The Two Percent Solution

"No man's life, liberty, or property is safe while the legislature is in session."  - Judge Gideon J. Tucker, 1866.

Tuesday afternoon a deal was struck in Albany to bring a 2 percent tax cap closer to a reality.  A cap on how much our property taxes can increase in a single year is a really popular idea:  in a recent poll, seventy-one percent of voters supported the plan.  The governor said it is what "the people have been clamoring for," and he hopes it passes before June 20, when the summer recess starts.

But what does it mean?  Will it help?

Roughly speaking, every dollar the school district spends comes from four sources.  About 86 cents comes from our property taxes.  State aid accounts for about a dime.  We get a couple of cents each from the "appropriated fund balance" (our money from last year that we didn't spend) and from "miscellaneous revenue" sources.

The sad news is that the dime we get from the state used to be more.  Two years ago they kicked in about 12 cents, and last year it was 11 cents.  It's possible that this year may be even less than the dime we anticipate.  It's left to us to make up the difference.  This is a big reason why the tax rate went up over 3 percent this year, though the actual increase in spending was less than 1/4 of 1 percent.

That trend will continue.  Since the 2005-2006 school year, the assessed value of property in our district has dropped by over $1 million.  During the same time the amount of money spent in the budget has gone up at more than twice the rate of inflation.  To cover that spending, and to make up for the falling property values, our actual tax rate has gone up 23 1/2 percent over the same period.  We now pay $207 for every $100 of assessed value of a home.  That's a lot of pennies.  If you feel like your taxes have been shooting up in the past six years or so, it's because they have.

Enter the 2 percent tax cap.  On its face, you might think that it means for every $1 we spent this year, we could add two more pennies and spend as much as $1.02 next year.  And we'll need those pennies.  We have to cover the normal increase in costs related to contracted raises, salaries, benefits and pensions.  Some have estimated that we will need that 2 cents on every dollar to cover those costs alone.  However, it doesn't work that way.  The 2% cap applies not to the entire dollar spent, but just to the 86 cents we pay in property taxes.  That means we could only increase that part to about 87 1/2 cents.  So instead of getting 2 cents more, we could ask for about 1 1/2 cents more. 

And we have to stretch that penny and half to cover everything that folks want to do:  maybe reconfigure our facilities; get two schools off the state lists; bring back a full day Kindergarten, special ed supports and the computer, art, and music rooms, save sports and other extracurriculars, and bring new technology into the classroom.

We can, of course, vote to override the cap.  The district really can propose any budget it wants - with a tax rate of 3, 4, 5, or 6 percent or more to make up for the increased costs and anticipated aid cuts.  If the voters approve by a 60% margin, we don't have to worry about the cap.  And many years we've passed the 60 percent mark - but not always.  We did this year, but we didn't last year.

But the coming years will bring even greater challenges.  Over the next five years, tax-funded annual contributions to the New York State Teachers' Retirement System will more than quadruple.  Our future budgets are at risk of being crushed, with pension and health care expenses alone far exceeding the cap amount.

Now the Assembly is tinkering with the tax cap bill, trying to exempt part of those pension costs, and trying to get the new law to expire, or "sunset," before the pension bubble bursts.  The Assembly would also allow increases in the tax levy if there is a "physical or quantity growth in the property base," such as the construction of a new development requiring added local services.  Hello, Avalon Bay.

Keep in mind that when determining the tax levy limit, the actual tax base is what gets multiplied by this "tax growth factor" - payments in lieu of taxes do not.  (For those who may not know, often when a new development is encouraged by a town, the development will get to pay a discounted payment instead of the going tax rate for a period of time - often called a PILOT, or payment in lieu of taxes.)  If more taxes are required to pay for new services required by a new development - say sewers or unanticipated schoolchildren - it's the existing tax base (essentially we single-family homeowners), not the PILOTs, that pays for them.  Something to think about. 

This is where it gets hard.  Where we have to fight the desire to run back to the slogans and simple solutions of the campaign season and have to tackle the tough questions and - gulp - math.  Where our newest board members quickly learn how much there is to do and how little time, or authority, they may have to do it.

One thing is clear (other than that whatever happens someone on the school board will get the blame): we can't just wait around, hoping for a turn in the boom-and-bust cycle to make it all go away.  We have to figure this out soon, or we really will be sitting around counting our pennies.

But that's just my two cents.