Some thoughts on Governor Paterson’s announcement today that he expects his forthcoming 2010-11 Executive Budget to result in a 2011-12 “surplus” of $1 billion that he will propose using for “property tax relief” in the form of a new “circuit-breaker” income tax credit:

  1. The state’s 2011-12 General Fund budget gap was last projected at $14.3 billion.  This reflects, in part, the scheduled expiration of some $5.7 billion in temporary federal stimulus aid that will be used to help balance the state’s 2010-11 budget.  If the governor is saying that the four-year financial plan to be issued with his 2010-11 Executive Budget next week will make up for lost stimulus money, wipe out the entire projected gap and hold recurring spending a full $1 billion below recurring revenues in 2011-12, that’s really something to celebrate.  Applause should be held, though, until we know whether he intends to achieve structural balance solely through recurring savings and spending reductions, and not through another round of increases in state taxes and fees.
  2. If a 2011-12 budget surplus is really in sight, the Governor’s highest priority should be to roll back some of the (all-time record) $6 billion in new statewide taxes and fees he agreed to as part of the 2009-10 budget.  He should start by ensuring the scheduled end-of-2011 sunset of the state’s $4 billion, job-killing temporary personal income tax (PIT) hike, which has taken New York’s marginal PIT rate to its highest level in a quarter-century (and New York City’s resident rate to the highest level in the nation) on the eve of what is likely to be the largest federal marginal rate increase in nearly 20 years.
  3. The state already spends more than $3 billion a year on the STAR (School Tax Relief) property tax homestead exemption. Under the circumstances, Paterson’s proposed billion-dollar circuit-breaker is reminiscent of the now-repealed 2006 STAR “rebate”: election-year gimmickry at its worst, again.
  4. “Property tax relief” implies an actual reduction in rates or levies that results in lower property tax bills.  A circuit breaker income tax credit is not tax relief.  It can best be described as a transfer payment.
  5. Real and lasting property tax relief could be generated by reform of state mandates and laws that drive up the cost of operating schools, as proposed in the Empire Center’s Blueprint for a Better Budget (see pp 13-14).  If Paterson’s budget proposes such changes, that would be great, too.
  6. The best way to protect property owners from the impact of likely cuts in state school aid is through adoption of the school property tax cap that Paterson proposed in 2008 and then abandoned in the face of teacher union opposition, after the Senate’s then-Republican majority had adopted it. The case for the cap over the circuit-breaker is further explained here.
  7. Paterson’s boast today that his proposed budget will “not only meet, but exceed” (sic) his proposed spending cap is another way of saying he won’t allow the state operating funds budget to grow by more than $1.6 billion next year.  Which is not greatly encouraging in itself, although it could be (see #1).

P.S. — The governor’s tax credit proposal includes a mechanism supposedly designed to encourage school spending restraint.  To quote from his press release: “Under Governor Paterson’s proposal, the size of the [circuit-breaker] credit is reduced if property taxes grow by more than 1.2 times the rate of inflation or four percent (whichever is less) from a specified base year. For example, if in 2012 a family’s property tax bill increased five percent and the inflation rate was four percent, then the credit would be multiplied by a factor equaling (104/105), or credit would be one percent less. If the property owner’s tax bill rises by only three percent, then the credit would be increased by a factor equaling (104/103), or one percent more.”

Did you follow that?  I didn’t think so.

About the Author

E.J. McMahon

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

Read more by E.J. McMahon

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