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New York Property Tax Monitor Property taxation, assessment, valuation by local governments throughout New York State

Calculating New York’s Two-Percent Tax Cap

Posted in Property Tax News, Tax Cap

It may be true that death and taxes are a certainty, but the notion that property taxes are limited to no more than a two-percent annual increase in New York under the new tax cap law is simply a myth. To make things worse, the complex formula municipalities and schools must use to calculate how much they can raise tax levies is a complex challenge even for finance managers, in which the 2-percent figure is just one of eight factors.

Gov. Andrew Cuomo’s much-touted tax cap legislation was passed in June 2011, promising to end skyrocketing annual property tax increases throughout the state. Yet, even before the law went into effect, many wondered by what magic local government and school services could continue to be provided at desired levels, in addition to funding various mandates pushed down from Albany, with budget growth limited to well below historic levels for many tax districts.

The greatest source of confusion among most New York State taxpayers is the suggestion that with the tax cap one year’s tax bill should never be more than two-percent higher than the year before. This is hardly true. Rather, the cap limit refers to the total tax levy (or budget) for the municipality or school, after application of a complex formula. The resulting tax bill for a property owner could be significantly more than two percent higher than last year’s bill and yet still meet the requirements of the law.

To see how this works, a local government finance administrator would begin by multiplying last year’s tax levy by a growth factor for the local tax base that is provided by the state for each locality. The tax base factor reflects changes that may have occurred to the total property value for the jurisdiction, i.e., property improvements, demolitions, new construction, etc. The finance administrator would then account for payments to the district in the last year based on non-taxable “payment in lieu of taxes” agreements (PILOTs), and subtract taxes that may have been levied for exemptions such as liability claims. With the resulting figure, the finance administrator would then multiply this amount by either two-percent or the Consumer Price Index (CPI, to account for inflation), whichever is less, and subtract PILOT payments anticipated for the coming year. The final result is the maximum tax levy for the current year that can be raised.

But even then, the municipality is permitted to add back certain items for things like mandated teacher and employee retirement systems, capital projects, and the like.

Ultimately, the levy increase – and your tax bill – can easily exceed two percent. And whether in some instances an increase of more than two percent may be legally permissible or not, you can be sure that many New York State taxpayers will be annually infuriated to find that they were misled by yet another act of smoke and mirrors orchestrated by Albany politicians.