NY property-tax cap may hit cash-poor cities: report

NEW YORK Wed Jul 6, 2011 8:57am EDT

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NEW YORK (Reuters) - New York state's new property-tax cap might further pressure counties, cities, towns and school districts already struggling with lower tax revenue and higher expenses in the recession's wake, according to a report released on Tuesday by Moody's Investors Service.

The new law, which was signed on Tuesday by Governor Andrew Cuomo, is intended to help homeowners by compressing property taxes. The law is also intended to buoy the economy by lowering a barrier to new jobs.

At a median of $3,755 per household, New York's property taxes are more than double the U.S. median of $1,917, the governor said in statement.

Cuomo, noting three governors had failed to reduce "out-of-control" property taxes, said: "New York will no longer be the tax capital of the nation and this tax cap will go a long way toward revitalizing the state's economy."

The new cap limits yearly increases in property taxes to whichever is less -- 2 percent or the rate of inflation. Voters can get around the cap with a 60 percent vote on a school budget or a legislative body.

A number of states have examined capping property taxes, often the most important source of tax dollars for counties, cities, towns, and schools.

After Massachusetts capped property taxes in 1980, the levy did decline, according to a 2010 study by the Center on Budget and Policy Priorities, a Washington, D.C.-based think tank. But the think tank questioned whether that benefit was outweighed by the cap's "harmful impact," citing more reliance on state aid, wider gaps between rich and poor communities, and cuts in service.

DOWNHILL AT A FASTER CLIP

New York's property-tax cap risks accelerating a few downturns, according to Moody's report.

"While the cap will not directly prompt rating downgrades, the new restriction on the taxing powers of local entities only adds to their weakened finances," Moody's analyst Robert Weber said in a statement.

Moody's said that a number of New York's school districts have a cushion: They salted away reserves during the past few years. And for all school districts, debt service is exempt from the limits imposed by the cap.

But after three years of flat revenue, some towns are particularly vulnerable to curbs on tax increases.

"Of particular concern are the issuers who already face significant financial pressure," said Weber, listing as examples the towns of Colonie, Fishkill, and East Greenbush, and the cities of Newburgh and Glen Cove.

At least three cash-strapped counties also could be hurt: Monroe, Nassau, and Rockland, Moody's said.

The new property-tax cap does not apply to New York City, which pays for its schools out of the general fund.

In contrast, Buffalo, Rochester, Syracuse, and Yonkers do fall under the property-tax cap though their school districts are exempt, Moody's said.

(Reporting by Joan Gralla; Editing by Jan Paschal)

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