TAX NEWS - JUNE 2010

US Tax: Caps studied as schools take 66% of property tax

Two-thirds of all property taxes in Dutchess County go to fund public schools.

Of the $737.7 million raised in local property taxes in 2009, 66 percent went to public schools, according to a Poughkeepsie Journal analysis of property-tax data.

Dutchess tied with Orange County for fifth place among New York counties with the highest percentage of property taxes going to schools.

Dutchess beat the state total by 3 percentage points and matched New York City's 66 percent. Ulster County was in the top 20, with 61 percent of the property taxes going to fund public schools.

No other form of property taxes — county, city, town, village or fire district — comes close to affecting the wallets of local businesses and homeowners as schools. As a result, some taxpayers have called for changes in how schools are funded or restrictions on how much a district can raise spending each year.

The ever-rising school property taxes have enraged some taxpayers, even driving some to sell their homes and move to a less-expensive state. New York consistently ranks as one of the highest-taxed states, and local property-tax bills are 79 percent higher than the national average, a 2008 state report found.

School property taxes comprised an average of 63 percent of the total property-tax levies collected in fiscal year 2009 in New York, giving tax-cap advocates plenty of ammunition for their argument.

Anger and concern over school spending and funding are easy to find. Three of the 16 local school districts — 19 percent — had 2010-11 budgets defeated at the polls. Voters split between anger over higher taxes and concern for school programs, potential increases in class sizes and closing schools. Across the state, 92 percent of budgets were approved.

Fifteen local districts saw an increase in voter turnout. In the Arlington Central School District, 9,480 people voted on the budget — 2,815 more than the 6,665 who voted last year. The $176.3 million budget proposal was defeated by 168 votes.

District officials are preparing for a second vote June 15 for a budget that is $1.1 million less than the original and includes the closure of LaGrange Elementary School. Budget meetings have drawn up to 400 people at a time.

Cora Stempel, acting superintendent of the Hyde Park school district, where the 2010-11 budget was approved, said that in her 20 years in public education she has seen the funding of it become more of an issue, especially for homeowners.

"So much of funding for schools is placed on the back of taxpayers," she said.

But the funding of school budgets through the property-tax levy is the only tax residents can vote on directly, Stempel said.

"The school budget vote is one way they can be heard," she said.

In light of the fiscal crisis in Albany, which led to the projected reduction in state aid to school districts next year, more of the burden for funding education may shift to property owners.

"I think there's a fear some of that will continue if the economic picture doesn't improve," Stempel said.

Changing how public education is funded is worth looking at in light of the economic downturn.

"Certainly in this country it needs to continue to be studied and some alternatives explored," Stempel said.


Proposals

Some in Albany say they don't want to leave school spending and property-tax levies to economic chance.

They favor the path Massachusetts took 30 years ago, when voters approved capping annual property-tax hikes at 2.5 percent.

Opponents say they don't want to impose an artificial limit and caution it could institutionalize current inequities in school spending.


But what's the long-term solution?

Five cap plans are floating around Albany, including one by Gov. David Paterson, which would cap school and municipal tax-levy growth at 4 percent total, or 120 percent of the annual increase in the consumer price index, whichever is lower.

"I think that if there's overwhelming support for a property-tax cap, there's also a great deal of resistance to it," said E.J. McMahon, executive director for the conservative Empire Center for New York State Policy.

Pressure from property-tax payers who believe they are stretched to the limit "is never going to go away until they finally do something," he said of state lawmakers.

The average statewide tax-levy increase for school spending has dropped consistently in recent years, falling from 6.89 percent in 2005 to 1.89 percent last year, the height of the state and national recession.

But with state support heading for a nosedive this year, as lawmakers and Paterson try to close a $9.2 billion budget gap, local school-tax levies are back on the rise.

Town of Poughkeepsie resident Christopher Duncan said putting a cap on property taxes might work.

"But I would rather see the schools, the teachers and the state Education Department look at other ways schools can be run," the Arlington school district taxpayer said.

Duncan said schools today operate, for the most part, as they did in the early 20th century, with students getting basic courses and advancing through the grade levels.

"No other business uses a 90-year-old business model," he said. "It's not just about the money."

George Jennings of the Town of East Fishkill is in the Wappingers Central School District, where voters just approved a $184 million budget that will raise the property-tax levy 9.53 percent, the highest in the area.

Jennings said he favored a cap on property taxes.

"It would send a message to the people spending the money," he said.

Jennings also said taxpayers have to speak up about the burden that taxes put on them.

"It's up to the citizens to get involved," he said.


The debate

The consensus among homeowners, advocates and policymakers is that something has to be done, but there is disagreement on the best and fairest way to provide relief.

