New York Property Tax Relief Study: No Surprises
H. William Batt
GroundSwell, January-February 2008]
On December 2 Thomas Suozzi, Chief Executive of Nassau County, NY,
presented Governor David Paterson with the Final Report of the New
York Governor's Commission on Property Tax Relief on how to respond
to the state's homeowners pleading for property tax relief.
Suozzi, a very ambitious and aggressive figure who is seen as a
rising star among Democrats in the State, was appointed chairman of
the Commission on Property Tax Relief (CPTR), perhaps as a
consolation prize in losing a primary challenge for Governor months
before. The Final Report was hardly a surprise to those who read the
preliminary draft last July or who followed any of the hearings.
The Commission's recommendations were quite conventional: no tax
rates should exceed four percent and that a circuit-breaker should
be instituted to apply according to household income.
The CPTR was originally appointed last January by Paterson's
predecessor, Eliot Spitzer, to widespread acclaim and before his
ignominious fall, and was filled with assorted politicos and
advisors. It relied upon borrowed staff from various state
agencies and held public hearings in the course of its
deliberations. But none of its members or staff looked widely
beyond its mandate to look for ways to cut school budgets and to
find means of property tax relief to homeowners. The run-up in
residential property values in the course of the recent real-estate
bubble, has led to widespread complaints about the burdens of
property taxes, especially in the commuter communities outside of
New York City. But compared with the quality of commission
studies for which New York State was known for decades ago, this one
is thin and shallow. When once New York relied upon studies by
figures like Robert Murray Haig, Edwin Seligman, Paul Appleby, Fred
Kahn, and Norman Hurd, giants in the field of public administration
and fiscal policy, no one close to this level comes near Albany
There was no other attention first of all to the problems inherent
in current assessment practices except for one recommendation that
responsibility for assessments be shifted and consolidated from the
present 1,128 assessment districts to the 62 county governments.
The State Office of Real Property Services (ORPS) has made available
grants to localities to encourage them to do more frequent
re-valuations, but there are still many instances where there hasn't
been one for decades! And there is as yet little further
attempt by the State's Office of Real Property Services to bring
property tax administration into the 21st Century, as by GIS and
land value mapping.
The conclusions and recommendations of the CPTR may actually have
set back any ongoing discourse on property taxation. There was
no mention of its economic dynamics, for example that the taxation
of land and improvements differ in their impact. There
was no mention of tax impacts upon sprawl development, and nothing
about how any tax on real property measures up to the textbook
standards of what constitutes sound tax policy. There was no
mention of the tradeoffs between the major alternative tax
structures and their pros and cons. Nothing about economic
rent, nothing about economic productivity, and nothing about
deferral options, generational equity, or economic development.
It's as if the commission had its conclusions assigned before they
even started their review -- which may well have been the case.
Reading between the lines, one can infer that its greatest concerns
were distributive justice and economic competitiveness, but neither
of these criteria was explicitly mentioned anywhere in the report.
In fact, all that was discussed at all, at least in the first half
of the hundred-page report, is why New York's property taxes are "too
high" and the various ways to correct this. Presumably
this is measured against the patterns of other states, and reliance
upon what is often known as the "three-legged stool" of
public revenue design. I've written at length on this
convention elsewhere, arguing that it really doesn't make much
sense, but it continues to be an unexamined truism.
Comparisons with other states make little sense either, because
salaries, costs, and, yes, property values too, are higher in New
York than in most other states. Even as a proportion of per
capita income, New York's property taxes are not especially out of
line with those of other states.
What is most clear is that the property tax is reviled in good
part because it is typically paid in one lump sum rather than in
installments and because it is not understood. It's also much
more difficult for people to understand such concepts as deadweight
loss, economic rent flow, capitalization of gain, depreciation, and
distributive justice than simplified notions of progressivity or
regressivity. People are effective in being able to
reach their political leaders and influence their positions on
property taxes, far more easily than on income and sales taxes.
