Capping the Growth of Property Taxes
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On June 3, based on the recommendations of the Commission on Property Tax Relief, Governor David A. Paterson introduced legislation to cap the growth of school property taxes. This publication provides information on the Governor’s proposal, as well as general information on caps and other forms of property tax relief. For more information, please visit the website of the Commission:
http://www.cptr.state.ny.us Questions & Answers
Is a cap on school property tax growth necessary?
New York State has the highest local taxes in the United States – 79% above the national average. Property taxes are rising at more than twice the rate of inflation and salary growth. When property tax rates are calculated as a percentage of home value, nine of the top ten counties with the highest rates in the country are in New York State. In addition, Nassau, Westchester and Rockland Counties are in the nation’s top ten in terms of household taxes.
Outside of New York City, 62% of property taxes are school property taxes. (The remaining 38% is divided among counties, cities, towns and special districts.) Despite record increases in State Aid for Education and funding for the School Tax Relief (STAR) Program, school property taxes continue to rise beyond what many property owners can afford.
Over time, a cap on the growth of property taxes will make New York a better place to live, work, raise a family and run a business.
How would the property tax cap work?
Governor Paterson’s proposal would limit the increase in school tax levies (the total amount of taxes to be collected by a school district) to the lesser of 4% or 120% of the Consumer Price Index (CPI) each year. In other words, if the total amount of taxes collected by a school district last year was $1 million, the levy this year could not exceed $1,040,000.
What is the Consumer Price Index?
The Consumer Price Index (CPI) is a measure of inflation published by the US Bureau of Labor Statistics. In years where inflation is greater than 3.33%, the 4% cap would become effective. Otherwise the cap would be the CPI multiplied by 120%
Are there other factors that would affect the amount of the cap?
The construction of new homes and businesses, and major additions and renovations of existing buildings expand a school district’s tax base without affecting other existing taxpayers. This new growth would be added to the levy cap each year.
In addition, major capital items, such as school construction, would continue to be authorized separately by public vote, and would not be included within the levy cap. If approved by voters, such exceptions would last until payment for the capital item is completed.
Would residents of the school district still have a school budget vote each year?
Under the Governor’s proposal, residents would continue to vote each year, but would vote on the increase in the tax levy rather than the budget.
What if voters wanted to increase the tax more than the cap allows or felt the cap was too high?
Each year, school district residents would be able to “override” or “underride” the cap. If voters wanted to limit levy growth by less than the statewide cap in a given year, they could place such an “underride” measure on the ballot.
If a local school board chooses to put a levy on the ballot that exceeded the capped amount, it would be up to voters to accept or reject the levy “override.” The vote required to override the levy cap would be contingent on the growth of State Aid for Education for the district. If state aid growth for such a district was at least 5 percent for that year, the vote needed to override the levy cap would be 60 percent. If the growth of state aid was less than 5 percent, a 55 percent vote would be needed to override the levy cap.
Why is it important that the cap be enacted before the other recommendations of the Commission?
In its Preliminary Report, the Commission on Property Tax Relief recommended creation of a “STAR Circuit Breaker” to target individual tax relief and made several recommendations to reduce the local cost of providing a quality education. However, the property tax cap is prioritized first as the Commission’s principal recommendation.
As property taxes continue to increase at unsustainable rates, the first step is to “stop the bleeding” by slowing the growth.
Programs which provide relief to individual taxpayers, such as STAR or a circuit breaker, relieve the symptoms of the problem while the tax cap addresses the problem itself. Without a property tax levy cap, these programs may also have the unintended consequence of encouraging spending, similar to what occurred when STAR was first introduced. Enacting the property tax cap first will also spur mandate reform, promote efficiencies and will be the “blunt instrument” needed to force some tough, necessary choices.
What is a circuit breaker and who would benefit?
A circuit breaker shuts off (or reduces) property taxes that exceed a certain percentage of a particular taxpayer’s income. A circuit breaker introduces an “ability to pay” criterion that the property tax lacks. Circuit breakers identify the individual taxpayers for whom property taxes are most burdensome and reduce their tax to a manageable level.
A circuit breaker would only benefit certain homeowners, whereas the cap would slow the growth of property taxes for all New Yorkers. Many middle class taxpayers would not benefit from a circuit breaker, nor would any businesses.
New York has 4 million property taxpayers outside of New York City. Depending on how the circuit breaker was structured, it may only benefit one quarter of those taxpayers, whereas the cap would benefit all of them.
How much would taxpayers save if the cap was enacted?
Average school taxes for homeowners in New York State range from $500 in Lewis County to $7,000 in Westchester County.
If a cap on school property taxes is in place, the amount of savings will vary from one school district to another. Several factors will influence the amount of savings, primarily, the amount of taxes being collected in a given school district and the amount the tax levy would have increased had the cap not been in place. Those who live in areas with high school taxes that are increasing well beyond the rate of inflation would see the greatest savings.
Had the cap been enacted five years ago, it is estimated that some taxpayers would have seen as much as 16% savings last year and the average savings statewide would have been 12%. In school districts where taxes are the highest, typical homeowners could have saved $1,000 or more last year, and as much as $4,000 over the five years.
Would the cap hurt schools?
The Governor’s proposal sets the cap each year at a level that allows for reasonable growth of school ex-penses and that is adjusted for economic conditions and growth of the tax base. At no time would district voters be precluded from increasing school taxes beyond the capped amount.
Do other states have property tax caps?
According to the National Tax Journal, which surveyed the continental 48 states in 2006, 43 states have some form of limitation on real property taxes. The Governor’s proposed cap is modeled most closely after Massachusetts’ Proposition 2½. Since the enactment of Proposition 2½, Massachusetts dropped from 3rd nationally in 1977 to 33rd in 2005 on the measure of state and local tax burden. Massachusetts has a “foundation budget” formula similar to the one adopted in New York in 2007 to assure adequate funding for education. Comparative pupil performance data demonstrate that the combination of Proposition 2½ and the foundation budget formula has not negatively affected student per-formance. On standard tests, Massachusetts ranks highest among all states.
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DM and Paulino did such a job in the City. Taxes the highest in the State under their "conservatism". DM must have at least 10 pensions. Does the Senoir Gossip Center count? lol