Republican lawmakers, the Empire Center and other right-leaning groups, along with Paterson, a Democrat, say a cap is the way to control property-tax growth.

Organized labor and left-leaning advocacy groups oppose a cap, saying it would lead to a loss of educational programs and jobs if the state pulled back on funding, as is now being proposed, and local spending could increase only by a fixed amount.

They said school districts could be forced to make cuts to accommodate the rapid growth in the cost of health insurance, special education, pensions and fuel.

"We're talking about the disintegration of educational services as we know them," said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness.

Caps are "more of a gimmick than a fix to a situation," said Deutsch, whose group favors a circuit-breaker system, in which property taxes are limited based on income.

Current proposals are modeled on Massachusetts' tax cap, which applies to all municipal and school property taxes. In addition to Paterson's plan:

- Senate Republicans want to cap the growth in property-tax levies for schools only, at 2.5 percent a year, or 120 percent of the annual increase in the CPI, whichever is lower.

- Senate Democrats want a "circuit breaker," a program that would reimburse homeowners for property taxes paid above a certain amount, based on their income.

- Assembly Democrats have passed circuit-breaker legislation in the past and now have a bill that would limit the maximum tax for households with an adjusted gross income of $250,000 or less.

- Assembly Republicans are advancing the Property Taxpayer Protection Act, which would cap school property taxes at 4 percent or the rate of inflation, whichever is lower.

In Massachusetts, voters can override the cap, according to the Massachusetts Municipal Association, and municipalities can't tax more than 2.5 percent of the cash value of all taxable property.

The cap excludes property-tax revenue a community raises for specific projects and new growth.

The Massachusetts cap, which voters approved 59 percent to 41 percent in 1980, is popular in the state, said Barbara Anderson, head of Citizens for Limited Taxation in Massachusetts.

"People are so used to 2 1/2 now, it's no longer a controversial issue," she said.

The cap empowers people and has changed the attitude of local government officials, said Anderson, who has worked on the issue since 1978. Cap overrides are more common in wealthier communities, she said.


Cap opposition

A 2008 report from the Washington-based Center on Budget and Policy Priorities, a nonpartisan research organization, said the cap has forced a number of Massachusetts communities to lay off teachers, police officers and other public employees, close libraries and senior centers and scale back school programs.

And Frank Mauro, head of the labor-backed Fiscal Policy Institute in New York, said a cap would perpetuate current funding inequities among school districts.

"When you apply a percentage cap to change, you institutionalize the disparities and you make them worse," Mauro said.

He said a circuit-breaker system would provide relief to the most overburdened homeowners.

But McMahon said a circuit-breaker tax isn't tax relief but "higher taxes for some people to provide a bigger refund for others." He prefers a 2.5 percent cap.

The New York State School Boards Association opposes a property-tax cap on the grounds that property owners can vote down annual school budgets if they think spending increases are too high, spokesman David Albert said.

"The (school) board generally knows what the community can absorb as far as property-tax levies," he said.


Property-tax cap proposals

- Gov. David Paterson's plan would limit tax-levy growth for school districts, counties, municipalities and special and fire districts to 4 percent, or to 120 percent of the annual increase in the consumer price index, whichever is lower. The limit could rise for new construction. School districts could bank unused tax-levy capacity. The vote threshold for an override would depend on the state aid the district gets. Two-thirds of a local government's governing body would have to approve an override.

- Senate Republicans want to cap the growth in school property-tax levies at 2.5 percent a year, or to 120 percent of the annual increase in the CPI, whichever is lower. An "underride" proposition to cut the tax-levy limit would need approval by more than 50 percent of voters. They want to reinstate STAR tax rebate checks.

- Senate Democrats want property-tax rebate checks for homeowners who are low-income senior citizens and a revamped version of the STAR program for the middle class. Homeowners would be reimbursed for property taxes paid above a certain amount based on income, known as a circuit-breaker property tax.

- Legislation passed by the Senate and forwarded to the Democratic-led Assembly would restore the STAR rebate for senior homeowners making less than $150,000 a year; create a circuit-breaker property-tax credit for the middle class; and cap school district levies at 4 percent, or 120 percent of the consumer price index annual increase.

- Assembly Democrats are considering a circuit-breaker bill to limit the maximum real-property tax for New Yorkers who have a household adjusted gross income of $250,000 or less.

- Assembly Republicans are advancing the Property Taxpayer Protection Act, which would cap school property taxes at 4 percent or the rate of inflation, whichever is lower. A two-thirds vote of taxpayers could override the cap. The cap could rise in proportion to the net percentage increase in enrollment and the net percentage increase in the quantity of real property in the district. The bill would provide mandate relief.