Advocates of sensible property tax reform can take heart from a new poll released by Siena College last week asking New Yorkers to evaluate Governor David Paterson's proposed school property tax cap and a more progressive measure known as a "circuit breaker." A circuit breaker is a credit that prevents property taxes from exceeding a certain percentage of a homeowner's income. This generally provides much more targeted relief than a property tax cap, which benefits all homeowners no matter how wealthy they are.
An idea to create a circuit breaker funded by an income tax increase on millionaires is supported by most New Yorkers (75% to 17%). A majority, albeit a smaller one, also supports a state-wide property tax cap of four percent of year (69% to 20%). But the interesting result is that when asked to choose between the two, more people support the circuit breaker (52% to 36%).
Governor Paterson should take this as a strong signal and press for targeted tax-relief rather than the across-the-board cap. A circuit breaker would guarantee that property taxes are fairly distributed. A property tax cap, on the other hand, could deprive localities of more revenue and will make it likely that they will turn to more regressive revenue sources like the sales tax to fund their needs.
Other states that have experimented with state-wide property tax caps have had poor results. New York should look to neighboring Massachusetts which imposed a statewide property tax cap under Proposition 2½. Although Massachusetts has indeed avoided massive cuts in school funding, its cap has led to cuts in other areas funded by municipalities (parks, libraries, etc.) and the state has needed to contribute significant funds to prevent cuts to education.
As the Center on Budget and Policy Priorities reported in May, schools could be hit harder in New York because its proposed property tax limit is solely on school property taxes. New York State has a projected $5 billion budget deficit over the next fiscal year and is unlikely to be able to bail out school districts when they are unable to raise enough revenue to meet their needs. If New York raises taxes to increase education funding, the property tax cap effectively means replacing one tax with another and it's possible that the state will end up with a more regressive tax system in the end.
The Fiscal Policy Institute has published the poll results here.