TAX RELIEF & ECONOMIC DEVELOPMENT

KAPLOWITZ 2010 | TAX RELIEF & ECONOMIC DEVELOPMENT

Delivering Meaningful Tax Relief to New York’s Individuals and Businesses

I. PROPERTY TAX RELIEF

Property taxes across New York State have reached unsustainably high levels, cutting

deeply into the bottom lines of individuals, families and businesses, and stunting our

economic growth. From 1998 to 2008, local property taxes in New York grew by 73

percent, more than twice the rate of inflation in that period.1 Excluding New York City,

property taxes per capita are $1,634 – 73 percent above the national average.2 Closer to

home, in absolute dollars, the level of property taxes for an average household in

Westchester County is ranked highest in the nation.3 Westchester and Putnam Counties

are also both listed in the top ten highest taxed counties in the nation as a percentage of

household income.4 Whether it is property tax amounts, property tax rates or property tax

as a percentage of household income, residents in the 40th State Senate district pay some

of the highest property taxes in the country. What is worse, not only is this property tax

burden exceedingly high and rising quickly, but it is also increasingly unaffordable. The

growth rate in property tax levels far exceeds the growth rate of wages in New York.

While property taxes have increased by a total of approximately 54 percent since the year

1
NYS Office of the State Comptroller, Financial Condition Report 2009, available at
http://www.osc.state.ny.us/finance/finreports/fcr09.pdf.
2
NYS Commission on Property Tax Relief, Final Report 2008, available at
http://www.cptr.state.ny.us/reports/CPTRFinalReport_20081201.pdf
3
See Francesca Levy, “Where Americans Pay Most in Property Taxes” Forbes (January 15, 2010),
available at http://www.forbes.com/2010/01/15/propertytaxes-high-lifestyle-real-estate-counties-
assessmenttaxes.
html.
4
NYS Commission on Property Tax Relief, Final Report 2008, pg. 22.

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2000, wages have only risen by about 26 percent.5 This clearly underscores how

unaffordable property tax bills have become for the average New York family. Rising

property taxes also create a competitive disadvantage for New York’s businesses,

encouraging them to flee the state and discouraging out-of-state businesses and new

industries from locating here. Unsurprisingly, no issue is more important to the residents

of the Hudson Valley than reining in this unaffordable tax burden.6

Victims of Unsustainable Property Tax Levels

 Low-Income Households – the regressive nature of our property tax system

unfairly shackles low-income homeowners and renters; those among us with the

lowest incomes are most likely to pay the highest percentage of their income in

property taxes.

 Seniors on Fixed Incomes – Many seniors, who made the decision to buy their

house perhaps decades ago, are now victimized by property tax bills that have

practically doubled every ten years. Those who are “house rich, income limited”

face a disproportionately high property tax burden.

 Small Businesses – small businesses are extremely sensitive to overhead costs,

and property taxes represent a huge slice of these costs (whether directly, or

5
Ibid, pg. 24.
6
Important Note: New York is an average tax state when looking only at state taxes (i.e. it is only once we
include local taxes that our overall tax rate becomes disproportionately high compared to other states). In
fact, New York taxes per $100 of personal income actually declined from $7.39 in 1977 to $7.01 in 2007.
New York’s state tax rank declined from 10th highest in 1977, to 21st highest in 2007. And finally, New
York’s tax burden as measured by the ratio of state taxes to income was only one cent above the national
average in 2007. See, 2010-11 Executive Budget, Economic and Revenue Outlook, available at
http://publications.budget.state.ny.us/eBudget1011/ExecutiveBudget.html.

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indirectly through rent). For many businesses, large and small, the property tax

represents the largest business tax (and, in contrast to the corporate franchise tax,

property taxes must be paid even when the business is losing money).

Excessively high property taxes, and sharp increases from year to year, greatly

hamper the competitiveness of New York’s business community.

