As if it wasn’t already hard enough to put together a budget.
Hearing for months about the new tax cap, local municipal and school officials are now saddled with the extra concern of trying to keep as many services as possible while keeping their levy increases to around 2 percent.
Judging from the comments of many officials, that promises to be a mountainous task. Health insurance and pension payments are soaring, and a paucity of mandate relief from the state has left local officials paying the tab for those costs.
The cap has produced a steady stream of complaints from local officials. They are critical of the mind-bendingly confusing formula as well as how a fiscally-challenged state such as New York could have the nerve to address local spending limits.
At a workshop held Tuesday in Alfred, officials from the New York Conference of Mayors said the cap is estimated to be 2 percent for the cities and villages compiling budgets in the upcoming months. Each year, the cap will be either 2 percent or the rate of inflation, whichever is lower.
For some local governments, allowing them to boost taxes by 2 percent won’t cover cost increases for 2012.
And at a recent gathering of school superintendents of the Greater Southern Tier BOCES, the cap further complicates a tangled school funding situation that continues to favor districts in wealthy parts of the state. Restrictions inherent in the cap make budget formation without a major tax increase logistically impossible.
Creating budgets a challenge now
Had the cap been in place in 2011, Hornell would have been able to raise an additional $56,000 without passing an override law. The city must now pay an additional expense of $16,500 for each election, said Mayor Shawn Hogan. With several primaries possible for 2012, Hornell could almost reach its cap without even mentioning police and fire pension cost increases of 4.2 percent or for the employee retirement system going up 2.2 percent.
Other governments are in similarly difficult positions. The Village of Avoca is looking at a 4.4 percent increase in retirement, while only $5,340 could be raised with a 2 percent increase in the levy.
In October Canisteo village officials said a 2 percent cap would allow them to raise an additional $8,235 in taxes. Facing an additional $37,500 workman’s compensation insurance cost handed down from the county and town to the village, a 2 percent tax increase wouldn’t cover the expense.
At Canisteo-Greenwood Central School District, Superintendent Jeff Matteson said reserves were exhausted last year to meet the current spending plan, and that there is little hope of coming up with a new budget without a major tax increase or deep cuts to people and programs.
“We’re running out of rabbits to pull out of the hat,” he said during a recent superintendents’ meeting at the BOCES headquarters in Coopers Plains. Of particular concern, Matteson said, was an aspect of the tax cap formula that actually takes away expected Payment in Lieu of Taxes (PILOT) funds – something of major concern with anticipated revenue from a wind turbine project now no longer available.
Where is the mandate relief?
NYCOM and local officials have been urging mandate relief from the state, and had hoped such relief would be passed when the cap was installed. Instead, the state approved $127 million in relief, a figure scoffed at by NYCOM and other officials.
“I’m not opposed to a tax cap, if the resulting mandate relief that was promised is forthcoming,” said Hogan previously. “Last year (the state) said they passed mandate relief, $127 million worth. If you look at an $8 billion budget, that’s like spitting into the ocean. It had no impact on anything.”
Items featured in the relief included no longer requiring municipalities to provide same-dollar increases to police chiefs when their top subordinate gets a pay bump or allowing them to recover expenses for a police officer who goes through training and then transfers.
Ideas such as freezing pension payments or establishing minimum health insurance contributions were nowhere to be found.
“I just don’t understand, without some relief, what the whole purpose of it is, because they’re driving us to cut services,” said Canisteo trustee and budget officer Tim Harkenrider in October. “It will force everything that I and this board have tried to do, to build up some money in the account and pay things down, it’s actually going to hurt us.”
Many pass override, even if not needed
As was seen several times late in 2011, towns in Steuben County passed override laws allowing them to increase taxes over the cap. Local governments can pass such a law with 60 percent of the board approval.
Schools, though, will have a tougher time overriding the cap. For districts to raise more than the levy alloted by the cap, they’ll need at least 60 percent of the public’s approval.
With how complicated the formula is, some towns passed the law as protection even though they didn’t go over the cap. If a government hikes taxes over the cap without passing the law, they could be subject to a state penalty, putting the amount illegally raised by taxes into a reserve fund to reduce the following year’s levy.
