Poison Pills for The Gov's Tax-Cap

While Gov. Cuomo stumped the state this week in support of (among other things) his proposed cap on local property taxes, Speaker Sheldon Silver said the Assembly would soon introduce its own version of a tax-cap bill -- one with “not too many” exceptions.

Unfortunately, it won’t take many loopholes to turn Cuomo’s cap into a sieve.

The governor’s bill (passed by the state Senate back in January) would limit the growth in property-tax levies to 2 percent or the rate of inflation, whichever is lower. Taxes needed to support voter-approved capital expenditures would be excluded from the cap; New York City and school districts in the next four largest cities would be exempt.

Now, suppose Cuomo’s phone rings later today with an offer from Silver to pass a cap with just two more exceptions: one for employee pensions, one for employee health-insurance premiums. The governor’s best possible answer could be summed up as a loud click, followed by a dial tone.

The rise in teacher-pension costs alone could be enough to boost school-tax levies by 3.5 percent a year from now to 2015. And data from the state Conference of Mayors indicate that city and village tax levies would have to rise more than 8 percent a year just to keep pace with projected hikes in pensions and benefits.

A 2 percent “cap” that yields tax hikes closer to 10 percent would hardly be worth the effort.

It doesn’t help that New Jersey Gov. Chris Christie unwisely agreed to similar loopholes in exchange for a 2 percent tax cap in his state last year. But Christie at least wants to equip local officials with a “tool kit” for mandate relief, including pension reforms and limits on sick-leave payouts to government workers.

Cuomo, by contrast, has yet to offer any significant mandate-relief proposal. So localities faced with a tight new spending cap would also be left to cope with the cost-inflating effect of state laws such as the so-called Triborough amendment, which lets employees collect longevity pay hikes even after a union contract expires. That provision costs school districts outside New York City nearly $100 million a year.

Public-employee unions, chief beneficiaries of New York’s high-tax status quo, are leading the opposition to both the tax cap and mandate relief. Meanwhile, local officials worry -- understandably -- that they lack sufficient flexibility to manage their own employee costs within the cap.

Westchester County Executive Rob Astorino, a first-term Republican and tax-cap supporter, asserted last week that a tax cap without mandate relief would be “a sham.” Noting that Silver may try to add exceptions, Astorino added: “I find it hard to root for the Assembly, but I might this time.”

His frustration speaks volumes, but it misreads Albany dynamics. Even if Cuomo supplements the tax cap with a strong mandate-relief bill, Silver will remain the biggest obstacle to its passage.

Cuomo’s tax cap is an essential catalyst for the changes in state mandates that local governments and school districts have futilely sought for decades. If a tight property-tax cap produces the draconian service cuts some local officials predict, it would ratchet up pressure on the governor and Legislature to finally do something about laws that drive up local costs.

(Anyway, city councils, town boards and county legislatures could override the 2 percent limit by a 60 percent majority vote if they felt essential services were threatened.)

The really significant innovation in Cuomo’s bill would affect school districts, where the annual vote on proposed budgets would be replaced by direct referendums on tax levies. School boards would have two chances to win approval of any tax hike; if higher taxes were rejected twice, taxes would be frozen.

If there’s any exception Cuomo should consider, it would be to allow for added property taxes generated by new construction, consistent with the approach of Massachusetts’ Proposition 2½ cap. Otherwise, local officials would face a perverse incentive to oppose economic development, since it won’t generate extra taxes but could generate added demand for services.

Given what really matters to the Assembly speaker, negotiations on the tax cap will warm up as the mid-June deadline approaches for renewing New York City’s rent-control laws.

In the meantime, the governor might want to have someone pre-screen his calls from the Assembly.

This piece originally appeared in New York Post

This piece originally appeared in New York Post