Paterson offers “property tax relief” — NOT

| NY Torch

Governor Paterson has now all but formally abandoned the comprehensive school property tax cap he was pushing a year ago.  Instead, he has tucked a hopelessly byzantine variation of the cap into a proposed new property tax “circuit breaker” that would kick in when (or if) the state ever has some extra money sitting around again.

So, in place of a permanent, immediately binding limit on the annual growth in all school property taxes outside New York City—a limit that local school voters could nonetheless (a) be asked by their school boards to exceed, or (b) seek to reduce at their own initiative— Paterson is offering to redistribute currently non-existent state funds on an irregular basis at some unknowable time in the future.

The package the governor release today is linked to his proposed cap on “state operations spending”—which, not being constitutional, would essentially be written in disappearing ink from the standpoint of any future Legislature determined to increase the budget beyond the supposed limit. (Paterson has yet to explain why a statutory cap is better than a governor’s constitutional power to veto spending additions by the Legislature.)

However, supposing the state spending cap was in place and actually succeeded in limiting spending, and further supposing that economic growth at some point in the future magically surges back to the point where projected revenues exceed expenditures, Paterson would use the resulting surplus (up to $2.125 billion) to finance a refundable circuit-breaker tax credit for homeowners, with the amount varying on the basis of each homeowner’s household income and the size of the state surplus.   (Might any surplus funds be available for state tax cuts?  Or to create a larger rainy-day reserve?  The proposal doesn’t say.)

Following the bouncing ball, the circuit breaker could be claimed on state income tax forms by upstate homeowners with incomes above $200,000 and downstaters with incomes above $300,000, with maximum benefits available to those with incomes at less than half those levels.   Homeowners would get an average income tax break of up to $1,405 (in a year with a fat state budget surplus, that is) if their school district does not increase taxes by more than 1.2 times the rate of inflation or 4 percent, whichever is lower.*  Those percentages match the one in the original property tax cap recommended by the Suozzi Commission — which is all this new proposal has in common with the original one. Homeowners who live in districts that raise taxes above the limit would get smaller circuit-breaker benefits through their income taxes.

The basic problem is the same as New York has experienced with the STAR program: when you subsidize something, you get more of it.  Under Paterson’s proposal, local school officials would feel no direct constraint on their spending or tax levies; indeed, homeowners in districts with tax hikes above the cap would effectively be penalized.

Why resort to issuing a proposal that is at once so clumsy and complicated, not to mention costly, when you have previously embraced a broad tax limitation that has already worked effectively in one neighboring state and wouldn’t siphon a dollar from the state budget?  A limitation, it should be added, that was actually passed by the state Senate, including a majority of the Senate’s current membership?

The answer is simple: a cap on school property tax levies would actually work in New York, too, restraining school spending growth and restoring a stronger voice for taxpayers in setting local property tax rates.   That’s why a real property tax cap is stridently opposed by the teachers’ union and the rest of the K-12 public education establishment.  The union likes the circuit-breaker approach because it poses no threat to (dues-generating) teachers’ salaries, benefits or staffing levels — i.e., it won’t restrain spending by holding down the tax burden, it will merely redistribute the tax burden.

With the state facing monumental budget deficits that can only be closed with sharp cuts in state school aid, it’s more important than ever to give property owners with immediate protection from rising school taxes–the kind of protection Paterson’s original cap could even now be providing.

* Would teacher pensions be excluded from the limit, as they are under the loophole inserted into the most recent version of Paterson’s property tax levy cap?  That question, too, is unanswered.   But given the way Paterson has handled the issue so far, what would you expect?