Sunday November 6, 2011
ALBANY. N.Y. -- Just look across the border to Massachusetts to see the impact of a property tax cap, such as the 2 percent limit approved this year in New York.
Taxpayers in Massachusetts have lived under a 21 2 percent cap since 1980, and the policy has lived up to its name: It has kept a cap on tax increases.
If you compare property taxes in Troy, N.Y., and Pittsfield, Mass., for example, you'll find more than just a tale of two cities.
In Troy, Angela Renna lives in a 21-year-old, 1,850-square-foot, split-level home in a quiet residential neighborhood far from the city center. Taxes on her home run $6,564 a year.
"Troy is outrageous," Renna said. "Rensselaer County is out of control, too."
An hour away in Pittsfield, Carl Callahan has an 11-year-old, 1,850-square-foot residence, also located on a tranquil street away from the bustle of downtown. Taxes on his home run $4,579 a year.
The $2,000 difference is significant, but consider this: Renna's house likely would go to market at about $164,000; Callahan recently sold his for $305,000.
A $164,000 home in Pittsfield would carry a tax bill of $2,489, or just over one-third of the cost in Troy.
Why the difference?
Real estate and taxation experts point to the longstanding Massachusetts cap as one of the reasons -- as well as a simpler, less burdensome system of local government.
While some public officials in New York proclaim they can't live under a cap, Massachusetts appears to be doing fine after three decades of tax constraints. Both caps limit the amount of annual increases in the property tax.
New Yorkers bemoan their tax rate, while Bay State residents are surprised at how much their Empire State neighbors pay.
"Wow, I'm glad I'm not there," Callahan said when told of what his taxes would be in New York.
In Massachusetts, Proposition 21 2 places a cap, known as the levy limit, on the amount of property tax revenue a municipality can assess its residents every fiscal year. That figure, set by the state, allows for a 21 2 percent increase of the previous year's levy limit when it is combined with new growth. If a municipality needs to exceed the levy limit set by Proposition 21 2, it must call for an override that residents consider by vote.
In fiscal 2008, for example, Pittsfield's tax levy limit increased 4.6 percent to $55.6 million, but it was roughly $5.4 million under the $61.1 million cap that had been set by the state.
Before Proposition 21 2 was enacted 31 years ago, state property values "went through the roof," said Paula King, who heads Pittsfield's board of assessors.
"I don't think there's ever been a time when Pittsfield has gotten to that ceiling," she said.
"We can only tax to that limit," said Susan Carmel, the city treasurer.
The Times Union compared taxes in Troy and Pittsfield, which share numerous socioeconomic characteristics. Both are small cities that are trying to reinvent themselves in the post-industrial economy. And both have small urban centers ringed by leafy suburban neighborhoods.
Troy has a slightly larger but poorer population, according to census data -- 50,129 people with a median income of $37,865 -- compared with Pittsfield's 44,737 people with a median income of $43,507.
The two cities also are the closest population centers along the New York-Massachusetts border. And when you travel along that boundary, the contrasts in taxes can be even more stark.
Consider these two homes that are for sale:
Just west of Pittsfield in the town of Hancock, Mass., Vaughn Sterner pays $655 in taxes. Factor in another $1,140 in homeowners fees, which includes road maintenance for the private road he's on, and he pays less than $2,000 for his 1,954-square-foot home.
Two building lots to the east, Robert Wadsworth, who lives in New Lebanon, N.Y., pays about $5,600 on his 2,240-foot home.
"They are next to nothing," Wadsworth said of Hancock taxes, which get a bump from the value of pricey homes near the Jiminy Peak ski resort.
Taxes are relative, though. Wadsworth notes that he's in Columbia County, which has lower county taxes than Rensselaer County to the north.
Part of the savings to Massachusetts homeowners comes from the simple fact that their cap went into effect in 1980, producing a three-decade, non-compounding record of tax containment.
The 1980s and 1990s also saw an increase in construction, which added to the tax base, plus a long-term reduction of school populations. But those factors played out similarly in both states.
One key reason for the tax disparity: New York's huge number of taxing entities.
"We don't have the complexity of the county governments," said Barbara Anderson, executive director of Citizens for Limited Taxation, the group that helped push through the Bay State's 1980 tax cap with a citizens ballot initiative. (County government in Berkshire County was disbanded in 2000.) New Yorkers aren't allowed such public referendums -- it's up to lawmakers to pass a cap.
New York's taxing districts include counties, cities and towns as well as specialized fire, water or sewer districts, plus schools. Each has its own staff, requiring employee pay and benefits, and each sets its own tax rate.
In Massachusetts, county governments are nominal, and the vast majority of services, including schools, are provided by towns or cities.
The cap "forces you to confront spending problems rather than taxing your way out of them," said Steve Poftak of the Pioneer Institute, a fiscally conservative think tank in Boston.
The New York-Massachusetts tax differential is no surprise to those in the real estate business.
Ed Stoler, an agent in Kinderhook, N.Y. -- near the Massachusetts border -- says taxes in New York run between 2 percent and 3 percent of a home's value, while those in Massachusetts are 1 percent.
"When you cross the border into Great Barrington, the taxes are considerably cheaper," he said. "That's driven a lot of people out of New York."
That's not to say Bay State residents are thrilled to pay their taxes.
Callahan, 78, is selling his home. It's too big for him and his wife now that their children are gone, so they're moving to a smaller residence. But they're staying in Pittsfield rather than heading to the Sun Belt.
Back in Troy, Renna wonders how long she can stay before heading to a warm-weather state.
"I know a lot of families that have left," she said. "Mostly it's because of the taxes."
It doesn't help that New York has a higher sales taxes -- an average of more than 8 percent in many spots compared with the 6.5 percent in Massachusetts, which has a state sales tax but no local versions.
Additionally, Massachusetts residents pay a flat 5.3 percent income tax regardless of how much they earn, while New Yorkers making more than $20,000 pay 6.85 percent, with a top rate of 8.97 percent.
Anderson, of the Citizens for Limited Taxation, points out that people continue to move from Massachusetts to neighboring New Hampshire, which has neither income nor sales tax.
"Our taxes are still high," she says -- but the days when the state was derided as "Taxachusetts" are long past.
n According to a recent study by the Washington, D.C.-based Tax Foundation, which used 2008 data (the most recent available), New York property taxes are the nation's fifth-highest, with a per-person cost of $2,009.
Massachusetts ranks eighth at $1,789 per person.
n Between 1980, when the Massachusetts cap was enacted, and 2008, per-capita property taxes have risen only 23 percent -- compared with 53 percent in New York, according to data from the Tax Policy Center.
n In Rensselaer County, N.Y., which includes Troy, the median 2009 tax bill was $3,749, or 82nd out of 792 counties in the nation. As a percentage of home values, Rensselaer's taxation ranked 43rd-highest nationwide.
n In Berkshire County, which includes Pittsfield, the median bill was $2,385, or 239th nationwide. As a percentage of home values, it was in 296th place.