This is the third in a series on property taxes in New York State by the Rockefeller Institute of Government. Collaborating with other organizations[1], the Rockefeller Institute will take an in-depth look into various issues surrounding property taxes including their impact on local governments, case studies of how the tax cap is working in school districts, the future of education financing and its reliance on local property taxes, and property tax assessments.
The Effect of the Property Tax Cap on Local Governments
In Albany, the debate over enacting a permanent property tax cap — created in 2011 to restrict annual property tax increases to 2 percent or the rate of inflation, whichever is less — is heating up with the governor recently barnstorming the state on the issue. But what does a permanent property tax cap mean to taxpayers across the state? Parts one and two of our series on the property tax cap examined the effectiveness of the property tax cap on school districts in New York, finding that the tax cap has significantly lowered overall school property tax burdens.
Below we examine the effectiveness of the tax cap on local government spending. In addition to the state’s nearly 700 school districts (minus the Big Five school districts), the tax cap also applies to local governments, including the 57 counties outside of New York City, 932 towns, 61 cities, 545 villages, and 891 fire districts.[3] Unlike school districts, which require a vote by the public on school budgets, local governments’ budgets are approved by a legislative governing board, such as a town board or village council. To override the tax cap, a supermajority of the local legislative governing board is required.[4] In some cases, a majority and a supermajority are the same given the number of members on the governing boards; for example, many town boards have five total members, which makes the majority and supermajority identical. Past reports have found that approximately 75 to 80 percent of local governments stay under the statutory cap each year, a lower percentage than the 95 percent of school districts that, on average, comply each year.
Total Taxpayer Savings under the Tax Cap
We conservatively estimated that the tax cap has saved property taxpayers more than $25.6 billion since its enactment.[5] Of the $25.6 billion in savings, approximately two-thirds of the overall taxpayer savings, or $16.7 billion, are school property tax savings, and the remaining one-third, $8.9 billion, are savings from county, town, city, village, and fire district property taxes.
Total Savings Under Tax Cap
| School Districts | $16.7B |
| Counties | $3.9B |
| Towns | $2.8B |
| Villages | $934M |
| Cities | $679M |
| Fire Districts | $604M |
| TOTAL | $25.6B |
Annual Average Property Tax Rates Have Dropped Significantly under the Tax Cap
Prior to the Great Recession, school districts had the largest average annual property tax increases (6.6 percent). But villages and fire districts followed close behind, averaging more than 6 percent in property tax increases per year, nearly one-and–a-half times the rate of inflation. Cities and counties had the lowest annual average tax increases — cities at 4 percent and counties just under 5 percent — but these numbers still are well over the rate of inflation.
Figure 1. Annual Average Property Tax Increases for Counties, Towns, Cities, Villages, Fire Districts, and School Districts (2004-18)
Source: Rockefeller Institute of Government analysis of the Office of the State Comptroller’s “Real Property Tax Levies, Taxable Full Value and Full Value Tax Rates,” at https://www.osc.state.ny.us/localgov/orptbook/index.htm. New York City is exempt from the property tax cap and is therefore not included in the analysis.
As a result of the tax cap, average annual local property taxes have been significantly reduced across the board with annual increases ranging from 0.8 percent (cities) to 2.5 percent (fire districts) (see Figure 1). Towns have had the greatest overall reduction in property taxes from their pre-Great Recession levels, while fire districts have reduced property taxes the least overall (see Table 1).
TABLE 1. Reduction in Property Tax Rates from Pre-Great Recession to Post-Tax Cap, by Type of Local Government (2004-7; 2012-18)
| Towns | -81% |
| Cities | -80% |
| Counties | -74% |
| School Districts | -71% |
| Villages | -64% |
| Fire Districts | -58% |
Source: Rockefeller Institute of Government analysis of the Office of the State Comptroller’s “Real Property Tax Levies, Taxable Full Value and Full Value Tax Rates,” at https://www.osc.state.ny.us/localgov/orptbook/index.htm. New York City is exempt from the property tax cap and is therefore not included in the analysis.