 Middle-Class Wage-Earners – Individuals and families trying to get by on an

average wage, including our nurses, service workers, construction workers and

first responders, rarely see their incomes double in a decade. They are fortunate if

their incomes rise 3 to 4 percent per year, while tax growth can equal over 7

percent per year.

 Young Families – Young families and first-time home buyers are forced away

from too many homes in too many good school districts because they are

unaffordable.

 New York State as a Whole – Due in great part to New York’s crushing tax

burden, many people are leaving the state to find better jobs or a lower cost of

living elsewhere. This further depletes New York’s tax base a drives tax rates

even higher for those residents that remain, resulting in a negative feedback loop

of economic stagnation and decline.

Why are Property Taxes so High?

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When evaluating New York’s colossal property tax burden, it is important to note that

school property taxes represent the greatest share of the property tax levy. In fact,

outside of New York City, school property taxes amount to 62 percent of total property

taxes.7 School district tax levies are also increasing at a much swifter pace than the other

categories of local taxation, though it is unclear whether this growth is warranted. It is

telling that property tax collection by school districts rose 31.8 percent from 1993-2006,

while student enrollment grew by only 4.8 percent over the same period. 8 What is clear

is that any comprehensive effort to provide New York homeowners with meaningful

property tax relief will require a close examination of the factors driving our education

spending to new heights each year.

New York spends more per student on primary and secondary education than any other

state - an estimated $18,768 per pupil in the 2008-09 school year.9 The growth in New

York’s education spending is also comparatively high; New York’s per pupil spending

from 1999 to 2006 increased at a compound annual growth rate of 6.6 percent,

substantially higher than the national average of 4.8 percent.

Providing a world-class education to every student will continually be a top priority for

state lawmakers. But as Alan Lubin, former Executive Vice President of New York State

United Teachers, stated aptly, “it’s not whether we pay for education; it’s whether we pay

wisely for education.”

7
Total property taxes have four components; school taxes (62 percent), county taxes (17 percent),
municipal taxes (14 percent) and special district taxes (7 percent).
8
Nelson A. Rockefeller Institute of Government, The Property Tax in New York State – Condition Report
prepared for the Education Finance Research Consortium, December 2008.
9
This figure excludes school districts in New York City and the four other cities with dependent school
districts.

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Local governments face cost pressures as well that drive up their portion of the property

tax bill, and this can be attributed to the complex web of 10,000-plus local government

entities throughout the state, all with separate and distinct taxing authority. It is no

wonder property taxes have increased unabated with such a superfluous arrangement.

Unfunded mandates imposed by the State have profound fiscal implications for local

governments, and certain contracting and procurement regulations unnecessarily impede

local governments’ ability to capture potential cost savings.

Reining in Education Spending

Controlling our education spending must be a central component of any long-term

property tax relief strategy. While New Yorkers remain committed to generously

funding our children’s education, we are also frustrated with government mandates that

drive up costs. Some solutions to mitigate unnecessary school costs include10:

 Permit schools to engage in shared transportation services and “piggyback”

contracts - this would allow school districts to share certain service contracts,

such as private transportation contracts for pupils outside of the district.

 Mandate Review Process – increasing transparency and feedback in the

Education Department’s proposed regulations so that local concerns are heard

and fiscal impacts more carefully considered.

10
A more detailed discussion of potential cost savings to be realized in education can be found in the
following chapter entitled “Restructuring State Government.”

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 Pre-Kindergarten Flexibility – provides flexibility in the use of pre-kindergarten

funds so that programs can use otherwise unspent money on needed expenses

like pupil transportation.

 Paperwork Reduction – working with, and if needed, requiring the Education

Department to create an electronic filing system to eliminate duplicative

requirements that waste time, money and natural resources.

 Wicks Reform for School Districts – Outdated contract requirements for public

works projects drive up costs and unnecessarily delay project completion. By

repealing the Wicks Law and relieving these administrative hurdles for school

district construction projects, $200 million in capital costs could be saved.

