Whither New York’s tax cap?
More and more municipalities wrestling with budget realities have been voting to override the 2 percent limit on increases to the tax levy, and it’s not hard to see why.
Fulton County is the latest example. Its tentative 2013 budget, 5 percent lower than the current year’s, requires a 15 percent tax levy increase — thanks to higher costs for health insurance, Medicaid, employee pensions and the like. Not surprisingly, legislators were hesitant to impose a tax hike of that magnitude so they applied $1.5 million of a roughly $10 million surplus and got the tax levy increase down to 9.4 percent. That would still violate the county’s 2.5 percent tax cap by a wide margin, but officials are reluctant to apply any more of the surplus, lest there not be enough to cover them in a true emergency.
The city of Schenectady, having drained its reserve balances to almost nothing to mitigate tax hikes the past couple of years, is now exposed in that fashion. Mayor Gary McCarthy says it’s one of the reasons Moody’s Investors Service recently downgraded the city’s credit rating. He tried padding his 2013 budget in an effort to rebuild the reserves a bit — a defensible strategy that was worthy of public debate but one that the City Council majority decided to deal with in secret and ultimately rejected. So instead of a 4.2 percent tax hike, which would have provided the city a little breathing room and maybe kept Moody’s at bay for awhile, city taxpayers will be paying only 1.7 percent more next year.
But as the state comptroller’s audit released last week made painfully clear, the council only appears to have bought a little time: The city is on track to end next year in the hole by $2.2 million, and another $6.7 million in 2014. Where will the money come from then if there are no reserves?
Over the short haul, the tax cap imposed at Gov. Andrew Cuomo’s behest has certainly been effective in making municipal governments and school districts think more frugally (and school districts have it tougher because even if their boards override the cap, voters still have to approve their budgets). But with so many cost increases mandated either by the state or by union contract, there’s only so much municipalities can do: And once they’ve done the deep cutting, in the first year or two, their options are probably going to be more limited. If the city of Schenectady hasn’t reached that point yet, it seems likely to within the next two years. That’s when, barring a miracle or some windfall from the state, it seems inevitable that the security blanket known as the tax cap will be yanked asunder, and taxpayers will get stuck with a whopper.
Schenectady may get there before others, but before long it will probably have plenty of company.