Tax cap can help for only so long

Sunday, November 18, 2012
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Whither New York’s tax cap?

More and more municipalities wrestling with budget realities have been voting to override the 2 percent limit on increases to the tax levy, and it’s not hard to see why.

Fulton County is the latest example. Its tentative 2013 budget, 5 percent lower than the current year’s, requires a 15 percent tax levy increase — thanks to higher costs for health insurance, Medicaid, employee pensions and the like. Not surprisingly, legislators were hesitant to impose a tax hike of that magnitude so they applied $1.5 million of a roughly $10 million surplus and got the tax levy increase down to 9.4 percent. That would still violate the county’s 2.5 percent tax cap by a wide margin, but officials are reluctant to apply any more of the surplus, lest there not be enough to cover them in a true emergency.

The city of Schenectady, having drained its reserve balances to almost nothing to mitigate tax hikes the past couple of years, is now exposed in that fashion. Mayor Gary McCarthy says it’s one of the reasons Moody’s Investors Service recently downgraded the city’s credit rating. He tried padding his 2013 budget in an effort to rebuild the reserves a bit — a defensible strategy that was worthy of public debate but one that the City Council majority decided to deal with in secret and ultimately rejected. So instead of a 4.2 percent tax hike, which would have provided the city a little breathing room and maybe kept Moody’s at bay for awhile, city taxpayers will be paying only 1.7 percent more next year.

But as the state comptroller’s audit released last week made painfully clear, the council only appears to have bought a little time: The city is on track to end next year in the hole by $2.2 million, and another $6.7 million in 2014. Where will the money come from then if there are no reserves?

Over the short haul, the tax cap imposed at Gov. Andrew Cuomo’s behest has certainly been effective in making municipal governments and school districts think more frugally (and school districts have it tougher because even if their boards override the cap, voters still have to approve their budgets). But with so many cost increases mandated either by the state or by union contract, there’s only so much municipalities can do: And once they’ve done the deep cutting, in the first year or two, their options are probably going to be more limited. If the city of Schenectady hasn’t reached that point yet, it seems likely to within the next two years. That’s when, barring a miracle or some windfall from the state, it seems inevitable that the security blanket known as the tax cap will be yanked asunder, and taxpayers will get stuck with a whopper.

Schenectady may get there before others, but before long it will probably have plenty of company.

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November 19, 2012
12:07 a.m.
JLibertarian says...

As a candidate for State Comptroller in 2010, I was opposed to then candidate for governor Cuomo's tax cap proposal for the very reasons that you have written in your editorial. I know first hand how the tax cap is a false promise from an ignorant politician who has no clue how a local government works. The Legislature is complicit in this charade because they refuse to reduce the mandated burdens that they have passed down to local governments. But they are not alone. The State Comptroller Thomas DiNapoli is also very much at fault in this situation. Being that he is the sole trustee of the Public Employees Pension System his mismanagement of that system has created the most significant burden on local governments of all the mandates. He continually raises the amount that local governments have to contribute for their employees' pensions annually. Since he took over the office in 2007, he has told the local governments to contribute an additional 8%, 12%, 16%, 18%, and now 20%. His excuse has been that the 2008 stock market downturn is the culprit. But the stock market had gained until recently almost all of its losses since 2008. What this means is his mismanagement of the investments made for the pension fund have been very poor and that his assumptions for the necessary rate of return were wrong.

Mr. DiNapoli does not have a finance background which is a big part of his problem. But a finance background hasn't been a big plus for past Comptrollers either. Former Comptroller Carl McCall has a finance background but he set all of this mess into motion back in the late 90's when during the tech stock bubble boom on the stock market, he told government employers that they did not have to contribute to the pension fund for several years because the fund was in great shape. Government employers are still paying for that grave mistake. Unfortunately, Mr. DiNapoli has two more years left on his current term in office. We can look forward to higher pension contributions for local governments until he leaves office.

What I proposed when I ran for Comptroller was that an independent board of trustees be created to oversee the pension fund investments. This board would be made up of parties that have an interest in the fund. That is employees, employers, and tax payers not patronage appointees. One public sector union - PEF - did not like this idea when they interviewed me for a possible endorsement. They will reap what they sow.

Until the mandates are eliminated, the local tax burden will continue to rise. We need to pressure the Governor and the Legislature to relieve this burden. Your newspaper could be a great help by calling for action.

Thank you,

John A. Gaetani
49 Cedar Ln
Glenville, NY

November 19, 2012
1:05 a.m.
hodgkins.t says...

Cuomo knew very well that the cap would make the localities realize their unsustainable structures, and it is working, people are starting to realize that having a new government every 5 miles is inefficient, divisive and anachronistic. In responding to the wailing of the locals he is ensuring their modernization.
See his recent musings for evidence of his foresight:

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