Reducing Local Government Costs

Governor Paterson proposed a four-year moratorium on unfunded legislative mandates as

part of his 2010-11 budget to help keep property taxes down and ease the burden on local

governments during an unprecedented fiscal crisis. The Governor also proposed long

overdue reforms to the Wicks Law to lift contracting restrictions that increase costs for

school districts and property taxpayers. In total, the Governor's mandate reform agenda

included more than 100 mandate reform initiatives that are expected to provide savings to

local governments of nearly $1 billion over the next three years, with the potential for

billions of dollars in savings in future years. Along with a series of statutory initiatives,

many of the Governor's reforms are the result of the Executive Order No.17 mandate

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review process led by his Office of Taxpayer Accountability. As State Senator, Mike

Kaplowitz would strongly consider these and other major reforms, including:

 Pension Reform for Public Employees – Pension systems are crippling states’

budgets across the county, and New York is no exception. We need to

reevaluate our benefits system, and should seriously consider converting to a

defined-contribution system and modifying post-employment health benefits.

 Moratorium on Unfunded Mandates - Legislative proposals and proposed

regulations must undergo thorough fiscal impact analyses to ensure that they

do not have a hidden fiscal impact that will force local governments to bear a

greater burden, and there must be a transparent process that involves local

governments in assessing legislative and regulatory impacts. Right now the

Governor has imposed an executive order that requires executive agencies to

undergo an evaluation process in considering the fiscal impact of proposed

regulations; this does not affect the Legislature or Education Department or

Judiciary, and is only valid if the Executive Order is retained by the next

governor.

 Increase Procurement Thresholds for Local Governments - Chap. 494 of 2009

permitted the increasing of the public works contract competitive bidding

threshold from $20,000 to $35,000. This threshold was not previously

changed since the early 1990s, and increasing the threshold for service and

purchase contracts would provide localities with more flexibility to use

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competitive bidding and save costs – Mike Kaplowitz will build on proposals

to increase the public services threshold to $50,000 and doubling the purchase

contracts threshold to $20,000.

 Shared Services & Local Government Piggybacking - Chap. 494 of 2009 also

permitted localities to share some transportation maintenance costs with the

State Department of Transportation, and allowed the shared use of many

public health officials. This concept should be expanded to other fields where

officials have overlapping roles in the same regions, pooling resources and

mitigating risk. Proposals include: shared, secure medical facilities in men’s

and women’s correctional facilities, allowing shared justice court facilities,

consolidation of local districts and justice courts, and consideration of whether

school administrators from smaller districts can assist other smaller schools or

districts in the same area.

 Permitting Electronic Court Appearances – By expanding the electronic filing

of legal documents (such as pre-sentence investigations forms) and using

teleconferences to make court appearances electronically, we can substantially

reduce transportation and overtime costs for corrections officers.

Alleviating County Government Tax Burden

County taxes represent approximately 17 percent of the overall property tax burden for

households, and finding cost efficiencies at the county level is also of vital importance in

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order to successfully reduce the overall cost of government and deliver meaningful

property tax relief.

One area of spending where considerable savings could be realized is in the Medicaid

program. Across the State, growing Medicaid costs continue to place significant pressure

on local fiscal conditions. In Westchester County alone, Medicaid costs are expected to

rise from $204 million to $222 million by 2013.11

Based on his experience in the Westchester County Legislature, Mike Kaplowitz

understands the challenges that counties face in administering the state’s bloated

Medicaid system, and will be an effective advocate for reform. The end-goal will be a

full state takeover of the Medicaid program to provide immediate cost relief to county

governments, while at the same time allow the state to streamline oversight and service

delivery to better control costs. Alleviating this significant cost driver will provide

county governments with the fiscal relief needed to sustain property tax reductions.