Since buildings are estimated to depreciate in value at about 1.5
percent annually, the proportion of land value to building value on
many residential parcels is essentially reversed in the course of a
new home's thirty-year mortgage. Increases in property value
are for the most part due to land appreciation, something totally
due to the community's collective enterprise, and irrelevant to
individual titleholder behavior. Yet homeowners see
their possession of title as a strategy of private "equity
building," to be cashed out when an owner dies or
moves to a nursing home. It is not earned wealth at all; it is
simply windfall gain, which in many instances is a crapshoot.
Especially today since many households have relied on increasing
home equity as a cash cow, their welfare position is precarious to
the extent they are banking upon cashing out again at retirement.
Professor Michael Hudson argues that the increase in the price of
housing, and the need to rely upon ever-greater mortgage debt to
secure ownership titles, has essentially profited the banks.
Whatever value isn't a result of land rent capitalization then
becomes pledged to banks in mortgage payments, leaving owners linked
to their debt obligations much as serfs were tied to the land in an
earlier age. Absent the public's recapture of rent to pay for
public services, payments are instead made to banks and then again
paid by taxes on goods and labor. The citizenry effectively
pays twice and only a small class of rentier owners benefits from
The best solution for New York State's overburdened taxpaying
homeowners would have been to allow deferral of part or all of the
land gains until the property is sold, then to be paid off with
interest any obligation due. Secondly, phasing out taxes on
buildings, relying instead upon a revenue neutral shift to land
values, would relieve most homeowners and be assumed by vacant and
underused sites in high-value neighborhoods. These are parcels
often owned by absentee landlords and speculators. In my
testimony before the Suozzi Commission, I proposed just these
solutions, adding that some twenty-four states have at least some
system of deferral as a means of alleviating hardship cases, and
land value taxation is spreading more widely now with the advantages
of computer simulations. Deferral arrangements allow
homeowners to continue living in their homes without fear of
expulsion by the taxman, and to honor their obligations to the
community by ultimate payment of any amount due. Consideration
of these options didn't even make it into the Final Report.
Homeowners are a politically powerful constituency, especially
when silently backed up by the real estate industry: cases may be
apocryphal about "poor widows" thrown into the street and
about lifetime equity rightfully gained now snatched away. No
distinction is made between income that is earned by labor and that
which is windfall gain by the capitalized flow of rent. Even
though Professor Hudson estimates that about 80 percent of capital
gains is really various forms of capitalized land rent, such gains
are viewed as entitlements every bit as much as are earnings.
The decedents of retiring homeowners feel more entitled to the
inheritance from their parents, a windfall that is often fortuitous
at best, than they feel their obligations to society. With
roughly two thirds of all households having property titles, there
forms a conspiracy of thieves all collectively involved in the
politically untouchable robbing of the commons. What's mine is
mine; what's ours is negotiable.
And so the moment may soon pass when any reasonable challenge to
the current arrangements is possible -- if it hasn't already.
The Legislature and the Governor's office don't even see any bigger
picture beyond current screams. No one here in Albany,
except for my own lonely pleadings and testimonies, offered the view
that privileges secured so widely, even if so randomly, are really
hurting us all. No presentations and essays, except my own ten
or so submissions, spoke to the larger issue of discrimination,
injustice, inefficiency, unpredictability, and downright foolishness
that the present proposals entail. The protests against the
current property tax burdens were deafening.
I fully expect that the tax cap and circuit breaker designs as
proposed by the Governor's commission will pass the Legislature
shortly. Too many of the conspiracy windfall gainers and
supplicants have already signed on, and their ability to see things
differently is not only remote, it's now also beyond our resources
to make a coherent presentation. If I had graphic
explanations, statistical analyses, maps, and media access, I might
have had a chance. But we have none of this.
Likely, matters will continue to unfold in their inexorable and
cumbersome way until another property tax crisis again requires
attention a few years from now.