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Cuomo aims at forcing local government consolidation with NYS property tax plan

NYS Governor Andrew Cuomo calls for property tax relief in his State of the State message.
NYS Governor Andrew Cuomo calls for property tax relief in his State of the State message.
© 2014 Karen Rubin/news-photos-features.com

New York State Governor Andrew Cuomo, a Democrat, was effusive in his praise for Nassau County Executive Edward Mangano, a Republican at the inauguration ceremony on January 2, for Mangano's support of the property tax cap, which, Cuomo said, "took courage".

It doesn't take any courage at all to give people what they want: lower taxes tell people what they want to hear. What took courage is for a scant few State legislators to vote against the property tax cap a few years ago, realizing that it would cripple school districts and local governments, forcing them to cut to the bone until the only thing left is to cannibalize their very being.

In fact, Cuomo betrayed the true intention of the property tax cap and now, his proposal to freeze property taxes for residents of municipalities that stay below the tax cap, by rebating the homeowners for the difference out of $1 billion of the state's $2 billion surplus.

He made it clear at the Mangano inauguration and in his State of the State address, when he snarkily decried the "proliferation of governments - 300 in Nassau alone, 10,000 governments in the state. It's why property taxes are so high, the proliferation of government."

Here's how Cuomo described the property tax freeze and showed his contempt for local government:

"a freeze on property taxes for two years to help home owners and to incentivize local governments to reduce costs. A property tax freeze, but only if two important conditions are met. Year one, the locality stays within the two percent cap and in year two the locality takes concrete steps to reduce their costs through shared services and or consolidation. Because while we are reducing taxes, my friends, we also have to tackle a major structural problem which is the proliferation and expense of local governments.

"The main tax burden in New York State is not the income tax, it is the property tax. We raise about $40 billion per year from the income tax and we raise $50 billion from the property tax. And that is the tax you will hear New Yorkers complaining about from one end of the state to the other. As a matter of fact no matter how you look at it, New Yorkers don’t just pay a high property tax; they pay the highest property tax in the United States of America. Literally, the highest property tax in the country is in Westchester County in absolute dollars. When you look at by percentage of home value, the highest costs are in upstate New York, literally in the country.

"So why are our property taxes so high? Because we have too many local governments and we have had them for too long.

"10,500 local governments. These are towns, villages, fire district, water district, library, sewage district, one district just to count the other districts in case you missed a district. We have a proliferation of government that is exceedingly expensive and costly. Now the state has been very aggressive in trying to alleviate the burden from local governments. We have assumed more local costs than the state government has ever done in modern political history.....

"We actually passed a law that made consolidations easier for local governments. Since we passed that law how many local governments have actually consolidated? Two," Cuomo said in his State of the State message.

Actually, the fact that only two out of 10,000 local governments stepped up to consolidate shows that people like their local government (contrary to Cuomo's view, that local residents are just stupid). People like local government because it is the closest government that has the greatest direct impact over quality of life. The tax dollars collected are spent within the locality. People get to decide what they want their elected representatives to spend money on. We hear it in how North Hempstead Supervisor Judi Bosworth has recommitted the town to protecting and preserving its aquifer and drinking water, and continuing to push sustainability programs that are trail-blazing compared to what the state and federal government are doing.

In other words, Cuomo uses tax relief as the incentive for local residents to clamor to shut down their local governments. (The actual amount of "relief" though is estimated to be just $500. People can apparently be bought off very cheaply).

But let's look at what Cuomo is doing: two years of property tax freeze means that in the third year, we are headed for a major tax increase, just by lifting the freeze - the same trap of the Bush tax cuts when it became impossible to "expire." And in the same way, Cuomo is dooming the state to fiscal deficits and crippling its ability to invest and grow.

He will face the same problem that Obama faced when he tried to get rid of the Bush tax cuts - just restoring tax rates to the pre-Bush levels was branded "the biggest tax hike in history".

I guess Cuomo expects to be in the White House by then.

But even this package of tax cuts apparently doesn't satisfy Republicans who clearly will not be deprived of their political mantra: “The plan must go further," said State Senator Dean G. Skelos of Long Island, the leader of the Senate Republicans.

And Democrats apparently are only upset that New York City doesn't get the same cuts (because they aren't subject to the tax cap and if you look and already pay miniscule property taxes because the rest of the state pays half their school bill).

Cuomo has used property taxes - as well as public education policy since school taxes are 60-65% of property tax bill - to dismantle local control in an ultimate quest to dismantle local government.

His strategy from the beginning has to force school districts and local governments to exhaust their reserves - which he clearly resented - and that not being enough, to strip down its workforce, then its programs, then its physical assets.

