A Property-Tax Cap to Reform Education Funding: It’s Now or Never

December 14th, 2010

By Brian Backstrom

The central issue affecting local education financing is Governor -elect Andrew Cuomo’s proposal for comprehensive property-tax limits, the most sweeping limits on local education revenue in recent memory (here).  Specifically, Cuomo would cap the annual growth of all local property taxes levied by local governments and school districts to the lesser of the rate of inflation or 2 percent.   The plan would require a super-majority of 60 percent of the local legislative body (i.e., county legislature, school board, town council) to exceed this cap.  The Cuomo property tax cap, if enacted by the state legislature, will transform local finances—particularly for school districts—for years to come.

New York’s High Property Tax Burden

The Governor-elect’s plan underscores the substantial property-tax burden faced by residents of New York, rates that drive the highest local tax burden in the nation and one that is 79 percent above the national average.  If you exclude the relatively low tax burden in New York City (which has a huge commercial tax base), New Yorkers are burdened with property taxes nearly double the size of the national average.  From 1998 to 2008, local property taxes in New York increased by 73 percent, more than double the inflation rate.  And local school spending – the largest contribution component to these sky-high property taxes – is climbing at similarly unrestrained rates.

Public Education Most Effected

Because school taxes comprise the vast majority of local property taxes, public education financing will be at the center of the debate on any plan to cap property taxes.  The grumbling from New York’s teacher unions, school boards, and school district officials has started even before the Governor-elect has taken the oath of office.

Cuomo’s plan comes with some proposals to reduce school district expenditures.  But more specifics are needed, and to effectively achieve real savings the reforms will need to include measures that have been sacred cows for the teacher unions, including such things as: repealing the “Triborough Amendments” that require labor contract provisions to continue even after contracts expire while new agreements are being negotiated; eliminating prevailing-wage mandates that substantially raise the cost of public-sector construction; and overhauling the public-employee retirement system to move from a massively expensive defined-benefit system to something such as a 401(k)-style system.  As always, the devil is in the details, and New Yorkers need to know that supporting something such as the toughest property-tax cap to come along also includes paths to fundamental school-finance restructuring that will allow such a tax cap to work.

Past Proposals: Tried and Failed

Decrying the property tax burden is not new.   Gov. Mario Cuomo regularly acknowledged the burden and tried some steps, including having the state assume a greater share of local Medicaid costs and appointing a commission on local government consolidation.  Gov. George Pataki got school taxes temporarily reduced through his STAR tax-cut program but, faced with legislative and teacher union opposition, he jettisoned his school tax cap proposal that would have blocked school districts from raising taxes back up – which they did.  Gov. Eliot Spitzer appointed a property tax commission but then summarily ignored the recommendation to enact a property tax cap.  Gov. David Paterson embraced the property-tax cap idea, embodied in a bill passed by the state Senate last summer that would have capped taxes annually at the lesser of 4 percent or 120 percent of the inflation rate, but the state Assembly gave in to teacher-union pressure and lobbying from local government groups and refused to act on the proposal.

Cuomo’s Advantages – and Challenges

The time may have finally arrived to enact long-lasting limits on property taxes that allow virtually limitless and unaccountable increases in school spending.  Andrew Cuomo will have several advantages over past efforts – as well as some new challenges – as he pushes his property tax cap proposal.

Cuomo’s property-tax cap plan was a central tenet of his gubernatorial campaign, an election won by a landslide.  Poll after poll (e.g., Siena Institute) shows strong support by the public for the plan, too.  And importantly, the legislature is poised to act favorably, as the Senate has already passed a version of this when the Democrats controlled that House, the new Republican majority supports the plan, and the Speaker of the state Assembly is sounding congenial for a deal – all of which is in sharp contrast to the Legislature’s past positions on the issue.

Winning approval of a school property-tax cap, however, will mean battling the powerful teachers unions, whose life-blood existence is the property tax.  Multi-million dollar media ads containing all sorts of hysteria and doomsday claims should be expected, along with direct-mailing campaigns in narrowly-held state legislative districts and old-fashioned threats (made publicly and privately) to the re-election of any legislator that supports the cap.

Yet, enacting a limit on school district taxing capabilities will not just mitigate tax burdens, but will force action on reform issues, including greater accountability, changing counterproductive union work rules, and focusing more limited resources into the classroom.  Such changes are worth the fight.

The newly elected governor, the dozen or so newly elected state legislators, and the new leadership in the state Senate are sure to see their political influence rapidly dwindle after their first year in office, as with most new politicians.  The level of influence over policy and politics and the ability to drive real local education financing reform is likely to never again be as strong as it will be in 2011.

That means it is now or never in New York State for enacting a property tax cap.

Brian Backstrom is President of the Foundation for Education Reform & Accountability and may be followed on Twitter at @nyedreform.

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