Most New Yorkers are aware that the state has a cap on local property taxes that has effectively slowed their growth. But few know that residents of a few large cities benefit from a multimillion-dollar infusion of state dollars that limits property taxes, while residents of smaller cities, towns and villages get far less help.
Among New York’s 25 most highly taxed municipalities, the state’s $715 million Aid and Incentives for Municipalities revenue-sharing program has a highly variable impact on property tax burdens. Without AIM aid, the property tax on a $150,000 home would be $4,500 in Buffalo and $4,827 in Binghamton. With AIM aid, the Binghamton homeowner would save about $1,000 while savings to the owner of a similarly-valued home in Buffalo are nearly three times that. Within the Rochester MSA, AIM saved owners of a $150,000 Rochester home $2,043 while Genevans with a comparable home—and a higher tax rate than Rochester without AIM—save only $735. Why should the tax break vary so much?
Villages and towns receive much less tax relief than cities. Although the owner of a $150,000 home in Alfred saved nearly $800, most received much less. The mere $38 savings in Ellenville was far more typical.
The data in this article are from the New York State Comptroller’s Office, Financial Data for Local Governments, 2017.
Reforming AIM revenue sharing
The existing AIM program reflects a series of past legislative bargains, responding to perceived needs that were identified many years ago but may no longer exist. The practice of allocating aid based on a combination of prior program funding and additional criteria results in a jumbled funding pattern.
Reducing the large disparity in tax rates among cities, towns and villages with high property taxes and those with lower tax rates should be a priority for reform of the current AIM program. Cities have been coping with losses of population for many years. Concerns about public safety, deteriorating housing stock and school quality as well as racial, ethnic and religious fears can discourage homebuyers from considering city locations. Attaching a significant property tax penalty to cities and other high-tax municipalities further deters housing consumers.
To make the AIM revenue-sharing program more effective, the state Legislature could consider increasing assistance to high-tax municipalities. As a hypothetical example, the Legislature could provide enough additional revenue-sharing aid to reduce the maximum tax rate differential to 30 percent more than the average for towns (including fire districts) within a county.
This table shows that increasing AIM aid to ensure that the municipal property tax rate for every locality in a county is limited to no more than 30 percent more than the average for towns, villages and special districts would even out the burden in different localities. The most dramatic case is that of the city of Geneva, which would see taxes on a median-priced home decrease from $3,180 to $743. Penn Yan taxpayers would have substantial savings as well–about $1,000 on a median-priced home. Altogether, property taxpayers in affected high-tax communities in the Rochester metropolitan area would save $38 million. Again, note that there are variations in median home values within counties. Home values in Rochester are lower than in most of the city’s suburbs.
Conclusions
Currently, New York property taxes impose a substantial penalty on residents of municipalities with high taxes. Cities other than Rochester, Syracuse and Buffalo face a significant disadvantage in attracting homebuyers because property taxes in cities are typically thousands of dollars higher than in surrounding communities. High property tax rates can reduce home values in a municipality because tax rates factor into their affordability.
Remedying the problems with AIM would be simple, though politically difficult. A uniform approach to cities, towns and villages that provides enough funding to reduce the tax penalty for living in high-tax cities and other localities to a few hundred dollars for a typical taxpayer would go a long way to resolving the problem. And, the approach should focus on differentials within housing markets—metropolitan areas or counties—not against statewide averages, since home buyers and owners are primarily interested in tax differentials within the areas that they might consider choosing.
The cost of making AIM more effective would be $510 million. But the important point is that an effective revenue-sharing reform would not add to overall state and local spending. Instead, by reducing local tax bills and moving costs to the state, it would even out tax burdens paid by residents for local government services. True, $510 million is a significant amount of money for state government to raise. But the cost should be viewed in context. Last year, state school aid increased by $995 million. And, AIM reform need not be implemented all at once. Instead, it could be introduced gradually.
John Bacheller, former head of the policy and research division of Empire State Development, is an author of Policy by Numbers, a blog that focuses on data and policy at the state level, with a focus on Upstate New York.