A slowdown in inflation has tightened the state’s tax cap and will likely force municipalities in the upcoming budget season to cut more spending or attempt to override the cap.
Billed as a 2 percent property tax cap when it was created in 2011, the cap on the growth in property taxes can be lowered if inflation drops below 2 percent. According to state Comptroller Thomas DiNapoli’s office, the rate of inflation has dropped below 2 percent and municipalities budgeting for 2014 will face a 1.66 percent tax cap.
This will be the first time the tax cap has dropped below 2 percent for municipalities with a fiscal year that matches the calendar year.
“Based on the law, tax levy growth is a direct reflection of the economy,” said DiNapoli spokesman Brian Butry. “Unfortunately, with inflation lagging, local governments are likely going to be faced with even greater financial constraints in 2014.”
The reduced rate will translate to a substantial amount of money, according to Montgomery County Board of Supervisors Chairman John Thayer, R-Root. “It will make it more difficult to stay under the cap,” he said.
The 1.66 percent tax cap will likely not be the final rate for counties, towns, cities and villages, as there are exceptions to the cap, like some growth in pension costs. But the 1.66 percent will serve as the starting point for determining the final rate, which Schoharie County Treasurer Bill Cherry described as the product of a complicated formula. “I’m not sure anybody understands it,” he said.
In Schoharie County, the tax cap ended up being 4.3 percent for 2013 and 4.8 percent in 2012. Both years, the budget was under the cap, with last year’s budget increasing taxes by only 2.6 percent.
“One-point-six percent is not a lot,” said Cherry. “It doesn’t give us a lot of wiggle room to provide the services we’re required to and still come in under the cap.”
The lack of flexibility, he added, is mostly due to the unfunded mandates from the state. “The one that is the killer is the local share of Medicaid,” he said, noting that it takes up about one-third of the county’s tax levy.
Department heads are supposed to submit their budgets in September and Cherry said the countyÕs goal for 2014 is to hold the line on taxes. He said it was too soon in the process to tell whether an override would be needed this year.
Saratoga County Board of Supervisors Chairman Alan Grattidge, R-Charlton, said unfunded mandates were particularly painful to absorb because they were growing at a rate that was higher than the tax cap. He said the county has had to absorb these growing costs by reducing the portion of its budget that it controls.
Saratoga County has been under the cap in its first two years of existence, with an increase of 1.58 percent in this year’s tax levy.
If the economy rebounded faster, Grattidge said it would mean more revenue for the county and fewer cuts to the budget. “At the end of the day, it can come down to reducing services for constituents,” he said of budget constraints.
In Schenectady County, planning for the new tax cap figure is already under way, according to county spokesman Joe McQueen. He said the county manager is working on a budget with the new limit in mind, although they don’t know how it will impact the budget.
Last year, the county exceeded its 3 percent tax cap with a levy that grew by 5.9 percent.
A municipality can override the tax cap with a 60 percent vote of its governing body. For a school district to override its cap, the budget needs to be approved by 60 percent of the district’s voters.
The county’s manager must submit a budget to the legislature by Oct. 1 and the legislature needs to act by Nov. 1. “It is too soon to know if the manager will request the [county] legislature to consider an override vote,” McQueen said.
Fulton County administrator Jon Stead said county officials are starting their budget process next week and he doesn’t anticipate the new cap will impact their thinking. He said the county’s goal is to always restrict taxes, but like last year the county has already passed a local law that will allow it to override the tax cap.
Last year, despite passing the override, the county came in under its 2.5 percent cap with a 2.4 percent increase in the tax levy. The county board’s initial budget last year proposed increasing the tax levy by 15 percent.
The 2012 budget for Fulton County exceeded its 3.8 percent cap.
Despite taking steps in recent years to streamline county operations, Stead said they’re still facing growing payroll and health care costs that will continue to make for a tight budget.
This sentiment was echoed by Thayer, who said the Montgomery County board was committed to staying under the cap the last two years and hoped the sentiment would prevail again this year.
Montgomery County had a 3 percent cap for this year and a 4.2 percent cap last year.
The tax cap rate for school districts, which start their budget year in July, is likely going to be determined in January, but it’s not expected to deviate much from 1.66 percent.
There will likely be less variation in the tax cap schools deal with, because the pension exclusion won’t be applied, according to a blog post on the fiscal watchdog the Empire Center.
Without the exception, the cap will be much closer to 2 percent.
School districts have been less inclined to attempt override votes because it requires 60 percent approval from district voters and not the local board of education. In the most recent round of school budgets, only about 2 percent of districts attempted an override. Because of this challenge, it is likely that the lower cap will result in more budget cutting and not more attempts to override the cap.