To Cap or Not…That is the Question….
On January 8, 2011 The New York Times ran a story about California and Governor Jerry Brown. It talked about decisions made by Governor Brown when he was governor the first time and the ramifications of decisions he made 33 years ago in response to Proposition 13.
The last time Jerry Brown was governor of California, voters passed Proposition 13, drastically slashing local property taxes and constraining lawmakers from raising any other taxes. Mr. Brown first fought the proposition but then executed it with gusto and sent billions of dollars from the state to school districts and counties to help offset the lost revenues.
That may be the decision that Mr. Brown has come to regret, as his career has come full circle and taken him back to Sacramento 33 years later to confront yet another budget crisis.
The measure cut off a major source of revenue by capping property taxes at 1 percent of valuation and required a two-thirds vote by the Legislature to raise taxes. Because it cut property tax collections by local government by nearly two-thirds, the state, initially at Mr. Brown’s behest, took on more and more costly responsibility for financing schools, welfare and other services that were once the responsibilities of local governments.
An estimated 70 percent of the taxes collected by the state now go to local governments.
As New York begins to debate whether to impose a property tax cap on local governments, it is worth taking a look at what happened elsewhere and what their experience has been. A good portion of what I have seen and heard, thus far, about other states has often been overly simplistic- good as well as bad- and distorted by preconceived notions.
For example, while most people realize that Proposition 13 lowered property taxes in California, many do not realize that due to the decisions made by Governor Brown and the California legislature at the time, much, but not all, of the impact of local property tax cuts was offset by significant increases in state aid. California residents traded property tax reductions for increases in other taxes.
One can debate whether California residents were in a position to be able to afford spending more and more state funds to try and offset the impact of Proposition 13. Whether they could afford to do so or not, the reality is that the State of California did step in and continued to do so to a substantial degree ever since.
Should New York pass a similar cap, it would be hard to imagine any circumstances under which New York State would be able to assist local entities, for the foreseeable future. In fact, New York has already reduced aid to schools and other local governments and will probably be reducing aid further once and perhaps twice in the coming months since the current New York State budget (which ends on March 31) appears to be out of balance and next year’s is in very deep trouble.
Furthermore New York State has added significantly to the challenges facing local governments by adding costs- e.g. The MTA tax, sharply higher pension costs and unfunded mandates. The increase in pension costs alone is almost as much as the tax cap Governor Cuomo is proposing.
