School Tax Math: Stocks Down = Taxes Up

Most people don’t look at the financial mess in the Europe and think, “Gee, I’m really going to have to pay for that when I get my next property tax bill.”  Obviously, the connection is not so direct, but there is a connection.  The debt crisis in Europe has been causing more than a few ripples in the U.S. financial markets.  This is not to say that we don’t have our own problems that are pressuring our markets, but whatever the reasons, stock markets around the world have been falling at an alarming rate.

So, how does this affect your property taxes?  Public workers have pension funds that are guaranteed by taxpayers.  Part of the guarantee is that the pension funds will return 8 percent (more or less) year-in-year-out regardless of how markets perform.  This is very different from the 401k’s that most people have.  So, if a public pension fund — like the one for NY State Teachers — underperforms, then taxpayers have to make up the difference.  That’s where the school tax comes in.  In the case of teachers, taxpayers fund their pensions via school taxes and that is reflected, of course, in the school budget.  The state comptroller’s office sends a bill to every district notifying them exactly how much they owe each year.  If the pension fund (managed by the comptroller’s office) does not meet its contractually agreed upon return — approx. 8 pct — then the comptroller will send a bill to the schools for the difference to be paid in addition to the regular annual payment.

Now, most people might think that since NY State has just implemented a 2 percent tax cap that no matter how high that pension bill is that property taxes cannot increase by more than 2 percent.  Unfortunately, this is not the case.  The tax cap law carved out an exception for pensions.  Only the first 2 percent increase of that annual pension bill falls under the cap.  Anything above that is excluded and passed directly to the taxpayer.  In other words, a school budget would be considered to be in compliance with the 2 percent tax cap as long as it is only a steep increase in pension payments that caused the budget to rise more than 2 percent.

As if this is not bad enough, there’s one more piece to the puzzle.  Taxpayers have not even finished paying for the huge hole left in these pension funds from 2008 & 2009.  Those shortfalls are being amortized over 5 years.  Rather than force taxpayers to make up these large amounts in a single year, the state allows the payments to be spread over a 5 year time span.  So, if 2011 shapes up to be a bad year for public pension funds (which seems likely at this point), then there will be yet more burden shifted to the shoulders of homeowners across NY state.

This is fast becoming unsustainable.  Just imagine the outcry when property tax bills increase well in excess of the promised 2 percent.  Your local school board, village trustees, town board, and county legislators will not be able to protect you.  The change has to come from Albany.  That’s not to say that local officials should not do everything that is reasonable and responsible to soften the blow that is headed your way.  Just know that things are not always as they appear, and that some promises come with fine print.

You might ask why I have bothered to explain all of this if there is nothing to be done?  Because there is always something we can do.  In the end, voters have the power to effect change, but can only do so when they are educated on the issues.  Please check back regularly with Freeze the Budget so that I can keep you informed as to how things are going, and how you might be able to add your voice, and your vote to make a difference for all of us.

Jeff Diamond serves on the Blind Brook Board of Education.  This blog post presents his point of view and does not represent the opinion of the Blind Brook Board of Education.