Drawing heavily on fund balance allowed municipalities who already approved their budgets to avoid going over the 2 percent, said NYCOM Executive Director Peter Baynes.
“You all know (that) isn’t a long-term solution to this fiscal challenge,” Baynes told government officials Tuesday.
Villages in particular could be in a tight spot because they have smaller levies, he added. Smaller levies means a smaller dollar increase with a cap in place.
“In many instances, you can’t even pay enough to (pay) the pension bill,” said Baynes.
Canisteo Mayor Bill Tucker agreed with Baynes, pointing out that “it wouldn’t take much” to eat up the village’s estimated $8,000 levy increase between the pension and health insurance increases and contractual raises.
Exclusions add to the complication
A handful of exclusions are factored into the cap, including tort payments exceeding 5 percent of the previous year’s levy.
Increases in the value of taxable property caused by new construction are also exempt. Termed “tax base growth factor,” the State Department of Taxation and Finance determines a figure that is factored into the cap formula. A number of “one” means there was no growth or there was depreciation, while anything over one means there was growth.
“There was no incentive for our members to grow their communities because with development in the communities, you have natural growth in your levy. However, at the same time, you have natural growth in your assessed valuations, so it doesn’t hurt your taxpayers,” said NYCOM Deputy Director Barbara VanEpps.
Pension payments up to 2 percent are factored into the cap, while any margin over the 2 percent is excluded. While that eases the burden somewhat, it wasn’t the predictable and and affordable plan NYCOM was hoping for.
That exemption for pension payments isn’t an option for governments deciding to amortize the pension payments.
Even governments who are looking at consolidating services could be penalized or rewarded. The state comptroller’s office determines the savings to one community where the services are cut, and the cost increase to the community adding the service.
The levy for the two communities is then either reduced or increased by the comptroller, depending on whether the service was cut or added.
Theoretically, if a service is cut, the government’s levy would decrease, meaning the amount they could raise through taxes would also go down.
“It runs contrary to everything else coming from Albany that you’ve been told, to be more efficient, to consolidate services,” said Baynes. “And then this whacks you in the face for trying to do it.”
Then there’s the PILOTs
Sources of income for local governments are even subjected to hurting them regarding the cap. PILOT figures growing less than 2 percent are essentially balanced out in the cap formula. Budgeted PILOT payments for the previous year are added to the formula, while the projected PILOT payments are subtracted.
Any PILOT figure over the 2 percent is added to the levy, though, bringing the municipality closer to its maximum total.
That creates a real Catch-22 in particular for school districts, according to Horseheads Central School District Superintendent Ralph Marino, which must accommodate the children of workers attracted to economic development projects created by those PILOTs. More students requires teachers and facilities, he said, yet the cap takes away initial PILOT money that would fund those expenses.
To address the tax cap issue, NYCOM formed an alliance entitled “Let NY Work,” which features organizations such as the New York State School Boards Association, the Council of School Superintendents, and the Farm Bureau. School districts have also joined the Statewide School Finance Consortium to plead their case in Albany.
“Let NY Work” is pushing not only mandate relief regarding pension and health insurance costs, but reducing construction prices, redefining binding arbitration, and prohibiting any new mandates. SSFC seeks change primarily in restoring funding equity between poor and wealthy school districts, which in turn would allow districts to present reasonable budgets under the new tax cap rules.
Still, there’s no guarantee any of what local officials and NYCOM are pushing for will be approved by the state.
“We have a long list, and I’m used to being disappointed,” said Hogan previously.
Dr. Rick Timbs, executive director of the SSFC, said his primary focus is gaining the ear of those making the rules in Albany. The state Board of Regents recently recommended many of the changes SSFC seeks, but without legislative action the possibility of districts declaring bankruptcy is very real for 2012. Timbs said an SSFC analysis shows at least 100 school districts will be in structural deficit in the next year to 18 months.
“They all passed these things,” Timbs said of the members of the Senate and Assembly in favor of the tax cap. “They’re helping the demise of the districts they represent.”