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Paterson eyes tax credit to offset rising school taxes

ALBANY - Households with incomes below $300,001 on Long Island and elsewhere in the metropolitan area could get a break on school property taxes under a little-noticed provision of Gov. David A. Paterson's deficit-reduction plan.

Paterson wants to cap increases in state spending at the inflation rate. Once tax collections rebound from the recession and New York has budget surpluses again, he would use most of the extra money to pay for a credit on the personal income taxes paid by low- and middle-income homeowners.

Aides to Paterson said Wednesday the tax credit was meant to offset rising school taxes, which state government doesn't levy, but account for the lion's share of property taxes.

They said the credit would average $589 to $1,405 per year depending on income levels, school tax rates and the size of state budget surpluses. The maximum credit would be $3,000 a year.

The tax credit wouldn't kick in until state government had a minimum of $100 million in excess cash. The last surplus, in 2006-07, totaled $1.5 billion and was used in the following year's budget to hike education aid, Medicaid reimbursements and funding for building projects.

Paterson told Newsday his proposal "will force the legislature to control their spending - just like every family in New York has to - and when we generate surpluses, it will go directly to hardworking New Yorkers in the form of property tax relief, and not more state spending."

The legislature's Democratic majorities have largely ignored Paterson's earlier calls for limits to state spending, however.

Budget surpluses also aren't likely for several years. Paterson's budget division is projecting red ink of $38 billion over the next 3½ years, including $3 billion this year. His plan for closing that deficit, which includes the spending cap and income tax credit, has been criticized by many lawmakers.

Gubernatorial aides estimated between 868,000 and 2.1 million households could receive the tax credit depending on surplus sizes. But supporters of using income tax credits to ease the property tax burden, known as a circuit breaker, said larger surpluses were required to provide significant tax relief.

"I don't see how you cover that many people with that amount of money - and if you do, you really aren't providing enough relief for it to be meaningful," said Ron Deutsch of New Yorkers for Fiscal Fairness.

Deutsch and others also warned a cap on state spending could erode public services such as education and health care.

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