Cuomo's tax proposal presents a "circuit breaker" so that property taxes can't exceed a certain percentage of income. That actually makes sense - but only if you balance it out on the other end. If Cuomo wants property taxes (regressive) to be a shrinking proportion of funding public services, then communities should have a mechanism to supplement with income taxes (presumably, more tied to the ability to pay) - which is what New York City does. (New York City is exempted from Cuomo's property tax cap and tax freeze).

This - and the fact that NYS pays 50 percent of NYC's school budget - is why a $1.26 million home in East Village pays $8,388 in taxes; a $1.55 million home in Todt Hill, Staten Island, pays $5735 in taxes, but a $1.2 million home in Sands Point pays $24,314, and a modest $649,000 home in Port Washington pays $10,164.

I'm all for a new formula that enables localities to fund their schools, parks and libraries through a more progressive formula that allows for some combination of property taxes and income taxes - the problem has been that people routinely lie about their income in order to avoid tax and localities have no means of enforcement (and something that the state and federal agencies don't seem to be the least concerned with).

But Cuomo's property tax cap reflects an abject (or purposeful) ignorance of local governments and how the property tax works - reflected in the fact that no one that I have ever asked at the state level knows what share of a school budget is paid from property taxes (they think it is 30-60%, when here in Great Neck, 97% of our school budget is paid out of property taxes).

The cap does not limit what a homeowner pays - as is clear from the fact that practically no one in North Hempstead saw their property taxes go up less than 1.6% (the level of the cap) last year.

"The property tax cap only caps tax levies (the amount of money that a municipality can raise), not tax rates, which are computed by multiplying levies by adjusted base proportions and dividing by assessed values," North Hempstead Receiver of Taxes Charles Berman explained.

So, let's say that Cuomo's economic development program, StartUp NY, is successful, and new businesses come into a community, bringing workers and their families. Those workers (believe it or not) are exempt from paying income taxes to the state for five years. And the companies are exempted from paying ALL state and local taxes, including property taxes for 10 years. Now you have more people using roads, public safety, schools, libraries, parks, but you are not allowed to raise your budget to pay for them. (More on this in a future column.)

Destroying local government seems the only concrete thing about Cuomo's tax plan. The rest of it seems like smoke and mirrors and funny math. Cuomo proposes to give $1 billion here in tax credits, $1 billion there in tax credits, millions more here in tax cuts and millions more there in tax incentives - totaling more than $2 billion. And that's only one year's worth, not two.

Where is this $2 billion surplus? and what happened to the $1.7 billion "structural deficit" we had heard about? According to Cuomo, the state's finances have gone from a $10 billion deficit to a $2 billion surplus - that's a $12 billion turnaround "in three short years" - but when I asked, no one could tell me where or how that happened.

The New York State Comptroller's office has told me that they can't comment until they see the budget numbers.

Apparently, the $2 billion surplus isn't supposed to materialize until the 2016-17 fiscal year, which was projected last year by the Tax Commission, but so far, state revenues are running $590 million below budget, raising a question of whether there would be the surplus at all.

Key to Cuomo's tax cut scheme is the expiration in 2017 of a $2 billion-a-year "temporary" income tax increase on New Yorkers making over $1 million a year. In other words, he is spending money now for revenues he won't get until later, if that materializes at all (the exemption has already been extended once, and isn't the argument that people can simply move away from high-tax jurisdictions? certainly individuals can move away easier than businesses if tax rates are the sole factor).

Also, Cuomo's tax cut will be funded in part by one-shot initiatives already in the state's financial plan, such as postponing $1 billion in pension payments.

Haven't we seen this movie before? It's called Detroit. It's called Philadelphia. Public workers wind up eating the gimmees and giveaways of politicians buying votes with tax cuts.

But unlike Michigan and Pennsylvania, Cuomo, to his credit, has an extraordinarily ambitious economic development agenda. Perhaps he means that all of that is funded through the federal government's Sandy relief, amounting to some $6.3 billion.

In fact, what is Cuomo's remedy in case he has cut taxes for residents and businesses too much to pay for the rebates and giveaways he has promised?

"Any costs of the package over $2 billion will be offset by proposals to streamline tax collection, which will increase revenue through improved audits."

This begs the question: Why isn't tax collection already streamlined, and why aren't there proper audits to insure that everyone is paying their fair share?

The statement is akin to the catch-all phrase that all will be right with the world by eliminating "waste, fraud and abuse."

Rather, healthier tax receipts should come because New York State's economy - based to a large degree on Wall Street and the financial sector - has come back great guns.

Pre-recession, the financial sector, pre-recession, generated 20% of the state's revenue; last year, despite hitting records (52 times) and record billions in bonuses, the financial sector generated 16%. What giveaways and loopholes have enabled the financial sector to stay low?

Perhaps this just reflects the "flaw" in looking at percentages and rankings. Perhaps the financial sector is generating the same amount in actual tax dollars, but is less in proportion to the whole.

