The tax cap deal

Wednesday, May 25th, 2011 at 7:50 am by

As promised, Assembly Speaker Sheldon Silver yesterday unveiled his house’s proposal for a cap on property tax increases by schools and local governments.

In a mid-afternoon news conference, Governor Andrew Cuomo said, “We are announcing agreement on a property tax cap that will be enacted this session on the terms that are in the Assembly bill.”

Senate Majority Leader Dean Skelos issued a statement agreeing that there is an agreement, but with some details to be resolved.

We issued a response which, among other points, observed,

“Tax cap proposals allow state officials to say they are solving a tough problem.  But they leave it to school district leaders and local voters to take all the tough actions actually required to balance what schoolchildren need and what the tax cap will fund.”

The bill
The bill would “cap” tax levy increases at the lesser of 2 percent or a figure tied to change in the national Consumer Price Index, and would require school districts to gain at least 60 percent voter approval to exceed this figure.

Districts would be permitted a second attempt to gain voter approval for a tax levy increase.

If districts are unable to gain voter approval, they would be required to adopt a budget which provides for no increase in the tax levy over the prior year.

The bill includes these provisions which would diverge from the proposal made by the Governor and passed by the Senate earlier in the session.  Districts and local governments would be permitted to:

  • carry over up to 1.5 percent from one year to the next of any amount in which the previous year’s levy was below that year’s limit;
  • adjust the tax levy upward if there is physical or quantity growth in the property base;
  • include a tax base growth factor to account for any increase in the full value of taxable real property; and
  • exempt pension payments over two percent from the previous year and court orders and judgments that exceed five percent of the total levy from the previous year.

Finally, the bill includes a sunset provision that would have it expire at the same time as legislation to be enacted governing rent regulation.

Despite the departures from his proposal, the Governor endorsed the Assembly bill.

Reporting on the Governor’s radio comments, the State of Politics blog quoted the Governor that the Assembly’s cap would still be the “best in the nation.”  He said it would be the “tightest cap in the country, tighter than New Jersey, tighter than Massachusetts, tighter than any cap we’ve come across.”

The Senate statement included this passage:

“Other than the sunset provision and minor technical issues, we have reached a three-way agreement on a bill that achieves our goals and includes 95 percent of the bill we already passed and will finally put the brakes on skyrocketing property taxes.”

Speaking with reporters, Mr. Silver said the Assembly would not pass the tax cap bill until there is agreement on legislation to extend rent regulations.

The New York Daily News reported,

“We will join the two, correct,” Silver said.

“These two are inextricably linked in terms of passage in the next three weeks.”  Silver added: “The philosophies are the same its keeping people in their homes… both of these are designed to give people an idea where there costs are going and to keep it affordable for them to continue to live in their homes.”

Some reflections
It can be argued that the bill would establish a zero percent tax cap for schools, since if they are unable to gain voter approval for a levy increase, they would be limited to no more than the same levy as the year before.

In contrast, local governments would be permitted to increase their property tax levy by up to the cap and could increase their tax levy by more than the cap with approval by a 60 percent majority of its governing body, and without voter approval.

Massachusetts is frequently cited as having a model tax cap.  It permits communities to raise the basic levy by up to 2.5 percent without seeking voter approval and requires only a simple majority to over-ride the cap.

The partial exemption for pension costs from the cap is of limited help. It would exempt costs attributable to growth in employer contribution rates greater than 2 percentage points.

To illustrate the impact of the exemption, this year, the employer contribution rate for the State Teachers Retirement System is rising from 8.62 percent of payroll to 11.11 percent, an increase of 2.49 percentage points.

So the TRS contribution rate is rising by 29 percent (2.49%/8.62%); districts would still have to absorb the impact of a 23 percent increase (2%/8.62%).

The exemption is more helpful to local governments, since the contribution rate for State and Local Employees Retirement System (ERS) is rising by more than 4 percentage points.  But only about 20 percent of school employees are in ERS; most are covered by TRS.

Last week we did a briefing for Assembly and Senate Education Committee members on what is in the school district property tax report cards this year (Confession:  attendance was sparse, but we did distribute the presentation to all legislators).

One of the key points was that schools held their average spending increase down, despite increasing pension and health insurance costs that would drive total spending up by 2.6 percent, even if all other costs could be frozen.

Since the average proposed spending increase was 1.3 percent, schools must have cut their other costs this year, on balance.

We made clear that our presentation was intended only to convey facts, not argue for or against specific legislation.  But I did say Legislators have four options for addressing benefit costs and budgeting caps — either the current contingency budget cap, or a new tax cap:

  1. Help fund the costs through additional state aid;
  2. Exempt some or all of the costs, so that localities can fund them through local taxes, with less damage to services, but with some risk of voter backlash if the exemption is expansive;
  3. Pass legislation to help localities lower their benefit costs; or
  4. Do nothing, with the consequence that schools would need to continue to cut other expenses to fund their benefit obligations within the cap.

So far, the agreed to approach is to do a little of number 2, but mostly number 4 — leaving it to local leaders to resolve.

Perhaps most disappointing, by requiring 60 percent approval for tax levy increases above the threshold, the proposal would establish minority rule in school district budgeting, and say that the votes of school supporters count less than those on the other side.

Again, the bill allows municipalities to over-ride the cap without seeking voter approval — support5 of 60 percent of the governing board would be required.  The Massachusetts cap allows over-rides with a simple majority.

Last, the bill asks voters to focus on the wrong question.

Developing a budget requires balancing needs and resources.  The current school budget voting process asks voters to approve a spending level – to consider whether their school budget proposal strikes the right balance between what students need and what taxpayers can afford.

A tax cap reduces the question for voters to, “What will this cost me?

Also, districts have more direct control over spending, not revenues.

In each of the last two years, school districts have asked their voters to approve budgets with smaller spending increases than the year before, but with larger tax increases.  This year, 37 percent of districts proposed cutting their spending below last year’s level, but 86 percent of those districts still proposed raising their local tax levy.


Because there are three major moving pieces in school budgets — spending, local tax levy, and state aid.  Schools have no control over the third — state aid — and in each of the past two years, districts have had to  absorb cuts in state aid.

Still,there is evidence the current budget voting process has worked.

In 2003, schools also had to deal with declining state aid and surging pension costs, and they proposed budgets with local tax increases averaging 8.2 percent.

In 2010 and 2011, with the same challenges, school district leaders put forward budgets with tax increases that averaged five percentage points less — 3.2 percent in 2010, and 3.4 percent this year.

One of our members, who served as a superintendent in states with tax caps, offered this perspective a year ago:

Annually, school districts hold budget hearings, present budget workshops, and send out voter information.  Some, of course, are more aggressive than others in putting information in front of voters or taking such as ambitious steps as we did with a full-blown public engagement process (focus groups, polling, public engagement sessions, and online surveys).

Whether passive or aggressive, voters have the information and can express their concern or satisfaction at the polls.

We already have a tax cap: it’s where the school board sets the tax rate.  The voters can vote yea or nay.

And, while it took a couple of years of a wake- up call for communities, the system works.  In this miserable economy, [very few] districts in [my county] voted down budgets.  Why?  Because they all brought information forward in numerous ways to their voters and they all imposed lower tax rate increases on themselves.

In other words, the taxpayers spoke and we listened.  And, like us, the majority of those were below 3 percent– a far cry from the 5, 6, and 7 percent increases of the past…

This entry was posted on Wednesday, May 25th, 2011 at 7:50 am and is filed under Finance, Legislation. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.