Tuesday, February 26, 2013

Property Tax Caps


Lisa Elliott
Blog Post 2/27


                                                Property Tax Caps

Budgetary enforcement tools inevitably will involve tradeoffs that will result in winners and losers.  Property tax caps restrict the amount that property tax can increase from year to year to a low fixed percentage, a formula based on inflation rate, or a combination of the two. Evidence suggest that property tax caps o nothing to change the rising costs municipalities face leading to suffering provisions of public services.  However they are currently used, even in our current budget crisis.

They are designed to hold down property taxes but are likely to impair the local revenue system, and the local government’s ability to provide education, public safety, and other public service programs.  They are criticized as a tool that does nothing to change the main drivers behind higher expenditures, or the pressures outside of local control that drive up cost (cost of health care, benefit packages. They also don’t change the demand for local public services, quality education, public safety, and good roads.



Proposed mitigations to replace lost revenue from tax caps  include:

·      Increased state aid- this may not be reliable or sustainable over time, especially in economic downturns.

·      Most caps include provisions permitting unhappy citizens to override the limit. However, evidence suggests that wealthier communities successfully attempt more overrides, which can exacerbate disparities in education and services throughout the state.

·      Localities under property tax caps often shift to other revenue sources such as sales taxes and fees, if permitted under state law. However this can have a similar effect, placing greater burdens on low income residents.

The Center on Budget Policy and Priorities cites evidence from California , “For example, K-12 spending per pupil in California fell dramatically under Proposition 13, dropping from more than $600 above the national average in 1978 (when Proposition 13 was passed) to more than $600 below the national average in 2000.[3] School districts in the state have been forced to cut programs such as music, physical education, and art; reduce class offerings; and cut positions, such as librarians and counselors ‘’.

Similar negative effects were realized in Massachusetts, where the town has had to lay off school , fire and police, and municipal employees, freeze wages, close the library, close the senior center, and stop funding infrastructure projects to comply with the state’s property tax cap.

While I only have surface level knowledge of this complex issue and budgetary reforms in general, I have to ask why in our 2012/2013 budgetary crisis would these tools continue to be used when property tax is a major source of local revenue? Property tax caps are currently cited as the “hallmark of New York State Governor Andrew Cuomo’s tenure” signed into law in 2011, which limits growth in property taxes to two percent a year.  Cuomo states that the cap limits taxes in a state with some of the highest property taxes in the nation, and that ninety five percent of the districts stayed with the cap last year. This has lead to a recent filing of a law suite by the largest teachers union in the state, New York State United Teachers.

The teachers union has rallied against the cap, stating that it creates inequalities within the school districts, as wealthy communities are more likely to override the cap. 


Governor Cuomo responded to the filing by saying, ““People have a right to go to court. God bless America. God bless our system,” Cuomo said Wednesday. “I think the property-tax cap has been one of the best things that we’ve done in the state of New York.”
Senate Majority Leader Dean Skelos, R-Nassau County, also rejected the lawsuit.
“While it’s clear that this lawsuit has no merit, Senate Republicans are determined to protect the property tax cap for New Yorkers and their families,” he said in a statement.”

This is clearly a complex issue, as most budgetary issues are. However with our surface knowledge of the property tax cap and the budget crisis I ask:

Is making a small “investment of sorts” in a property tax cap protecting people from rising property taxes or is it a “people pleasing” political move?

How will this effect economic development? Surely more predictable property taxes would be a valued amenity to attract new talent and businesses to an area. But how a faltering school system and lack of public service will definitely turn people away.

Sources:

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