What's New

Zack Hutchins
Director of Communications

Immediate -- Tuesday, February 12, 2008

Report finds escalating property taxes and local spending continue to hurt economy, despite STAR

ALBANY— The program originally intended to reduce property taxes has had little impact in that area, instead helping to escalate state spending over the past decade, the Business Council's research affiliate has concluded in a new report.

The report, What's STAR Got To Do With It, was released this week as lawmakers met to discuss the growing problem of property taxes in the state. The report was produced by the Council's not-for-profit research affiliate, the Public Policy Institute.

“New York's local property taxes hit $37 billion in 2005 (the most recent year for which the state Comptroller's office has published complete data),” the report said.

Outside New York City, which levies a local income tax, property taxes averaged $2,303 per capita—the highest in the country and more than double the national average, the report added.

The problem of property taxes continues to escalate, the report said.

“The Comptroller's office says property taxes increased an average of 3 percent a year from
1995 to 2000, then an average of 7.1 percent a year from 2000 to 2005—more than double the rate of inflation,” the report said.

And STAR, originally intended to reduce property taxes when implemented in 1998, could be a contributing factor to that fast growth, the report argued. Under the cover of STAR, school district property-tax levies rose four times as fast between 2002 and 2007 as they did in the previous five years.

In addition, New York's businesses, which pay 30 percent of school property taxes, get no benefit from STAR. The effective tax burden on business property is about $1 billion higher than it would be if taxed the same as residential property, the report said.

“One alternative might be to cap both STAR, and local property taxes,” the report said. “STAR could be capped at its 2006-07 level, for example, and local property taxes capped at 2.5 percent—about the rate of inflation. The property-tax cap would offset the impact of the STAR cap.”

But, the report argued, the key to a permanent solution is to adopt mandate relief, and downsizing reforms, that will enable local governments to get by on less.

“Officials at state and local levels have engaged for decades in a circular process of trying to pass the blame and the costs on to each other,” the report said. “State officials call on localities to reduce costs—but then pile on mandates that drive up local costs. Local governments demand more money from Albany—but then write generous contract settlements with their unions, and balk at the idea of sharing services with neighboring governments to cut costs.”

The Institute's report outlined a plan for property-tax reform that includes both a cap in the growth of STAR and some mandate relief for localities.

“Freezing STAR at its 2006-07 level of $4 billion [. . .] could save the state $1 billion in FY '08-09 and eliminate all consideration of tax increases in the new budget,” the report wrote.

Two steps would insulate property taxpayers from the STAR freeze, the report said.

First, state lawmakers could roll back costly state mandates on local governments—and then help them consolidate, share services, downsize and realign their workforces to save taxpayer dollars.
Those reforms could include elimination of the Wicks law—a state law requiring municipal governments to issue multiple contracts for construction projects costing more than $50,000 which the state Budget Division has estimated drives up local construction costs by as much as 30 percent.

The Institute said additional mandate relief could include reforming the Triborough Amendment (which mandates that provisions of expired union contracts are binding until a new contract is ratified), updating public employee pension plans, and relieving municipalities from liability lawsuits.

Those changes alone would “almost certainly” save over $1 billion from the $160 billion that localities will spend this year, the report said.

“Consolidations, shared services and workforce flexibility that enable localities to downsize could save billions more over time,” the report added. “Local governments in New York State have some 187,000 more employees than they would have, if they matched the national average ratio of employees to population. That, alone, costs at least $8 billion extra a year.”

The second key reform that would shield taxpayers from a freeze in the STAR program would involve adopting a statewide cap on the growth of property taxes to ensure that any cost-cutting measures taken actually come back to taxpayers.

“A cap that allowed property-tax growth of 2.5 percent this year, for example, would reduce the hit on taxpayers by about $1.4 billion (assuming taxes will otherwise rise 7.1 percent, in keeping with recent trends),” the report said. “That cap—at, or close to, the projected rate of inflation—would more than offset the impact on the taxpayers of freezing the STAR program.”

The reforms necessary to implement the Institute's suggested reforms are already at hand, the report said.

Governor Eliot Spitzer has already appointed one commission to look at local government consolidation and shared services. Another Spitzer-appointed commission is charged with studying mandates and property-tax caps.

“If those commissions were given a concrete goal—for example, to find $1 billion in savings this year, growing to $2 billion in two years—New York State could freeze STAR, cap taxes, and deliver real relief to residential and business property taxpayers,” the report concluded.