“Convoluted” is a common word uttered by local government leaders and school district representatives when describing the process in calculating their respective tax caps during budget season.
Now in its second year, Governor Cuomo’s tax-cap legislation was intended to rein in local spending by capping year-to-year property tax hikes at 2 percent.
But, as local budget planners are likely to lament, the “2 percent” labeling suggests a firm cap on a number that is anything but. Meanwhile, some taxpayers are left wondering how a property tax levy hike of 3.69 percent — the increase that’s coming to Tompkins County taxpayers next year — remains within tax-cap parameters.
The answer is in the state’s complex, multi-step formula for calculating each local entity’s tax cap.
Every New York state municipality and school district must calculate their own tax-cap figure using this formula. Budget planners plug in factors like prior year’s net property tax amount, tax base growth, positive or negative swings in Payments in Lieu of Taxes, exemptions like pension rate growth that exceed 2 percent and other arcane financial data.
All of these factors have a direct effect on what a municipality’s tax cap will be, said Kevin Sutherland, an executive assistant within Tompkins County Administration and budgeting tag-team partner with County Administrator Joe Mareane.
Take, for instance, the county’s PILOT payments, Sutherland said.
In 2013, Tompkins County expects to take in $200,000 less in PILOT payments than it did this year, largely stemming from the $170,000 PILOT adjustment with AES Cayuga, Lansing’s coal-burning plant. The $200,000 loss in PILOT payments represents roughly 0.5 percent, which is factored into the formula and absorbed into the county’s tax cap, Sutherland said.
Arriving at a firm tax-cap number is an entirely different challenge, and many governments and school boards chose a preliminary override of the cap, not with plans to seek additional tax revenue but to avoid any budget penalties resulting from miscalculations in the formula.
Not helping county budget planners were unexpected state changes to the tax cap formula that can make for even larger fluctuations from the “2 percent.”
Taking counties, including Tompkins, by surprise recently was an edict by the state comptroller’s office to include another step in the tax-cap formula. This additional step involved how sales tax is allocated between counties and their towns.
“The comptroller is saying that when you look at levy growth, you not only look at the tax levy, but after that, you have to look at what towns do with their share of the sales tax,” Mareane said. “It confuses an already confusing way of calculating the cap that most people still believe is a 2-percent cap.”
Local towns get a share of sales tax money, which they can use in one of two ways, Mareane explained. First, municipalities can take their share of the local sales tax and plug it into their respective budgets, to be used to pay bills or buy new equipment, say. A second option, though, allows for towns to give part or all of their sales tax allocation back to their home county to lower the overall county tax bills for their residents. It’s this latter option that can affect the cap; under the new change, what towns decide to give back to their home counties must be deducted from the county’s expected property tax revenue.
In Tompkins County, the towns of Caroline, Danby, Enfield, Groton and Newfield chose to give back some of their sales tax allocation in the current year, Sutherland said. But even with a roughly $3 million sales tax deducted from its property tax line in 2012, Tompkins County expects a net gain in the town sales tax credit in 2013. The end result, oddly, was positive: the county’s tax cap floated even higher to 3.69 percent.
New York Association of Counties has contested the change, arguing that what towns do with their sales tax allocation is beyond a county’s control. Also, the change makes it difficult to budget from year to year, said NYSAC Deputy Director Mark LaVigne.
“For some counties, their tax-cap number is now smaller than last year,” he said. “If [the sales tax allocation] changes every year, it’s a yo-yo: the levy goes up and down depending on what towns decide to do. … It makes for unpredictable budgeting in an already increasingly complex budgeting world.”