EXECUTIVE SUMMARY

A broad, tight cap on local property taxes is a central element of Governor Andrew Cuomo's agenda for making New York State more affordable and competitive. The governor's tax cap has passed in the state Senate with strong bipartisan support. Its fate will ultimately be decided in the state Assembly.

Cuomo has proposed capping the annual growth in local property tax levies outside New York City at a maximum of 2 percent or the rate of inflation, whichever is less. Tax increases above the cap would require supermajority approval - by more than 60 percent of voters in school districts, or two-thirds of the members of governing bodies of counties, cities, towns, villages and special districts. The governor's bill also would institute a new requirement for simple-majority voter approval of any school tax increase below the cap. Cuomo's cap would be more restrictive than those proposed by former Governors George Pataki and David Paterson.

This report analyzes the tax cap proposal in light of previous efforts to limit property taxes in New York and other states. It presents these findings:

• New York's local property tax levels are exceptionally high by national standards and have grown by more than double the inflation rate over the past decade, justifying the governor's push to limit future growth.
• The most significant previous attempt to limit property taxes in New York, the state-subsidized School Tax Relief (STAR) program, acknowledged the problem but did not fix it. The STAR experience indicates that attempts to shift the tax burden from homeowners to the statewide tax base will only encourage more of the spending that only drives up taxes in the long run. Proposed alternatives to a property tax cap would share this shortcoming, while also necessitating increases in state taxes.
• Cuomo's proposed cap is modeled after the most successful tax limitation approach tried in other states-Proposition 2½ in Massachusetts. Proposition 2½, which allows for voter overrides, has restrained the growth of the tax burden without compromising essential public services. Despite the tax limitation, Massachusetts' schools rank among the best in the nation.
• A cap's effectiveness in New York will be compromised if it is amended to allow automatic tax increases for fast-rising employee compensation costs, especially pensions.
• The enactment of Cuomo's cap in New York will further highlight the need for significant mandate relief that gives local governments and school districts the flexibility they need to restructure their budgets, especially rising employee compensation costs. Without mandate relief, some localities and school districts will find it harder to live within the cap without reducing the quality of services.