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December 3, 2002

Report: Local taxes in New York are state's top competitive disadvantage, and more state aid won't help

Local taxes that are 63 percent above the national average are New York's top competitive disadvantage, and history suggests that more state aid to localities won't fix the problem, a new fiscal analysis by The Public Policy Institute of New York State shows.

"The disparity between our property tax burden and the U.S. average adds up to $9.5 billion, by far our biggest competitive disadvantage," the report, "Our Local Taxes Are Far Too High—And More State Aid Won't Fix The Problem," said. The report, which The Institute released Dec. 3, is the latest in The Institute's Budget Watch '03 series. The new report is posted at www.ppinys.org/budget/budget_watch_03_issue7_local.pdf.

In terms of local taxes per capita, New York is by far the leader among all states, the report said. "Our local taxes averaged $2,388 for every resident in 1999, more than twice the national average," the report said.

Pro-spending forces, the report noted, often blame state tax cuts for high local taxes, saying they only shift the tax burden to localities.

"But the facts are quite different," the report said. "Statewide, revenues from property taxes and other local taxes rose 24 percent from 1990 to 1995, when the state also increased taxes. In the second half of the decade, when the state was cutting taxes, the increase in local taxes was slightly less, at 22 percent."

The report added: "If there's a big increase in state aid, that tends to fuel more spending—rather than reduce the property-tax levy. In local communities and in Albany alike, the solution to New York's high taxes is precisely the same: Control spending."

"Local government in New York State is now a $100-billion-a-year-industry," the report said. Localities in New York State spent a combined $99.2 billion in 2000, according to the state Comptroller's office. That figure was an increase of 4.5 percent, or twice the rate of inflation, over the previous year's spending. Steady increases in local spending were triggered in part by an increase in state aid during the 1990s that was 10.3 after after accounting for inflation.

The Institute, the research affiliate of The Business Council, launched Budget Watch '03 Nov. 7 to focus attention on spending issues that are at the root of the state's looming fiscal challenge. If the state had held overall state-funds spending to the rate of inflation over the last five years, the state could have saved $7.9 billion.

Additional reports in the series will be issued as the state budget debate unfolds. They can all be accessed from www.ppinys.org/bwatch03.htm.