Prepared remarks submitted: Good morning, and thank you for this opportunity to testify on Governor Cuomo’s proposed local property tax cap.

The Empire Center’s analysis of the tax cap is presented in the report submitted to you as an attachment to our testimony today.  Our findings can be summarized as follows:

  1. New York’s local property tax levels are exceptionally high by national standards and have grown by more than double the inflation rate over the past decade, justifying the governor’s push to limit future growth.
  2. The most significant previous attempt to limit property taxes in New York, the state-subsidized School Tax Relief (STAR) program, acknowledged the problem but did not fix it. The STAR experience indicates that attempts to shift the tax burden from homeowners to the statewide tax base will only encourage more of the spending that only drives up taxes in the long run. Proposed alternatives to a property tax cap would share this shortcoming, while also necessitating increases in state taxes.
  3. Governor Cuomo’s proposed cap is modeled after the most successful tax limitation approach tried in other states—Proposition 2½ in Massachusetts. Proposition 2½, which allows for voter overrides, has restrained the growth of the tax burden without compromising essential public services. Despite the tax limitation, Massachusetts’ schools rank among the best in the nation.
  4. A cap’s effectiveness in New York will be compromised if it is amended to allow automatic tax increases for fast-rising employee compensation costs, especially pensions.
  5. The enactment of Cuomo’s cap in New York will further highlight the need for significant mandate relief that gives local governments and school districts the flexibility they need to restructure their budgets, especially rising employee compensation costs. Without mandate relief, some localities and school districts will find it harder to live within the cap without reducing the quality of services.

The need to limit property taxes in New York is clear.  Our property tax bills have been among the highest in the country for decades, by any measure.  Between 1999 and 2009, total local property tax levies in jurisdictions outside New York City increased by 5.4 percent a year, more than double the average inflation rate of 2.6 percent. School taxes rose the fastest—an average of 6.3 percent a year. Property taxes in New York continued going upeven as property values, personal incomes and consumer prices were going down during the severe recession of 2007-09.

The STAR program has been a costly lesson in the kind of “tax relief” that doesn’t work.

Homeowners—and only homeowners—enjoyed a temporary respite from steadily mounting tax bills, while school spending actually accelerated during the STAR phase-in period. The program is now effectively subsidizing property taxes for most homeowners without reducing them for property owners in general.

Governor Cuomo’s proposal to uniformly cap growth in property tax levies has the following advantages:

  • It is fair, treating all taxpayers alike, extending the same protection to every class of property based on assessed market values.
  • It is simple to understand, administer and enforce.
  • It is democratic, strengthening the accountability of county and municipal officials while giving voters direct control over school property taxes.

We have heard it argued that the cap will somehow “erode” democracy and local control in our communities. However, when it comes to school districts in particular, it would be more accurate to say that the cap will strengthen democracy and local control.  Current law allows school districts to impose whatever tax increase is required by a state mandated “contingency” budget.  The governor’s proposal 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.

Opponents of the governor’s proposal also frequently lump all types of property tax cap together—implying, for example, that Massachusetts Proposition 2½ is the same as California Proposition 13.  In fact, the Massachusetts and California laws differ significantly.  Although there is scant evidence that services in Massachusetts have suffered from Proposition 2½, and although Massachusetts is a national leader in educational outcomes, tax cap opponents also argue that a cap will have “devastating” impact and will “starve” schools in the wake of state aid cuts. But these opponents offer no alternatives to a cap, other than policies that would drive taxes even higher on both the state and local level.

County, municipal and school officials are understandably worried that a property tax cap will make their jobs much tougher–but this should not serve as an excuse for further delaying the cap’s passage.  The cap should come first, closely followed by the kind of sweeping mandate relief supported – on a broad, bi-partisan basis — by groups representing municipal, county and school district officials.

To the extent that you consider possible changes to the bill, I would urge you to avoid repeating the flawed compromise approved last year by the state of New Jersey, which now has a 2 percent property tax cap — excluding costs related to employee pensions and health insurance.  A New York cap with similar exclusions will essentially be tantamount to no cap at all.  One of the key benefits of a cap is to increase pressure for meaningful mandate relief – especially changes to laws that effectively lock in current employee compensation costs.

In sum, 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.  These are all highly desirable outcomes.

Thank you again for this opportunity to testify.  I would be happy to take questions.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

You may also like

Testimony: FY2015 New York State Budget

Governor Cuomo’s 2014-15 Executive Budget would devote more resources to initiatives described as “tax cuts” than any state budget we’ve seen in quite a few years. This in itself is an encouraging sign of the recognition that New York needs to do more to shed its reputation as a high-cost, high-tax state. Read More

Testimony on Local Government Fiscal Distress

The Great Recession and its aftermath have brought obvious, ongoing strains to finances at every level of government. What we have been experiencing for the past five years is something new and unprecedented in the post-World War II era: a prolonged period of slow growth with pronounced disinflationary tendencies. Read More

Senate Testimony on State Tax Reform

This committee has chosen an opportune moment to review New York’s state tax code and consider reform options. Wall Street, the state’s cash cow for 20 years, is now retrenching. And in an era of slower economic growth, many businesses will be less willing to shoulder costs they can avoid by moving elsewhere. Needless to say, by various measures, most states can offer a lower-cost environment than New York. Read More

Edmund J. McMahon Testifies on Benefits of Outsourcing Public Services before the New York State Senate Labor Committee

Good morning, Senator Velella, and thank you for this opportunity to speak before your committee today. My name is Edmund J. McMahon, and I am senior fellow for tax and budget Read More

Edmund J. McMahon Testifies Before the New York City Council Committee on Waterfronts

Thank you, Council Member Yassky. My name is Edmund J. McMahon, and I am senior fellow for tax and budgetary studies at the Center for Civic Innovation of the Man Read More

Edmund J. McMahon Testifies Before the Senate Commission on Corporations, Commissions and Authorities

Good morning, Senator Leibell, and thank you for this opportunity to testify today. My name is Edmund J. McMahon, and I am senior fellow for tax and budgetary studies at the Manhattan Institute for Policy Research.  T Read More

E.J. McMahon Testimony: Real Property Taxation

In my testimony today, I will not attempt to delve into the many issues surrounding the administration of the real property tax in New York. As this committee's other witnesses will attest, New York's current patchwork approach is both unfair and inefficient. The reliance on numerous local assessment districts, and the lack of a single assessment standard linked to a regular reassessment cycle, are glaring shortcomings of the system as it now exists. Read More

EJ McMahon Testimony: Assembly Committee on Real Property Taxation

Economic conditions have obvious implications for the work of this Committee and for the Legislature in general. We are in the midst of a potentially severe and long-lasting global recession. But for New York State, the recession is only part of the problem. Fueled by the super-heated profits of the securities industry, mixed with gains from a now-popped real estate bubble, the surge in state tax revenues over the past five years was as big as anything New York has experienced during any previous five-year stretch in the last 35 years. Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries: Info@EmpireCenter.org

Press Inquiries: Press@EmpireCenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!