Local Taxes in New York: Easing the Burden Citizens Budget Commission Conference December 6, 2007 Held at the Rockefeller Institute, Albany, NY

2 I. New York’s Tax Burden is High and Inequitable II. State Policies Result in High Local Tax Burdens III. State Leaders Have Tried to Address the Local Tax Burden IV. Options for Local Tax Relief

3 New York’s Combined State and Local Tax Burden is the 2 nd Highest in the Nation.  While state taxes are in line with national norms, local taxes are 79 percent higher than the national average.  New York’s state and local burden is 26 percent higher than all other large and neighboring competitor states.

4 New York’s Comparative Tax Burden

5 Even without New York City, New York’s local tax burden is 32 percent higher the next highest state. New York City’s local tax burden is $94 per $1,000 personal income – more than double the national average. New York City’s local tax burden is $94 per $1,000 personal income – more than double the national average. The local tax burden outside the City is $72 per $1,000 personal income – 58 percent above average. The local tax burden outside the City is $72 per $1,000 personal income – 58 percent above average.

6 Despite state education aid, a district’s tax base – wealth and income – largely determine local tax effort and spending per pupil. Local school tax efforts are inequitable.

7 Property tax rates are 45 percent higher upstate than downstate (outside NYC). Property values in downstate counties increased 5 times faster than in the upstate counties from 1995 to Upstate counties increased property taxes only 28 percent from 1995 to 2005, yet have been unable to lower property tax rates.

8 State Laws Result in High Local Tax Burdens  Labor and Medicaid costs are the biggest cost drivers for counties.  New York has more local governments than competitors and more school districts than the national average.  New York employs more local government workers and pays higher wages than national averages.  State labor and pension laws undermine local control of labor costs.

9 Labor and Medicaid costs are the biggest cost drivers for counties. Police expenditures rose 83 percent and were the # 1 driver of county expenses. Medicaid costs grew 72 percent over the previous decade and were the # 2 driver of county expenses. Counties have increasingly turned to sales tax revenues to fund expenditures.

10 New York has 84 percent more local governments per capita than NJ and CT and 16 percent more school districts per capita than the national average.

11 New York employs 23 percent more local government workers per capita and pays wages 30 percent higher than national averages.

12 The State’s Taylor Law and PERB undermine local control of labor costs. Arbitration does not emphasize ability of the employer to pay. Settlements are often based on unions in neighboring districts or patterns established by other settlements. Some unions (e.g. NYC police) “choose” to go to PERB. Arbitration does not emphasize ability of the employer to pay. Settlements are often based on unions in neighboring districts or patterns established by other settlements. Some unions (e.g. NYC police) “choose” to go to PERB. Local governments may also “choose” not to bargain to avoid the responsibility for large settlements. Local governments may also “choose” not to bargain to avoid the responsibility for large settlements. The Triborough Amendment extends expired contracts until new contract reached – takes pressure off unions and management to settle before expiration of old contract. The Triborough Amendment extends expired contracts until new contract reached – takes pressure off unions and management to settle before expiration of old contract.

13 State Leaders Have Tried to Address the Local Tax Burden.  School Tax Relief (STAR)  Property Tax Rebates  Medicaid Cap  Foundation Aid for Schools  Government Consolidation

14 STAR is poorly designed tax relief and state aid. STAR motivates school districts to increase spending – also impacts commercial property tax rates. STAR motivates school districts to increase spending – also impacts commercial property tax rates. STAR is poorly targeted state aid. STAR is poorly targeted state aid. Exemption is based on county property wealth. The three wealthiest counties in New York received 42 percent of STAR aid in fiscal year Exemption is based on county property wealth. The three wealthiest counties in New York received 42 percent of STAR aid in fiscal year Does not include renters (except in NYC) or commercial property. Does not include renters (except in NYC) or commercial property.

15 STAR would provide greater relief to less wealthy districts if allocated as state education aid.

16 Property tax rebates are better targeted but embody same equity flaws as STAR. Limiting the Middle-Class rebate to households with less than $250,000 is positive first step. Limiting the Middle-Class rebate to households with less than $250,000 is positive first step. But, rebate provides greater relief to districts in wealthier counties. But, rebate provides greater relief to districts in wealthier counties. Maximum rebate varies from $250 in Buffalo to $809 in Scarsdale. Maximum rebate varies from $250 in Buffalo to $809 in Scarsdale.

17 Other State measures to address local taxes are a move in the right direction. Medicaid Growth Cap Medicaid Growth Cap The 3 percent local growth cap eases the county tax burden, but does not address existing inequities from deriving funding for an assistance program at the local level. The 3 percent local growth cap eases the county tax burden, but does not address existing inequities from deriving funding for an assistance program at the local level. Foundation-Based School Aid Foundation-Based School Aid New formulas base state aid on local tax efforts, but hold harmless provisions and increased aid for high-tax districts resulted in $329 million for 304 districts that should not have received aid increases under the new formulas. New formulas base state aid on local tax efforts, but hold harmless provisions and increased aid for high-tax districts resulted in $329 million for 304 districts that should not have received aid increases under the new formulas. Shared Services and Consolidation Efforts Shared Services and Consolidation Efforts Commission on Local Government Efficiency and Competitiveness will report recommendations next April. Commission on Local Government Efficiency and Competitiveness will report recommendations next April.

18 Options for Local Tax Relief  Cap Local Taxes  Make Local Tax Burden Equitable  Reduce Local Cost Drivers

19 The State could impose tax caps to limit tax collections. Tax caps will slow growth of tax burden, but… Caps are undemocratic and artificially limit residents’ demand for public services. Caps are undemocratic and artificially limit residents’ demand for public services. Caps affect lower income communities more adversely than wealthier ones. Caps affect lower income communities more adversely than wealthier ones. Caps may be circumvented, putting other problematic burdens on taxpayers. Caps may be circumvented, putting other problematic burdens on taxpayers.

20 New York should create a more equitable local tax structure. New STAR funding could be converted into an expanded circuit breaker program. The State could assume local Medicaid costs. The State could assume local Medicaid costs. New York could base education aid entirely on local school tax efforts. New York could base education aid entirely on local school tax efforts.

21 New STAR funding could be converted into an expanded circuit breaker program. Circuit breakers target relief to low-income households whose property taxes increase faster than incomes. Lower income households spend greater share of income on housing costs. Renters can be easily included.

22 The State could assume local Medicaid costs. Increase/(Decrease) in Per Capita Taxes Counties With Increased Per Capita Taxes New York City Rest of State Total Increase Above $100 per capita Including NYC ($242)$ Excluding NYC NA$073 If funded with across-the-board state personal income tax increase…

23 New York could base education aid entirely on local school tax efforts. 104 school districts would gain $1.2 billion in state aid and reduce local taxes $489 million. The State would reduce aid to wealthy districts $813 million.

24 The State could address other local cost drivers. Reduce Medicaid Expenditures Reduce Medicaid Expenditures Local savings of $748 million Local savings of $748 million Pension Benefit Reforms Pension Benefit Reforms Defined contribution system Defined contribution system Restructure benefits for new hires Restructure benefits for new hires Revise Framework for Collective Bargaining Revise Framework for Collective Bargaining More timely process More timely process Alter arbitration criteria and constraints Alter arbitration criteria and constraints Adopt another model of negotiations, for example last-best Adopt another model of negotiations, for example last-best Additional Consolidation Initiatives Additional Consolidation Initiatives Small school districts - $241 million in savings for schools under 900 pupils Small school districts - $241 million in savings for schools under 900 pupils Property assessing units Property assessing units