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Thursday, December 16, 2010

A Tip Of The Cap (Tax Cap)

It is a wise man who said that there is no greater inequality than the equal treatment of unequals.
      - Justice Felix Frankfurter

Let's examine this quote of former US Supreme Court Justice, Felix Franfurter, in light of the proposal to limit property taxes in New York state to no more than 2% above the previous year. This magical and somewhat arbitrary number is gaining political traction as if it's already been decided. Perhaps it will be, but first we should acknowledge the relationship between the Franfurter quote and what sounds like a fair (as in equal) proposal.

All communities, and therefore all school districts, are not equal. For instance, the Green Island Union Free School District receives approximately 43% of its revenue from state aid based on a formula that considers the property wealth and income wealth of Green Island. Lake George Central School, on the other hand, with valuable shore front property that produces a robust tax base, receives less than 10% of its revenue from the state. This same formula, as arcane and complex as the formula to construct nuclear fission in your backyard, is applied to all school districts throughout the state. This results in different districts receiving different amounts of funding from the state - all with respect to the ability of the local community to generate revenue. It accounts for rather significant differences in land value and income. So, for instance, the assessed property value of a shore front acre of land in the Adirondacks is worth much more than an acre of land in Green Island. That permits the local school district in the Adirondacks the opportunity to tax at a much lower rate than Green Island in order to generate an amount of money equal to the same tax receipts here in Green Island.

Let's take another look at the disparity in state aid funding. Imagine two districts that each have a 10 million dollar annual operating budget. We'll momentarily set aside the very small amount each district gets from the federal government for purposes of a simple explanation. After the state examines local property value and local income wealth they distribute aid to both schools. District A, because it's an affluent school system, only relies on state aid to provide 10% ($1,000.000) of their annual revenue with 90%, ($9,000,000) derived from local taxes. In comparison, District B receives 50% of funding ($5,000,000) from state aid, and 50% ($5,000,000) from the local tax base. Now, if the state rules that local property taxes are capped at no more than 2% above the year before that means that District A is capped at 2% above the $9,000,000 they raised in local taxes. That's a total increase of $180,000 additional money beyond the previous year. Meanwhile, District B's property tax cap of 2% above the $5,000,000 they raised in local taxes the year before results in an additional $100,000. There we have it. It's that simple. An equal (and fair sounding formula) rate of 2% tax cap applied to the two districts supplies unequal amounts of money. The affluent school system ends up with $180,000 and while the less affluent school system receives only $100,000. The financial gap widens and the rich get richer.The answer is to dispense state funds in an equitable manner, based on need, not an equal manner.

I'll conclude by reiterating Frankfurter's quote:
It is a wise man who said that there is no greater inequality than the equal treatment of unequals.

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