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County Legislators Hear About Impact, Analysis of Governor’s Property Tax ‘Freeze’ Proposal

OSWEGO, NY – For Oswego County taxpayers it could mean a $16.07 rebate check for two years or a permanent $514.08 tax cut.

At Thursdays Oswego County Legislature meeting, County Administrator Phil Church presented a summary of the Governor’s property tax freeze proposal and what it could mean locally.

“If the state passes this, it will determine a lot of the work that all of you (legislators) and all of our department heads, myself and the chairman do for the next two years,” Church explained. “So we thought it was very important for you to understand what the proposal is and what it will require you to do.”

In his 2014-15 state budget, Governor Andrew Cuomo proposed the state earmark $1 billion for property tax relief and another $1 billion to support a variety of business tax reductions.

The Governor anticipates this $2 billion will be available surplus in the state’s fiscal years 2016-17.

The first $1 billion is earmarked for a two-year “property tax freeze,” accomplished by sending rebate checks to homeowners in each tax jurisdiction that complies with the two-percent real property tax cap.

The rebate would be equal to the amount of the year’s increase in the homeowner’s tax bill.

Homeowners would be eligible for a rebate in the second year only if their jurisdictions keep their levies within the cap and also submit a local government consolidation and shared-services plan to the state by June 2015 that will reduce the participating jurisdictions’ aggregate tax levies by three percent.

The proposal also contains a “circuit-breaker” in years 3 to 5 that would tie the net amount of a homeowner’s property tax bill to the homeowner’s ability to pay, and a state-funded tax credit for property taxes paid by manufacturers.

The Governor assigns the responsibility for coordinating the development and implementation of the consolidation/shared services plan to the county.

“The county will be required to be the lead agency in all of this, responsible for bringing together all property-taxing jurisdictions, including county, city, town, village, fire, school and special districts to discuss and agree upon dissolutions, consolidations and service-sharing, and writing and submitting the plan, all within 16 months,” he said. “Current consolidations don’t count. It’s got to be a new consolidation or shared services.”

Participation of each tax jurisdiction is voluntary.

If a county chooses not to participate, the lead agency responsibility falls to next largest tax jurisdiction.

ANALYSIS – Rebates

“Using Oswego County’s 2014 combined tax levies for operations, community college, and workers compensation ($50,314,900) and the 2014 full value ($5,932,003,592), we can calculate the amount of an average homeowner’s rebate check, assuming a straight 2% tax cap increase for 2015,” he said. “For the average Oswego County home valued at $94,500, the rebate check would be $16.07.”

However, the proposed rebate is applied to all tax jurisdictions, not just the county, he added.

For illustrative purposes, using a chart of 2012 tax levies for all jurisdictions in Oswego County (source: NYS Comptroller’s Office), assuming a straight 2% tax cap increase and assuming all jurisdictions participate, the combined total of all rebate checks the average homeowner might receive in one year would be less than $74.65, he pointed out.

It would be “less than” because no one property can exist in all the listed tax jurisdictions.

The cost to state taxpayers of implementing this proposal is unclear, the county administrator noted.

When considering the work and bureaucracy needed to collect, record, and organize all tax levy data in the state, then determine each homeowner’s eligibility for a rebate check for every county, city, town, school, fire and special district in which they may reside, and then cut and send a check for each… it becomes apparent the cost of the undertaking will be significant to taxpayers, Church said.

The state’s ability to calculate rebates for a current year is also “questionable.”

The 2012 tax levy chart used for this report came from the State Comptroller’s Office.

It is two-year-old data because that is the most recent data the state has been able to organize and publish. The “economic growth factor” in the state’s tax cap formula is calculated using three-year-old data, because that is the most recent data the state can muster.

“How then will the state be able to calculate rebates on a current year tax levy with any reasonable assurance to taxpayers that it was done accurately and fairly?” he said.

Two additional considerations:

1.    The rebates are reportable as income on homeowners’ federal income tax returns, diminishing the overall financial benefit;

2.    The source of funding for the homeowners’ rebates is a projected $1 billion of surplus generated from, among other taxes, the state income taxes of those very same homeowners.

The latter raises a question of equity: Is it proper to use all income earners’ taxes to subsidize homeowners’ property taxes?

Consolidation and Shared Services Plans

In addition to complying with the tax cap, in order for homeowners to receive rebate checks in the second year, tax jurisdictions in the county will have to develop and submit plans to the state by June 2015 that will reduce the participating jurisdictions’ combined tax levies by three percent by the fifth year.

Again using the state’s 2012 tax levy chart for Oswego County, and assuming all jurisdictions participate, the consolidation / shared service plan will have to demonstrate a savings of $7.2 million.

“The 3% target will be a difficult mark to hit for the following reasons: The savings can be generated only by reductions in the small portion of local levies that are not controlled by the state through its mandate system. It is unclear whether the ‘savings’ must be a real 3% reduction from the second-year tax levies, or an ‘avoided cost’ – meaning tax levies may increase but would be 3% less than they otherwise would be,” Church told the legislators. “Many of the most cost-effective ideas for shared services are prohibited by state law and will require changes in state legislation to allow… a lengthy process that is unlikely to be completed by June 2015.”

