State budget stalls on Democrats' split over taxes

ALBANY - A split between the legislature's Democratic majorities over how to ease the property tax burden on homeowners has emerged as a major impediment in negotiations for a new state budget, officials said.

With New York facing a $9.2-billion deficit in 2010-11 - and the budget already nearly a month late - there's no apparent end in sight to the tax relief dispute.

The State Senate is holding out for a $1-billion-plus plan that gives income tax credits to low- and middle-income households. It also revives the popular STAR property-tax rebate checks - but only for seniors.

Education cuts an issue

The Assembly wants to restore $600 million of the $1.1 billion in education aid cuts proposed by Gov. David A. Paterson. With more aid, Assembly leaders said, school districts could get by with small tax increases, or none at all, even in the face of ballooning costs for salaries and pensions.

Meanwhile, Paterson and fiscal experts are raising alarms because either legislative plan would likely involve heavy borrowing to avoid increasing the deficit further. And such loans would be on top of New York's already massive debt.

"Property tax relief costs money . . . There isn't money to pay for it right now, as much as it is needed," said Elizabeth Lynam of the nonpartisan Citizens Budget Commission.

"It is completely irrational to borrow money to close budget gaps when part of what you are doing is adding to the budget gaps by putting in property tax relief," she said.

The new push for tax relief comes as the political parties gear up for the 2010 elections. Democrats want to hold onto their slim majority in the Senate, denying Republicans a say in redrawing legislative boundaries that will be in place for a decade.

The races likely to determine who controls the Senate in 2011 are on Long Island, in other suburbs and upstate - where tax burdens are the greatest. Republicans have spent the past year blaming Democrats for the demise of the STAR rebate checks.

Even though budget talks are largely being conducted behind closed doors, the stalemate over property tax relief was evident last week.

Asked to identify the main sticking points, Senate Democratic leader John Sampson of Brooklyn replied: "Property tax relief." Assembly Speaker Sheldon Silver (D-Manhattan) said: "School aid."

Paterson accused senators of "adding and subtracting [in] bureaucratic games" to try to mislead homeowners. Sampson shot back, "This is not about election-year gimmicks. We want to provide meaningful, long-term property tax relief."

Silver questions funding

Silver questioned how the Senate would pay for its proposal when only the Assembly has embraced borrowing - and then solely to avert cuts to education, hospitals and social services. Asked about the Senate plan, Silver said, "When there's a $9.2-billion budget deficit, it is very difficult to have too many priorities."

But Sen. Jeffrey Klein (D-Bronx), architect of the Senate plan, responded that it could be funded through elimination of government waste and excessive overtime payments to state workers - along with more spending cuts. The price tag, he noted, represents only 1 percent of the projected $136-billion budget.

Adding back more school aid, Klein said, will not ease the tax burden, noting, "Aid has been increasing for years and property taxes haven't gone down." He acknowledged a cap was needed to rein in property tax growth.

Governor's cap approach

Paterson, a Democrat, has proposed such a cap as part of a two-pronged approach. He also wants to cap state spending and use the resulting budget surplus to pay for income tax credits for middle- and low-income families.

The legislature's Democratic majorities have so far rejected both of Paterson's caps.

Senate Republicans have dismissed all the Democratic plans. They argue the best route to property tax relief is reinstituting STAR rebate checks - for all homeowners, not just seniors.

Minority Leader Dean Skelos of Rockville Centre said the checks' cost, more than $1 billion, could be paid for by reducing Medicaid fraud.

On Long Island, Republicans are seeking to use anger over the scuttling of STAR rebate checks to defeat freshman Sen. Brian X. Foley (D-Blue Point). He touted the Democrats' plan, saying "This is good policy, and that's good politics."

But Andrea Vecchio, a tax activist in East Islip who is mulling a run against Foley, said she was underwhelmed by officials' renewed interest in helping hard-pressed homeowners.

"This is government's way of manipulating things so that it seems as though it's tax relief," she said.