New York State ranks high (actually second highest) in total percentage of state and local taxes paid, it is true. New Yorkers spend 12.8% of income on state and local taxes.

Cuomo apparently has envy for Texas (7.9%), Mississippi (8.7%) and Louisiana (7.8%), which clearly give their state and local government considerably less(by the way, Florida, comes in at the mid-range, 9.3%).

But it really rankles me when the absolutes are thrown out without putting the figures into context:

There is a difference when you pay 13% of income to state and local taxes but you are making $100,000, versus paying 8% of income but you only make $10,000 - that absolute amount you have left determines the quality of life you live personally, and the amount you give to government is the quality of life you live collectively. Which would you rather be? Living in New York with our relatively high salaries (median income $56,448 - higher than US median income of $51,371), versus Mississippi, with the lowest median income in the nation, $37,095.

Why would we want to be Louisiana? Its poverty rate is the second highest in the country at 18% and ranks 49th in education. Or Texas? It is 46th on the list with 16.2% poverty rate and has the highest rate of uninsured, 25%? In fact, Texas has no income tax but has a high property tax (property taxes being the most regressive form of taxation, versus income taxes which are progressive). Do you want to live in Mississippi, with the highest rate of poverty, 20.6% in the nation?

Not coincidentally, these states get poor grades on Education Week's Report Cards: Mississippi (ranks 71.0, earning a C-), Louisiana (79.0, C+) and Texas (79.4, C+); On the other hand, New York is ranked #3 in the nation (83.1, B) and New Jersey, another relatively high-tax state, is #8 (80.8, B-) (no state received an A).

The likelihood is if you lived in those low-tax, lousy school states, you would be sending your kid to private school, spending as much as on college tuition and doubling your tax burden. So where's the bargain?

But as the Texas Tribune reported, "While businesses say the Texas tax system leaves much to be desired, cities and school districts argue that the state falls short on the financing end, particularly considering its surging population growth. Local debt has shot up over the past decade, in large part to cover the costs for new schools and public maintenance projects.

“'The state is doing less building of highways and roads and pushing that funding down to cities and counties,' said Bennett Sandlin, executive director of the Texas Municipal League, which lobbies for local governments."

And yet, have you noticed that people in these low-tax states still gripe about taxes? In fact, aren't these the very centers of the Tea Party?

What gets my goat is that our local economy is clearly not in the dire straits it was in 2009, yet we hear people moaning and groaning over school taxes as if we were facing the cataclysm of 2008. The cuts and givebacks and wage freezes that were made in order to give "temporary" relief to the desperate homeowners are now expected to be the norm.

New York State is boasting that it has recovered all the jobs it has lost during the recession (albeit, these are tending to be lower wage) and Nassau County is boasting unemployment rate of 5.1% - the lowest in the state, and among the lowest rates in the country. Housing values have firmed up and selling is at a healthy pace.

But Cuomo has said that New Yorkers are prisoners in their homes- unable to afford their property taxes but unable to sell. And this is his justification to continue his assault on property taxes and attack community's ability to decide what kind of quality of life they want.

"The state has no economic future as the tax capital of the nation," Cuomo said. "People move and businesses flee." If taxes are the sole reason you choose to live somewhere, go, flee to Louisiana. flee to Mississippi. It's the same absurd argument as to suggest that Bill O'Riley will give up his multi-million-dollar a year salary as a talking head (perhaps to become a garbage handler?) if tax rates were raised on the wealthiest 1%.

Suburbia is founded on the concept that families with children purchase single-family homes near quality schools. They pay property taxes that keep that standard up and provide local control that keeps quality up. While their kids go to school, the "tuition" is basically shared among all the residents so that the family can afford what amounts to $40,000 a year (if you have 2 kids in school). But when their children grow up and leave, empty nesters resent paying the high property taxes which they benefited from. But if that is the case, they should sell to another young family seeking the same American Dream, or not complain about supporting the public schools just as generations did before them.

Funny how the companies which froze wages and benefits in order to get through the crisis, have never restored or properly raised wages now that they are back to earning record profits.

Have you ever heard anyone not complain about paying taxes, no matter how little the rate is or how much money they have?

I think what people want is to know that they are getting value for their tax dollars spent, that responsible, intelligent elected officials are managing it wisely.

Cuomo has honed in on tax cuts as his ticket to the kind of landslide victory in 2014 that Chris Christie scored in New Jersey, to propel him to national office in 2016.

Lobbyists buy politicians with campaign donations; politicians buy voters with tax cuts. It's the circle of political life.

Indeed, earlier this year, Cuomo won approval of a $350 family tax rebate. And when will the first checks be sent to homeowners? Shortly before the fall 2014 election.

Karen Rubin, Long Island Populist Examiner
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