State Adopts Tax Cap
Legislation was passed by the New York State Legislature last week placing a 2-percent cap on real property tax increases or limiting them to the rate of inflation, whichever is smaller. Intended to relieve taxpayers’ burdens, the law will affect municipal and school, fire, and special district budgets.
Between state and local taxes, the Legislature found, property owners in New York pay the second-highest property taxes in the country. Local property tax levies in the state grew by 73 percent from 1998 to 2008, more than twice the rate of inflation.
The law, which goes into effect next year, does, however, allow taxing districts to override the cap with the approval of three-fifths of their board members. In addition, the limit could be adjusted upward if the overall tax base increases, according to the formula calculated by the state commissioner of tax and finance.
The cap is to be imposed on that portion of a budget to be raised by taxes. In East Hampton Town, $46.3 million of this year’s almost $70 million budget came from property taxes rather than other revenue sources. Because of the 2-percent cap, the increase next year could be no more than $927,042 unless the town board voted to override the cap or was able to take advantage of certain exemptions from it.
One of those exemptions is an increase in the cost of employee pensions. In addition, money added to a municipal or district budget to settle a lawsuit that exceeds 5 percent of the levy would also be exempt.
The possibility of a tax cap had been discussed at meetings of local school boards over the past six months. Although the legislation is designed to offer relief to taxpayers, board members feared it would tie their hands.
Another provision in the law is apt to be considered here. It allows up to three school districts to share a superintendent, provided the districts have fewer than 1,000 students each.
This could be pertinent for all the districts in East Hampton Town — Springs, Montauk, Amagansett, Wainscott, Sagaponack, and East Hampton itself — as well as for Bridgehampton, with its approximately 160-student base.
The legislation addresses state regulations that can drive up costs for local governments and taxing districts, such as provisions about how services must be purchased or provided.
For instance, the law authorizes municipalities and public authorities to exchange and share services, materials, and equipment, and it increases the competitive bidding threshold for work done using the state’s Consolidated Local Street and Highway Improvement Program (CHIPS) from $100,000 to $250,000, thereby expanding the ability of municipalities to use their own labor.
It also establishes a “mandate relief redesign team” to make recommendations to the governor on how to provide for further savings.
“Mandates, where the state tells localities how services should be provided, are primary reasons why New York has such high taxes,” the legislation states.
The State Legislature passed the law by a vote of 114 to 15, in what Assemblyman Fred W. Thiele Jr. called a “truly historic session.”
In a press release, Mr. Thiele said, “A real property tax cap is not a panacea, but can be a useful management tool.” He said he had worked for the inclusion of several elements, including mandate relief, which, he said, “begins to give schools and local governments greater flexibility, improves services, and saves taxpayers money.”
Assemblyman Thiele also supported the law’s sunset clause, through which it will expire in five years, at which time it can be reviewed for modification. He also supported a 4-percent increase in state aid to education in the 2012 state budget.
“In the end, the legislation is good, but far from perfect,” Mr. Thiele said in the press release. “The status quo is unacceptable. New York’s property taxes are among the highest taxes in the nation . . . 96 percent higher than the national average.”
“I think we’re positioned to be able to deal with the 2-percent cap,” said East Hampton Town’s budget officer, Len Bernard, yesterday. Although the town slashed its budget by $8 million this year, Mr. Bernard said that the cuts made were meant to be permanent, so that there would be no pressure to increase the tax levy beyond the amount allowed under the cap.
“I would be worried if our cuts in 2011 were one-time gimmick cuts,” he said.
With Reporting by Bridget LeRoy