ALBANY – New Yorkers in the coming months will be hit with smaller increases in their property tax bills thanks to the nation’s declining inflation rate.
That is good news for taxpayers, but the situation has counties, cities, towns, villages and school districts growing increasingly concerned as they look at lower-than-projected revenues to pay for government services, state-mandated programs and contractual salary hikes for public employees.
Driving the slowdown in what localities can levy in property taxes is a clause in the state’s property tax cap law that few people even noticed when it was passed in 2011. The statute states that a local government entity can annually increase its total property tax levy only by 2 percent or the inflation rate, whichever is lower.
In the first two years of the law’s implementation, the 2 percent level was used because the Consumer Price Index had inflation running above 2 percent. But with inflation falling, so, too, is the limit that New York sets for determining the final property tax cap.
Next week, the state comptroller’s office is expected to notify those local governments that operate on a calendar year fiscal cycle – all counties, towns and most cities in the state – that the cap for the first time will no longer be 2 percent but 1.66 percent.
It might sound like a minor change percentage-wise, but it could be worth, by one source’s estimate who spoke to The Buffalo News on condition of anonymity, more than $40 million extra for taxpayers across New York when their county, town, fire district and other local property tax bills are sent in January. And it will be worth far more when schools get their inflation information next year.
“This is a good news/bad news scenario,’’ said Mark LaVigne, deputy director at the New York State Association of Counties, a bipartisan group in Albany that represents all the state’s county governments.
Property taxes will be lower than they might have been. “The bad news,” LaVigne said, “is that state-mandated costs are rising faster than inflation, with no short-term structural relief in sight. That means that counties will have two choices: they can cut local programs, services and jobs, or they can vote to exceed the cap.”
Counties have not yet been formally told of the precise inflation formula number. Erie County officials said Friday they were unaware of the situation and that it is premature to discuss possible impacts of a lower tax cap.
For taxpayers, the cap formula will have an even larger impact on school districts because they are the leading recipient of property taxes across New York.
The current year school budgets, which taxpayers will pay for in their September property tax bills, have already been set using a 2 percent cap, before various exemptions are added in. But when schools start crafting their 2014 budgets next spring, the inflationary rate factor used to determine the property tax cap levy is expected to drop even further below the 1.66 percent level counties, towns and cities are about to face.
School officials, who have laid off teachers and cut classroom and after-school programs in recent years, say the tax cap’s impact is about to worsen, thanks to the inflation rate clause.
“It’s going to be a big concern for school districts,” said Barbara Bradley, a spokeswoman at the New York State School Boards Association.
On Friday, the conservative estimate by the association of counties group is that the one-third of 1 percent drop in the inflation rate calculation below the 2 percent level will be worth more than $120 million statewide – either in the pockets of taxpayers or not in the coffers of localities, depending on one’s outlook. And that estimate assumes the inflation rate will not drop by the time schools do their budgets next year, an assumption few in Albany are making.
One likely response is that more local governments will move to override the cap. For schools, that takes a vote of at least 60 percent by a district’s voters. For other local governments, it takes at least 60 percent of the votes from a governing body, such as a county legislature.
This past year, 18 out of 57 counties outside New York City approved budgets overriding their cap level, though only half of those ended up actually exceeding the cap, according to the county association group.
Schools, which have to go directly to residents to exceed the cap, did so more reluctantly; of the nearly 700 districts, only 28 districts sought to override their cap levels. Ten of them passed.
It is, according to local assessors, all but impossible at this point to determine what the declining tax cap will mean for individual taxpayers.
That’s mostly because the cap is on the total tax levy that a locality can charge all its taxpayers. And for a variety of factors, residents in one part of town could see a 2 percent rate increase while elsewhere in the same town a homeowner could get a tax increase double or triple that percentage.
And it is different from community to community, where different equalization and assessment rates are used to help determine a property tax levy.
Moreover, as things tend to go in Albany, the 2 percent annual cap on the growth of a local government’s property tax levy is not really 2 percent. That’s because a number of exemptions were placed into the law keeping them from being included in the formulation of the cap level, such as if a community’s property tax wealth level is rising.
Also not included are such expenses as school construction costs paid for by local districts, big court awards or increases in contributions by localities to public employee pension programs.
As a result of all those exemptions, the 2 percent cap in the first two years of the program really ended up averaging about 3 percent across the state, officials in the state comptroller’s office said.
The use of 2 percent in the formula to determine the final tax levy has actually already started falling, though only a relative few governments have been affected.
But the numbers tell the declining inflation story. Two governments that operate on an Aug. 1 fiscal year start – Lackawanna and Rensselaer in Rensselaer County – were given a 1.96 percent inflation growth factor to use when crafting their budgets.
Those localities with an Oct. 1 fiscal year start, such as many libraries, were told to use a 1.79 percent growth factor. That dropped to the 1.66 percent level for counties and towns with a Jan. 1 fiscal year start.
The inflation growth formula is determined by using the Consumer Price Index of U.S. urban areas and is looked at over two consecutive 12-month periods ending six months before the fiscal year start of a local government in New York.
The fiscal problems affecting local governments, from cities to counties, have been attracting more headlines across the state the past couple of years.
Local officials say Albany has not been aggressive enough in helping to control state-mandated services or programs while at the same time it ordered localities to live under a new property tax cap structure.
“The reality is at some point, there will be nothing left to cut at the county level. The time has come for the state to provide mandate relief and reform the way they deliver and fund their programs,” said LaVigne, the official with the group representing counties.