Fire districts rely the most on property taxes for their overall revenue (see Table 2). Towns, school districts, and villages receive nearly half of their revenue from property taxes, while cities and counties receive less than a quarter of their overall revenue from property taxes. Therefore, although fire districts have reduced property taxes the least, the impact of the tax reduction is greater given their heavy reliance on property taxes as their primary revenue source.
TABLE 2. Property Taxes as a Percentage of Total Revenue for Local Governments and School Districts
| Entity | Property Taxes as a Percent of Total Revenue |
| Fire Districts | 83% |
| Towns | 46% |
| School Districts | 46% |
| Villages | 43% |
| Cities | 22% |
| Counties | 21% |
Source: Rockefeller Institute of Government analysis of the Office of the State Comptroller’s “Open Book New York,” http://www.openbooknewyork.com/. New York City is exempt from the property tax cap and is therefore not included in the analysis.
Property taxpayers all across the state have seen dramatic tax reductions as a result of the tax cap: $25.6 billion in savings in total since 2012. The taxing policy also has become more progressive as a result, with some funding shifting to the state’s progressive income tax. For example, we previously noted that while school property taxes — a regressive tax — have been reduced by the cap, state spending on education in New York — largely based on the progressive income tax — has increased. Likewise, the tax cap has reduced county property taxes by $3.9 billion while the state has taken over nearly an equal amount in county Medicaid costs.[6]
As lawmakers in Albany debate whether to make the property tax cap permanent this legislative session, the stakes have gotten higher: Governor Cuomo has said he won’t approve the state budget unless it includes a permanent cap. The state Senate passed a version of a permanent cap in January, too. Now groups on both sides of the issue are mobilizing, with local business and tax groups fighting for a permanent cap, while groups advocating for a higher level of education spending and local governments oppose the law either entirely or in its current form. Added to this year’s mix is the federal tax cuts which capped the state and local tax deduction. This puts greater pressure on property taxpayers, especially in the state’s higher-taxed suburban regions. Without the tax cap, these property taxpayers will face a double-tax whammy. Therefore, this will be a test of suburban legislators who have to decide between the plight of their taxpayers versus education groups and local governments. Only time will tell.
NOTES
* Apologies to Bob Marley.
[1] See, for instance, Empire Center for Public Policy’s analysis of property taxes and the property tax cap at https://www.empirecenter.org/ec_tag/property-tax-cap/.
[2] Jim Malatras was one of the architects of the property tax cap for Governor Andrew M. Cuomo. Special thanks to Patricia Strach and Brian Backstrom for their helpful comments.
[3] The tax cap applies to all local entities with authority to levy property taxes. For example, other entities include certain library districts/associations. Data are less reliable in these cases so we focus on the major categories of local government.
[4] The local municipality must pass a local law (or adopt a resolution if a fire district) overriding the tax cap prior to the final vote on the budget. See The Property Tax Cap: Guidelines for Implementation (Albany: New York State Department of Taxation and Finance and the Department of State, October 2011): 9-10, https://www.tax.ny.gov/pdf/publications/orpts/capguidelines.pdf.
[5] To get projected savings, we calculated the average property tax levy increases for each jurisdiction prior to and during the Great Recession (2004-11) to project what annual hikes would look like if the cap had not been created. The savings represent the difference between this calculated amount and the actual tax levy totals during those years.
[6] New York State Division of the Budget, FY 2020 Executive Budget Briefing Book (Albany: New York State Division of the Budget, January 2019): 110, https://www.budget.ny.gov/pubs/archive/fy20/exec/book/briefingbook.pdf.
Jim Malatras is president of the Rockefeller Institute of Government
Nicholas Simons is a project coordinator at the Rockefeller Institute of Government
Michelle Cummings is a fiscal policy analyst at the Rockefeller Institute of Government
MORE IN THE SERIES
As Albany Debates a Permanent Property Tax Cap, How Is the Cap Affecting School Budgets?
By the Numbers: Regional School Property Tax Growth under the Tax Cap
If the Cap Fits, Let Them Wear It