Property Tax Cap & Circuit Breaker

While cost containment strategies at every level of local government (county, municipal

and school district) will allow for a more manageable property tax burden in the long

term, relief is needed immediately. In order to achieve short term relief, the State must

simultaneously institute a property tax cap to limit the growth in tax levies year over year

and a circuit breaker model to tie a household’s property tax burden to annual income.

11
http://www.westchestergov.com/pdfs/SOC2010_CEremarks.pdf

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In contrast to the types of relief already discussed, property tax caps seek to limit the

aggregate amount of property tax collected. A tax levy cap is the first of several steps in

reining in property tax increases. This would limit the amount by which the total

property tax can increase from year to year. According to the National Tax Journal,

which surveyed the continental 48 states in 2006, 43 states have some form of limitation

on real property taxes. Twenty-nine states have a tax levy cap, and at least 15 allow

voters to lift, at least temporarily, or override, this cap.12

As State Senator, Mike Kaplowitz would advocate for the implementation of a property

tax levy cap. The levy cap would be set at 120 percent of the consumer price index or 4

percent increase, whichever is lower. This is the same formula that is applied to the

current school district contingency budget that goes into effect when school budgets fail

to pass. This formula would limit property tax increases to manageable levels and allow

flexibility for inflation.

Despite the many virtues of a property tax levy cap, it only limits future growth and does

nothing to actually reduce tax rates down to manageable levels. This is why any tax cap

must be accompanied by a circuit breaker formula to directly tie property taxes to the

adjusted annual income of homeowners, not merely the value of their property. The

fundamental premise of a circuit breaker is to effectively target property tax relief to

those homeowners who need it most. Such a design can be accomplished by restoring

and enhancing the STAR program and incorporate a circuit breaker element. circuit

breaker concept is not new - current Tax Law has a low-income Real Property Tax
12
Final Report, Commission on Property Tax Relief (2008); pg. 66.

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Circuit Breaker for New Yorkers earning under $18,000.13 Nevertheless, this basic level

of relief is not nearly substantial enough to provide the relief that is needed, especially in

the lower Hudson Valley.

Legislation is needed that will establish a circuit breaker in the form of a state personal

income tax credit.14 Specifically, Mike Kaplowitz's proposal would call for a tax credit

against your state personal income tax equivalent to 70 percent of the amount of your

property tax bill that exceeds a certain percentage of your annual income. This "certain

percentage" varies depending on your annual income. For example, If your annual gross

income is $120k or less, once you property tax bill exceeds 7 percent of your income, the

circuit breaker activates and you would receive a tax credit equivalent to 70% of the

amount by which your tax bill exceeds that 7 percent figure.

For example, let's assume your annual income is $67,000. Once your property tax bill

exceeds $4,690 (7% of your income), the circuit breaker activates. Now, for every dollar

in property tax you pay above $4,690, you will receive 70% back in the form of a state

income tax credit. So, if we assume your property tax bill is $11,500, you would get 70%

of $6,810 ($11,500 - $4,690) back. That's a tax credit of $4,767, and a savings of over 41

percent.

13
Bills have been introduced that would raise the income levels the Real Property Tax Circuit Breaker,
including S.4154 (Montgomery) and S.3728 (LaValle).
14
Designing a circuit breaker as a tax credit on one’s state personal income tax liability has the ancillary
benefit of still exposing property taxpayers to the increases in their local tax levy each year, thereby leading
them to consider more carefully their position on school budget increases and other local budget matters. If
the credit was merely applied to their property tax bill, it would disguise the true tax increases from the
homeowner, and would fail to give that taxpayer and accurate picture of local spending growth.

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These principle recommendations will be very effective in controlling property tax levies

and delivering much needed relief to those families most in need. Again, these

recommendations include:

 A property tax levy cap;

 A restored and enhanced STAR program incorporating targeted tax relief

via a circuit breaker model; and

 An aggressive cost containment strategy to reduce the cost drivers that

have steadily increased expenses at the municipal, county and school

district level.

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