Under a tax cap, districts face $ gap

On Board Online • December 13, 2010

By Paul Heiser
Research Analyst

If the property tax cap envisioned by Gov.-elect Andrew Cuomo had been put into effect at the beginning of this school year and remained in effect through 2014, increases in personnel costs would exceed the maximum allowable increase in revenue from property taxes by some $3.3 billion, according to a new NYSSBA report.

The analysis assumed no layoffs or other intervening factors.

During the gubernatorial campaign, Cuomo championed a cap on property tax levies of 2 percent or the inflation rate – whichever is lower.  NYSSBA’s report compared estimated annual statewide increases in school district expenditures on salaries, health insurance and pensions for the period 2010-11 through 2013-14 with estimated annual growth in local property taxes under Cuomo’s proposal.

“The report is intended to show the cumulative, four-year impact of a property tax cap on school district personnel costs,” said David Albert, NYSSBA’s director of communications and research. Personnel costs represent more than 70 percent of a typical school district’s expenditures.

The figures do not include the state’s large city school districts (New York City, Buffalo, Rochester, Syracuse and Yonkers) because they lack independent taxing authority.

Because the most recent annual inflation rate was less than zero, the 668 districts that have independent taxing authority would not have been able to increase taxes this year over last year’s amount under the proposed cap. But personnel costs are expected to rise this year by an estimated $894 million – equivalent to the average salaries of about 13,400 teachers. 

The analysis found that districts would be able to increase property taxes a maximum of $229 million a year, on average, from 2010-11 to 2013-14 under a cap of 2 percent or the inflation rate. During that same four-year period, however, increases in personnel expenses collectively in those districts are projected to average about $1.044 billion per year, resulting in a shortfall of about $815 million each year.

“We need to think through the election rhetoric about imposing a property tax cap,” NYSSBA Executive Director Timothy G. Kremer. “The reality is that school districts need the ability to fund their contractual and statutory obligations. If not, they are going to have to increase class sizes, lay off staff, close buildings and eliminate or reduce extra help for students.”

NYSSBA’s report lists seven ways to improve school finances that do not involve limiting the taxation authority of school boards (specifically, the authority to propose changes in tax levies that do not go into effect unless approved by a majority of voters).

   The alternatives are:

• Implement a temporary statewide salary freeze for all public employees. Freezing school salaries during the state’s current fiscal crisis will enable schools to rein in spending immediately.

• Implement a mandatory minimum health insurance contribution for all employees. Requiring local government and school district employees to contribute, at a minimum, 10 percent (for individual coverage) and 25 percent (for dependent coverage) toward the cost of health insurance would directly address one of the fastest growing school district expenses.

• Enact a new Tier VI of the state pension plan. A new Tier VI for the state and teachers’ retirement systems that will offer either a defined contribution plan to new employees or a hybrid of both defined benefit and contribution plans will stabilize school pension costs because of its predictability. With a defined contribution plan, the amount of the employer’s annual contribution is specified and only employer contributions to the account are guaranteed, not the future benefits.

• Amend the Triborough provision of the Taylor Law to exclude teacher step and lane increments from continuation until new contracts are negotiated. The Triborough Amendment should be changed to require school districts to maintain salaries at the rate set in the expired agreement, but without further enhancement through step and lane increments during a contract hiatus.

• Enable BOCES to negotiate regional collective bargaining agreements for component districts to opt in. Currently, each school district negotiates its collective bargaining agreements separately. A regional collective bargaining contract with voluntary participation by school districts would put districts on a more level playing field with teachers unions during negotiations. It would also provide more career flexibility for teachers as they would more easily be able to transfer between districts covered by the same contract.

• Implement a regionally adjusted salary schedule for teachers. A statewide teacher salary schedule would help reduce the wide disparities in salaries (or increases in  salaries) among districts in different regions of the state. 

• Create lower-cost regional health insurance plans for all school employees. Two or three large regional health insurance pools would have enormous potential to drive down costs through increased purchasing power, standardize benefits for all participants, allow for set employee contributions and co-pays by region, and enable prescription drug savings, among other benefits.

An informal NYSSBA poll of school board members conducted in December 2010 found overwhelming support for alternatives to a property tax cap. According to the poll, 79 percent of school board members support a statewide salary freeze for public employees, while 60 percent support regional collective bargaining with teachers and school employee unions and 59 percent support a statewide teacher salary schedule.