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Property Taxes: The Case for a Cap

August 03, 2010

 

Governor David Paterson has proposed legislation to implement a cap on school property tax levies in New York State.  His original tax cap bill was passed by the state Senate in August 2008, but died in the state Assembly.  Paterson's latest tax cap proposal was submitted to the Legislature on July 30, 2010.


As recommended by the governor's Commission on Real Property Tax Relief, the cap would limit the growth in school property tax levies to 4 percent or to 120 percent of the rate of inflation, whichever is less.

Key provisions of the new tax limitation would include the following:

  • Property taxes generated by new construction would be excluded from the cap, but there would be no other exclusions or loopholes.  
  • District proposals to "override" the cap in any given year would require the approval of at least 55 percent of the district's voters.  
  • District residents also could petition school boards for a referendum to "underride the cap."  
  • Capital construction projects would continue to require voter approval, and debt service payments on voter-approved debt would not be subject to the cap.

The Commission's preliminary report contains a number of other recommendations for curbing the growth in school expenses and for reforming New York's property tax system -- including a change in state Taylor Law provisions that now allow teachers to receive automatic pay increases even in the absence of a new union contract.  However, Paterson and the Commission chairman, Nassau County Executive Thomas Suozzi, agreed that the cap needed to take precedence over all other reforms.


"Enough is enough--we have to implement a property tax cap now," Paterson said.  The press release for the governor's June 3 announcement can be found here.

Resources

The Empire Center submitted a white paper to the commission in support of a cap.  For a two-page summary of the case for a tax cap, click here.

The need for a property tax cap, the best model for such a cap, and the flaws with other approaches to "property tax relief" in New York have been extensively discussed by E.J. McMahon, director of the Empire Center and senior fellow for tax and budgetary studies at the Manhattan Institute, in a series of articles, memos, presentations and legislative testimony over the past few years.  Links to that material follow, in reverse chronological order:

An op-ed article in support of the cap by John J. Faso, the defeated 2006 Republican gubernatorial candidate, can be found here.

Both of the leading major-party candidates for governor have endorsed broad, low property tax caps.   Attorney General Andrew Cuomo, the Democratic nominee, is calling for a 2 percent cap on all property tax levies.   Former U.S. Rep. Rick Lazio, the official Republican nominee, has proposed a 2.5 percent cap.   Significantly, both Cuomo and Lazio say they would not allow for automatic exceptions to the cap other than new construction and voter-approved capital expenditures.  Both would also permit voter override and under-ride of the cap.  
 

Background

Governor Eliot Spitzer first came out for capping school taxes in his 2008 State of the State address.  “A tax cap is a blunt instrument, but it forces hard choices and discipline when nothing else works,” Spitzer said -- a remark repeated by Paterson when he endorsed the commission's findings six months later.  

Paterson's endorsement of the Suozzi Commission recommendations has given new impetus to prospects for a property tax cap in New York.  However, this is not the first time cap has been seriously floated by state officials.

Assembly Speaker Sheldon Silver proposed a cap on all local property taxes in 1995, as announced in this press release issued by the speaker's office on March 14 of that year.  Known as the Real Property Tax Limitation Act, the bill (A.6171 of 1995-96) passed the Assembly but was never taken up by the Senate.  

Governor Pataki subsequently proposed a cap on school tax levies as part of his original STAR (School Tax Relief) program in 1997. In the face of strong opposition from the state's largest teachers' union, Pataki agreed to remove the cap provision from the final STAR bill before it was enacted.

A school property tax cap similar to the one embraced by the Suozzi Commission was first proposed in legislation introduced in 2007 and reintroduced in 2009 by a group of Assembly Republicans.  The lead sponsor of the measure is Assemblyman Michael J. Fitzpatrick (R-C-I, Smithtown).