Spitzer Is Set To Cap Taxes on Property

Governor Spitzer, in his State of the State address on Wednesday, will signal support for imposing a cap on local property taxes in New York, which tower over the national average despite billions of dollars spent by Albany to ease the burden.

According to a knowledgeable source, Mr. Spitzer will also propose renaming Hudson River Park in Manhattan after his three-term predecessor, Governor Pataki, who in 1998 signed the original legislation creating a vast strip of public piers, boat houses, lawns, gardens, sporting facilities, bike paths, and walkways on the West Side waterfront between Battery Park City and 59th Street.

In doing so, the governor would be bestowing permanent public recognition on a man whom Mr. Spitzer once suggested left no lasting mark on the Empire State. A year ago, Mr. Spitzer in his inaugural address shocked many in the audience, including the former governor, when he likened New York during the Pataki years to Rip Van Winkle, the fictional short story character who fell asleep for 20 years.

Hudson River Park, or what will be George E. Pataki Park, is the largest open space development in Manhattan since Central Park. More than a third of it has been completed, including the Pier 40 courtyard fields at West Houston Street and Pier 84 at West 44th Street.

The two State of the State moves — one an unexpected, gracious gift to a Republican who has begun to fade from the public eye and the other an endorsement of a policy long championed by fiscal conservatives — signal an awareness by the embattled governor of the urgent need to retool his image.

Taken together, they suggest that part of Mr. Spitzer's strategy is to attempt to reposition himself as a centrist and to broaden his support among state Republicans, his toughest foes, with both policy changes and acts of random kindness.

As a candidate, Mr. Spitzer vowed to tackle New York's property taxes, which are 56% higher than the national average on a per-capita basis, according to 2005 data. Unlike his Republican challenger, John Faso, Mr. Spitzer rejected the idea of cap on property taxes, but he has softened his position since taking office.

In August, he acknowledged that state efforts to lower property taxes by subsidizing school budgets and mailing rebate checks to homeowners were undermined by the expanding budgets of school districts and local governments.

It is not clear if Mr. Spitzer would favor placing a percentage cap on local or school tax levies, or restricting annual growth in home assessments.

More than a dozen states have some sort of cap on the annual growth of property tax collections. A well-known version is Massachusetts's Proposition Two-and-a-Half, a 26-year-old statute that forbids communities from levying more than 2.5% of the total full cash value of taxable property in the community. Also, the levy cannot increase by more than 2.5% of the prior year's limit. Communities can vote to override the limit to pay for specific expenses.

Another form of a cap was put in place in California, which limits increases to the assessed value of homes by 2% a year, unless a transfer of ownership takes place. The state also imposes a 1% a year cap on the full value tax rate.

In the first 10 years of the cap's existence, Massachusetts went from having a tax burden that was 22% above the national average to one that was 1% below average.

Mr. Spitzer's first budget increased the School Tax Relief program, an initiative known as STAR that was started under Mr. Pataki, by $1 billion. By 2010–11, the program is expected to reach a cost of $6 billion a year. Despite the additional subsidies, property taxes have continued to rise.

The problem, fiscal observers such as the Manhattan Institute's E.J. McMahon contend, is that the subsidies encourage school districts and localities to spend more. A cap, they say, would force Albany and local governments to tackle the union contract and pension mandates that sustain high levels of municipal spending.

While Albany last year added $1.7 billion to its education budget and expanded the STAR program, school districts, which represent 58% of the property tax levy outside of New York City, raised spending by an average of 6%.

As the Citizens Budget Commission noted in a recent report, tax caps have also been criticized for being undemocratic and artificially limiting demand for public services.

A property tax cap, by encouraging a tightening of school budgets, would be certain to meet fierce resistance from the state teachers union, a powerful interest group outside of New York City, and skepticism from Senate Republicans.

In the city, however, a cap would have less of an impact because school budgets don't depend on property taxes.

Mr. Pataki, when he originally proposed the School Tax Relief program in the mid-1990s, included a tax cap in the legislation. At the behest of the New York State United Teachers union, state lawmakers removed the cap from the bill.