Tax cap may have unintended consequences

Implementation of the state's 2-percent annual property tax cap is playing out in unexpected ways as more than 10,000 local governments and special taxing districts across New York prepare budgets and tax plans to put before the public this fall.

Though the focus of the rhetoric has been on school districts, county, town and village boards, along with fire, water, ambulance and library districts, are affected by the new law that limits the year-to-year tax levy increase to 2 percent or the rate of inflation, whichever is less.

Municipalities are struggling with how to comply.

Questions about what counts against the cap and what doesn't, how pensions are handled and how to cut services to meet the cap are among issues officials are now tackling. At the same time, many five-member town boards are realizing that overriding the cap -- which can be done with a 60 percent majority vote -- might be easier to do than first thought, if they can take the political pressure from voters.

"This is a new reality for all local governments," said Mark LaVigne, spokesman for the state Association of Counties. "It's calling for very, very difficult decisions."

Gov. Andrew M. Cuomo and legislative leaders enacted New York's first-ever property-tax cap in June, saying they wanted to reverse the state's trend of spiraling property tax increases. Nassau ranked second among counties nationwide with the highest property taxes, while Suffolk stood at No. 12 in a recent study by the Tax Foundation, a nonpartisan tax research group based in Washington, D.C.

While the tax cap is popular in public opinion polls, it represents a hurdle for many municipalities already scrambling for revenue at a time when the economy remains troubled.

By mid-September, the roughly 10,500 governing bodies in the state that collect taxes must submit to the state comptroller's office a report on what a 2-percent cap would mean to them in real dollars. Then, they must prepare a budget that comes in under the cap or, if they want to exceed it, start taking steps toward an override vote. That's true for some 387 entities in Nassau County and 462 in Suffolk. In addition to the town government in North Hempstead, there are 31 villages, 11 school districts and more than 60 other special taxing districts. All are subject to the cap.

"I don't think people have focused in on the impacts of the tax cap other than one area: schools," said Huntington Town Supervisor Frank Petrone, who oversees a town budget of about $184 million. He said the tax cap will affect budgets for the town, library districts, fire districts, two water districts and two ambulance districts.

"It's crunch time," said Petrone, who wants no tax hike. "I've gone back to all our departments and said: 'You can do better' . . . They have to justify expenditures: What's the utilization of that service? What's the experience? Just because we've always done it, doesn't mean our constituents necessarily utilize it."

Others noted the tax cap is changing the way they construct local budgets. North Hempstead Supervisor Jon Kaiman questioned whether the cap will make it more difficult to stockpile funds for emergencies. "If we have three more snowstorms than normal, are we just going to be stuck?"

Kaiman cited the example of one local water district, which constructs its own budget but must get approval from the town -- and which exhausted its surplus to repair a water main. Now, the district is weighing whether to borrow money to help cover its costs and stay under the new tax cap.

Because there are so many new questions, "It's certainly going to be a challenge," said Kaiman, who supported the cap.

The state comptroller's office has been fielding technical questions regarding the ins and outs of the cap. Officials hope to produce guidance for local governments in about two weeks, said Mark Johnson, spokesman for Comptroller Thomas DiNapoli.

Officials noted that overriding the cap might be accomplished by the thousands of boards that have five members. In that scenario, the number needed to pass a budget -- three -- is the same needed to reach the 60 percent threshold, Johnson said.