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Zack Hutchins
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February 25, 2002

Governor proposes railroad property-tax relief

Governor George Pataki has recommend railroad property-tax relief in his "30-day amendments" to his executive budget.

His recommendation came a week after The Business Council's research affiliate, The Public Policy Institute of New York State, released a report showing that high property taxes on railroads in New York have cost the state railroad jobs while inflating transportation costs for manufacturers and other shippers.

Specifically, the Governor proposed cutting railroad property taxes by simplifying and modernizing methods of assessing rail property taxes for local taxation, and by exempting all newly constructed and renovated properties from property taxation for 10 years from the date the renovation or construction is completed.

The Governor's proposal also would phase in a tax cut of about 45 percent over seven years for transportation properties owned by railroad companies. To ease local governments' transition to fairer taxation of rail property, his proposal also would provide $70 million over 10 years to local governments.

The Governor also advanced this proposal in 2000 and 2001. Senate Finance Committee Chairman Ronald Stafford and
Assembly Majority Leader Paul Tokasz have sponsored similar
legislation.

The Institute's report, On the Wrong Track, showed that railroad property taxes in New York can cost up to 26 times those in neighboring states. The report, which The Institute released Feb. 11, can be found at www.ppinys.org/reports/2002/railtax.pdf.

Property taxes go up when companies invest in new rail or other improvements, and go down when tracks are removed, the report showed. This heavy tax burden is one reason trackage in New York has been cut in half and the state has lost more than 11,000 high-paying railroad jobs since 1981, it said.

"While the state promotes railroads with some policies, it maintains a discriminatory, anti-competitive property tax system that drives up costs for railroads as well as their customers," it concluded.

The problem began decades ago as local tax assessors came to see rail property "as a cash cow to be milked as much as possible," the report says.

Longstanding state law worsens the problem in several ways. For instance, railroad property must be assessed on "reproduction" value—what it would cost to rebuild or reinstall each improvement just as it was done the first time.

Most states base rail property assessments on what it would take to replace assets with today's more cost-efficient technology, the report noted.

The study calls for "a new, fairer approach" that would make New York's railroad property taxes more competitive with those in other states. Governor Pataki and the Legislature have considered such reform in recent years, it says. Meanwhile, railroads are suing more than 700 school districts and municipalities statewide under a 1976 federal law that prohibits discriminatory taxes on railroads compared to other businesses. School districts and local governments acknowledged that current assessments violate the law in a 1997 settlement of a similar case.

The report can be found at www.ppinys.org/reports/2002/railtax.pdf.