Property Tax Cap Savings Estimate Overview

This memorandum presents an estimate of property tax relief that could have resulted if the property tax cap proposed by Governor Paterson and passed by the Senate had been in place since local fiscal years ending in 1996. If this cap was implemented in 1996, property taxes in 2009 would be around 22 percent lower. The cap would have provided nearly $41 billion in cumulative property tax relief over this 14-year period, including $6.5 billion in 2009 alone. The typical homeowner would have saved around $10,800, including $1,700 in 2009. This savings would vary by region, as shown below.
Estimated Property Tax Relief Under a Cap Implemented in 1996 Total Property Taxes ($-Billions) 14-Year Cumulativ 2009 e $2.73 $17.43 $1.49 $8.72 $0.67 $3.93 $1.64 $10.81 $6.53 $40.89 Typical Homeowner 14-Year Cumulativ e $13,370 $20,537 $9,494 $4,181 $10,804

Percent Reduction in 2009 25% 27% 28% 16% 22%

Long Island Other Downstate Mid-Hudson Rest of State Total •

2009 $2,110 $3,532 $1,653 $643 $1,731

These estimates provide a sense of the magnitude of the impact that the proposed cap could have over time, but they should not be interpreted as definitive. Proxies were used to estimate key features of the cap for which actual data is not readily available (e.g., school cap exclusions for capital expenditures and tax base growth from new development), and no adjustments were made for tax cap overrides or for a school district's ability to "bank" unused levy. Also, tax bills for a typical homeowner were estimated in the absence of historical data on amounts paid by the average taxpayer.

Description of the Proposed Cap

The proposal establishes two different but similar property tax caps, one for school districts and one for local governments. The school cap covers all districts other than those in the Big 5 cities. The local government cap applies to all other municipalities and special districts, but excludes New York City. Public schools in Buffalo, Rochester, Syracuse and Yonkers are covered under the local government cap because school taxes are part of the overall property tax levy in these cities.

Each cap limits annual tax levy increases to 4 percent or 120 percent of inflation, whichever is less, with an adjustment for year-to-year changes in revenue from payments in lieu of taxes (PILOTs). The school district cap includes two additional features. It adjusts the tax levy limit upward, based on a “quantity change factor” in districts where the full value of taxable real property is increasing due to new construction. It also exempts from the limit any property taxes levied to finance capital projects (“capital tax levy”). Both caps are not necessarily binding. Local governments may override the tax levy limit if their legislative body adopts, by a two-thirds vote, a local law to do so. School districts may have their residents vote on an override, with the margin necessary for its approval dependent on the annual change in the district’s state aid. Residents also may petition to force a vote to “underride” the cap and set a lower tax levy limit. Finally, if a school district sets its levy below the limit in any one year, it may add a portion of this “available carryover” to its tax levy limit in subsequent years, thereby allowing it to set a higher levy in those years than otherwise possible.

Total Property Tax Savings

If the proposed property tax cap were implemented starting in local fiscal years ending in 1996, total school and local government property tax levies would have been about 22 percent lower in 2009 than they actually were. The cap would have provided nearly $41 billion in cumulative property tax relief over this 14-year period, including $6.5 billion in 2009 alone. These estimates are based on property tax levy data compiled by the Office of the State Comptroller, but exclude schools and local governments for which data is incomplete or inconsistent. It includes libraries in the reported school district levies, and shows the full levy before any reductions due to STAR. The data also does not detail the levies of individual fire districts, fire protection districts or other special districts; instead, it provides total fire and other district levies by town. The analysis compares actual levies to the maximum permissible levy under the cap based on the allowable levy growth factor and, for school districts, the quantity change factor. In doing so, it is not assumed that the cap would have caused schools and local governments to set higher levies than they actually did. Also, the average annual change in the number of residential parcels in each school district is used as a proxy for the quantity change factor because actual historical values are not readily available. For school districts, estimated regional levy totals under the cap are then adjusted upward to account for the exclusion of locally funded capital expenditures from the cap. A proxy is also used to estimate this feature of the cap because no historical data is readily available on individual school districts’ capital tax levies. A statewide capital tax levy is

estimated based on non-dependent school district debt service less building aid, and is then apportioned among regions based on each region’s total school tax levy as a percentage of the statewide figure. It is assumed that all locally funded capital expenditures above 1994-95 levels occurred on top of the previously estimated levy under the cap.

Finally, the estimates do not account for the potential impact of three features of the proposed cap: (1) year-to-year changes in revenue from PILOTs, (2) tax levy limit overrides or underrides, and (3) the use of available carryover by school districts.

Typical Homeowner Savings
• •

The cap would have reduced the property taxes of a typical homeowner by an estimated $10,800 over the 14-year period of the analysis, including $1,700 in 2009 alone. In the absence of historical data on average or median residential property tax bills, the impact on a typical homeowner was estimated as follows: The Office of Real Property Tax Services provided a calculation of 2009 average residential school taxes net of STAR benefits by county to use as a starting point. A 2009 average school tax bill before STAR was calculated using the average benefit for homeowners claiming a basic or enhanced STAR exemption. The average total property tax bill for 2009 was then derived based on the school property tax levy as a percentage of total property taxes levied in each county. Regional estimates were then developed based on a weighted average of the tax bill of each county in the region. Average tax bills for 1995 through 2008 were calculated by backcasting from the 2009 regional estimates using the annual percentage change in actual levy adjusted for the average annual change in the number of residential parcels. Average tax bills under the cap were then calculated based on each region's capped levy savings percentage estimated under the total property tax savings analysis. The average STAR benefit was then subtracted from each region's average tax bill after adjusting for the impact that the school tax cap would have had on STAR benefits.

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