Although the city proposed budget will raise taxes by 4.18 percent, it doesn’t violate the so-called 2 percent tax cap.
In fact, the city must stay under a 1 percent tax cap for next year, and it just managed to do so. The levy increased by 0.86 percent, or $274,000.
Yet taxes are going up more than 4 percent.
“The tax cap is on the levy, not the tax rate,” Finance Commissioner Ismat Alam explained.
In other words — the total amount of taxes the city is collecting is going up by just under 1 percent. But many properties have been taken off the tax roll, or had their value significantly reduced. Because of that, the city would have had to increase the tax rate simply to collect the same amount of money as last year.
Alam said the city also had to stick to a 1 percent cap, rather than the 2 percent, because Schenectady is putting off a major expense.
The city will postpone $1.36 million of its pension payment next year, and pay it off over the course of the next five years, along with interest. The city could have instituted a higher tax to pay off the pension, according to the state Comptroller’s Office.
The tax cap rises when the pension costs rise. But the city can’t simply tax for the entire pension increase each year. Only an increase above 2 percent can help lift the cap.
But the city can’t tax more while also putting off the payment for which the tax was needed, Alam said.
“You cannot do both. You either take credit through the tax cap or you amortize it,” she said.
The cap also rises if the municipality didn’t tax at the maximum allowed the previous year. But last year’s tax hike was 1.89 percent. While there were smaller tax hikes in the recent past, they don’t count.
The city can’t save up toward the tax cap with years of low taxes, and then have one large tax increase.
“It’s a one and done,” Comptroller’s Office spokesman Brian Butry said. “It’s if they didn’t go up to the cap last year.”
There are a few other ways to raise the cap slightly, but big pensions costs and low tax increases are the most common.
“Those are the two big ones,” Butry said.
It wasn’t easy for Alam to figure out how much the city could tax.
The state formula is so convoluted that it filled, in small text, one entire slide of Mayor Gary McCarthy’s budget presentation. After he read through it, he joked that he was sure that was so clear that he wouldn’t need to answer any questions about it.
But once the city has an idea of what its tax cap really is, it’s possible that no one will ever question it.
The state Comptroller’s Office may check that calculation next year, but the city is allowed to go ahead with its budget under the self-reported figures.
Last year, the first year of the tax cap, many municipalities miscalculated their caps, Butry said.
“There were multiple instances, as you can imagine. It was the first year. We brought up multiple errors,” he said. “There were so many errors last year that we tried to make it easier.”
The office runs a website that calculates the individual tax cap for each municipality and school district. City officials had to type in eight different figures, ranging from pension costs to last year’s tax levy. Then the system calculates the cap.
“Last year there were a number of errors in that self-reporting,” Butry said.
The office tried to better explain how finance commissioners could arrive at each of the eight figures required for the cap. State officials are hoping for fewer mistakes this time.
Last year they spot-checked more than 1,000 governing bodies, from counties to cities to school districts. Those who made a mistake weren’t fined or penalized. But they were required to take whatever excess tax they had collected, and set it aside to be used in the following year’s budget.
The Comptroller’s Office will do another series of spot-checks this year, Butry said.
But they won’t try to verify every municipalities’ figures before budget votes this month.
The City Council must vote before Nov. 1, along with many other cities and towns.
Checking all the caps by that deadline would take too long, Butry said.