News from The New York State School Boards Association

May 26 , 2011
SPEAKER SILVER INTRODUCES TAX CAP



Yesterday Assembly Speaker Sheldon Silver introduced his version of a cap on local property taxes. Like the governor’s bill, the legislation would generally limit annual increases in the tax levy to 2 percent or the rate of inflation, whichever is less. Both Governor Cuomo and Senate Majority Leader Dean Skelos were quick to provide their support, with the only apparent outstanding issue being whether to allow for an expiration date, so that the legislature can determine if the measure is working. For school districts already reeling from the loss of state and federal aid, as well as a new annual cap on school aid and school STAR payments, a cap on local tax revenue will have profound repercussions to both educational programs and the staff that provide them.



Specific Provisions of A.7916 – Tax Cap Legislation



The new law would apply to all school districts serving populations of less than 125,000, meaning everyone but the Big 5 city school districts which are dependent on the city government for funding. The new law would apply to budgets voted on next May, for the 2012-2013 school year. The timing of budget votes and public notice requirements would stay the same.



TAX LEVY LIMIT. The Assembly bill outlines an equation to be calculated each year in order to determine the tax levy limit for each school district. Factors of the equation would include; taxes levied in the prior school year, payments in lieu of taxes, the allowable levy growth factor, the tax base growth factor, available carryover and tax levy exceptions.



Allowable Levy Growth Factor. This factor represents the tax cap to be imposed upon school districts. The allowable levy growth factor would be limited to the 2 percent or the rate of inflation, whichever is less.

Tax Base Growth Factor. The district’s tax levy would be allowed to grow modestly each year due to expansion of the tax base from either an increased assessment of existing property or from new development.

Available Carryover. Districts that have spending plans approved that are under the tax cap would be allowed to carry over the difference to the following year, up to 1.5 percent.

EXCEPTIONS. There are three exceptions which will not be capped by the tax levy limit, these exceptions would also be allowed in the case of a contingency budget (see below):



Court orders or judgments. Any amount arising from a tort case exceeding five percent of the total tax from the previous year would be exempt.

Pension Costs. The tax limit would have an exemption for increases in pension rates, in both the ERS and TRS systems, above 2 percentage points from the previous year. NOTE: NYSSBA is seeking specific clarification regarding this calculation.

Capital expenses. Capital expenses (building project bond payments) would also be excluded from the tax cap calculation under the plan.

OVERRIDE VOTE. The bill includes the ability to override the cap limit with a “supermajority” approval rate of 60 percent of voters. Local budget proposals that are either at the cap limit or under the cap limit need only a simple majority vote. The budget proposition on the ballot will still ask for a vote on the district spending plan, but if that plan exceeds the tax levy cap, the legislation dictates the ballot language that must be used. That required ballot language highlights the fact that the amount requested would be over the cap and that a 60 percent approval rate is needed for passage. Boards may put separate propositions on the ballot, but if the total of the budget and propositions exceeds the cap, 60 percent approval by voters would be required.



CONTINGENCY BUDGETS. Under the proposal, districts would be allowed a second vote following a failed budget, or the automatic adoption of a “no growth” budget, meaning that the district’s tax levy could be no more than the previous year. If the second budget vote also results in a rejection of the proposed budget, the school district would need to adopt a contingency budget which is the same as the “no growth” budget plan – not to exceed the prior year’s tax levy. The current contingency budget law would be amended under this proposal to reflect this change as well as to eliminate certain exemptions presently allowed under a contingency budget. Of course, total spending could increase if state aid increases.



REORGANIZED SCHOOL DISTRICTS. Two or more school districts who have reorganized will not be subject to the tax cap but instead will have a unique tax levy limit for the first year following reorganization as determined by the Commissioner of Education.



TRANSPORTATION. There is a transportation provision in the bill that would require voter approval if the district wanted to transport students for distances less than 2 miles for K-8 students and less than 3 miles for students in grades 9-12.



EXPIRATION. The Assembly version of the tax cap would “sunset” at the same time as rent control regulations in New York City, as Speaker Silver has tied the two issues together, stating that both laws are intended to keep housing affordable for all state residents.


