The negative economic after-effects of the pandemic seem likely to rival if not exceed those of the Great Recession of 2008-09.

But as New Yorkers face massive job losses, falling incomes, sagging property values and widespread economic insecurity, they’ll have one layer of protection they sorely lacked in the last downturn: a tight cap on local property tax levies, enacted at Governor Cuomo’s initiative in 2011.


This is an installment in a special series of #NYCoronavirus chronicles by Empire Center analysts, focused on New York’s state and local policy response to the Coronavirus pandemic.


For independently governed school districts, counties, municipal governments and special districts outside New York City, Cuomo’s cap limits total annual property tax levy increases to 2 percent or the rate of inflation as measured by the previous year’s Consumer Price Index (CPI), whichever is less, subject to exceptions for debt service expenses on voter-approved school construction projects and taxes generated by new construction or property improvements during the preceding year.

In annual school budget referenda, proposed tax hikes above the cap must be approved by a super-majority of at least 60 percent of voters. A simple majority above 50 percent is still required to approve budgets raising taxes below the cap.

For school budgets, the law adds a two-strikes-and-out provision: if voters reject a proposed budget, the Board of Education can resubmit the same proposal or a modified version for voter approval only once. If it fails to receive the required approval threshold the second time—even if it calls for a levy hike below the cap—the property tax levy must be frozen at the previous year’s level. This risk has given school boards a powerful added incentive to avoid risking budget rejections.

For all other types of local governments, which don’t submit their budgets for public votes, the 60 percent approval threshold applies solely to governing boards. Even in those cases, the law has had a surprisingly strong restraining effect—if only because county and municipal officials seeking re-election in politically competitive environments don’t want to be labeled as cap-busters.

Unlike the state’s School Tax Relief (STAR) program, which subsidizes tax breaks only for owner-occupied primary residences, Cuomo’s cap applies to the total levy on all classifications of property.

This makes the cap especially well-suited to keeping a lid on excessive levies in the post-pandemic environment, since so many owners of commercial and apartment buildings are now under stress because their tenants are unable to pay rent during the lockdown.

The law’s link to inflation is also vitally important given the nature of the economic outlook. Discussing the vast expansion of federal debt in response to the crisis, columnist Neil Irwin of The New York Times expresses a broader consensus of economists in predicting that “deflation, or falling prices, is more likely to be a problem” than higher inflation in the foreseeable future.

“The price of oil, at around $23 a barrel, is roughly one-third the level at which it started the year, and bond prices imply that inflation will average only about 1.07 percent annually over the coming decade,” Irwin notes.

The prospect of deflation is the main reason why Cuomo and the Legislature need to reject persistent calls from public school advocates, unions and local government groups to weaken the limit by eliminating the CPI portion of the formula and raise the basic tax cap (before exclusions) to a flat 2 percent a year. A 2 percent cap could allow property tax levy growth significantly higher than the actual cost of living—especially in years such as 2016-17, when the link to the lower CPI rate held the levy limit to just 0.15 percent. Based on the average 2019 increase in the SPI, the initial levy limit for 2020-21 school taxes has been set at 1.81 percent, after two consecutive years set at 2 percent.

In the face of what’s shaping up as the worst fiscal crisis in post-World War II history, the governor can be criticized for having failed to adequately build budget reserves against a recession that was inevitable sooner or later, and for failing to acknowledge the looming crisis when the coronavirus emerged as a threat a month ago.

But Cuomo’s tax cap remains a landmark achievement for which New York taxpayers will be even more grateful during the difficult and challenging economic recovery ahead.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

You may also like

New York Has Widened Its Lead in Per-Capita Spending on Medicaid

New York's per-capita Medicaid spending soared to more than double the nationwide rate in 2018, widening its gap with the other 49 states. Read More

State Pension Fund Lost Money in 2020, Pointing to Higher Costs Ahead

New York State’s biggest public pension lost money on its investments during the fiscal year that ended March 31—a completely unsurprising result, given the coronavirus crisis and its impact on financial markets in early spring. Read More

New York’s Medicaid Enrollment Surges to an All-Time High

New York's Medicaid program is growing at its fastest rate in six years, with a quarter-million additional enrollees landing in the safety-net health plan during the first three months of the coronavirus pandemic.  Read More

Lawmakers Look To Dump More Public Cash On Teamsters

State lawmakers this week moved to make public construction more expensive in a bid to steer work to one of New York’s struggling construction unions. A bill ( Read More

In Slow Recovery, NY’s Job Drop as of June was Still Among the Worst in U.S.

While New York's economy continued to ever-so-slowly recover in June, the Empire State's year-to-year percentage decline in private employment since the pandemic lockdown remained the worst in the continental U.S., according to the latest payroll establis Read More

New York’s Health Premiums Remain Among the Highest in the U.S.

The average cost of New Yorkers' health benefits increased by less than the national average in 2019 but remained among the highest in the U.S., according to recently published federal data. Read More

New York’s Medicaid Roller Coaster Takes an Unusual Turn

The state's Medicaid spending was significantly lower than projected in the first quarter, but that's not necessarily a positive sign for state finances. As shown the chart below, t Read More

AOC’s Favorite State “Billionaires Tax” Bill Would Run Afoul of NY Constitution

Some of New York City's leading progressive Democrats are mounting a campaign to pressure Governor Cuomo into backing a big new "wealth tax" on New York billionaires. U.S. Rep. Alexandria Ocasio-Cortez is the star of a newly released supporting by he 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
Fax: 518-434-3130
E-Mail: info@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.