January 31, 2011

RE: AN ACT to amend the general municipal law, the education law and the municipal home rule law, in relation to establishing limitations upon school district and local government tax levies; and to repeal certain provisions of the education law relating thereto

S.2706 (Skelos)Governor’s Program Bill #1

MEMORANDUM IN SUPPORT

Unshackle Upstate, a bi-partisan coalition of over 80 business and trade organizations representing a growing group of 70,000 companies that employ more than 1.5 million people supports the enactment of this legislation. The bill caps the growth of the real property tax levies that may be imposed by local governments and school districts at 2% or 120% of the inflation rate, whichever is lower.

Unshackle Upstate supports this effort to directly address the crushing property tax problem faced by many New Yorkers.

New York State has the highest local taxes in America – 78% above the national average. High property taxes are one of the primary reasons that suburban and Upstate residents say the state has become unaffordable.

The property tax problem is particularly acute in the Upstate region, where the economy has been stagnant, and in the suburban counties around New York City, where home values are higher than elsewhere.

The need to address the problem of high property taxes is clear:

the median property tax in New York State in 2009 was $3,755, nearly double the national average;i

property taxes rose 73% from 1998 through 2008, more than twice the rate of inflation (which was 32% during that period);ii

the suburban communities around New York City pay some of the highest property taxes in the nation when measured in real dollars:

Top 10 Counties in Median Real Estate Taxes Paid, 2009

County State Median Real Estate Taxes Paid

Westchester New York $9,044Nassau New York $8,940Bergen New Jersey $8,708

Hunterdon New Jersey $8,671Rockland New York $8,542

Essex New Jersey $8,245Passaic New Jersey $7,939Morris New Jersey $7,904Union New Jersey $7,793

Somerset New Jersey $7,720

Upstate New York communities pay some of the highest property taxes rates in the nation when measured against home values:

Top 10 Counties in Median Real Estate Taxes Divided by Median Home Value, 2009

County State Median Real Estate Taxes as a % of Median Home Value

Monroe New York 2.89%Niagara New York 2.87%Wayne New York 2.78%

Chemung New York 2.61%Chautauqua New York 2.61%

Erie New York 2.60%Onondaga New York 2.50%

Camden New Jersey 2.50%Steuben New York 2.49%Madison New York 2.43%

This legislation will cap the growth of all property taxes, not just school property taxes. The fact is that all local property taxes in New York have increased at a rate higher than the rate of inflation:

Property tax rate growth in NYS

0.0% 2.0% 4.0% 6.0% 8.0%

Inflation

Counties

Cities

Towns

Villages

Schooldistricts

Fire districts

Average rate of increase,2002-2007

.

A Property Tax Circuit Breaker is Not the Answer

Proposals to address the property tax burden faced by New Yorkers are not new. New York Tax Law § 606 provides a circuit breaker for individuals with an income ceiling of $18,000, and maximum home and rent values of $85,000 and $450. Set in 1985 and unmodified since, New York’s program is eroding and provides relief to fewer and fewer residents each year. In 2006, for example, the median household income in New York was $51,384, the median home value was $303,400, and median rent was $875. § 606 of the Tax Law demonstrates that a major failure of a circuit breaker program is they shortly becomes ineffective.

A Property Tax Cap Will Not Undermine Public Schools

Massachusetts enacted “Proposition 2½” in 1980 in response to itsr high level of property taxation, which was then among the highest in the nation. Proposition 2½ has stopped the out-of-control property tax growth in Massachusetts. In the first 20 years following the passage of Proposition 2½, the per capita residential property tax levy dropped 1.6 percent, after adjusting for inflation. Since the enactment of Proposition 2½, Massachusetts dropped from 3rd nationally to 33rd on the measure of state and local tax burden.

Massachusetts’ success in managing its property taxes has not undermined the state’s public schools. Massachusetts’s experience suggests that New York, by adopting similar reforms, could significantly restrain tax growth without hurting educational outcomes.

The Hidden Costs of High Property Taxes

The effects of New York’s real property tax burden on homeowners are well documented and understood. What is far less understood is that New Yorkers are burdened by higher costs overall because of real property taxes. A study by the Fiscal Policy Institute demonstrates that the people of New York pay more for energy because of the State’s high tax burden.

The state’s electricity sector paid nearly $3.1 billion in property taxes for calendar year 2008. The corresponding figure in Texas for the same year was $1.018 billion, and for California it was $786 million. The property tax disparity is actually getting worse. Ad valorem assessments and taxes for California are expected to decline slightly in 2009 and remain flat or fall slightly in Texas, while the burden on New York’s industry increased by $180 million last year. iii

New York Needs a Property Tax Cap

Unshackle Upstate prefers that there be no increases in property taxes, but we recognize that a sensible, well-designed tax levy cap is the next best thing. A property tax “circuit breaker” would not do anything to slow the growth of property taxes. Further, a circuit breaker would only address some real property taxes, while consumers of electricity, and other goods and services will continue to pay hidden property taxes in the form of higher costs.

For these reasons, Unshackle Upstate supports the enactment of this legislation.

4830-6576-1800, v. 2

i The Tax Foundation Fiscal Facts #248, September 28, 2010 [http://taxfoundation.org/news/show/26742.html]ii Office of the State Comptroller, State of New York Financial Condition Report for Fiscal Year Ended March 31, 2009, @ 23. [http://www.osc.state.ny.us/finance/finreports/fcr09.pdf]iiiThe Public Policy Institute of New York State Short Circuiting New York’s Recovery, 2010 [http://www.ppinys.org/reports/2010/ShortCircuitingNewYorksRecovery.pdf]