‘The Tax Cap’s Problem’

Sarah May Stern faults Governor Paterson for single-mindedly advocating a cap on school property taxes instead of taking an omnibus approach that would include the cost-cutting reforms recommended by the Suozzi Commission on Property Tax Relief [Oped, “The Tax Cap’s Problem,” June 30, 2008].

Ms. Stern, who just stepped down as the school board president in a Westchester County district that will spend more than $24,000 per pupil next year, overlooks a key objective of the governor’s tax-limitation strategy.

Albany has been willing to impose and expand costly mandates on school districts largely because, at the end of the day, local taxpayers can be stuck with a big share of the bill.

The cap, Mr. Paterson points out, is a “blunt instrument” that can create added pressure for more serious consideration of needed reforms now ignored by state lawmakers.

Ms. Stern predicts that teachers’ unions and school boards will react to a local property tax cap by lobbying for more state aid, leading to increases in state income, sales, and corporate taxes.

But New York’s public school establishment doesn’t need a new excuse to push for more money from Albany. The annual clamor for more school aid could hardly get any louder than it already is.

In fact, all the proposed alternatives to a local tax cap would have a much more direct and immediate impact on state taxes.

More than 10% of New York State’s income tax receipts are already set aside to finance homestead exemptions and rebates under the decade-old STAR program.

Hoping to fend off a cap, the state’s largest teachers’ union has joined with the labor-backed Working Families Party to advocate an expansive new “circuit breaker” that would be financed by doubling the state’s top income tax rate.

Evidence that tax limitation need not be a zero-sum game can be found in Massachusetts, whose Proposition 21/2 tax limit was a model for the cap proposed by New York’s Suozzi Commission.

Income taxes in Massachusetts are now lower than they were when Michael Dukakis left the governor’s office in 1990, and that state’s overall tax burden has dropped substantially over the last 28 years.

School property tax levies across New York rose by an average of 6% a year over the past decade, although the average in Ms. Stern’s district, Edgemont, was more than 7% a year.

The cap proposed by Mr. Paterson would limit the annual growth in school tax levies to 120% of inflation, which averaged 2.8% between 1997 and 2007, or a maximum of 4%, excluding taxes generated by new construction.

Ms. Stern says this kind of limit will lead to “drastic cuts” in school budgets. It doesn’t seem to occur to her that the alternative — continuing local tax hikes at two to three times inflation — will put more pressure on household and business budgets that are equally strained by rising fuel and food costs.

Besides, Ms. Stern fails to note that school boards could ask local voters to override the tax limit. The taxpayers, in turn, would have a chance to set the bar lower by petitioning for a vote to “underride” the tax cap.

Any serious attempt to provide long-term relief from escalating property taxes in New York will pit the school system’s incessant demands for more revenue against the taxpayers’ desperate need for relief.

So far, Mr. Paterson is siding with taxpayers.

E.J. McMAHON
Senior Fellow
Manhattan Institute
Director
Empire Center for New York State Policy
Albany, N.Y.