NYSSBA ANALYSIS
Support by Governor Cuomo and Senate Majority Leader Skelos for the Assembly tax cap plan signals near inevitability of a tax cap on school district spending, although the deal is not yet done. This reflects the consistent support expressed by public opinion polls and would fulfill one of the governor’s most strident campaign pledges. Its timing could not be worse, coming on the heels of three years without an increase in state aid, the loss of federal school jobs funding, federal recovery stimulus funds and a state budget that caps future increases in school aid. Together, they create a new fiscal austerity for our schools that will recalibrate spending in the foreseeable future, at a time when schools face rising expectations for student achievement. Local school officials have always faced significant challenges, but these constraints will be stifling.



The proposal is likely to lead to a number of inequities, including the fact that districts with an expansive tax base would be able to raise hundreds of thousands of dollars for each one percent increase in the tax levy, while low wealth districts would raise much less under the same levy. High performing districts would also suffer, as the ability of the communities to support their schools at a higher funding level would require a supermajority override vote, certainly not a slam dunk. These inequities have been noted in Massachusetts following the Commonwealth’s passage of a tax cap. According to the Center on Budget and Policy Priorities:



Wealthier communities will override a tax cap more frequently than poorer ones. This has contributed to a growing spending gap between local governments in high-income communities and all other communities, despite Massachusetts’ progressive system of state aid. This is likely to occur in other states that implement a cap.

Massachusetts’ tax cap has exacerbated disparities between wealthier communities and poorer ones in access to quality local services, as many of the former have voted to override Proposition 2 ½’s revenue cap while the latter have generally had to adhere to it.

This proposal’s approach also raises issues of voter equality, with a “no” vote essentially counting for more than a “yes” vote when seeking a 60 percent passage rate. Clearly, this is not the way the democratic process was designed to operate. Our democratic process has always required a simple majority for passage except in rare and extreme occasions. A simple majority allows for every vote to count equally and thus fairly reflect the will of the people. One man, one vote counts as much in our democracy when it relates to budget votes as it does in when voting for the members of the legislature.



One of the most onerous omissions in the legislation is an adjustment for increases in student enrollment. Under the present version of the legislation, school districts could double in enrollment without being able to adjust their budgets accordingly.



Also troublesome, is the lack of a clear expiration date for this bill. It is unclear whether the rent control laws will be extended for three, five or maybe eight years and the tax cap proposed by the Assembly would remain in effect so as long as rent control was also in effect. If the state truly wants to re-examine whether or not the tax cap is successful, a date certain within two or three years would provide a better benchmark.



Taxpayers themselves may well become disillusioned by the cap, as they believe the measure would limit their individual tax increases to two percent, while the Assembly bill would actually allow the entire district tax levy to increase by two percent. Individual tax rates, in fact, could be much more than two percent, depending on local growth and equalization rates. Moreover, the allowable exemption for pension costs almost guarantees that some districts will regularly seek a tax levy increase more than two percent.



Having fought the tax cap at every stage, providing legislators with the impact on their schools and the numbers of layoffs, NYSSBA will now push for a more workable cap and real mandate relief. In particular, the requirement that 60 percent of voters support an amount over the cap, a sunset provision and the failure to adjust for student enrollment must be addressed.



While public support for a tax cap is estimated at unprecedented levels, the public has very little understanding of its implications, both for schools and for their own taxes. With a tenuous majority in the Senate having just changed party leadership in the last election, the Senate understands their need to be responsive. Membership in the Assembly majority comes largely from urban centers and so Speaker Silver is motivated by his members’ need for rent control (which the Senate majority seemingly opposes) and is maneuvering for a trade. The governor’s political timeline on this issue is much different than the legislature’s, however, as the Senate’s need to pass a tax cap is offset by the fact that the political fallout from potentially massive school program and staffing cuts will come right before their election next year. In order to survive the community concern over the loss of such cuts, the Senate will need to be able to point to fulfillment of their pledge to provide “significant mandate relief” to coincide with the tax cap. To date, neither the governor nor the legislature has advanced such mandate relief.



NYSSBA has provided state leaders with the NYSSBA Essential Fiscal Reform Playbook that spells out in explicit detail exactly how to accomplish the kind of mandate relief that would mitigate the effects of a tax cap. During the gulf oil spill disaster, attempts to cap the well were unsuccessful until they were able to limit the flow of oil from the source. If the quality of New York State schools is to be preserved, gushing costs will need to be similarly contained.



Our schools must be given the means to adjust to this new fiscal reality beyond merely laying off staff and eliminating programs for students. Recognizing this, NYSSBA has met nonstop with state leaders in recent weeks to push for the mandate relief measures contained in the Playbook.