The new federal tax law can be an opportunity for...

The new federal tax law can be an opportunity for New Yorkers to be innovative, and come up with new approaches to fund our children's education. Credit: iStock

The federal limit on the deductibility of state and local taxes will effectively increase the tax burden of nearly every homeowner in downstate suburbs. These are the same taxpayers the state depends on to fund services in other regions. The state returns only 65 cents of every tax dollar paid by downstate suburbs to their region; the balance goes to other parts of the state.

The federal $10,000 limit on SALT deductibility is important to Long Island because it’s a high-tax region in one of the highest taxed states. This is why the Gov. Andrew M. Cuomo is proposing ways to mitigate the loss of deductibility, including charitable contributions in lieu of property taxes.

Downstate suburban taxpayers, who have benefited from the state property tax cap over the past few years, will see its impact dramatically diminished. Since the cap was enacted in 2012, the growth of property taxes in New York has slowed dramatically. The state has worked to make the tax cap succeed by increasing school aid, the only source of revenue other than property taxes available to schools. This has been especially challenging because our school aid formulas simply do not work. One in particular, the foundation aid formula, is so dysfunctional the state has worked around it to allocate aid increases that have enabled districts to maintain, and in some cases expand, programs.

Unfortunately, the new federal tax law will undermine that progress and put the spotlight back on the property tax issue that appeared to be fading because of the property tax cap. This, coupled with looming cuts in federal education aid, will lead to a call for re-examining our school funding system: state aid and property taxes. Realistically, radical change is not likely to occur because the system is entrenched. To replace state education funding from the property tax, about $33 billion, we would need to increase all state income, sales and business taxes by nearly 40 percent. It is unrealistic to abandon the property tax for school funding, but decreasing dependence on the tax is an attainable goal.

Studies have found that the property tax is just too big to replace. In 2006, the Suffolk County Legislature set up a commission to study alternatives to the property tax. After months of deliberations, no alternative was recommended. However, the commission suggested that the state share of school funding be raised to 50 percent to reduce property tax overdependence and that a working state aid formula be put in place.

As a former commission member, I can say the group would agree that school district dependence on property taxes does not make sense and that there are better ways to finance schools.

If we could start from scratch, our schools would be adequately and equitably funded so all students would receive more than a “sound basic education.” To do that, education would have to be largely state-funded supported primarily by state aid raised through broad-based taxes on income and sales. The aid would be distributed to address the needs of all the children in the state, factoring in regional cost differences. Given that we haven’t been able to develop a formula to equitably distribute aid that funds just 36 percent of school costs, designing a formula that fully funds education statewide would be a challenge.

A new formula has to be sensitive to our region’s tax situation. Long Island cannot continue to fund services in other regions at the same rate as in the past. According to the Rockefeller Institute, the downstate suburbs contribute 27.4 percent of state revenues and get back 17.7 percent of disbursements.

New York should assure that state support recognizes the region from which the funding is raised as well as regional cost differences. If the state raised its share of education funding to 66 percent, and the downstate suburbs received a 27.4 share of disbursements, our regressive property taxes would be cut in half, while progressive income taxes rise by less than one third. Downstate suburban taxpayers would pay less overall and regressive property taxes would be reduced dramatically.

There are many variations on this theme, but the bottom line is that more state tax receipts from our region should be used to fund services in our region.

The recent federal action demands that we respond creatively. We should take advantage of this opportunity to innovate and change.

Gary Bixhorn is a former Long Island school district and BOCES administrator.