What Will the Two Percent Property Tax Cap Do For Local Municipalities?

With the deadline for the proposed two percent tax cap in New York—passed by the New York State Senate 47 to 15 earlier this year—rapidly approaching it’s deadline to be voted on in the State Assembly at the end of June, concern over budget tightening with no mandated expense relief has local governments reeling.

The Local Summit hosted a panel discussion on Tuesday with New York State Assemblyman George Latimer and Village of Mamaroneck Manager Richard Slingerland to discuss the two percent cap and the potential effect on local communities.

“This is a public policy issue that isn’t just an activity that happens up in Albany,” said Latimer, referring to the tax cap. “It will affect—if it comes to pass—every single local service that we receive from the local governments.”

“This is the most prominent issue in suburban communities,” he said, referring to local resident’s concern over increases in already high property taxes.

The dilemma faced by many local governments seems to be how to keep property tax increases low to satisfy taxpayers while still being able to foot the bill for rising pension and other mandated costs as well as essential public services.

Latimer went on to enumerate the various public entities that would feel the pinch if the bill passes, including county governments, small city governments (the City of Rye and New Rochelle were cited as two examples), towns and villages across the state, most school districts, special districts (such as library districts) and fire and ambulance districts.  If passed, it would take effect in 2012 town and county budgets and 2012-13 school budgets.

The two percent tax cap would limit revenue that districts can collect from property taxes to fund local services to two percent, or the regionalized Consumer Price Index (CPI)—a measure of the average cost of household goods—whichever is less.

The areas that would be exempted from the tax cap would be New York City and the “Big 5” school districts—Buffalo, Yonkers, Rochester, Syracuse, and Albany—which do not rely on voter referendums for their school budgets to be passed.

There are two exceptions to the tax cap, which would be if a local government was required to pay out a legal settlement that exceeded 10 percent of the tax levy or to account for a rise in county funded costs for public assistance.

Additionally, if a town, village, city or county wants to prepare a budget that overrides the two percent levy, there must be a 60 percent voter referendum to support the higher level of taxation.  If the increase is not approved and there is no money in contingency, the increase drops to zero percent. 

“In essence, there’s a penalty for going for an override and failing to get it,” said Latimer.

“The philosophy is local government are spendthrift and we need to reign them in because they don’t know how to reign themselves in,” said Latimer, continuing,” The reality is a $550 million tax levy total across the county, with $210 million sent to NY State for Medicaid costs which the county does not administer,” said Latimer, noting that this mandated cost accounts for a full 40 percent of the levy’s cost.

Further echoing the sentiment that mandate relief is needed by local governments, Slingerland contrasted the Village of Mamaroneck’s pension expenses in 2002, at approximately $25,000, with 2011’s number, $2 million. Additionally, the pension fund has lost ¼ in value just from investments and a shaky economy.

“If we have to come up with 2.5 percent of our total budget in pension payment you’re approaching layoffs for four, five, six employees just to cover that gap,” said Slingerland, also pointing out that with contracts in place for public employees, it is unlikely that salaries or benefit reduction would be a place to look for additional cuts.

To further illustrate his point, Slingerland cited an example of a school in Texas that is already dealing with a two percent property tax cap.  So far, the district has resorted to selling ads on school buses and the school’s website, trademarking the school mascot to raise additional funds, and cutting their existing staff by 10 percent in order to close the gap previously filled by increasing property taxes.

Speaking from the audience, VOM Mayor Norm Rosenblum presented a grim picture of the fate of local municipalities with the property tax cap.

“The villages and towns as we know it will cease to exist,” he said, noting that local governments would be forced to cut essential services and jobs, and the people that moved there for those services will eventually leave.

“The ultimate irony is that New York City voted against it and the people that voted for it are towns and villages that will disappear,” he said, referring to the senate members that voted for or against the cap.