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Union Sues To End New York Property Tax Cap

A teacher’s union has sued New York State government to overturn a cap on property tax increases enacted in 2011.

The New York State United Teachers Union filed its suit against New York Governor Andrew Cuomo, Comptroller Thomas DiNapoli and commissioner of education John King on Wednesday in state supreme court in Albany.

The tax cap does not affect New York City. It affects school districts and other municipalities differently.

Outside of New York City, New York school districts are required to have their budgets passed each spring. The tax cap requires that if the districts want to increase the property tax levy by more than 2% or the rate of inflation, whichever is lower, 60% of the voters must approve the budget. If the district fails to win approval after two votes for its budgets, a contingency budget is used with a levy no greater than that of the previous year.

The levy is the amount of revenue from property taxes. The cap on increasing the levy excludes changes in levy amounts due to revenue from newly constructed property. There are exemptions to the limit allowed for large tort settlements and increases in pension contributions of more than 2% per year. Capital project expenses are exempted for school districts but not for other municipalities.

For non-school municipalities, the cap requires governing bodies to give a 60% approval to exceed the cap. If the body does not muster a 60% approval level, a budget without a levy increase is used.

The union is claiming seven causes of action for the suit. Among these, it says that the 60% threshold is unconstitutional because it violates the one person, one vote principal.

New Paltz residents voted in spring 2012 59.4% in favor of a proposed school budget that exceeded the cap, union chief press officer Carl Korn said. Because of the new law the will of the minority on the budget must be followed, he said.

The new law locks in inequities between poor and wealthy districts, the union is arguing. Korn gave the example of a poor and wealthy community in New York that followed the 2% cap this past year. From the same percentage increase, the poor community is gaining $124 per pupil and the wealthy community is gaining $713 per pupil, he said.

The union had to wait for the May 2012 school budget elections to gather a data set on which to base a lawsuit, Korn said. Since May the union has been preparing the suit.

Financial observers have had mixed opinions about the cap’s impact on New York local finances.

“The recently enacted cap on property tax increases further complicates the fiscal picture for school districts,” wrote Paul Volcker and Richard Ravitch’s State Budget Crisis Taskforce in its report on New York.

“The cap will pressure the credit quality of all New York local governments, and could result in a reduction of fund balance levels for some,” three analysts from Moody’s Investors Service wrote in May 2012.

“We believe that it is too soon to determine the effects of the levy cap,” wrote Standard & Poor’s analysts Lindsay Wilhelm and Nicole Ridberg in January. “Over the longer term, an issuer’s ability to manage … budgetary pressures within the levy cap will remain a rating consideration.”

“We have not made any rating distinctions due to the cap, because it can be overridden with a 60% vote of the governing body,” wrote Fitch director of corporate communications Elizabeth Fogerty.

According to the Tax Foundation, New York ranks fifth in property taxes per capita.

Because of the exemptions to the property tax hike and voter and government approved overages, the average levy increases for local government classes exceeded 2% in the fiscal year that began in 2012. The average increases ranged from 3.3% for cities to 2.5% for fire districts, according to the New York Office of the State Comptroller.

The five most populous cities in New York after New York City have school systems with budgets that are part of their municipal budgets. The cap rules that apply to them are those for municipalities rather than those for school districts.

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