Joe Bruno, the NY Senate majority leader, has pushed a sweeping property tax reform bill through the state senate. Property taxes are a hot button issue here in New York state, and Bruno’s plan has a huge, politically attractive carrot — to enable local school districts to effectively eliminate all school taxes on owner-occupied primary residences, to be replaced by state funding. (See the North Country Gazette article which explains the plan.) The plan, which has tremendous voter appeal, has been passed by the Senate and is now in front of the Assembly.
But the plan has some downsides that, in my opinion, could have long term negative impacts as well. The elimination of school taxes (which would be phased in over 5 years through a 20% reduction each year) only applies to primary, owner occupied homes that qualify for the current STAR exemption. School taxes would continue to be paid on second homes (not designated as primary) as well as on investment and commercial property. Even though the state plans to reimburse school districts for the "lost" property taxes on primary residences. So theoretically it would be a wash and taxes would not increase on non-primary residential property. But long term, I fear that state funding may not keep up and non-primary residential property would assume a greater tax burden.
The plan seems to eliminate much incentive to streamline our school systems and make them more efficient. Will voters stay involved in the school budget process if they’re not paying any school taxes? Will there be any incentive to combine small school districts to reduce costs?
I’m a property owner in Florida, a state with two classes of property owners — primary homeowners who enjoy a homestead exemption as well as a "Save Our Homes" cap on the annual increase in their assessment, and non-primary homeowners (like us New Yorkers who have winter places there.) The system of capped increases in very popular, politically, in Florida, but the result is that every year non-homesteaded property owners bear a greater and greater tax burden. Its not uncommon in Florida for one owner to be paying 4 or 5 times the taxes paid by their next door neighbor with an almost identical house. The Florida system is very different than what is proposed in New York, but we need to think carefully about the long term impacts of any reform that creates two different classes of property owners.
The other very disturbing part of this is the likely impact on renters. Investor owned properties, like apartment buildings, will continue to pay school taxes. Those taxes will be passed on in rent, so renters won’t enjoy any benefit from this. Yet the state revenues to reimburse school districts for the eliminated school will come from state coffers, and that money needs to come from somewhere — and that could well be an increase in the state income tax. So those renters who work, and pay income taxes, not only will not benefit from the phase out of school taxes, but may end up subsidixing those who do.
I agree that we need property tax reform in New York, and am a supporter of reforms that would equalize school funding throughout the state. But scholl tax reform needs to be accompanied by spending reform, a curb on campaign contributions by special interests, and incentives combine small school districts to reduce costs.