Calculating the Tax Cap
Annual growth in property tax levies will be capped at 2 percent or the rate of inflation, which-ever is less. This basic cap is subject to the following exclusions or modifications:
A growth factor reflecting the “quantity change” in taxable property values in thebase year.
The growth factor is based on actual physical changes to taxable property—such as new construction of homes, stores and offices—and not mere changes in the as-sessed value of existing, unchanged taxable properties. These taxes can be added to theallowable (capped) levy in the first year after the value of the change is reflected on thelocal tax roll.
Tort settlements or awards whose costs exceed 5 percent of the tax levy in thebase year.
A tort is a type of lawsuit seeking damages for personal injuries caused bynegligence. Tort settlements exceeding 5 percent of a jurisdiction’s tax levy are rare.
Capital costs (including debt service) for school districts
, which cannot borrow mon-ey for capital purposes without voter approval.
A carryover of up to 1.5 percent of unused tax levy growth to the following year
.For example, if a city raises taxes by 2 percent in a year when its cap is 3 percent, 1 per-cent can be added to the subsequent year’s levy cap.
Pension contribution increases that exceed two percentage points of covered pay-roll
. (See below.)
How the pension exclusion works
Pensions for employees of local governments covered by the tax cap are financed by annualtaxpayer-funded contributions to statewide public pension systems. The taxpayer-funded em-ployer share of pension contribution rates is calculated as a percentage of the total salariespaid to employees in each of the three pension plans—the New York State Employee Retire-ment System (ERS), the Police and Fire Retirement System (PFRS) and the New York StateTeachers Retirement System (TRS). Employer contribution rates have been rising in recentyears and will continue to rise in the next several years, mainly as a result of increases in pen-sion benefits and market losses sustained by the pension funds over the past decade.Pension costs attributable to pension contribution rate increases of more than two percentagepoints in a given year are not subject to the new property tax cap. That provision was effectivelymoot for school districts last year, when the TRS pension contribution rate rose by less thanone percentage point. But for 2013-14 payrolls, the TRS rate is rising to 16.25 percent from11.84 percent, an increase of 4.41 percentage points. School districts can thus exclude fromtheir tax caps an amount equal to 2.41 percent of their TRS payrolls.For a hypothetical employer with a $10 million TRS salary base, the exemption is $241,000, or 2.41 percent of $10 million. All other pension costs must be covered under the basic cap as ad- justed for the other exclusions and modifications listed above.