Wyoming is number 1 but levies no income taxes – taxes extraction of minerals heavily.

State taxes consume $68 per $1,000 of personal income – 1 percent higher than the national average. NY ranks 30th for highest state tax burden. Local taxes consume $82 per $1,000 of personal income – 79 percent higher than the national average. NY is number one for the highest local tax burden. Of competitors, CT is the closest but ranks number 11 in the nation.

The national average local tax burden is $46 per $1,000; NYC is $94 and rest of the state is $72. Outside the city, the local tax burden dropped 10 percent from 1995 to 2000 and gained 10 percent from 2000 to 2005. Without NYC, NY would have the 4th highest property tax burden in the nation. Maine has the second highest local tax burden and collects $55 per $1,000 personal income.

Property taxes are single largest source of school funding. Local school tax effort in Scarsdale is 35 percent below the state average and per pupil is 43 percent higher than the state average. In contrast, in Rochester, the local school tax effort is twice that of Scarsdale, yet Rochester spends 29 percent less per pupil than the Westchester suburb.

In 1995, effective property tax rates across the state were roughly equal. Since then, in the NYC suburbs – Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, Ulster and Westchester – property values rose 118 percent and their effective property tax rate fell 29 percent from 1995 to 2005. In contrast, in counties outside of the downstate suburbs, property values increased only 23 percent and the effective property tax rate increased slightly. Although rates are much lower downstate, the property tax burden – as a share of personal income – is 35 percent higher downstate than upstate.

Local Medicaid funding is unusual – 25 percent of acute, 10 percent long-term care; most states do not require any local funding. New York City finances about 17 percent of Medicaid expenditures for its residents, and all other counties pay an average of 18 percent. This relatively large share of local funding is unusual; 30 states do not mandate any local Medicaid funding, and the 19 others require a much smaller share of local financing. Nassau and Suffolk county responsible for more than half of police expenditure growth – partially the result of leapfrogging, which will be discussed later. NY has 4th highest combined state and local sales taxes – 8.25 percent compared to average of 5.93. 33 out of 57 counties increased their sales tax rates since 1995 – varying from 0.5 base points to 2. Counties now collect more sales taxes than property taxes.

NY has 10 percent fewer units of government per capita than the national average (outside the City). NY has 84 percent more units of government per capita than NJ and CT. Of 11 competitor states, NY has the 3rd highest school districts per capita.

A result of many units of govt may be higher than average number of local employees. Excluding NYC, NY employs 16 percent more local employees than the national average and pays these workers 8.5 percent more than average. With NYC, NY employs 23 percent more local employees and pays these workers 30 percent higher wages than the national average. Employee benefits (healthcare, pensions) for teachers have increased at 3 times the pace of teacher salaries.

STAR-induced spending offset one-third of the savings. The property tax levy statewide from fiscal year 1995 to 2000 grew 8 percent, yet expanded 48 percent over the next five years – STAR was fully implemented in 2002. The rapid levy increase in recent years impacts commercial, as well as residential property owners; however, the commercial owners receive no benefit from STAR. Because commercial owners receive no relief from STAR, the program in effective created a class system for property, with commercial owners paying higher tax rates.

In 2005, Scarsdale received $930 per pupil in STAR aid. This payment increased Scarsdale’s total state aid per pupil 84 percent, from $1,102 to $2,032. In contrast, the STAR program increased total state aid per pupil in Utica 13 percent, from $6,211 to $7,044 per pupil. In Buffalo, Rochester, and Syracuse, STAR increased state aid only 4 percent.

Rebate based on STAR exemption.

Current local Medicaid funding levels are unusually high and especially burdensome in economically-challenged communities with high shares of Medicaid-eligible residents and low levels of taxable resources. While the cap is a step in the right direction, for counties with high shares of Medicaid recipients, even a 3 percent annual growth rate is too high. Foundation aid is based on how much revenue districts can raise on their own by levying the state median tax effort, yet last-minute compromises weakened the reforms. In 2006 New York created the Shared Municipal Service Incentive program (SMSI) to encourage cooperative cost-saving ventures between municipalities. The program’s current funding is $25 million, $10 million of which is specifically dedicated to the consolidation of local government units. Governor Spitzer established the Commission on Local Government Efficiency and Competitiveness in April 2007 to identify potential partnerships between the state and local governments to improve efficiency and effectiveness. The Commission will examine the potential for consolidation and other shared services agreements and will report its recommendations by April 15, 2008.

Limits may prevent communities from even sustaining existing levels of service, because the cost factors for some services are not controlled locally and may increase at rates above the cap. Recently, the costs of healthcare, pensions, and fuel have grown faster than inflation. Similarly, caps do not account for federal and state mandates, such as requirements under the federal No Child Left Behind Act. Property tax caps on assessed value are most valuable in areas where home values are appreciating rapidly, but they provide little or no relief in areas where home values are stagnant or declining. Moreover, general property tax caps may exacerbate education and other public service provision inequities between wealthy and poor areas. If the limit allows for voter-approved overrides, wealthy communities are more likely to pass spending initiatives that exceed the cap. Communities with stronger commercial or hospitality sectors and a more diverse tax base will also be less constrained by limits to the property tax. Consequently, spending caps disproportionately constrain the ability of lower-income communities to improve or expand public services. Communities constrained by a property tax cap may increase other revenue sources, such as the sales tax and fees and fines. These other financing sources tend to be regressive and are not deductible from federal or state income taxes. In addition, shifting reliance on the sales tax may promote the “fiscalization of land use” and increase dependence on new property developments and use of discretionary tax reduction incentive packages. Structure will matter – individual household or aggregate level, per pupil or per TWPU, exemptions for low-income districts.

Nationally, housing costs are 22 percent of income for all households – owners and renters – and 45 percent of income for households in poverty. This money could fund a much expanded circuit breaker program. A circuit breaker that refunded property taxes above 5 percent of income for homeowners earning less than $20,000 and above 7 percent of income for all others would cost $2.6 billion. A circuit breaker program for renters that refunded property taxes in excess of 6 percent of income would cost $2.7 billion.

Counties with higher share of Medicaid-eligible residents bear higher burden. State and federal govts control the policy. State takeover will motivate state officials to pursue more cost containment.

Among the 249 districts that would reduce spending, state aid would be reduced $813 million, including a $178 million cut from 66 districts that are so wealthy they would receive no state aid. Similar to new foundation aid – except without hold harmless and without aid to high-tax districts.

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

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

3 New York’s Combined State and Local Tax Burden is the 2nd 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. 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 2005. 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. 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.

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 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 2005. 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. But, rebate provides greater relief to districts in wealthier counties. 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 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 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 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 affect lower income communities more adversely than wealthier ones. 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. 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. 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 Local savings of $748 million Pension Benefit Reforms Defined contribution system Restructure benefits for new hires Revise Framework for Collective Bargaining More timely process Alter arbitration criteria and constraints Adopt another model of negotiations, for example last-best Additional Consolidation Initiatives Small school districts - $241 million in savings for schools under 900 pupils Property assessing units