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Commentary By E. J. McMahon

Gov. Paterson Turned His Back on Property Tax Cap

Cities, Economics, Economics, Economics, Education New York City, Finance, Tax & Budget, Pre K-12

A year ago this week, Gov. David A. Paterson announced his support for a broad cap on school property taxes across New York - the key recommendation of a tax relief commission chaired by Nassau County Executive Thomas Suozzi.

Paterson and Suozzi marked the occasion at a well-attended Albany news conference, surrounded by Long Island tax activists. Many wore Suozzi-supplied baseball caps labeled “74”, referring to polls showing that 74 percent of New Yorkers supported the effort to put a lid on school taxes once and for all.

What a difference a year makes.

After ignoring the subject for most of the legislative session, Paterson finally resubmitted his tax cap legislation last week. This time, however, the bill includes a gigantic loophole. Tom Suozzi, call your office: The governor has just traded your favorite baseball caps for a pile of headbands with a teachers union label.

The original cap wasn’t perfect, but it would have been effective enough to restrain property tax growth below the recent long-term average. The total property tax levy in each school district could grow annually by no more than 1.2 times the inflation rate, or a maximum of 4 percent. Residents could vote to override the cap if they wanted to raise more money for a given purpose. Significantly, for the first time in New York’s history, voters in each district would also have the right to force an “underride” referendum, to further reduce taxes in any given year.

Modeled on Proposition 2½, the 1980 law that successfully limited property taxes in Massachusetts, the Suozzi Commission proposal would have broadly limited the ability of school districts to impose higher property taxes for any purpose - with the sole exception of capital costs already approved by voters.

The bill Paterson sent to the legislature last year - which was passed by the Senate in August - was virtually identical to Suozzi’s proposal. But this year’s version includes a new provision excluding the “local share” of school pension contributions from the cap. This is a huge carve-out; after all, in the wake of the 2007-08 market meltdown, pension costs are poised to become the fastest-rising component of school budgets, starting year after next.

This provision sabotages one of the prime purposes of the tax cap, which was to force state lawmakers to shoulder the full brunt of added costs stemming from their failure to enact pension reform and other mandate relief for school districts.

The only alternative property tax relief plan now on the table in Albany is an income-based “circuit-breaker” designed to numb the pain of high taxes for individual homeowners. Like the existing School Tax Relief (STAR) program, a state-financed circuit breaker would merely transfer more money from one group of taxpayers to another, without constraining spending - which is why it is supported by New York State United Teachers.

But a circuit breaker large enough to generate significant savings for most homeowners would cost the state billions of dollars, adding further to a state tax burden that Paterson and the legislature just increased by record amounts under the 2009-10 state budget. This would also shift even more of the remaining local school tax burden to commercial property owners - further dampening economic growth and job creation as New York struggles to emerge from the recession.

Although Paterson has fatally undermined his own bill, the Suozzi Commission’s original tax cap proposal - ideally with a lower annual inflation target - remains an essential starting point for lasting property tax relief in New York.

Paterson himself did a good job of framing the political challenge when he first embraced the cap last year. He asked, “Are we in public office willing to listen to those who we serve and take action, or will we delay action simply because it requires hard choices?”

Unfortunately, as far as the governor is concerned, we now have our answer.

This piece originally appeared in Newsday

This piece originally appeared in Newsday