sheet arguing that a property tax cap will not hurt educational quality. It notes that according to the United States Department of Education, in 2007, Massachusetts ranked first in the country in fourth-grade math, fourth-grade reading, eighth-grade math and eighth-grade reading, while New York ranged between 17th and 34th on the same tests. Mauro said these disparities are largely because of New York’s larger population of poor children and the fact that the state doesn’t target aid to poor districts as well as Massachusetts.

The Alliance for Quality Education has teamed with the Working Families Party to run a $1.5 million television ad campaign against the property tax cap proposal. The groups support the Assembly’s “circuit breaker” proposal, which would give elderly and middle-class homeowners a break by basing their school tax more on income than house value.

“We need to learn from the experience of Massachusetts and not repeat a mistake that could devastate public education in New York state,” said Billy Easton, executive director of the Alliance for Quality Education, in a statement.

The Citizens Budget Commission has come out in support of a property tax cap, saying it would “provide needed discipline in the budget-making process at both the local and state level, where decisions about mandates and school aid adequacy must be made more rationally.” The group also supports a circuit breaker and additional mandated relief that would enable school districts to better control costs and streamline operations. “The state must also maintain its multi-year commitment to better target school aid based on need and ability to pay,” the group said. “High need school districts have some of the highest effective tax rates in the state. Directing large aid increases to these districts to help them reach more adequate per pupil spending levels while living under a cap is an integral part of the solution to the local tax problem.”

A property tax cap bill passed the State Senate earlier this month.

galloping deficits

Paterson has said the state is at a historic fiscal crossroads, worse than the 1970s recession, and has projected that there will be $26.2 billion in budget deficits over the next three years. Legislators will return to Albany on Tuesday for an emergency economic session.

The governor’s spending plan, released last week, calls for cuts to Medicaid, local government, hospitals, nursing homes and other programs and services; he has proposed cutting spending by a total of $1.23 billion in the current budget and $1.6 billion in 2009-10. Many groups have vowed to fight the proposed cuts, saying they will make it harder for the state to provide essential services.

As for why Paterson would include a property tax cap in his spending plan if it will have little effect on the deficit, McMahon, who supports the measure, described it as “a P.R. strategy that sounds sympathetic to taxpayers.”

A recent Siena Research Institute poll found that nearly three-quarters of voters support Paterson’s proposal to cap property tax increases.

Paterson says that if his savings plan is enacted, it will cut the 2009-10 budget deficit from $6.4 billion to $3.7 billion.

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