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TESTIMONY of the NYS Association of Small City School Districts for the NYS Commission on Real Property Tax Reform April 23, 2008 Presented by: Robert E. Biggerstaff, Esq., Executive Director and General Counsel On behalf of the New York State Association of Small City School Districts and the quarter of a million children and 1.5 million residents it serves, I welcome the opportunity to appear before the Commission and to submit testimony.[1] To give the Commission some background on our districts let me briefly digress. The fifty-seven small city school districts are located in all the cities of the state excepting the so-called big five cities, and are governed by New York Education Law, Articles 51 and 53. They are either co-terminus with or inclusive of cities in the State that have populations of fewer than 125,000 (see, N.Y. Education Law §2601). They serve two thirds of the city children located outside New York City. The State Education Department has characterized many small city districts as high need/low resource districts, i.e., districts with high poverty and a low combined wealth ratio. They have higher percentages of poor and minority students than their non-city counterparts; higher percentages of children with special educational needs, higher percentages of children on the free and reduced price lunch program; and higher percentages of dropouts and children at risk. They are more than twice as likely as the average district to suffer defeated school budgets. Small city districts are fiscally independent of the city in which they are located (Chapter 762 of the Laws of 1950). The financial base of these districts is provided primarily by a combination of local revenues from real property and non-property taxes, state aid and federal aid. Small city districts tax at rates which are significantly higher than the average district but their spending per pupil is significantly below the state average. According to the latest Chapter 655 report data, the average school district in New York taxes at $17.85 per $1,000 of full value. Small city school districts tax at $20.31 or 13.8% higher than average. This is so despite the fact that small city schools spend 10.1% less per pupil and have 12.6% lower income. The State has a Constitutional obligation (Article XI, §1) to insure that every child has a meaningful opportunity to receive a sound basic education. The Campaign for Fiscal Equity decision by the Court of Appeals in 2003 made it clear that this obligation was not being met in New York City. It is also now conceded by most that that obligation is not being met in many districts outside New York City. From 1995 to 2003 the Association participated in the CFE case as Amicus Curiae to insure that the remedy crafted by the Court for New York City would be made applicable to the rest of the state as well. The Association also participated in that lawsuit because it believed that the failure of the State to fund a sound basic education in poor districts was the single most important reason why school taxes in small city districts and in other poor districts have become so burdensome. The issues under consideration by the Commission are, therefore, of paramount interest and concern to our districts. I. Are Property Taxes Too High? The working premise of the Commission is that the overall level of taxation and the taxation of real property in New York State are much too high, that excessive taxation works extreme hardship on homeowners, particularly those elderly living on fixed incomes, and on the business community, thereby discouraging growth of the state’s economy, and that a cap is necessary. We ask the Commission to examine that premise, rather than accepting it without rigorous scrutiny. For many years statements such as this have been made without anything other than the most superficial factual support. As with any such premise, acceptance of the premise often dictates the conclusion, i.e. that a tax cap is necessary. The Commission should not merely proceed with developing cap recommendations without insuring that its work will have a sturdy foundation based upon sound logic and research. The first task then is to ask the following questions: Ask “too high in comparison to what?” The Commission proposes comparing New York to five supposedly similar states, California, Massachusetts, New Jersey, Illinois and Connecticut. These states are clearly not all comparable to New York in several significant respects. Only California and Illinois are comparable on a per capita income wealth basis. Both are about $62,000 per capita in annual income while the other three are 25% higher than that. Moreover, 58% of New York elementary and secondary students attend urban schools, while the other states have many more of their students in suburban and rural schools. This is an important distinction. Cities and other urbanized regions commonly experience much higher levels of taxation than do suburban and rural areas. The greater level of public services provided in urban areas contributes to what is known as municipal overburden. It is meaningless therefore to compare New York to states which are more rural or suburban in character. Ask “too high based on what measurements?” Ask whether property taxes are too high when measured as a percentage of full value or when measured against income. This is an important distinction, particularly in those regions of the state where very large segments of the tax base are owned by wealthy non-resident taxpayers. Ask “too high in all or only in some taxing jurisdictions of the state?” Ask whether property taxes are too high in all regions of the state, in cities as well as in suburban and rural areas, and in all communities whether poor or wealthy. In Exhibits A, B, C and D the Small City School Districts Association has prepared information on each full K-12 school system in the state and organized this information by geographic region and by Need/Resource Code. The geographic regions are those that the State Education Department developed to reflect the regional costs differences that are now used in the State aid formula. The Need/Resource Code is a system devised by the Department to group schools according to the degree of student need and the availability of local resources to meet these needs. Codes 1, 2, Codes 3 and 4 are all districts in which the student needs are high, but the local resources are relatively low. Code 1 is New York City, code 2 is Buffalo, Rochester, Syracuse and Yonkers, code 3 represents the high need urban and suburban schools, and code four is high need rural schools. Code 5 is average need schools, and code 6 is low need schools.
