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La Marmite Turns into Tax Cap Lecture Center

NYCOM, NCVOA, Comptroller’s Office convene to discuss
2 percent tax cap and how it
affects local municipalities

The year 2012 is still in its infancy, but an issue that dates back years in New York State and other states, is dominating its first steps into the New Year. Local municipalities and school districts will work to get under the inaugural 2 percent property tax cap that was enacted by Governor Andrew Cuomo in June.

La Marmite in Williston Park went from a fine dining restaurant to debating ground on Jan. 10. The Nassau County Village Officials Association (NCVOA), New York Conference of Mayors (NYCOM) and the State Comptroller’s Office hammered out the issues and implications on the property tax cap and its affect on municipalities.

The tax cap limits the increase in property taxes each year for school districts and local governments to 2 percent, or the rate of inflation. New York City is exempt from the tax cap.

NCVOA President and Great Neck Mayor Ralph Kreitzman wanted to hammer home the fact that it’s not that municipalities want to raise taxes, but provide services that residents need and that affect their daily lives, furthermore, balancing a budget every year with limited sources of revenue other than real property taxes.

“We must deal with many unfunded mandates,” he said. “I, as well as everyone in this room, do not want to raise taxes.”

NYCOM officials stated that it’s asking for mandate relief on the pension system, construction costs on public and private projects, freezing the STEP increases with expired contracts and the prohibition of new mandates while establishing minimum health insurance contributions.

The cap applies to taxes imposed on real property by local municipalities or school districts. According to NYCOM Executive Director Peter Baynes, up to 1.5 percent of any unused levy limit can be carried over and added to the following year’s levy limit. The carryover needs to be used in the subsequent year, “but if you don’t use it, you lose it.”

Last year when the tax cap was being deliberated in Albany, NYCOM was stressing that state mandates were the main cause of high taxes in New York State. Local property tax skyrocketing was the issue Baynes said became a sticking point in discussions.

Exclusions in the tax cap include court orders or judgment amounts arising from tort actions exceeding 5 percent of the prior year levy. Any increase in full value of real property due to new construction or significant additions to existing properties can be excluded.

Additional adjustments made in the event of government consolidation/dissolution can also be excluded, according to NYCOM Deputy Director Barbara Van Epps. If a village dissolves or communities consolidate, the state comptroller’s office determines the tax cap for the first year. If a village transfers a function to the local town that impacts a budget, the state comptroller makes the adjustment for that function transfer.

Van Epps detailed the tax cap override, which states it can be overridden on a year-to-year basis with a 60 percent vote. The override law is effective upon adoption for the tax cap. However, if a municipality overrides a levy limit in one year, the tax cap in the following year is based upon the prior years true adopted levy, not what the levy would have been under the cap.

“The only tool they’re giving you is the ability to override it,” Baynes said, continuing, “rather than give you the ability to control your costs and taxes. But how this law as its written, it looks like it’s going to work and just because you have the option to go over the cap, doesn’t mean you’re overriding or exceeding the cap. It gives you the authority to do it. I know that’s a tough distinction to make with the public, but that’s the truth of the matter.”

Baynes said NYCOM is not recommending the passage of the law, but to take the issues into consideration when deciding whether passing the law or not.

One hundred seventy-seven local governments and fire districts in New York State have enacted the override. If the tax levy limit is exceeded due to a clerical or technical error, the amount over-levied must be put in a reserve fund, according to State Comptroller representative Norma McCabe.

“Comptroller DiNapoli did not advance this legislation,” McCabe said. “The legislation was passed and it became obvious to us that no central agency was established to explain the law so we took it upon ourselves to walk on the proverbial landmine in doing that because it would aide everyone’s understanding of the tax cap.”

McCabe said the Comptroller’s office expected a 90 percent error rate in tax cap reportage. While the error rate is nowhere near the estimated percentage, it’s still high.

Of the 57 counties, 96 percent of them have submitted paperwork while 22 percent have planned to override. Forty-four cities have reported with 75 percent in compliance and 21 percent planning to override.

With 932 towns in New York State, 84 percent have reported while 20 percent will override. Ten villages have reported with a 60 percent compliance rate, with 40 percent planning to override. And 874 fire districts have reported with 90 percent in compliance and 15 percent will override.

“We have a long road ahead of us,” she said. “But we’re confident we’ll get there.”

In an early draft of the tax cap, there was an exclusion for capital expenditures (CEs) for municipalities, but only for voter approved CEs. After the senate approved the tax cap, NYCOM officials stated this was a problem because most CEs are not approved by voters.

“This didn’t help them as much as the State thought it would,” Van Epps said. “Instead of broadening the capital expenditure exclusion, they eliminated it. There still is exclusion for school districts. Furthermore, as long as rent control is in effect, like in New York City, the tax cap is in effect.”

“The state comptroller’s office has stepped up and has worked very diligently,” Baynes said. “There’s a lot of the law left to imagination and the comptroller’s office has made it its job to make it more clear.”

Pension cost exclusions include increase in the average contribution rates to state retirement systems in excess of 2 percent. The amount beyond 2 percent multiplied by a municipality payroll is what would be exempt. There is no carryover with an unused pension exclusion should a municipality not exercise it.