Surging inflation is bringing New York’s property tax cap under renewed fire.

The statutory cap generally limits annual increases in jurisdictions’ local property tax levies to the lesser of two percent or the rate of inflation, absent a sixty-percent supermajority override vote.

The cap applies to property taxes levied by all independent school districts and local governments outside New York City. Although the cap is flexible (more on that below), the vast majority of jurisdictions have tended to set their annual levy at or near the allowable cap, and no higher.

As a result, the cap has saved New York homeowners billions of dollars in property taxes since it first went into effect in 2012 (it became permanent state law in 2019). New Yorkers still pay among the highest property taxes in the nation, but levy growth has been notably restrained in the decade the cap has been in effect.

The New York State School Boards Association (NYSSBA) and the Association of School Business Officials (ASBO) want to flip the formula to make the annual cap hike the greater of two percent or the rate of inflation. They made the ask at a recent budget hearing held by the Legislature. It’s a big ask to make, particularly now.

The cap has risen roughly in line with inflation since 2013. During that period, the inflation factor never exceeded 2.46 percent, which means the impact of the two percent ceiling has been minimal. Not this year.

Relative to inflation, this year’s two percent cap hike is the lowest ever. The inflation-based formula —the one that would take effect under the school groups’ proposals — yields a 4.7 percent allowable levy hike for jurisdictions with a July 1 to June 30 fiscal year. Thus, the cap would be 2.7 percentage points higher under a flipped formula.

If all levies were set at that alternative cap level, residents’ property taxes would rise by an average of $270 for each $10,000 paid. A total of $600 million in additional school property taxes would be paid next year alone by homeowners in the nearly 700 school districts outside of New York City, Buffalo, Rochester, Syracuse and Yonkers.

That’s not all. The baseline for future cap increases would also rise, since each year’s cap adjustment builds on the prior year cap. A flipped formula this year could cost that homeowner with a $10,000 property tax bill more than $2,700 over the next decade, and it could cost homeowners statewide outside of the big five school districts more than $6 billion. All that could result from flipping the cap just this one year.

The cap challenge comes even as New York’s public schools, the most expensive in the nation on a per pupil basis, are being showered with federal and state aid. Districts outside New York City received $5 billion in largely unspent federal pandemic aid that’s available to them through the 2024-2025 school year. And they’ve already secured the first tranche of a historic, multi-year step up in basic state operating aid (aka Foundation Aid) that will result in $4 billion in additional annual funding once fully phased in for the 2023-2024 school year. Never mind that public school K-12 enrollment fell five percent state-wide during the last two pandemic-plagued school years.

Each district’s circumstances are unique, of course. But that’s where the cap’s flexibility comes in. First, it automatically exempts certain expenses and accommodates exceptional costs like hikes above two percent in required employee pension contributions. Second, it can be overridden by localities, who maintain complete control over tax levy decisions. A 60 percent supermajority vote is all that’s required if a district needs to spend beyond the cap. School budgets routinely pass by wider margins. And indeed, individual votes by localities to override the tax cap often succeed.

The property tax cap has an extraordinary record of restraining tax hikes without unduly straining education budgets or tying the hands of local officials.

If it ain’t broke, don’t fix it.

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