Tax Cap in the News Again

The second year of the New York State Tax Cap is causing more municipal governments to pass legislation allowing them to exceed the cap to avoid penalties and enable them to maintain quality services.

At this time of year when most New York State Towns and Counties are developing and passing their budgets, the Tax Cap is once again in the news.   Now in effect for its second year, the Tax Cap is becoming more onerous on municipalities – perhaps as intended by its creators.  But it is also becoming onerous for tax payers.

The Tax Cap, enacted in 2011, is almost universally misunderstood by taxpayers who are affected by it.  Most think that it means that their tax rate cannot increase more than 2%.   Wrong. The Tax Cap stipulates that the taxing jurisdiction’s tax LEVY cannot increase more than 2% or the rate of inflation as determined by the NYS Comptroller.   Under the law, a taxing entity can pass along to the taxpayer an increase of 2% over its previous year’s tax levy.   This sounds reasonable to most people but the reality is that municipalities have so many  State-mandated costs, that the entire 2% is used up, and more, just meeting these costs allowing for no expansion of local programs and projects.
Pension contributions, unemployment insurance, health benefits make up the largest of these mandates but there are other smaller ones as well.   This means that by the time the taxing entity accounts for these mandates, their discretionary budget is already less than the prior year's.  As a very simple example,  if a municipality raised $10 million last year through taxes,  this year the Tax Cap would allow them to raise that levy by $200,000 to $10,200,000.  But if State-mandated costs have increased the expenses by $400,000 (not unusual), this year’s operating budget must be reduced  to $9,800,000. This is, of course, a simplification as there are some exceptions.  Likewise, there are also financial penalties if a taxing entity exceeds the 2% Tax Cap levy without officially opting out of it.  

What this means to the tax payer is that cuts to a municipality’s discretionary spending are going to be made – services, infrastructure and personnel are the most likely places for these cuts to occur.  Looking at local Towns currently undergoing their budget processes, two things are occurring amongst almost all of them – 1) they are passing resolutions to opt out of the 2% cap to protect themselves against future penalties  and 2) they are cutting things that are likely
to cost them more in the future – road resurfacing,  vehicle replacements and repair, amenities such as recreation and leaf removal,  important capital expenditures, and also personnel, leaving fewer people to do the essential tasks.  One way of keeping some of these services intact is to raise revenues outside of taxing. Of course, this results in higher fees for permits, applications, recreation programs, parking, etc. Another form of taxation.

While the 2% tax cap may sound good to the taxpayer right now, in the long run local governments are not going to be able to live up to their taxpayers’ expectations as a result of an inflexible tax cap and mounting State mandates. 

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bruiser December 14, 2012 at 06:10 PM
There is something drastically wrong with our society when people advocate taking away what other people have worked for.I see people having a fit because they want to raise taxes on the rich,but yet it would be ok to take away from people who work for a living. I have seen many times on these threads that raising taxes will result in jobs lost,well i have one question,taxes have been cut since George Bush was president so if cutting taxes creates jobs where are the jobs. I have my own opinion on that subject but not once have i seen a right leaning individual moan and groan about what is being called corporate welfare.i see them crying about helping working people,i see them moan and groan about welfare,but not one time have i seen them address corporate welfare in their rants.
Overtaxed Citizen December 14, 2012 at 07:32 PM
Got news for you, the rich as you call it work for a living also. This country was founded by working hard and if you make it God Bless you. You are not entitled to their money. When only half the people in this country are paying Federal Income Tax there is a big problem. As a worker in the private sector I take affront to have to pay for all public employees health and pension benefits. Pay for them yourselves like we do.
James Flynn December 14, 2012 at 08:01 PM
Bob it appears you have been listening to the Politicians again and believing their misstatements, as per the NY Controllers office this is a reserve fund allowed and recommended for Counties Towns and School Districts see page 25 www.osc.ny.us/localgov/pubs/lgmg/reservefunds.pdf
bruiser December 14, 2012 at 08:23 PM
Overtaxed i can tell you with certainty that i am not hurting for money(well off) and worked for every penny i own,but with the help of many in the beginning of my business.I also know my business would fold if we keep taking away from people,that answer should be obvious(no customers no business) i also know for a fact there are many institutions that do not pay taxes(for one churches) and many corporations if you are a fair person how about we tax the churches on all their income,and all of their properties (churches need to pay property taxes).People moan and groan about unions putting money into politics,but no where do i see them calling for the likes of the koch brothers buying our elections (take all money out of politics,and i mean all) the elections belong to the people not companies and billionaires who can buy a politician for what many call chump change.
James Flynn December 14, 2012 at 08:25 PM
Bob http://www.osc.state.ny.us/localgov/pubs/lgmg/reservefunds.pdf here is the correct link


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