Not All School Taxes are Too High Eighty three percent of the 105 low need school districts in the state are clustered on Long Island (49) and the lower Hudson (38). They have the lowest school tax rates in the state by far and also the highest incomes in the state by far. Even when the income/student is adjusted downward for regional costs, the lower Hudson ($281,433) and NYC/Long-Island ($217,211) are about double the average district across the state ($118,624). Yet the average district’s tax rate in the lower Hudson is $15.63 per $1,000 and only $13.96 in NYC/Long Island. The high need districts in these same regions by contrast, pay much higher tax rates from much lower incomes. In the tight market for rental property in this area, renters cannot avoid paying these taxes any more than owners, yet owners get STAR exemptions and rebates, while renters pay higher rents. There are nine high need districts on Long Island. Their average tax rate is $22.59 per $1,000 – almost double the $13.96 rate of the low need districts. Yet the income level in the high need districts is about one-third that of the low need districts ($73,821 compared to $217,211). Let us assume that a family in the low need district owns a home valued at $600,000. In the same area are three families living in homes valued at $200,000 each in a high needs community. At these tax rates, the wealthier community demands 3.9% of the resident’s income, while the poorer community demands 6.0% of the residents’ incomes—a 50% difference. For owners, this burden is alleviated by STAR, while for renters and businesses, it is not. This creates a perverse incentive for businesses to locate in wealthy areas when those jobs are desperately needed in poorer areas. Moreover, the statistics used to measure Long Island as highly taxed add in the school taxes of non-residents but leave them out of income. This is an outright deception. We should not be surprised that the low need community is willingly spending far more on its schools ($15,546/pupil), since it can do so with a much lighter tax burden. That means it provides more services and pays higher salaries. School districts with very high property values tend to be the least efficient. That drives up the cost levels for the poorer, high need district in the competition for teachers. Note also that the aid formula put in place by the Legislature specifies a target funding level based upon student need, regional cost and sparsity. The low need community on Long Island already spends 86.6% more than the adequacy level with 90% of its students passing, while the higher taxed community only spends 8.5% more than the minimum with only 62% of its students passing. In the lower Hudson, the low need community spends double the adequacy level at a $15.63 tax effort with 91% of its students passing while the high need districts spend slightly less than the adequacy level on an $18.06 tax rate with only 63% of the students passing. These stark contrasts appear within the same geography, often only a few miles apart. What is the point? The point is that any tax cap scheme that is not carefully crafted only perpetuates the gross and glaring inequities that have kept this state in court for decades. The point is also that “high school taxes” are not uniformly high. Much of the priciest property in the state is taxed at levels that are much, much lower that those borne by small business and homeowners. The table of school districts (Exhibit B) lists 20 low need/wealthy school districts on Long Island taxing 309 square miles of prime real estate at an average tax rate of only $9.03 per $1,000. If there were a county-wide school tax in Suffolk County, thousands of highly taxed residents in that county would get substantial school tax relief without a dime coming from the rest of the state.
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