Avoid Opening Loopholes in Tax Cap, Assembly Urged

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Contact: Tim Hoefer

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Governor Andrew Cuomo’s proposed cap on property taxes is justified in light of New York State’s exceptionally heavy property tax burden, according to a report released today by the Empire Center for Public Policy.

The report, entitled, “The Case for a Cap,” noted that Cuomo’s proposal is modeled largely on Proposition 2½, the 1980 popular initiative that has successfully limited property tax increases in Massachusetts. Despite the constraints imposed by Proposition 2½, independent research has found that services in Massachusetts did not suffer, and “Massachusetts’ schools rank among the best in the nation,” the report said.

Cuomo has proposed capping the annual growth in local property tax levies outside New York City at a maximum of 2 percent or the rate of inflation, whichever is less. Tax increases above the cap would require supermajority approval – by more than 60 percent of voters in school districts, or two-thirds of the members of governing bodies of counties, cities, towns, villages and special districts.

While opponents have contended this approach will “erode” democracy, the report said, “Cuomo’s proposal would be more democratic than New York’s current system, which allows school districts to impose state-mandated minimum budgets — and the tax hikes necessary to pay for them — without voter approval.”

Under current law, “the issue in annual budget referendums is the extent to which districts will be allowed to spend above the minimum level. The tax cap would shift the focus from spending to taxes, forcing school officials to budget on the assumption that there can be no increase in the district tax levy without voter approval.”

E.J. McMahon, senior fellow at the Empire Center, summed up the report’s findings in Assembly testimony today: “The proposed tax cap will empower New York taxpayers to directly control school taxes, make it more difficult for local governments to raise taxes, promote a gradual reduction in property taxes as a share of personal income, and intensify the pressure for reform of costly state mandates.“

McMahon said the Legislature should avoid emulating the “flawed compromise” that led to the enactment in New Jersey last year of a property tax cap that excludes costs for employee pensions and health insurance. “A New York cap with similar exclusions will essentially be tantamount to no cap at all,” he said. “One of the key benefits of a cap is to increase pressure for meaningful mandate relief – including changes to state laws that effectively lock in current local municipal and school employee compensation costs.”

The report and McMahon’s testimony are available in PDF version of the report here, and testimony here.