New York Tax Cap Falls Under One Percent

Jul 22, 2015

In 2011 New York passed a law imposing a limit on increases in the property tax.  The cap for 2016 will be less than 1 percent and some officials worry that could severely restrict local services.

New York’s property tax cap is set at the rate of inflation or 2 percent, whichever is less.  Comptroller Thomas DiNapoli notified local governments Monday that newly released Consumer Price Index data is down and that means local governments must adjust their tax cap to 0.73 percent, which is a significant reduction over prior years.   DiNapoli explained that it will affect communities with calendar-based fiscal years, including counties, town, fire districts, villages and many cities.   “In some communities it might very well mean having to cut back on some services, perhaps not fill certain positions, put off some capital projects.  What we’ve seen in many communities is they’ve been able to comply with the tax cap because they’ve been expending their fund balance or they have reserves that have helped them still provide the services they would like to provide without exceeding the cap. But as time has gone on you’ve seen many communities’ fund balance, that rainy day fund however you want to describe it, has become smaller and smaller. So I do think you’re going to see some tough choices at the local level.”

New York State Association of Counties notes that the State Department of Taxation and Finance second quarter sales tax revenue report issued last week showed dozens of counties experiencing reductions in sales taxes and reduced revenues during the first six months of the fiscal year.  Deputy Director Mark LaVigne calls the lower tax cap an additional and significant limitation on localities.  “It’s a good thing for taxpayers but it’s going to put a squeeze on local governments and counties across the state. Before we spend any local tax revenue on local programs we have to pay for nine mandates that consume over $12 billion a year. So what we’re going to see as a result of this limit on the property tax levy is continued erosion of reserves and cuts.”

Plattsburgh Mayor James Calnon says his office was aware a lower tax cap rate was coming, but expected it to be approximately 1-and-a-quarter percent.  Calnon finds a less than 1 percent cap particularly difficult to deal with.  “For us the biggest issue is that it wavers all over the place. The high which was the first year of the cap, because the retirement rates were rising so high, we actually were allowed to raise our taxes 5.44 percent that year.  Now we’re down looking at 1 percent.  How do you make long term plans when you have no idea of what your taxing ability is going to be? And that might not be as serious an issue if all the rest of our revenue sources would also rise and fall with the Consumer Price Index.  But they don’t.”

Calnon believes the tax cap system in New York is unfair.   “The Governor’s talking about the fact that they’ve been able to keep state expenses at 2 percent. Why does he get 2 percent and he’s giving us a figure that’s half that? We find this to be really limiting and I think not fairly applied.”

Local governments can override the tax cap by passing a resolution or local law with a 60 percent vote of the governing board, but a recent report by the comptroller showed just six counties overriding the cap this year.