Finally, the consolidations and shared services local governments have already implemented will not count toward the 3%, he reiterated.

“This lack of recognition for existing shared services places most counties at a disadvantage. Counties have long been leaders of such efforts,” he said. “Beginning decades ago and up to today, Oswego County has a long record of consolidated and shared services with local municipalities.”

For example, he provided a short list that includes: social services, public health, solid waste, youth bureau, elections, weights and measures, drug task force, emergency dispatch (911), emergency communications, shared backup PSAP with Onondaga County, 911 consortium, evacuee reception center, sand and snowplowing, cooperative bidding, Automatic Vehicle Location, fire and EMS coordination and training, civil service administration, regional tourism marketing, tax bill printing, tax collection, workers comp plan and regional planning.

None that will count in the Governor’s plan, nor will the recent dissolution of the village of Altmar.

The Governor’s goal of reducing costs by reducing the number of local governments or at least sharing costs among them is an understandable approach, and may result in some savings, the county administrator said, adding “That is why counties have been leaders in shared services for decades.”

According to Church, when a consolidation or shared service is proposed, the important question for public officials to ask is, “How much will the consolidation or shared service save the taxpayer, and does it lessen citizens’ democratic control over their local government?”

Implications of the Tax Freeze Proposal on Oswego County’s Tax Cap Waiver

The tax freeze proposal has a unique and significant impact on Oswego County that will require county legislators to weigh certain risks.

Oswego County has adopted budgets every year that comply with the tax cap, but the county has also adopted a precautionary waiver of the tax cap every year because of the ongoing multi-year tax certiorari with Entergy Nuclear and tax payment negotiations with Constellation Nuclear.

“These waivers are necessary to protect county taxpayers from seven-figure penalties in the tax cap law that would be enforced by the State Comptroller in the event a tax agreement or certiorari results in changing the county’s tax levy retroactively for prior years,” Church said.

The tax freeze as currently proposed prohibits precautionary waivers of the tax cap.

“Due to the past waivers adopted by the county legislature, our taxpayers are protected through 2014,” Church said. “However, in deciding whether or not to support and participate in the tax freeze proposal, Oswego County Legislators will have to weigh the risk of not adopting waivers for 2015 and beyond. That’s one of the questions you’ll have to answer if this thing passes; is the rebate worth the risk?”

Tax “Freeze” Plan Compared to Mandate Relief

Property taxes in New York State are too high, and are among the highest in the nation.

The Governor’s assertion that local governments and their number are to blame for high local property taxes is unsupportable by any objective quantified analysis, Church said.

“The Governor’s tax “freeze” and shared service plan does not address the problem that has led us to this point – the role of the state itself in pushing enormous costs to counties, municipalities, and school districts,” he said. “The root cause of high property taxes in New York State are the costs of state mandated programs.”

In Oswego County, Medicaid alone consumes 55% of the property tax levy; the entire property tax levy is consumed by just six of dozens of state mandates, he added.

“At a time when the state is demanding new thinking about the alignment of responsibilities among local governments in order to reduce property taxes, it is time to consider how a realignment in the relationship between the state and its counties could produce far more meaningful, and sustainable long term property tax cuts than the state has proposed,” Church said. “The state could assume the full cost of its major programs that it currently forces counties to pay. Through this mandate relief, the Governor and the State Legislature would enact the largest property tax cut in the history of the state. Furthermore, the result would be a sustained reduction in property tax burdens for the owners of all classes and types of property.”

Many counties and the New York State Association of Counties (NYSAC) are proposing this alternative method to provide property tax reduction to New Yorkers, he said.

The alternative consists of the state taking over the costs of four of its own programs: Medicaid, indigent defense, pre-school special education, and Safety Net.

Some taxpayers may ask, “It’ll be the same amount of money whether I pay the county or the state, so what difference does it make?”

“Under the current mandate system, the state can require counties to provide services without regard to cost, and the result is high property taxes. However, if the state suddenly has to pay the costs of its own programs the overall costs to the taxpayer will be less, because the state will, for the first time, have to make financially responsible decisions about the services it provides,” Church explained.

Below are the financial benefits to the average Oswego County homeowner and the bureaucratic complexities of the state’s tax freeze proposal compared to the mandate relief method proposed by many counties and NYSAC. The comparison is based on the 2014 Oswego County budget.

Comparison of the proposals
Comparison of the proposals

“Clearly, the mandate relief method results in greater property tax reduction over a longer period of time, contain less bureaucratic complexities and doesn’t require new circuit breakers and exemptions,” Church said. “If Oswego County taxpayers were asked, ‘Which would you choose: a $16.07 rebate check for two years or a permanent $514.08 tax cut?’ it would not be a stretch to predict their answers.”