New York needs a cap that fits

Former minority leader of the state Assembly and Republican candidate for governor in 2006, Faso is a partner in the law firm Manatt, Phelps & Phillips.

A week from Monday, the State Legislature returns to Albany with just seven weeks to go till its expected adjournment in late June. With the state budget out of the way, Gov. Andrew M. Cuomo and legislators have their work cut out for them as they address numerous controversial issues.

Perhaps none is more significant for homeowners across New York than property taxes. It's no secret that they're out of control. Property taxes in our state are about 72 percent above the national average.

Nassau, Suffolk, Rockland and Westchester are always in the top 10 taxed jurisdictions in the nation. Just as significant, when tax burden is calculated as a percentage of home value, the top 10 highest-taxed counties in the nation are in upstate New York.

The solution advanced by the governor and State Senate Majority Leader Dean Skelos (R-Rockville Centre) is a cap -- styled after a similar system in place for over 30 years in Massachusetts. The Senate has already passed the cap, but Assembly passage will be subject to horse-trading over other issues, primarily extension of New York City's rent regulations.

It's fair to ask whether a Massachusetts-style tax cap will work in New York, and the proof is easy to quantify: Take any residential property, in any community in New York, and compare it to similar homes and communities in Massachusetts. You'll find that taxes are 30 to 40 percent lower in our neighboring state.

No one argues that Massachusetts has poor services or underfinanced schools. Indeed, they spend more than $14,000 per pupil and have better overall test scores than ours. The main difference is that in Massachusetts, local government and school spending is strictly limited by an annual 2.5 percent cap, and any increases above that must be approved by voters. It's a blunt instrument that forces government and schools to keep spending in check.

But a tax cap alone won't work in New York without significant change to Albany's dizzying panoply of mandates, which drive up local spending. Most of these deal with pensions, health insurance and employee contract negotiations. Since over 75 percent of school spending is consumed by salaries and benefits, any effort to prune costs or slow the rise in spending has to address these issues. But while the governor has promoted the tax cap, he's been virtually silent -- as have many in the legislature -- on the need to eliminate expensive mandates.

If taxpayers are cynical, we shouldn't be surprised. Gov. George Pataki pushed through the STAR program in 1997 to cut school property taxes, but he dropped a cap proposal at the last minute because the powerful teachers union blocked it in the legislature. The result? Over time, STAR's impact has been virtually eliminated by school spending.

Opposed to a tax cap, teacher unions and their allies are instead promoting a so-called circuit-breaker program to limit taxes based on a homeowner's income. But such an approach is functionally no different from the ineffective STAR program.

A circuit-breaker similarly depends on state spending to reimburse school districts for tax revenues not collected by the new exemption. STAR and the circuit-breaker suffer from the same flaw: Neither holds down local spending, and neither will provide any more than temporary relief from high taxes.

The answer to property taxes in New York is to limit spending increases. A cap will do that, but unless school districts and localities are given greater ability to negotiate salaries and benefits, it simply won't work. The failure to adopt the cap in 1997 was a missed opportunity to rein in property taxes. New Yorkers can't afford for Albany to miss this chance again in 2011.